Indian banks raise over $136 bn via RBI forex swap, FCNR(B) deposits dominate inflows
India's banking system attracted over $136 billion through a special Reserve Bank of India swap facility. Foreign currency non-resident deposits accounted for the largest portion of these substantial inflows. This strong response prompted the Reserve Bank of India to close deposit mobilization earlier than planned. The inflows have significantly boosted banking system liquidity and strengthened…
India's banking sector attracted a record $136.38 billion in foreign currency inflows by August 31, 2023, via the Reserve Bank of India's special dollar-rupee swap facility. FCNR(B) deposits constituted the majority of these inflows, amounting to $127.23 billion. The remaining funds were sourced from overseas foreign currency borrowings (OFCBs) at $5.26 billion and external commercial borrowings (ECBs) at $3.89 billion.
The Reserve Bank of India (RBI) introduced the facility on June 8 with the aim of attracting foreign currency inflows and bolstering India's external buffers. By August 21, banks had already mobilized $65.4 billion through FCNR(B) deposits, with total inflows under the three routes reaching approximately $73 billion.
Sachin Sachdeva, Vice President & Co-group Head of Financial Sector Ratings at ICRA, noted that the magnitude of these inflows will require time to deploy profitably, potentially leading to increased competition for quality borrowers and lower loan yields. The near-term impact might also include a moderation in margins.
The RBI expedited the closure of the FCNR(B) deposit mobilization window to August 31 from the originally planned September 30. The swap facility for eligible FCNR(B) deposits remains available until September 11, while the schemes for ECBs and OFCBs will stay open until December 31, 2026.
The surge in longer-term FCNR(B) deposits indicates banks' willingness to utilize overseas dollar funding, as the RBI swap facility lowered the cost and risk associated with managing foreign currency exposure. These inflows have significantly bolstered banking-system liquidity, reaching ₹6.65 lakh crore on August 31, 2023, which is the highest level since May 2022. The weighted average call rate also fell to 4.98%, well below the current repo rate.
It is worth noting that these figures are provisional and subject to final reporting, accounting, and reconciliation. The latest numbers represent a substantial increase compared to the response to the RBI's 2013 FCNR(B) swap scheme, when banks raised around $26 billion through FCNR(B) deposits.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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