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Private Banks Capture Nearly Half of India’s FCNR(B) Inflows
Banks in India collected a very large amount of money from Indians living abroad through special foreign-currency deposits.
Private banks collected almost half of the total.
Government-owned banks and foreign banks collected most of the rest.
The money helped India’s foreign-exchange reserves and supported the rupee.
However, it also left banks with a lot of extra rupee cash.
The Reserve Bank of India is trying to absorb some of that extra cash through special auctions.
Because banks now have more deposits, they may need to borrow less from other sources.
This could make some borrowing and deposit costs lower.
Private-sector banks raised about $61 billion, or 46.9%, of the roughly $130 billion FCNR(B) inflows.
Public-sector banks mobilized $37 billion, while foreign banks raised $32 billion, according to official data available September 3.
The Reserve Bank of India reported $127.22 billion of inflows by August 31, with the final tally expected to rise as dollar swaps remain available until September 11.
The inflows boosted foreign-exchange reserves and supported the rupee but created a record banking-system liquidity surplus of Rs 10.3 lakh crore on September 3.
FCNR(B) deposits eased banks’ funding pressures, reduced reliance on bulk borrowing and may lower deposit rates and borrowing costs.
- Who
- Private-sector banks, public-sector banks, foreign banks and the Reserve Bank of India were involved.
- What
- Banks attracted approximately $130 billion through special FCNR(B) deposits, creating substantial surplus rupee liquidity.
- Where
- The deposits were mobilized through India’s banking system.
- When
- The scheme ended on August 31; data was available through September 3, and banks could use the RBI’s dollar-swap facility until September 11.
- Why
- The deposits were attractive because banks offered 6–7% interest for three-to-five-year tenures, while the RBI absorbed hedging costs and the deposits were exempt from CRR and SLR requirements.
Key facts
- Total reported inflows
- Approximately $130 billion; the RBI’s last official figure was $127.22 billion on August 31.
- Private-sector banks
- About $61 billion, or 46.9% of the total.
- Public-sector banks
- About $37 billion, or 28.5% of the total.
- Foreign banks
- About $32 billion, or 24.6% of the total.
- Liquidity surplus
- Banking-system surplus reached a record Rs 10.3 lakh crore on September 3.
- Largest named mobilizers
- ICICI Bank: about $17.88 billion; HDFC Bank: about $12 billion; State Bank of India: about $10 billion; RBL Bank: $3.4 billion.
- Deposit terms
- Banks offered roughly 6–7% interest on three-to-five-year FCNR(B) deposits, with most deposits reportedly carrying five-year maturities.
Quotes
Nomura Research economists
Economists at Nomura Research commenting on the banking-system liquidity surplus
“Banks’ loans were rising faster than the deposits. The inflows of FCNR deposits will help the lenders balance the two portfolios”
financialexpress.com
“Mopping up the surplus banking liquidity is a challenge and the RBI may have to employ a panoply of liquidity absorption tools.”
financialexpress.com
Aditi Gupta
Bank of Baroda economist commenting on FCNR(B) deposit pricing
“The interest rate offered on FCNR(B) deposits was lower than that on bulk deposits and CP/CD rates, making it attractive for banks as well”
financialexpress.com
Sources
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