Despite tax and regulatory hurdles in some markets, Indian banks have raised $36.73 billion via FCNR(B) deposits under a special Reserve Bank of India (RBI) swap scheme, with the flows understood to be coming in mostly from West Asia.
A total of $40.82 billion in foreign exchange has been received until July 31 through the RBI’s three concessional swap schemes.
Banks have mobilised $2.58 billion via overseas foreign currency borrowings (OFCBs) and $1.52 billion in the form of external commercial borrowings (ECBs), the RBI said on Saturday. The forex inflows are expected to help to bolster India’s balance of payments and support a weakening rupee. The success of the schemes can be attributed to the high interest rates being offered by banks on FCNR(B) deposits.
HDFC Bank, the country’s largest private sector lender, has hiked the deposit rates by 25 basis points to 6.25% for both the three to five year tenures, effective August 1. Other lenders are offering rates of 6- 6.5%, with some smaller banks having hiked the rates to 7.5% or more. Moreover, banks are luring non-resident Indians (NRIs) with leverage schemes which enable them to take loans that are several times bigger their original deposits and reinvest them in deposits. Their potential earnings are estimated at around 14%.
Banks are allowing their customers a leverage of anywhere between 9-10 times with HSBC facilitating a leverage of 19 times.
Meanwhile several lenders have borrowed in overseas markets using the RBI’s subsidised hedging facility which helps cut the cost of managing currency fluctuations. HDFC Bank mopped up $750 million via dollar bonds in the biggest deal since State Bank of India raised five –year bonds worth $750 million in May, 2023. HDFC Bank priced its five-year bond at 90 basis points over US treasuries translating into a yield of 5.7%.
In an earlier update, RBI had said banks had mobilised a total of $20.72 billion in foreign exchange until July 17, with FCNR (B) contributing $17.41 billion and $1.97 billion and $1.34 billion coming in from OFCBs and ECBs, respectively.
The concessional swap facility was announced on June 5 as part of a broader package of measures aimed at shoring up foreign exchange inflows. The facility became operational on June 8 and will remain available until September 30 for FCNR (B) deposits with three-to five-year maturities, and until December 31 for OFCBs and ECBs.