HDFC Bank tops chart in FCNR(B) deposit mop-up

Lower cost of funds gives the lender more loan-pricing power

HDFC Bank has garnered the maximum amount of funds via the concessional swap window for FCNR(B) deposits. The window, made available by the Reserve Bank of India (RBI) to banks in order to attract  dollar inflows to stabilise the rupee, was open from September 4 to November 30.

According to bankers, the second largest private sector bank has raised $3.4 billion FCNR(B) deposits, much higher than other lenders such as State Bank of India (SBI) and ICICI Bank. Market sources said both SBI and ICICI have raised around $2 billion via the facility, while large foreign lenders have raised around $1 billion. HDFC Bank, with only three overseas branches, has a much thinner international presence than its Indian peers.

“The product was designed brilliantly. We had initiated the mobilisation process for this product very early. The response was overwhelming. We have raised about $3.4-billion FCNR(B) deposits and about $ 260 million via the tier-I capital route,” a HDFC Bank official said.

An FCNR account is a term deposit account that can be maintained by non-residents in foreign currency and would be opened for a minimum period of one year and a maximum of five years. The interest rate on FCNR(B) deposit depends on the term and currency.

The swap facility was made available to the banks for their incremental FCNR(B) deposit, mobilised for a minimum period of three years, at a fixed rate of 3.5 per cent for the tenor of the deposit.

RBI had also increased the interest rate ceiling cap on FCNR(B) deposits — from Libor plus 300 bps to Libor plus 400 bps. The increase in ceiling was also available till November 30.

In addition to the FCNR(B) swap window, RBI had also hiked the overseas borrowing limit of banks, which has been raised from 50 per cent of unimpaired tier-I capital to 100 per cent. Additionally, banks can swap such borrowing with RBI at a concessional rate of 100 bps below the ongoing swap rate prevailing in the market.

Last week, RBI said, the twin swap window has fetched $34 billion while initially, the market was expecting only $10 billion of inflows. Bankers indicate, of the $34 billion inflows, $6 billion to $7 billion have come via the tier-I capital route, while the rest was in form of FCNR(B) deposits.

The healthy FCNR(B) deposit mobilisation has also helped the private lender to have a favourable impact on its cost of funds. The swap rate was fixed at 3.5 per cent, as compared to the market rate of 6.5 per cent to seven per cent. In addition, banks were given the leeway of not maintaining cash reserve ratio and statutory liquidity ratio, and was also exempted for priority sector obligations for incremental FCNR(B) deposits.

Due to the benefits, the bank’s cost of funds were lower by 75 bps to 100 bps for incremental FCNR(B) deposits.

The softening of cost of funds may allow the bank to price its loan products more aggressively. HDFC Bank, which has a focus on retail lending, had hiked its base rate by 20 bps to 10 per cent last month - after RBI increased the repo rate or the key policy rate by 25 bps to 7.75 per cent. Both SBI and ICICI Bank’s base rate is also at 10 per cent.