FCNR(B) inflows may have crossed 2013 level in just 45 days: SBI Research

Foreign Currency Non-Resident (Bank), or FCNR(B), deposits mobilised under the Reserve Bank of India's (RBI's) concessional swap facility may have already surpassed the amount raised during the 2013 scheme in just about 45 days, prompting SBI Research to sharply raise its estimate for inflows under the facility.

 

SBI Research now expects FCNR(B) deposits of $65-70 billion by the end of the scheme, significantly higher than its earlier estimate of $40-45 billion. Including overseas foreign currency bonds (OFCBs) and external commercial borrowings (ECBs), overall inflows could reach $80-85 billion.

 

Meanwhile, in an interview with BusinessLine, Reserve Bank of India (RBI) Governor Sanjay Malhotra said the central bank's recent measures to attract overseas capital have helped banks mobilise nearly $32 billion, largely through FCNR(B) deposits. Foreign investors have separately invested more than $7 billion in government securities since the measures were announced in June, he said. Malhotra added that the measures should be viewed in the context of challenging global conditions facing emerging markets and are expected to further strengthen India's balance of payments and currency stability.

   

RBI data showed that $20.72 billion had been mobilised through its concessional swap facilities until July 17. Of this, FCNR(B) deposits accounted for $17.41 billion, while OFCBs and ECBs contributed $1.97 billion and $1.34 billion, respectively.

 

SBI Research estimated that FCNR(B) mobilisation alone had reached $26-28 billion by July 23, surpassing the 2013 level.

 

Public sector banks (PSBs), particularly larger lenders, appear to be driving the mobilisation, according to the report. SBI Research said banks have been leveraging their existing deposit relationships and clientele across geographies while adopting a mix of onshore and offshore strategies.

 

The research report expects inflows to accelerate further as a significant portion of existing FCNR(B) deposits maturing in August and September is likely to be renewed under the new scheme, attracted by higher interest rates. It conservatively estimates that this could bring in an additional $10 billion over its baseline projections, particularly from economies offering tax concessions.

 

Meanwhile, SBI Research sought to explain why the sharp FCNR(B) mobilisation has not yet translated into a commensurate increase in RBI's foreign currency assets (FCA). Banks have designated periods during the week to swap their FCNR(B) deposits with the RBI for equivalent rupee resources, resulting in a possible lag between deposit mobilisation and its reflection in FCA.

 

FCA increased by $7.6 billion between June 8 and July 17, compared with $17.4 billion of FCNR(B) inflows mobilised by July 17. SBI Research expects FCA inflows of another $10-12 billion between July 17 and July 31, taking overall FCA accretion following the RBI measures to around $17-20 billion by July-end, primarily driven by FCNR(B) flows.