Mobilisation of Foreign Currency Non-Resident (Bank) or FCNR(B) deposits is expected to reach up to $70 billion, which would significantly alleviate domestic liquidity conditions and lessen immediate stress on Indian banks’ balance sheets. Global brokerages like Jefferies, UBS, and Macquarie have noted a stronger-than-anticipated response to the Reserve Bank of India’s measures related to FCNR(B), with early inflows indicating a growing confidence among overseas depositors.
According to Jefferies, discussions with banks reveal that the inflows mainly consist of new funds rather than recycled deposits. These funds are predominantly channeled from major financial centers such as the UAE, Singapore, and Hong Kong through banks’ international networks and partner institutions. Jefferies suggests that a total mobilisation of FCNR(B) deposits ranging from $50 billion to $70 billion would be highly beneficial for the banking sector, provided that current interest rates are attractive enough to sustain deposit growth.
Jefferies also highlights that the improved liquidity conditions would particularly favor non-banking financial companies (NBFCs) and smaller private sector banks, positioning them as preferred investment options as funding conditions become more favorable. Meanwhile, UBS has observed positive momentum in foreign currency mobilisation, with banks already raising approximately $1.97 billion through the External Commercial Borrowing (ECB) swap facility and an additional $1.34 billion via the Overseas Foreign Currency Borrowing (OFCB) swap window.
UBS mentions that these inflows are surpassing the estimates provided by several banks in their recent earnings calls. Major private sector banks anticipate a further acceleration in mobilisation in the upcoming weeks, which is expected to bolster funding and credit growth. Similarly, Macquarie views the recent FCNR(B) flow data as a pleasant surprise and foresees it as a net positive for the Indian banking system.
Macquarie notes that foreign banks have increased their involvement in the mobilisation efforts, contributing to the sustained pace of inflows. The enhanced liquidity environment is projected to offer lenders more flexibility to extend credit while reducing reliance on more expensive funding sources, as per the assessments of the brokerages.
