FII inflows surge after Govt steps to prop rupee: SBI Research

New Delhi: India has received $7 billion from foreign institutional investors (FIIs) after the government announced measures last month to attract more foreign funds and steady the volatility in the rupee, according to an SBI Research report.

The Indian rupee has appreciated around 2.2 per cent till the end of June, from a low of Rs 96.8 vis-a-vis the US dollar on May 20.

Last month, the government and the Reserve Bank of India introduced a set of measures aimed at boosting foreign inflows and the rupee as crude prices rose due to the Middle East conflict. Some of the measures include the exemption of FIIS and FPIs from tax on sovereign bonds, subsidised hedging costs for FCNR(B) deposits, and a concessional dollar-swap window for PSU loans.

However, the latest geopolitical tensions have again put upward pressure on the exchange rate. These tensions escalated after the US President announced the end of the US-Iran ceasefire, which has pushed the Brent crude price and led to depreciation in the rupee.

Despite this, the outlook remains positive with the average crude oil price for the Indian basket now expected at $80 billion or lower, leading to savings of at least $30 to $35 billion in the oil import bill against our previous estimate when the oil price had crossed $130 per barrel, the report said.

Meanwhile, the Reserve Bank of India’s foreign currency reserves increased by $4.4 billion during the fortnight, while commercial paper (CP) issuances and incremental bank credit increased in the first quarter of FY27. CP issuances rose in Q1FY27, with June issuances hitting a 55-month high, while incremental bank credit rose to Rs 5.6 lakh crore in Q1FY27 compared with Rs 2.4 lakh crore in the corresponding period last year.

According to SBI Research, the top sectors with higher commercial paper issuances also recorded stronger bank credit growth and accounted for around 69 per cent of new project announcements in Q1FY27. It further mentioned that banks had been borrowing through certificates of deposit (CDs); however, this trend is expected to reverse. Additionally, the record Rs 7 lakh crore deposit accretion during the fortnight ended June 30, liquidity is likely to become more comfortable.

Meanwhile, banks have also registered a gradual increase in the flow of overseas funds after the rollout of the Reserve Bank of India’s revised Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme, and expect collections to accelerate further this month as awareness among NRIs is growing.

The banking industry has mobilised an estimated $3-4 billion through FCNR-B deposits so far. Bankers expect inflows to gather pace in the coming weeks, particularly from non-resident Indians based in the Gulf region.

The revised scheme is expected to attract $40-50 billion in fresh FCNR-B deposits over time, according to bankers. They said higher interest rates and the Reserve Bank of India’s decision to bear banks’ hedging costs are expected to support deposit mobilisation.

IANS