BoI plans to mobilise $1 bn via FCNR (B)

The cost of funds (from FCNR-B) after swapping is about 8.5%, cheaper than the prevailing rates in the market

Taking benefit of the currency swap facility opened by the Reserve Bank of India (RBI), public sector lender Bank of India (BoI) plans to mobilise about $1 billion through foreign currency non-resident-bank (FCNR-B) deposits from Indians residing abroad.

On September 4, RBI had announced a swap window to attract FCNR-B dollar funds to improve supply of foregn currency resources and stem the recent slide in the rupee value agsinst the US dollar.BoI chairperson and managing director V Iyer has said the bank will make use of the swap facility and intends to raise about $450 million out the $1 billion by the end of September 2013.

The cost of funds (from FCNR-B) after swapping is about 8.5 per cent, cheaper than the prevailing rates in the market, she said.

BoI's overall cost of deposits was 5.71 per cent at the end of June 2013, down marginally from 5.75 per cent in March 2013.

RBI had received requests from banks to consider a special concessional window for swapping FCNR-B deposits that would be mobilised by them. Accordingly, RBI decided to offer such a window to banks to swap fresh FCNR-B dollar funds, mobilised for a tenure of at least three years, at a fixed rate of 3.5 per cent a year for the tenure of the deposit. The only incremental flows into FCNR-B deposits after RBI opened the facility will be eligible to use the swap window. The scheme would be operational up to November 30.

Deutsche Bank was the first bank in India to use RBI's window to swap fresh FCNR-B dollar funds. It raised about $450 million FCNR-B deposits from about 10 non-resident Indians and swapped it with the central bank.

According to RBI data, the outstanding money in FCNB-B deposits stood at $ 15.4 billion at the end of July, up from $14.34 billion in July 2012.

Global financial services group Barclays in a note to clients said the facility for banks to swap their US dollar liabilities against FCNR-B deposits was RBI governor Raghuram Rajan's most important near-term move.