SBI Research Predicts Notional Profit of Rs 5.5 Trillion from FCNR(B) Deposit Scheme
New research from SBI suggests that India's FCNR(B) deposit scheme could yield a notional profit of around Rs 5.5 trillion for banks over five years.
The report, which contradicts earlier estimates of around Rs 5 trillion in losses, argues that the USD 127 billion mobilized through the scheme will support additional bank credit and generate interest income that more than offsets the interest paid on deposits.
SBI Research notes that the estimated loss combines around Rs 1.75 trillion of additional interest costs with about Rs 3.18 trillion of foreign exchange depreciation costs, but points out that the currency exposure on the deposits has already been hedged through a special USD-INR swap facility.
The report estimates that the deposits could result in additional credit of about Rs 25 lakh crore, generating notional annual interest income of around Rs 1.8 trillion for banks at an effective yield of 7.5 per cent.
This would result in an estimated net interest margin of around Rs 1 lakh crore annually, or Rs 5 lakh crore over five years, on a notional basis.