Private banks pull out all stops for FCNR(B) deposits before August 31

Banks are raising interest rates, using website countdown timers, fast-tracking deposit commitments and tapping overseas bond markets as the RBI deadline approaches

Private banks are pulling out all the stops to mobilise FCNR(B) deposits before the RBI’s swap window closes on August 31 — raising interest rates, using website countdown timers to create urgency among NRIs, fast-tracking deposit commitments and tapping overseas bond markets to raise US dollars that can be leveraged to attract more FCNR(B) deposits.

 

The swap facility, announced on June 8 to boost stable dollar inflows, was originally available until the end of September, but the central bank last week cut short the window to August-end in view of the “encouraging response” to the facility and the “resultant forex inflows”.

   

Since then, Axis Bank, India’s third-largest private sector lender, has raised the interest rate on FCNR(B) deposits of more than $1 million to 6.40 per cent for a three-to-five-year tenor, effective August 17, becoming one of the first large banks to raise rates after the Reserve Bank of India (RBI) truncated the concessional swap window for FCNR(B) deposits by a month.

 

The lender now offers the highest rate on such deposits among large banks. Axis Bank was earlier offering 6.25 per cent on these deposits, up from 6 per cent when the scheme was operationalised. It is now offering 6.25 per cent on FCNR(B) deposits of less than $1 million.

 

Federal Bank has also raised the interest rate on FCNR(B) deposits to 6.40 per cent from 6.25 per cent, effective August 17. The bank is offering 6.40 per cent on US dollar FCNR(B) deposits of $500,000 to less than $3 million for tenors of three to five years. For deposits of $3 million and above, it offers 6.25 per cent for three to five years, and 6.40 per cent for four to five years and five years.

 

Other mid-sized private banks may follow suit and revise their FCNR(B) interest rates to mobilise as much as possible before the window closes. HDFC Bank, India’s largest private sector lender, and ICICI Bank, India’s second-largest private sector lender, are still offering 6.25 per cent on these deposits, while SBI is offering 6 per cent on deposits of more than $1 million for a five-year tenor.

 

Meanwhile, HDFC Bank and ICICI Bank have put countdown timers on their websites showing NRI customers the days, hours, minutes and seconds remaining to take advantage of attractive interest rates on FCNR(B) deposits before the window closes.

 

Separately, ICICI Bank tapped the overseas bond market to raise $750 million through five-year US dollar-denominated bonds at attractive rates. Other banks may follow suit and raise capital quickly to deploy for leveraging and mobilising more FCNR(B) deposits.

 

“We may do it, we may not do it. We have not decided,” said a senior banker at a private sector bank on whether they will raise interest rates on FCNR(B) deposits.

 

“What would have typically happened from September 15 to September 30 is now happening between August 15 and August 30. To that extent, yes, there is a lot more activity now. Because of the closure, clients also have a sense of urgency. People who thought they had time until September 30 are now obviously hurrying things up, so things will certainly move very quickly now,” the banker said, adding that teams are working much faster.

 

“All parties know — whether it is partner banks, clients or our own teams — that this is the new deadline. Therefore, everyone needs to work much faster and quicker to get things moving. That is really what is happening. Banks might also do it tactically. We are seeing some of the banks doing that at this point in time. But that may not necessarily increase the overall pie; it may perhaps attract a little more money to one bank versus the other,” the banker quoted above said.

 

“Everyone would have assumed that the window would remain open until September, but since that is no longer happening and the window is about to close, some banks are raising interest rates to mobilise as much as possible to ensure that some liquidity comes in,” said a senior banker at a state-owned bank.

 

According to the latest data from the RBI, banks have already mobilised over $52 billion as of August 13 under the scheme. Meanwhile, total mobilisation under the RBI’s concessional swap window through FCNR(B) deposits could still reach $60-70 billion by August-end, experts said, despite the RBI closing the scheme early.

 

SBI Research has said that FCNR(B) mobilisation could reach $60-65 billion, even as the RBI’s decision to truncate the window had come as a surprise to market participants, particularly after RBI Governor Sanjay Malhotra had indicated in a recent media interaction that there was no intention to close the scheme early.

 

“The RBI's decision to close the FCNR swap window a month early suggests it believes the scheme has largely achieved its objective. With inflows already above USD50bn and likely to rise further by the end of August, FX reserve buffers have improved while near-term external financing risks have eased. At the same time, the underlying BoP picture appears less challenging than previously feared,” said Dhiraj Nim & Sanjay Mathur of ANZ, adding that extending the scheme would likely have delivered diminishing returns.