Banks could raise up to $10 billion from Indians abroad: analysts

RBI's move removes currency risk away from banks or citizens abroad

The move by the Reserve Bank of India (RBI) to offer concessional swap rates to banks to raise dollar deposits from non-resident Indians could raise up to $8-$10 billion, Bank of America-Merrill Lynch says, as it removes the currency risk away from banks or citizens abroad.

The RBI will swap FX-denominated foreign currency non-resident bond (FCNRB) deposits with tenures of 3 or more years at a fixed hedge cost of 3.5% a year until November 30.

Banks are raising these deposits from NRIs at Libor/swap rate of +400 basis points, which works out to a cost of mobilising FCNRB deposits at about 8.5% and with lending at 11%, it will enable banks to enjoy a 250 basis point spread as these deposits will not qualify for CRR or SLR status for now, BofA-Merrill says.

Separately, Morgan Stanley estimates that the measure could raise an additional $5-$10 billion from NRIs.