Business EconomyPosted at: Jun 7 2026 2:56PM


RBI’s Reform Push May Attract USD 40 bn Capital Inflows, Support Rupee: SBI Report

New Delhi, Jun 7 (UNI) The Reserve Bank of India’s (RBI) decision to keep key interest rates unchanged while unveiling a series of measures to attract foreign capital could pave the way for inflows of at least USD 40 billion, strengthen the rupee and lower borrowing costs, according to a report by the State Bank of India (SBI).
The Monetary Policy Committee (MPC), in its latest review, unanimously decided to maintain the repo rate at 5.25 per cent and retain its neutral stance despite growing global uncertainties. At the same time, the central bank introduced a set of reforms aimed at boosting foreign participation in India’s financial markets and improving the country’s external sector resilience.
SBI Research, in its Ecowrap report, said the RBI’s latest policy reflects a careful balancing of inflation concerns and growth priorities. While the central bank revised its FY27 growth projection downward by 30 basis points to 6.6 per cent, it raised its inflation forecast by 50 basis points to 5.1 per cent amid concerns over global commodity prices, supply-chain disruptions, weather-related uncertainties and the possibility of El Niño conditions affecting agricultural output.
The report noted that the policy language indicated greater vigilance towards inflation and exchange-rate stability. According to SBI, the RBI’s emphasis that movements in the rupee are not always aligned with economic fundamentals sends a strong signal against speculative pressures in the currency market. It said such an approach is intended to reinforce confidence and prevent unnecessary volatility in the foreign exchange market.
Among the most significant measures announced by the RBI is the inclusion of newly issued 15-year, 30-year and 40-year government securities under the Fully Accessible Route (FAR), allowing foreign portfolio investors unrestricted access to these instruments. The SBI said the move, combined with tax incentives introduced by the government, is likely to make Indian government bonds significantly more attractive to global investors.
The report observed that foreign investor participation under FAR remains relatively low, with only a small portion of the available limit currently utilized. With substantial investment headroom available, SBI believes the reforms could lead to a sizeable increase in foreign inflows into the government securities market.
According to the report, greater foreign participation would increase demand for government bonds, improve liquidity in long-term securities, reduce borrowing costs for the government, and provide support to the rupee. It could also strengthen India’s case for wider inclusion in global bond indices, further broadening the investor base.
SBI estimated that the tax exemptions available to foreign investors could translate into benefits worth between Rs 4,500 crore and Rs 6,000 crore, enhancing post-tax returns and further encouraging investment in Indian debt markets.
The report said the cumulative impact of the bond market reforms, incentives for overseas borrowing and measures to attract foreign currency deposits could result in capital inflows exceeding USD 40 billion. Such inflows, it added, could help stabilize the rupee and potentially pull it back toward the 92–93 per dollar range.
The RBI has also announced concessional foreign exchange swap facilities to encourage external commercial borrowings (ECBs) by public sector undertakings until September 30.
The SBI said the initiative is particularly significant as ECB inflows declined sharply in FY26. By lowering the effective cost of overseas borrowing, the scheme is expected to encourage public sector entities to access international capital markets more aggressively while reducing pressure on domestic funding channels.
Another key measure relates to Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. The SBI said the RBI’s decision to bear hedging costs and certain regulatory expenses will allow banks to offer more attractive returns to non-resident Indians. The report suggested that these incentives could lead to substantial foreign currency inflows, potentially surpassing the USD 34 billion mobilized during the FCNR(B) deposit drive of 2013.
The report also welcomed the RBI’s decision to restore the time limit for realization and repatriation of export proceeds to nine months from the temporary 15-month window that had been introduced during the pandemic. Faster realization of export earnings is expected to improve foreign exchange availability and strengthen external sector liquidity.
On the domestic front, SBI highlighted that credit growth has remained robust despite global headwinds. Bank credit expanded by 16.2 per cent year-on-year as of mid-May 2026, driven by strong lending to retail borrowers, the services sector, MSMEs and large industries. Agricultural credit also continued to register steady growth.
The report further noted that the RBI’s proactive liquidity management measures have helped keep the banking system in surplus liquidity territory, although funding conditions have tightened somewhat in recent months. Going forward, the drawdown of government cash balances and the seasonal return of currency during the monsoon period are expected to support liquidity conditions.
The SBI concluded that the RBI’s latest policy package marks a significant shift towards strengthening external sector stability while preserving growth momentum. The report maintained that the central bank is likely to remain cautious in the coming months and expects a pause in the August monetary policy review, arguing that growth considerations could continue to outweigh the case for an aggressive rate-hiking cycle.
With a combination of monetary prudence and structural reforms, the report said, the RBI has laid the groundwork for stronger capital inflows, improved market confidence and greater resilience in the Indian economy amid an increasingly uncertain global environment.
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