Finance Minister Nirmala Sitharaman is set to review the mobilisation of dollar resources by public sector banks, IDBI Bank and government-owned financial institutions on July 13, as the government steps up efforts to boost foreign currency inflows.According to sources, the Finance Minister will meet the heads of public sector banks (PSBs), IDBI Bank and government-owned financial institutions on Monday to review the mobilisation of Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs).
The meeting comes weeks after the Reserve Bank of India (RBI) announced a series of measures aimed at encouraging banks and public sector entities to mobilise longer-term foreign currency resources.
On June 5, the RBI said it would provide a concessional foreign exchange swap facility until September 30, 2026, to incentivise 3-5 year external commercial borrowings (ECBs) raised by Central Public Sector Enterprises (CPSEs).The central bank also announced that authorised dealer (AD) banks raising fresh 3-5 year FCNR(B) deposits would receive support to bear the full hedging cost until September 30, 2026, making such deposits more attractive and helping banks mobilise stable foreign currency liabilities.With the RBI absorbing hedging costs and temporarily lifting interest rate ceilings until September 30, 2026, banks are offering NRIs tax-free returns ranging from 6% to 7.1% on 3- to 5-year US dollar deposits. The RBI’s zero-cost swap facility is estimated to save banks roughly 3.5% in hedging costs. Banks are passing these savings on to depositors, pushing yields up by 200 to 295 basis points.The government’s review assumes significance as policymakers seek to bolster foreign exchange inflows and strengthen the availability of long-term dollar resources in the banking system amid an uncertain global environment.
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