Summary:
HSBC, SBI and ICICI Bank emerged as the biggest beneficiaries of the RBI’s special FCNR(B) deposit scheme, collectively mobilising a significant share of the total inflows. FCNR(B) deposits rose from $32.56 billion to $60.55 billion by July 30, as banks attracted foreign currency deposits from NRIs. The scheme aims to strengthen India’s foreign exchange reserves and support rupee stability, with strong inflows expected to continue until its September closure.
HSBC, State Bank of India (SBI) and ICICI Bank were found to be the primary gainers from the Reserve Bank of India’s (RBI) exceptional Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme, collectively accounting for almost half of the total amount raised by way of this scheme.
According to the RBI, banks have collected $36.7 billion through the FCNR channel up to 31 July, although the figures provided in the Parliament indicated that the FCNR(B) deposits have risen by around $28 billion during the period from 5 June to 30 July when this scheme was launched.
RBI’s FCNR Scheme Aims to Boost Forex Reserves and Rupee Stability
RBI declared the FCNR (B) deposit window on 5th June, which was launched on 8th June and was open till the end of September. The scheme provides NRIs an opportunity to make their foreign currency deposit in Indian banks, and the currency risk is borne by the RBI.
As per the Minister of State for Finance, Mr. Pankaj Chaudhary, the foreign currency deposits generated by banks would be swapped with the Reserve Bank of India. This is supposed to result in higher foreign exchange reserves of India and higher banking system liquidity following the initial stage of this deal.
HSBC Tops Deposit Mobilisation; SBI, ICICI Follow
FCNR(B) deposits saw the maximum rise by any bank at $6.1 billion for HSBC India.
SBI came second with $4.1 billion, whereas ICICI Bank raised $3.7 billion. Other notable banks were Standard Chartered Bank at $1.9 billion, Kotak Mahindra Bank at $1.7 billion, Axis Bank at $1.6 billion, HDFC Bank at $1.4 billion, and Bank of Baroda at $1 billion.
Public sector banks raised $8.8 billion, private sector banks $10.7 billion, and foreign banks $8.4 billion, whereas the rest were raised through small finance banks and co-operative banks.
The total FCNR(B) deposits outstanding increased from $32.56 billion to $60.55 billion by 30 July.
Leverage Option Helped Attract Deposits
Another factor contributing to the intense response to the new regulations was the leverage on deposits provided by some banks through their GIFT City branches. In this model, NRIs would deposit relatively lesser capital and borrow the rest to form huge FCNR(B) deposits and earn profits.
These rules were introduced by the RBI following depreciation pressure on the Indian rupee, with an attempt to make foreign currency flows into the country.
Strong Inflows Expected to Continue
Inflows are expected to continue strong till the closing of the scheme. With the rate of inflow being at such a high level, the overall foreign currency inflow under both the FCNR(B) scheme and other RBI schemes is expected to easily surpass initial forecasts.
Even though banks have managed to collect considerable amounts of deposits, the increase in foreign currency holdings of the RBI has not been much as of yet, owing to the time gap between deposits by banks and exchange with the RBI.
