In a first, Deutsche Bank gets $450 mn via FCNR (B) swap

Raises over $450 million FCNR (B) deposits from more than 10 NRIs

Deutsche Bank has become the first bank in India to use the Reserve Bank of India (RBI)’s window to swap fresh foreign currency non-resident (bank), or FCNR (B), dollar funds. Last week, it raised about $450 million FCNR (B) deposits from about 10 non-resident Indians and swapped it with the central bank, sources told Business Standard.

The funds were mobilised for three years and priced at 3-3.5 per cent a year. The swap window, recently made available by RBI, allowed the bank to convert the dollar funds into rupees at 3.5 per cent. Analysts said had it not been for this facility, the swap cost would have been seven or eight per cent, considering the recent rupee-dollar forward rates.

The move follows reports that a few foreign banks are providing upfront loans to non-resident Indians (NRIs) for FCNR (B) deposits. Market participants say through their offshore branches, foreign banks are offering loans up to 90 per cent of their FCNR (B) deposits to NRIs. Though these loans are priced higher than market rates, NRIs benefit because the interest on FCNR (B) deposits is higher than the payments on these loans.

THE SWAP DEAL

• Bank first to use RBI’s FCNR (B) swap window
• Deposits raised from more than 10 non-resident Indians
• Maturity period of deposits 3 years
• Will offer NRIs 3.0-3.5% on these deposits

It isn’t known if Deutsche Bank had used a similar model to mobilise the FCNR (B) deposits.

On September 4, RBI had announced a swap window to attract FCNR (B) dollar funds. “RBI has been receiving requests from banks to consider a special concessional window for swapping FCNR (B) deposits that would be mobilised according to the recent relaxations permitted by RBI. Accordingly, it has been 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,” it had said.

The scheme would be operational up to November 30.

In a note to clients, Barclays said, “In our view, (RBI governor) Raghuram Rajan’s most important near-term move is allowing banks to swap their US dollar liabilities against FCNR (B) deposits at 3.5 per cent a year for three years. This, along with a few other measures, could attract $10 billion of foreign exchange inflows in next three months, on our estimates, and could be a material near-term positive for the rupee.”

At his maiden monetary policy review on Friday, Rajan said banks had started using the window. “We had announced the FCNR (B) swap facility, as well as the swap facility for bank borrowings. I am glad to say banks have started bringing in money. Till yesterday, we had received $466 million through the FCNR (B) and $917 million through the swap facility,” he had said.