Indian Banks to Bear 15-20 Basis Points Hedging Cost on FCNR(B) Deposits

Indian banks may face a 15-20 basis point rise in FCNR(B) deposit costs due to hedging exposure. The Reserve Bank of India absorbs hedging costs on principal amounts but not on interest components. Banks mobilized $127 billion through FCNR(B) deposits under RBI's concessional swap window, driven by higher interest rates and leverage against deposits. The effective cost of raising FCNR(B) deposits could be around 15-20 basis points more than the deposit rate once hedging costs are factored in.