Banks to be told to step up FCNR (B) deposits

New Delhi: The Centre will nudge to step up deposit mobilisation through the non-resident (bank) or FCNR (B) route after the Friday announced it would bear the full hedging cost on such medium- to long-term deposits. Banks may be able to raise up to $40 billion (₹37,980 crore) through this mode, per industry estimates.

“Banks will reach out to their clients in a mission mode-both through local and overseas branches,” said a government official, requesting anonymity.

managing director Ashok Chandra told ET that the lender will be able to source $2-3 billion as FCNR deposits.

“Since these deposits are also exempted from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements, there is no additional pressure on the net interest margin for the bank while raising these deposits,” Chandra said.

RBI governor Sanjay Malhotra, speaking after the monetary policy review Friday, said the scheme would enable banks to increase rates for non-resident and overseas Indian citizen depositors despite the reduced interest rate differential between India and overseas markets.

“We have not set any target, but we hope to receive healthy and large-scale inflows through the measures announced on Friday,” said Malhotra.

The RBI will bear the full hedging cost for fresh FCNR(B) deposits of 3-5 year maturity raised till September 30.

PNB’s Chandra said the funding cost for FCNR (B) will be less as US interest rates remain lower than Rupee rates.

“With the RBI fully bearing the hedging costs, which is around 3%, the bank will be able to offer higher interest rates to the customers for their deposits without affecting the bank’s revenue,” he said.

Currently, interest rates across the segment are in the range of 3-5%, depending on the tenure and the currency.

Chandra further noted that with the concessional foreign exchange swap facility for PSUs, raising foreign currency loans there, there will be added demand from PSUs to raise foreign currency loans. “Overall, these measures are expected to bring in $50-60 billion in inflows and provide a buffer to our ,” he said.

chief economist Indranil Pan said in a policy note that these inflows would help beef up Reserve Bank’s forex reserves, bolstering the central bank’s ability to fight rupee depreciation pressures.