‘More than we can handle’: StanChart’s PD Singh on FCNR deposits | Finance News
British lender Standard Chartered Bank is helping domestic banks mobilise more foreign currency non-resident (bank) [FCNR (B)] deposits through the Reserve Bank of India’s (RBI’s) concessional swap window by lending to them, even as it has itself mobilised a substantial amount under the scheme, which may be more than it can handle, said PD Singh, India and South Asia chief executive officer of the bank, at a FICCI-IBA event on Tuesday.
“Because we have more than we can handle, we pass it on to Indian banks so that they can manage their FCNR deposits and bring in all the deposits to the country,” Singh said.
Standard Chartered had a “very pivotal and critical role” to play in facilitating the flow of foreign capital into India, he added.
“We are in a very critical phase where foreign capital will find its way to India if we are able to articulate the benefits we have,” Singh said. The amount of capital India can attract, however, would also depend on factors beyond the control of banks, including geopolitics, currency movements and overseas interest rates relative to those in India.
The comments come amid a sharp increase in FCNR (B) deposits following the RBI’s concessional swap facility. According to government data, outstanding FCNR (B) deposits with authorised dealer banks rose by nearly $28 billion between June 5 and July 30 to $60.55 billion from $32.56 billion.
Foreign banks accounted for $8.37 billion of the increase, taking their outstanding FCNR (B) deposits to $8.97 billion from $603 million. Private sector banks mobilised $10.73 billion, while public sector banks garnered $8.84 billion.
Among individual lenders, HSBC was the largest mobiliser, with FCNR (B) deposits rising by $6.14 billion during the period. SBI followed with $4.12 billion, ICICI Bank with $3.70 billion and Standard Chartered Bank with $1.86 billion. Other major contributors included Kotak Mahindra Bank ($1.66 billion), Axis Bank ($1.59 billion), HDFC Bank ($1.41 billion) and Bank of Baroda ($1.05 billion). Punjab National Bank and Canara Bank mobilised $970 million and $933 million, respectively.
The RBI said banks had mobilised nearly $41 billion in foreign exchange inflows under the concessional swap window as of July 31, including $36.7 billion through fresh FCNR (B) deposits.
Foreign banks, which led dollar mobilisation in the initial phase of the facility, are deploying a significant portion of the resulting rupee liquidity in short-term government bonds, pushing five-year benchmark yields lower and widening the spread with the 10-year benchmark government bond.
The yield spread between the 10-year benchmark government bond and the five-year 6.36 per cent, 2031 bond widened by 5 basis points in July and another 7 basis points in August so far, taking the spread to 40 basis points.
Foreign banks do not have the same scale of retail and corporate lending books as domestic lenders to absorb the liquidity at the pace at which FCNR (B) funds are coming in. They have therefore emerged as active buyers in the three-to-five-year government bond segment.
