Banks receive $36.7 billion under FCNR deposits

Mumbai: Non-resident Indians (NRIs) have poured $36.7 billion into Indian banks through foreign currency non-resident (FCNR) deposits under a new deposit incentive scheme to attract dollars and strengthen the rupee.

Announced on 5 June and rolled out three days later, the scheme allows NRIs to make leveraged deposits and runs till the end of September, with the central bank taking the hedging risk, offering overseas investors the potential to earn up to 14% return on their money.

The Reserve Bank of India (RBI) on Saturday said its dollar swap facility received a total of $40.8 billion till 31 July, with FCNR-B deposits accounting for the lion’s share. Apart from FCNR(B) deposits, the swap window also received $2.6 billion in overseas foreign currency borrowings and $1.5 billion through external commercial borrowings. Commercial banks exchange dollars for rupees at the swap window at guaranteed rates.

The swap facility has seen avid interest and attracted steady forex inflows since 8 June, the RBI had said in a press release on 20 July.

Tanvee Gupta Jain, Chief India Economist, UBS said in a note on 30 July that RBI's measures announced in June to incentivise foreign currency inflows—including relaxed norms for FCNR(B) deposits and overseas borrowings under the RBI-subsidised swap window—have already attracted approximately US$32bn in inflows in around 45 days, with FCNR(B) deposits accounting for the bulk of these flows.

“The FCNR (B) window will remain open until 30 September, leaving room for more inflows. We believe use of the leveraged borrowing facility by the banks is driving the bulk of the deposit accretion,” said Gupta.

Citing the UBS India banking team, Gupta said that most banks are sounding positive on the prospects of raising deposits through FCNR (B), although the numbers reported by Indian banks so far—excluding foreign banks and SBI (which has yet to report)—do not appear sufficient to explain the $32bn mobilisation.

On 20 July, Mint reported India's largest private sector banks remain tight-lipped on how much they have collected under the scheme, while their public sector rivals talk of both collections and targets.

During their June quarter earnings calls, top executives of India's first, second and third-largest private banks – HDFC Bank, ICICI Bank and Axis Bank – 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.

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.