After racing to $6 billion in 54 days, State Bank of India (SBI) expects to add $4 billion via FCNR(B) deposits in the final two months of the Reserve Bank of India’s concessional forex swap window closing 30 September, when the normal expectation is that flows would flood in.

Though the country’s largest lender has not set any target in mind, its Chairman CS Setty said that “$10 billion seems to be a reasonable number”. This means that 60% of the foreign currency non-resident (Bank), or FCNR(B), deposits has already come in and 40% is waiting to be pocketed in the remaining period. The bank has so far raised another $1.3 billion, with $1 billion coming from overseas foreign currency borrowings (OFCBs) and $300 million from external commercial borrowings (ECBs).

So, is SBI being less aggressive or the demand pull from non-resident Indians (NRIs) for FCNR(B) deposits is slowing down?

Most of the bank’s FCNR(B) deposits this time has come in from the Middle East region - particularly the UAE - while NRIs in Singapore and traditional markets of the US and UK  are concerned about tax issues. In Singapore, for instance, there is a 10% withholding tax on loan interest. This is turning out to be a severe hindrance even as banks are offering leveraged schemes (HSBC offers up to 19 times while most banks are with 9 times) where an NRI is allowed to borrow several times the original amount to fund an inflated FCNR(B) deposit to maximise yields. The over-dependence on a particular region for FCNR(B) deposits can slow down the flows unless issues are sorted out with the other countries.

Banks have mopped up a total of $40.82 billion until 31 July, under the RBI’s three concessional swap schemes. This is up from $20.72 billion garnered in RBI’s first count until 17 July, mainly due to FCNR deposits. While the FCNR(B) deposits stood at $36.73 billion, $2.58 billion came through OFCBs and $1.52 via ECBs as on 31 July. 

The pace in FCNR deposits had more than doubled in just two weeks from the RBI’s first data update of $17.41 billion garnered until 17 July or 40 days since the RBI operationalised the swap scheme on 8 June. The mobilisation of foreign exchange under OFCBs and ECBs was much slower during this period as it went up from $1.97 billion and $1.34 billion, respectively.

Setty, however, believes that the FCNR(B) flows are more spread out over the period this time unlike the last-cycle rush in 2013, while reiterating that the bank does not have any target in mind. “I don't think that the flows will be back-ended as much as what we have seen in 2013. The leverage confusion was there in 2013 and most of the public sector banks adopted those schemes in the later part. But this time there is no confusion on leverage, on whether you can give SBLC (standby letter of credit) or not. So flows seem to be more spread out. There definitely will be some last stage push. But our estimate is based on the inquiries, visibility and customer outreach which we are carrying out. I am not very sure but it appears that $10 billion seems to be a reasonable number,” he said.

In a parallel development in mid-2013 post the taper tantrum currency crisis, SBI had raised 70% of its FCNR(B) deposits in the last cycle. Under the RBI’s offer to swap dollars raised by banks from FCNR deposits of maturity 3-year and above into rupee at a concessional rate, banks had raised $26 billion. The swap window allowing banks to raise foreign currency funding had pulled in another $8 billion. The RBI’s drive through these two schemes, pooling in $34 billion, was to stabilise a falling rupee and ease a current account deficit.  

SBI is not looking to hike FCNR(B) deposit rates to sweeten the offer to NRI customers even as it sticks to its 9 times leveraged scheme, Setty said. The bank offers 5.50% on 3-year FCNR deposits above $1 million and 6% for five years. For less than $1 million deposits, the interest rate is 5.25% for 3-year maturity and 5.75% for five years. 

“We don’t intend to do anything on interest rates on FCNR deposits. We don’t foresee any such situation for us,” said Setty.

The FCNR flows will help the bank to reduce its bulk deposits and it will not have much impact on the bank’s net interest margins (NIMs). “Even if we get Rs 1 lakh crore ($10 billion) of FCNR deposit flows according to our expectations, on a Rs 60 lakh crore deposit base (as on 30 June 2026) it’s not really going to move the needle,” Setty said.

The inflows would provide liquidity and help the bank to replace some of its higher-cost funding wherever required, he added. SBI also has Rs 3.09 lakh crore of excess statutory liquidity ratio (SLR) as of 30 June.

On the bank’s international book, there could be a remix of the portfolio but NIMs would not be diminutive. Around one-third of the book is trade finance. “So, what our foreign offices are doing is that if they are funding FCNR(B) deposits by providing leverage, they are reducing on trade finance where the margins are equivalent. Sometimes, margins on supply chain is much lower than what they are getting on the FCNR (B) deposits. Overall, I don't think there is any impact either on the whole bank or domestic NIM,” said Setty.