RBI's FCNR(B) Swap Window and Deposit Mobilization
The Reserve Bank of India's (RBI) concessional FCNR(B) swap window is set to close in two months, prompting private sector banks to intensify efforts to mobilize deposits. The scheme, effective since June 8, will be in force until September 30, 2026.
Mobilization Efforts and Rates Adjustments
- Private sector banks like HDFC Bank and ICICI Bank have raised FCNR(B) deposit rates by 25 basis points to 6.25% for deposits with three-to-five-year maturity.
- AU Small Finance Bank increased its peak rate on FCNR(B) deposits to 7.4% from 7.1% for three to four-year tenures.
Statistical Overview
- Foreign banks mobilized $8.37 billion, increasing their outstanding FCNR(B) deposits to $8.97 billion from $603 million.
- Private sector banks collected $10.73 billion, while public sector banks secured $8.84 billion.
- Small finance and cooperative banks contributed approximately $50 million in incremental deposits.
- As of July 30, outstanding FCNR(B) deposits with authorized dealer banks stood at $60.55 billion, up from $32.56 billion on June 5.
Key Contributors
- HSBC led with a $6.14 billion increase in FCNR(B) deposits.
- State Bank of India (SBI) followed with $4.12 billion, and ICICI Bank with $3.70 billion.
- Other contributors included Standard Chartered Bank ($1.86 billion), Kotak Mahindra Bank ($1.66 billion), Axis Bank ($1.59 billion), and HDFC Bank ($1.41 billion).
Challenges and Strategic Considerations
- Private sector banks have lagged in FCNR(B) mobilization due to pricing discipline.
- Public sector banks operate with thinner spreads to attract deposits, whereas private banks balance mobilization with profitability.
- Private banks with smaller overseas presence face challenges in establishing funding lines and networks necessary for deposit mobilization.
Competitive Pressures and Future Outlook
Competition has increased among banks, with further rate revisions anticipated as the September-end deadline approaches. Banks are weighing the trade-off between maximizing deposit mobilization and maintaining profitability, with costs rising due to increased leverage expenses.
