Indian Lenders Aggressively Tap Foreign-Currency Resources Amid Government Demand

Indian lenders have been aggressively tapping foreign-currency resources to meet the government’s demand for overseas currency inflows, with SBI leading the pack by mobilising $1.9 billion through a special scheme, outpacing its peers.

PSU Banks Rush to Secure Foreign-Currency Resources

Finance Minister Nirmala Sitharaman had asked public sector banks to step up engagement with the Indian diaspora and launch innovative deposit products to attract overseas currency inflows. Bank executives told the ministry they are focused on securing foreign-currency resources before expanding FCNR(B) deposit mobilisation, a strategy that would give them greater flexibility to structure leveraged offerings for high-net-worth clients.

Total mobilisation by public-sector banks was below $3 billion until last Friday, although bankers said inflows have since accelerated after some lenders launched leveraged schemes to attract FCNR(B) deposits.

Key Strategies Employed by PSU Banks

Under such leveraged schemes, banks are charging about 5.8% on $9 million loan facilities, while offering around 6.5% on FCNR(B) deposits if customers bring in $1 million of their own funds.

Market Impact and Details

• SBI mobilised $1.9 billion through a mix of bond issuances and FCNR(B) deposits swapped with the RBI.
• Among the private-sector lenders, HDFC Bank and Axis Bank have raised $750 million and $800 million, respectively, through bond issuances by their International Financial Services Centre Banking Units in GIFT City.
• The RBI is absorbing hedging costs on banks’ three- to five-year foreign-currency deposits and allowing borrowing against these funds.

Key Takeaways

• SBI has mobilised $1.9 billion through a special scheme, outpacing its peers.
• Public sector banks have been focusing on securing foreign-currency resources before expanding FCNR(B) deposit mobilisation.
• The RBI’s scheme has driven up funding costs, slowing efforts to offer leveraged deposit products.

FAQs

What is the RBI’s scheme to attract foreign-currency resources?

The RBI is absorbing hedging costs on banks’ three- to five-year foreign-currency deposits and allowing borrowing against these funds.

How much has SBI mobilised through the special scheme?

SBI has mobilised $1.9 billion through a mix of bond issuances and FCNR(B) deposits swapped with the RBI.

What is the impact of the RBI’s scheme on funding costs?

The increase in borrowing costs has since slowed efforts to offer leveraged deposit products.

Conclusion

Indian lenders have been aggressively tapping foreign-currency resources to meet the government’s demand for overseas currency inflows. With SBI leading the pack by mobilising $1.9 billion through a special scheme, it is clear that public sector banks are focused on securing foreign-currency resources before expanding FCNR(B) deposit mobilisation. As the RBI’s scheme continues to drive up funding costs, lenders will need to adapt their strategies to remain competitive in the market.