FCNR(B) Scheme Gives India Time but $170 Billion Repayment Looms
India’s Foreign Currency Non-Resident Bank (FCNR(B)) deposit mobilisation has provided the country with a temporary buffer against global economic and geopolitical shocks, but a substantial repayment obligation is approaching, veteran banker Uday Kotak has warned. Speaking at the Business Standard BFSI Summit, Kotak described the more than $130 billion raised through the scheme as a “strong insurance policy” that has bought India three to five years to strengthen its economic and financial position.
However, the deposits will eventually mature. Kotak estimates that India could face repayments of $160–170 billion, including interest, over the next three to five years. He urged policymakers and financial-sector participants to prepare well in advance rather than treat the current foreign-currency buffer as a permanent solution.
Kotak also supported the RBI’s decision to close the FCNR(B) mobilisation window on August 31, saying India had locked in foreign-currency funding before US bond yields rose sharply. He estimated that borrowing later could have cost at least 100 basis points more.
He highlighted another challenge for Indian financial markets: a 10-year US Treasury yield of around 5%, after accounting for a roughly 3.5% annual currency-hedging cost, provides an effective rupee return of about 8.5%, compared with around 7.4% on India’s 10-year government bond.
Kotak said India should use the three-to-five-year window to strengthen macroeconomic fundamentals, increase investment in research and technology and build globally competitive industries. The FCNR(B) scheme, he stressed, should remain a temporary buffer rather than a substitute for structural reforms.
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