Banks race for dollar deposits as RBI curtails FCNR (B) swap window

The swap facility, introduced on June 8 to spice up secure greenback inflows, was initially accessible until the top of September however the central financial institution final week reduce quick the window to August-end in view of the “encouraging response” to the ability and the “resultant foreign exchange inflows.”

Bankers mentioned lenders will advance the staggered mobilisation they initially deliberate over six weeks by proactively partaking with NRI clients to hurry up the method. Most banks now have their funding strains firmly in place to mobilise deposits as a lot as doable earlier than the window closes, bankers mentioned.

Banks have already mobilised over $52 billion as of August 13 underneath the scheme.

In line with bankers and economists, complete mobilisation underneath RBI’s concessional swap window by way of FCNR (B) deposits might nonetheless attain $60-70 billion by August-end.

The dollar-rupee swap facility eliminates hedging prices for lenders, thereby enabling them to supply engaging rates of interest on overseas forex deposits. The coverage drive to spice up greenback inflows comes at a time when the West Asia vitality shock inflated oil and fertiliser import prices and overseas portfolio buyers (FPIs) remaining internet sellers in Indian equities in 2026.

After the RBI set the concessional swap window for FCNR(B) deposits in movement, banks raised rates of interest provided on these deposits from round 2.5-3 per cent to 6-7 per cent.

A number of banks, together with main lenders akin to HDFC Financial institution, ICICI Financial institution and Axis Financial institution, revised their charges upwards in August to draw extra deposits underneath the scheme. Rates of interest on FCNR (B) deposits now vary from round 6 per cent to greater than 7 per cent, with some banks providing as a lot as 7.5 per cent.

Most banks are mobilising FCNR (B) deposits in US {dollars}, with the upper rates of interest additionally being provided on dollar-denominated deposits.

In line with Gaura Sen Gupta, chief economist, IDFC First Financial institution, RBI’s transfer is prudent provided that complete inflows by September might have been very excessive.

“These greenback inflows should be paid after three to 5 years. Furthermore, the INR liquidity infusion by way of the swap home windows would have created extra build-up of liquidity”, she mentioned, including that by August-end, complete inflows into FCNR (B) are anticipated to be $70 billion, which assumes that banks will push for deposits within the final two weeks.

“General, from the three swap home windows we count on $90 billion, assuming $20 billion from abroad overseas forex borrowings (OFCBs) and exterior business borrowings (ECBs). Steadiness of cost (BoP) surplus is anticipated to be substantial at $40 billion, even after incorporating truncated FCNR (B) window,” Gupta mentioned.

RBI’s choice to shut the swap facility for FCNR(B) deposits a month forward of authentic schedule comes after Governor Sanjay Malhotra mentioned on August 5 that there was no proposal to withdraw the scheme early.

The swap facility for FCNR (B) deposits will probably be accessible just for deposits mobilised until August 31 however banks can avail of swaps underneath the ability till September 11. The scheme for ECBs and OFCBs will proceed till December 31, 2026, as beforehand introduced.

“Banks have mobilised effectively up to now, however everybody will now transfer sooner to finish what was earlier anticipated to come back in by way of September,” mentioned a senior banker at a state-owned financial institution, including that the financial institution will attempt to obtain the goal it had set to mobilise till September 30.

“Initially, the expectation was that $35-40 billion would come by way of the FCNR route. Greater than $52 billion has already are available, so banks have already exceeded these expectations. I might count on not less than one other $10 billion to come back in, taking complete mobilisation to greater than $60 billion,” the banker mentioned.

A senior banker at a non-public sector financial institution mentioned, “Over these two weeks, all banks are doubtless to enter an overdrive. Everybody who thought they might stagger mobilisation over the following six weeks is now planning on doing it inside two weeks. One other $10 billion or so might are available, wanting on the previous development. Many NRIs who thought they’d a while and will do it slightly later now need to expedite the method.”

Usually, these schemes are back-ended, with the majority of mobilisation going down in the previous couple of weeks earlier than closure. This time, nevertheless, mobilisation has been sturdy from the start, with overseas banks taking the lead and mobilising giant quantities underneath the scheme. Non-public sector and state-owned banks, barring a number of, lagged as they took time to finalise funding strains to supply leverage.

Nonetheless, mobilisation throughout banks gathered tempo in the previous couple of weeks, with greater than $15.5 billion mobilised by way of the FCNR(B) window in simply 13 days as of August 13.

The scheme was operationalised on June 8, and the RBI’s first replace confirmed that round $17.4 billion had been mobilised as of July 17.

This rose to $36.7 billion as of July 31, earlier than crossing $52 billion by August 13.

“Over the past five-six weeks, the scheme has gained steam. Most banks have now received their funding strains tied up. This time round, a big sum of cash has come by way of among the overseas banks. A minimal of $60 billion is what I might count on. I might not be stunned if it reaches $65 billion”, one other senior personal sector banker mentioned.

The banker mentioned he discovered it very uncommon for the RBI to shut the scheme early after having mentioned throughout August financial coverage that the scheme wouldn’t be closed early.

“The RBI has finished this protecting in thoughts that banks ought to have the ability to handle the funds”, the banker mentioned.

One other senior banker at a big state-owned financial institution mentioned that the RBI’s choice to shut the concessional swap window early might be due to sturdy greenback influx.

“Even after one month truncation, total, we count on $65–70 billion of FCNR(B) mobilization by the top of the scheme and, together with OFCBs and ECBs, complete mobilization might attain $80–85 billion”, SBI Analysis in a word on Saturday.

FCNR (B): A brief story