FCNR(B) inflows to boost liquidity, ease funding costs for banks: SBI, PNB, IndusInd chiefs

Foreign currency non-resident (FCNR) deposit inflows are set to strengthen liquidity and ease funding costs for Indian banks, with senior bankers saying the additional funds could also support credit growth.State Bank of India (SBI) Managing Director Ashwini Kumar Tewari said the strong inflows under the FCNR(B) scheme would improve liquidity for banks, while the impact on margins would largely be neutral.“Margin-wise, it’s neutral,” Tewari said in an exclusive interview with CNBC-TV18 at the Banking Transformation Summit. He added that the lower margin on the deposits would be offset by the regulatory benefits available to banks, including exemptions related to the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority sector lending (PSL).“The important thing is liquidity. This is in turn replacing those high-cost bulk deposits and all, so overall, it should be good for the banking system,” Tewari said.The Reserve Bank of India had brought forward the deadline for the special FCNR(B) deposit window after strong inflows. The deposits had crossed $52 billion, raising expectations that the total could approach $70 billion by August 31.Tewari said SBI was close to meeting its internal target and that the early closure of the window would not materially affect the bank.“The flow has been really strong in the last 15 days and more. So, therefore, the number you talk about may be achieved,” he said, while adding that he could not comment on the pipeline at other banks.Punjab National Bank (PNB) Managing Director and CEO Ashok Chandra said the inflows would help banks on both the deposit and lending sides.“Definitely, it is going to ease the cost of deposit,” Chandra said, pointing to both the interest cost and the CRR and SLR exemptions associated with the deposits.Once the funds enter the banking system, they can be deployed for lending, potentially supporting credit growth, he said.Chandra also highlighted the broader significance of Indian banks accessing overseas funding markets. PNB had committed to raising around $2 billion-$2.5 billion and expects to cross that target.The bank has also initiated a process to raise $500 million through medium-term notes, with a further $500 million green-shoe option. In addition, PNB has raised $1 billion through overseas syndicated lending, with participation from Taiwanese, Japanese and Korean banks.Chandra said the increased participation of overseas investors showed the growing global interest in Indian banks and the Indian economy.IndusInd Bank Managing Director and CEO Rajiv Anand said the FCNR(B) opportunity had three components: retail deposits, funding obtained through bilateral transactions and arrangements with partner banks.He said IndusInd Bank was seeing good traction across all three channels and expected to capture around 3% of the overall FCNR(B) market.Anand also said the regulatory dispensations around CRR, SLR and PSL made the proposition attractive for banks, although the primary objective was to bring more foreign currency into the country.For smaller lenders, however, the impact is less direct. AU Small Finance Bank Managing Director and CEO Sanjay Agarwal said small finance banks had not participated significantly in the FCNR(B) opportunity because of the difficulty in arranging the required guarantees.He said larger banks having greater access to such funds could nevertheless have a positive effect on the wider banking ecosystem.Agarwal quipped that the FCNR(B) opportunity was for the “big daddies”, adding that if large banks such as SBI and PNB had ample liquidity, smaller lenders could benefit indirectly.The bankers’ comments suggest that the immediate benefit from the FCNR(B) inflows is likely to be stronger liquidity and lower funding pressure rather than a sharp expansion in net interest margins. For banks, the availability of relatively stable foreign-currency funding could also reduce their dependence on more expensive bulk deposits and create greater headroom for lending.Watch accompanying video for full conversation.

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