Numbers Boost: FCNR-B inflows help banks cut expensive bulk deposits
Indian banks are actively reducing costly bulk deposits after strong foreign currency inflows. This strategy helps optimize funding costs and potentially boost profitability for lenders. Larger banks are realizing significant savings by replacing these expensive funds. Overall, banks are expected to mobilize substantial amounts through the FCNR-B window. This shift reflects a strategic move to…
Indian banks are aggressively reducing expensive bulk deposits as record foreign currency non-resident (FCNR-B) deposits have reduced their dependence on costly domestic funds. This move is expected to optimize funding costs and potentially improve second-quarter net interest margins (NIM) for several lenders. The bigger banks saved between 25-60 basis points in terms of incremental deposit costs in August as they shed bulk funds.
However, smaller banks may not see as significant benefits as they offer higher FCNR-B rates to depositors. The benefits for smaller banks would be limited as they provide higher FCNR-B rates to depositors, while larger banks save 25-40 basis points by replacing bulk deposits with FCNR-B deposits. This could lead to an improvement in NIM if banks can maintain their lending rates.
Bank of India's managing director Rajneesh Karnatak revealed that there could be savings of 50-60 basis points as banks will not renew bulk deposits. Industry executives believe that not renewing high-cost bulk deposits after FCNR-B inflows will strengthen the medium- to long-term liquidity profile of banks.
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