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FCNR(B) Inflows May Lower Bank Funding Costs Amid Surplus Liquidity
Banks in India have received a large amount of foreign-currency deposits through an RBI scheme.
This has left the banking system with about ₹10 lakh crore of extra money.
When banks have more money available, they may not need to pay as much to borrow funds.
Market rates for some short-term bank deposits have already fallen.
Jefferies expects banks to reduce the rates they pay for wholesale funding.
The extra money could help banks support more lending during the festive season.
However, banks’ profit margins may fall temporarily because they borrowed through bonds and loans before receiving these deposits.
Jefferies still believes cheaper funding and more lending could eventually create ₹10,000–11,000 crore in additional yearly banking profits.
Jefferies estimates India’s surplus liquidity has reached ₹10 lakh crore and could rise further.
ICICI Bank mobilised about $17.88 billion through FCNR(B) deposits under the Reserve Bank of India’s special forex swap facility.
Three-month certificate of deposit rates fell 90 basis points in August to 5.9% by September 3, while six-month rates declined 50 basis points.
Jefferies expects banks to reduce wholesale funding rates and gradually lower reliance on expensive wholesale deposits.
The brokerage forecasts a temporary second-quarter NIM decline but estimates FCNR(B) inflows could add ₹10,000–11,000 crore to annual banking-sector profits.
- Who
- Indian banks, including ICICI Bank, the Reserve Bank of India, and Jefferies.
- What
- Large FCNR(B) deposit inflows have increased system liquidity and may lower banks’ funding costs.
- Where
- India’s banking and money markets.
- When
- The deposits were mobilised by August 31; CD rates were assessed as of September 3, and Jefferies expects margin effects over the next two to four quarters.
- Why
- The inflows increased available liquidity, potentially reducing reliance on costly wholesale funding, while requiring the RBI to manage excess short-term liquidity.
Key facts
- Estimated surplus liquidity
- ₹10 lakh crore, according to Jefferies
- ICICI Bank FCNR(B) mobilisation
- Approximately $17.88 billion, or ₹1.70 lakh crore
- ICICI loans against deposits
- About $9 billion, or ₹85,600 crore
- Three-month CD rate
- 5.9% on September 3, down from 6.8% a month earlier
- Six-month CD rate decline
- 50 basis points in August
- Projected annual profit pool
- ₹10,000–11,000 crore for the banking sector
- Expected margin impact
- Jefferies expects net interest margins to decline in the second quarter
Sources
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