The $127 billion mobilised by banks through Foreign Currency Non-Resident (Bank) could generate a notional profit of around ₹5 trillion for them over five years, according to SBI Research.
The deposits, through the concessional swap scheme, could support around ₹25 trillion of additional bank credit.
The mobilisation happened in less than three months before the Reserve Bank of India (RBI) advanced the closure of the deposit window.
At a 7.5 per cent yield, this could generate about ₹1.8 trillion in income each year, SBI Research has estimated.
After accounting for the interest outgo of around ₹75,000 crore a year on the deposits, the report estimates an effective net interest margin of about ₹1 trillion annually, or ₹5 trillion over five years.
“Taking a watered down, time-lagged credit multiplier of 2.5 these deposits can result in additional credit of say ₹25 lakh crore (trillion) and an effective yield of 7.50 per cent, result in accretion of notional yield of ₹1.8 trillion per annum to the banks,” said the research body in the report, released on Friday.
The study estimated the additional interest cost at around ₹1.75 trillion and the foreign-exchange depreciation cost at ₹3.18 trillion, based on an assumed 5 per cent annual depreciation of the rupee over five years.
The report said the RBI’s special dollar-rupee swap facility was designed to hedge the exchange-rate risk associated with deposits.
Therefore, a subsequent depreciation of the rupee should not be treated as an additional specific cost on FCNR (B) over and above the hedging cost.
“Once the exchange-rate risk on the principal has been hedged through this mechanism, a subsequent depreciation of the rupee does not generate an additional contractual loss on the principal for either counter-parties (banks or the RBI),” SBI Research said.
The report estimated the cumulative hedging cost of the $127 billion at around $15 billion.
The calculation assumes an average annual dollar-rupee hedging cost of 3 per cent and divides the deposits into maturity buckets of one, three, and five years.
The report estimated that investing $100 billion of the funds in globally investible avenues at a 4 per cent yield over five years could generate around $20 billion.
After accounting for the estimated $15 billion hedging cost, this would leave a surplus of around $5 billion, or ₹50,000 crore, for the central bank’s balance sheet.
“Thus, overall profit to banks is a notional ₹5 trillion and to the RBI ₹0.5 trillion,” the report said.
The report also said the large inflow of liquidity from the scheme could be absorbed over time through demand in the festival season, credit-disbursement pipelines, new loan sanctions, and government-related outflows such as advance taxes and goods and services tax.