The public sector lending institutions Bank of India (BoI) and Indian Bank have collectively attracted an amount approaching $5 billion USD by utilizing Non-Resident Foreign Currency Deposits (FCNR(B)). These banks are employing cheaper foreign currency financing to meet rupee liquidity needs, expand lending, and reduce dependence on expensive loans and deposits.
It is reported that the public sector Bank of India mobilized approximately $2.4 billion through FCNR(B) deposits under the preferential swap scheme of the Reserve Bank of India (RBI). The funds are planned to be used for repaying costly deposits and borrowings, as well as for placing a portion of the funds in higher-yielding assets. According to a source, the bank intends to deploy the attracted funds by the end of the third quarter.
Thanks to access to relatively inexpensive financing through FCNR(B) deposits, it is anticipated that the bank may refrain from approaching the certificate of deposit market in the coming months. Furthermore, BoI is conducting investor presentations to attract up to $1 billion through bonds, but will approach the market when rates are favorable.
The preferential RBI swap for FCNR(B) deposits, Outward Foreign Commercial Borrowings (OFCBs), and External Commercial Borrowings (ECBs) is valid until December 31. Meanwhile, the public sector Indian Bank attracted $2.3 billion through FCNR(B) deposits under a special preferential RBI swap scheme.
Sources familiar with the situation note that the banks are using the attracted funds to cover rupee liquidity needs, issue loans, and decrease reliance on mass deposits. One informed person stated that the funds were attracted at a lower rate used to ensure rupee liquidity, while the remainder was directed towards lending and managing mass deposits, with leverage being used only slightly.
The RBI introduced a special USD-INR currency swap mechanism in June to stimulate the inflow of foreign currency through FCNR(B), OFCB, and ECB deposits. Initially, the FCNR(B) window was supposed to remain open until September 30, but it was closed one month earlier, on August 31, following a significant inflow of funds.
According to preliminary data from the RBI, by August 31, banks had mobilized $127.2 billion through FCNR(B) deposits under this program, and the total inflow of foreign currency through FCNR(B), OFCB, and ECB reached $136.4 billion. This large volume of mobilization provided the banks with relatively cheap foreign currency financing, helping lenders optimize their funding structure and reduce dependence on other sources of deposits and borrowings.