Rama Mohan Rao Amara, Managing Director of State Bank of India, has backed the government's decision to exempt foreign portfolio investors from capital gains tax on Indian government securities, calling it a well-timed and proactive step to attract overseas capital at a moment when global sentiment toward emerging markets remains under pressure.
Speaking to ET Now, Amara said the measure would prompt FPIs to take a fresh look at Indian debt, even as the stronger pull of high US interest rates and AI-linked investment opportunities continues to compete for global capital.
"It is a very helpful measure," he said, while noting that investors will also closely track currency movement before committing to significant inflows.
Bond yields may take time to respond
While the capital gains relief is expected to channel more foreign money into government securities, Amara tempered expectations of an immediate fall in bond yields. The inflation trajectory, he said, will play an equally important role in determining how quickly yields correct.
He pointed to a broader package of measures aimed at anchoring inflation expectations while simultaneously preparing Indian industry and the wider economy to attract capital, including steps on FCNR(B) deposits, external commercial borrowings, and RBI absorbing swap costs to reduce the burden on incoming foreign funds.
The RBI Governor has already flagged that net FPI flows have been in negative territory for the past two months. Amara's view is that once this trend reverses, the positive effects will cascade, stabilising the rupee first and then gradually bringing yields lower.
Sentiment, not reserves, is the real challenge
On whether the measures are enough to rebuild FII confidence decisively, Amara was candid. India's foreign exchange reserves are comfortable on an import cover basis, he noted, the real problem is one of perception rather than fundamentals.
"The moment there is a reversal of the trend, people will start looking at the structural strength of the Indian economy and it will be back to basics," he said. His argument is that dispelling the current cloud of negative sentiment through stronger inflows will do the heavy lifting, after which India's underlying economic story reasserts itself naturally.
SBI comfortable on liquidity; selective on wholesale deposits
On domestic monetary conditions, Amara acknowledged the pressure on net interest margins that every bank is currently navigating as deposit rates inch upward. SBI's response has been to activate its branch network more aggressively to drive retail deposit mobilisation rather than chase expensive wholesale funding.
The bank is being selective about tapping certificates of deposit and commercial paper, both of which saw rates climb in May. Amara said SBI is well-positioned to manage this pressure given its comfortable credit-to-deposit ratio and the cushion provided by its surplus securities holdings.
"We are quite comfortable in terms of supporting our asset growth, which continues to remain robust," he said, signalling that lending momentum at India's largest public sector bank is unlikely to slow even as the rate environment tightens at the margin.
The broader message from Amara: the policy moves announced are directionally right, the foundations are solid, and a turn in FPI sentiment, when it comes, could quickly shift the narrative on both the currency and the bond market.
