The mobilisation of foreign currency non-resident (Bank) or FCNR-B deposits has gotten off to a surprisingly robust start, drawing optimistic commentary from top global financial institutions. According to recent notes by global brokerages Jefferies, UBS, and Macquarie, the strong inflow of foreign currency is expected to significantly ease domestic liquidity conditions and relieve near-term pressure on bank balance sheets. This includes private lenders as well as non-banking financial companies.
According to Jefferies, the FCNR-B mobilisation is off to a highly encouraging start. Early conversations with banks indicate that the inflows consist primarily of fresh money rather than recycled funds. This capital is largely being routed from key global financial hubs, including the UAE, Singapore, and Hong Kong, facilitated through the networks of internal and partner banks' clients.
Jefferies noted that total mobilisation in the range of $50 billion to $70 billion would be a major positive for the sector, particularly if current internal rates of return (IRRs) remain sufficient to attract depositors. For investors looking to capitalize on this trend, the brokerage identified NBFCs and smaller private banks as the best ways to play the improving liquidity environment.
ALSO READ: RBI Says Banks Raise $17.4 Billion Under FCNR(B) Deposit Scheme Since June 8
Ahead of Expectations
UBS echoed this optimism, pointing out that banks have already successfully mobilized $1.97 billion and $1.34 billion under the external commercial borrowing (ECB) and overseas foreign currency borrowing (OFCB) swap facilities, respectively.
Notably, these figures appear to be running ahead of the initial guidance provided by bank managements during recent earnings calls. The momentum is expected to build further, as UBS highlighted that large private banks have hinted at a pickup in mobilisation over the coming weeks, which should robustly support overall growth.
Relief for Bank Balance Sheets
Macquarie viewed the FCNR flow data as a "positive surprise" and a strong net benefit for the broader banking system. The firm observed that foreign banks have likely stepped up their participation, aiding the momentum of these inflows. Ultimately, Macquarie views the latest disclosures as highly constructive for domestic inflows in the Indian banking system.
The brokerage emphasized that this strong foreign-currency mobilisation will play a crucial role in easing tight domestic liquidity conditions. By improving funding visibility, the FCNR flows are poised to significantly reduce near-term pressure on banks' balance sheets, giving lenders more breathing room to focus on credit growth.
ALSO READ: Banks Optimistic On FCNR-B Deposits Despite Lagging Inflows Due To Sept. 30 Deadline Rush
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