- India received $7 billion in FII inflows after measures to attract foreign capital, according to SBI Research.
- The rupee appreciated about 2.2% by the end of June before fresh geopolitical tensions increased pressure.
- Lower crude oil prices could reduce India’s import bill by $30-35 billion, supporting the country’s external balance.
MUMBAI: India has witnessed a strong revival in FII inflows India, receiving nearly $7 billion in foreign institutional investment after the government and the Reserve Bank of India (RBI) introduced a series of measures to attract overseas capital. According to an SBI Research report, the policy initiatives helped stabilise the rupee and improved investor confidence despite continued uncertainty in global financial markets.
The report noted that the inflows came after measures aimed at increasing foreign participation in Indian financial markets and reducing volatility in the domestic currency.
FII Inflows India Strengthen After Government and RBI Measures
The Indian rupee appreciated by around 2.2% from its low of ₹96.8 per US dollar recorded on May 20 to the end of June.
To support the currency and attract foreign capital, the government and RBI announced several policy measures last month, including:
- Tax exemption for Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) investing in sovereign bonds.
- Subsidised hedging costs for Foreign Currency Non-Resident Bank (FCNR-B) deposits.
- A concessional dollar-swap facility for public sector undertaking (PSU) loans.
These initiatives were introduced as rising crude oil prices, driven by tensions in the Middle East, created pressure on India’s external sector.
Geopolitical Risks Continue to Influence Markets
SBI Research noted that renewed geopolitical tensions have once again weighed on the rupee after fresh developments involving the United States and Iran pushed global crude oil prices higher.
Despite this, the report maintained a positive outlook, projecting that the average price of the Indian crude oil basket could remain at $80 per barrel or lower. If that estimate holds, India could save approximately $30-35 billion on its annual oil import bill compared with earlier projections made when crude prices had surged above $130 per barrel.
The report also highlighted an improvement in India’s external financial position, with the RBI’s foreign exchange reserves increasing by $4.4 billion during the fortnight.
Bank Credit and FCNR-B Deposits Gain Momentum
SBI Research observed a sharp increase in commercial paper (CP) issuances during the first quarter of FY27, with June recording the highest monthly issuances in 55 months.
Incremental bank credit also rose to ₹5.6 lakh crore during Q1 FY27, more than double the ₹2.4 lakh crore recorded in the corresponding period last year. The sectors that witnessed higher commercial paper issuances also accounted for nearly 69% of new project announcements during the quarter.
The report further noted that banks have begun witnessing stronger overseas fund inflows following the revised FCNR-B deposit scheme. The banking sector has already mobilised an estimated $3-4 billion through these deposits, with expectations that inflows will accelerate as awareness among non-resident Indians (NRIs), particularly in the Gulf region, continues to grow.
Bankers estimate that the revised FCNR-B framework could eventually attract $40-50 billion in fresh deposits, supported by higher interest rates and the RBI’s decision to absorb hedging costs, improving liquidity and strengthening India’s foreign exchange position over the medium term.
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