Forty-five days after the rollout of a new foreign currency non-resident bank FCNR (B) deposit scheme to attract overseas capital, India's largest private sector banks remain tight-lipped on how much they have gathered under the scheme, while their public sector rivals talk of both collections and targets.
During their June quarter earnings calls held on Saturday, top executives of HDFC Bank, ICICI Bank and Axis Bank, India's first, second and third-largest private banks respectively, did not reveal FCNR(B) deposit figures. However, these banks have repeatedly said that the response from non-resident Indians (NRIs) has been strong, and that they see this opportunity as significant. Estimates by market participants peg inflows of $12-15 billion so far, with earlier estimates suggesting overall inflows of as much as $40 billion by the time the scheme ends on 30 September.
On Saturday, HDFC Bank managing director and chief executive officer Sashidhar Jagdishan said his bank has raised a substantial amount in the previous few days. “The numbers, we don’t want to detail at this juncture, but you will see over the next three months at the right time when the issue closes, I think we may put it up in the public domain,” Jagdishan said at a post-earnings media call on 18 July.
HDFC Bank is raising FCNR deposits in three ways—direct deposits, leverage provided by HDFC Bank itself, and leverage arranged through overseas partner banks. “At 6% plus, it is extremely attractive… even without leverage, it is very attractive, and you’ll be surprised how small-ticket NRI customers are also lining up for this kind of opportunity,” Jagdishan said.
Scheme
The scheme, announced on 5 June and valid till 30 September, allows banks to raise FCNR (B) deposits of three to five years and swap the dollars with the Reserve Bank of India at a concessional rate.
ICICI Bank has adopted an approach similar to HDFC's. Executive director Sandeep Batra said deposits picked up only after the central bank issued operational clarifications. “This is an activity which started effectively only towards the end of June, once all the FAQs etc. had come out. So, it will evolve over the second quarter,” Batra said.
Axis Bank too did not put a number to its FCNR plans, although chief executive Amitabh Chaudhry said the scheme is witnessing strong interest from NRI customers and presents a meaningful opportunity to strengthen deposits.
“During the course of this quarter, we’ll do the mobilization based on what is best for our franchise,” Chaudhry said, cautioning investors against focusing only on leverage multiples.
On 16 July, Mint reported that foreign lender HSBC is offering NRIs leverage of up to 19 times their own capital to create FCNR(B) deposits through its GIFT City branch.
Axis Bank said it expects to gain market share through the programme, but would have a clearer picture only next quarter.
“FCNR(B) deposits give us an opportunity which could be large… Depending on how much we are able to raise, we will decide our strategy accordingly in terms of how we deploy that additional liquidity,” chief financial officer Puneet Sharma said on Saturday.
Public stance
In contrast, several public sector banks have disclosed both collections and targets.
Union Bank of India is aiming to garner FCNR deposits of around $1.5-2 billion by the end of September. So far, the state-owned lender has raised $106 million from NRIs without any leverage, managing director Asheesh Pandey said in a post-earnings media conference on 15 July. Punjab National Bank said it has received FCNR deposit flows of $419 million so far. The bank is targetting total deposits of $2.5 billion and is also planning a $500 million overseas bond issue, taking its expectation of total overseas flows to $3 billion.
Indian Bank said it has received around $150 million FCNR deposits and expects to get $1.5-2 billion by the end of the scheme, while Central Bank of India has collected $8.4 million so far and is targeting $400 million. Bank of Maharashtra said it expects inflows to pick up in August and September, after raising its five-year FCNR deposit rate to 6.60%.
“The boost to sentiment emanating from the recent RBI measures to shore up India's balance of payments and, in turn, the rupee, appears to be fading, though we think it's still too early to suggest that the measures will not be successful,” Barclays said in a report on 16 July.
“FCNR-B inflows have been reportedly around $5-6 billion, though some of the limited inflow may have been due to earlier uncertainty about leverage and due to uncertainty over whether banks could use their GIFT City branches to mobilise deposits,” a Barclays report said, adding that around $2 billion of deposits may have been drawn by State Bank of India alone.
Kotak Mahindra Bank chief executive Ashok Vaswani stopped short of revealing any targets. “The NRI customer demand is very strong because it is such an attractive opportunity. It is our ability to kind of get the supply side done, which is going to make the difference,” Vaswani said. “We find it very promising…but we don’t share internal targets,” Vaswani said on Saturday.
Mid-sized lenders
Among mid-sized private lenders, Federal Bank and Yes Bank said they have already started receiving both leveraged and unleveraged inflows, without revealing actual inflows.
While Federal Bank expects to maintain its market share and is offering leverage of 8-12 times, Yes Bank MD Vinay Tonse said the bank is currently capping leverage at nine times, but has already exhausted its existing limits and is awaiting additional lines from counterparties. RBL Bank is the only private bank so far to declare that it has mobilized FCNR deposits worth $150 million but remains mum on how much it plans to garner in total.
Muted disclosures by private banks also come against the backdrop of a slower-than-expected start to the RBI’s FCNR(B) drive. Bankers initially grappled with tax-related concerns among NRIs in markets such as the US and the UK, uncertainty over the eventual source of flows, and operational clarifications that came only later in June, prompting the RBI and the government to separately meet lenders in mid-July to push for promoting the scheme better.
This was followed by a circular by the UAE central bank in early July, restricting certain facilitative activities by representative offices of foreign banks, including documentation support and cross-selling, dampening expectations of mobilization from the biggest market for such deposits. The matter is expected to be taken by the Indian government and RBI with the UAE central bank, according to bankers.
The central bank has asked banks to report daily data on FCNR deposits and met with bank chiefs on 14 July. The government met bank officials on 13 July to nudge bankers to intensify their outreach programmes.
Barclays said in an earlier report that it expected potential FCNR flows of $25-30 billion as a reasonable base case over the next few months with upside risks, but did not expect a repeat of the large inflows seen in 2013.
“The pace of take-up so far has indeed been lower than the run rate that would be expected by the lofty market expectations of around $40-50 billion, with some having expected inflows of up to $70 billion,” the report said.