Lenders may turn to OFCB route to raise more funds abroad
Indian banks are now shifting focus towards borrowing in overseas foreign currencies to meet their fundraising requirements. This strategic pivot comes in light of an advanced deadline on August 31 that altered original plans tied to deposit-linked fundraising. With the Reserve Bank of India (RBI) moving the timeline forward, many lenders have revised their bond issuance approaches.
Mumbai: Indian lenders are set to utilize the overseas foreign currency borrowing (OFCB) window to raise additional funds abroad, as the advanced August 31 deadline for individual deposits aimed at the diaspora has left them with limited time to finalize fundraising agreements. However, the December 31 OFCB deadline remains unchanged.
Bank officials have revealed that bond issuances intended to support FCNR-B deposits are essentially at an end, as the T + 3 pay-in process does not provide banks with enough time to deposit funds before the deadline. Consequently, numerous banks, including RBL Bank, Yes Bank, Federal Bank, Bank of Maharashtra, UCO Bank, Indian Bank, and Bank of India, have suspended their bond issuances.
After initially setting a September 30 deadline, many of these institutions had to revise their plans following the Reserve Bank of India's (RBI) decision to extend the deadline to August 31. Consequently, they are now drafting a new schedule. Some banks have already taken out short-term loans, which they intend to replace with more affordable funds obtained through a bond issuance planned for later this year.
An example of this is Federal Bank, which obtained $500 million through a short-term loan from HSBC; this money will now be substituted with cheaper funds from a future bond issue. By employing this strategy, Federal Bank has taken advantage of the concessional swap window provided by the RBI for FCNR (B) deposits without hastily proceeding with a bond issue.
However, some banks may opt to borrow from the RBI's OFCB window, which partially mitigates hedging costs, but this approach exposes them to asset-liability mismatch risks, according to a foreign banker.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
