Banks have more than doubled their FCNR(B) deposit collections in just two weeks, taking the total count to $36.73 billion until 31 July as inflows have come mainly from the Middle East.

The total mop up in foreign exchange inflows stands at $40.82 billion under the Reserve Bank of India’s three concessional swap schemes, slightly less than double of what it was until 17 July. In the first 40 days since the central bank made the swap window operational, banks had garnered a total of $20.72 billion. 

In its second update since opening the swap window from 8 June, the RBI informed today that banks mobilised $2.58 billion through overseas foreign currency borrowings (OFCBs) and $1.52 billion via external commercial borrowings (ECBs). The comparative figure until 17 July was $1.97 billion and $1.34 billion, respectively.  

The big draw has been foreign currency non-resident (Bank), or FCNR(B), deposits, which was at $17.41 billion as on 17 July.

“We are seeing strong FCNR(B) deposit inflows from UAE and other areas of the Middle East. With this surge, forex inflows under the special scheme could hit over $90 billion,” a senior bank official said.

Banks are offering increased rates to rope in non-resident Indians (NRIs) to park their money in FCNR(B) deposits. HDFC Bank, India’s largest private sector bank, just raised its three-to five-year FCNR(B) deposits by 25 basis points to 6.25%, effective 1 August. This may put pressure on other private lenders like ICICI Bank and Axis Bank, who are offering 6% on such deposits, to hike rates as the special scheme enters the final two-month run. Some small finance banks (SFBs) have interest rates upwards of 7.5%. 

For making the FCNR(B) schemes lucrative, banks are allowing NRI customers to borrow many times their original deposit. While most of the banks are offering 9 times leverage, HSBC is lending up to 19 times the amount these investors deposit. 

Foreign lender HSBC has reportedly mobilised over $5.5 billion in FCNR(B) deposits through its aggressive leveraged schemes. 

The RBI introduced a series of special measures to encourage foreign exchange inflows, which could bolster India’s balance of payments and defend the rupee against the US dollar.   

The window is open until 30 September for fresh FCNR(B) deposits, with maturities of 3 to 5 years, under the swap facility. For the OFCBs and ECBs, the facility for offering concessional swaps is available until 31 December 2026.

Private sector banks have not said how much of FCNR(B) deposits they are targeting, but are expecting the inflows to gather steam from this quarter. Even State Bank of India, the country’s largest lender, has not stated how much of such deposits it expects to pocket, though the expectation is that it would top the charts due to its huge international presence.

Among the state-run banks which have made public their targets, Canara Bank is looking at raising $2.5 billion (FCNR, ECBs, OFCBs), Punjab National Bank $2.5 billion,  Bank of Baroda up to $5 billion (FCNR, OFCBs and MTN), Indian Bank $2 billion, Union Bank of India $2 billion, Bank of India $1.2 billion, Indian Overseas Bank $1 billion ($500 mn each of FCNR and OFCB), Central Bank of India $400 million, Punjab & Sind Bank $100 million ($25 mn FCNR and $75 mn ECB and OFCB) and UCO Bank $500 mn ($250 mn each of FCNR and OFCB).