MUMBAI: Mobilisation of Foreign Currency Non-Resident (Bank) or FCNR(B) deposits could reach up to $70 billion, significantly easing domestic liquidity conditions and reducing near-term pressure on Indian banks' balance sheets, according to global brokerages.
Brokerages including Jefferies, UBS and Macquarie said the initial response to the Reserve Bank of India's FCNR(B)-related measures has been stronger than expected, with early inflows pointing to growing confidence among overseas depositors.
According to Jefferies, discussions with banks suggest that the inflows largely comprise fresh money rather than recycled deposits.
The funds are primarily being routed from key financial hubs such as the UAE, Singapore and Hong Kong through banks' own overseas networks and partner institutions. The brokerage said total FCNR(B) mobilisation in the range of $50 billion to $70 billion would be a significant positive for the banking sector, provided current internal rates of return remain attractive enough to sustain deposit growth.
Jefferies added that improving liquidity conditions would particularly benefit non-banking financial companies (NBFCs) and smaller private sector banks, making them the preferred investment plays as funding conditions ease.
Meanwhile, another brokerage firm UBS also highlighted encouraging traction in foreign currency mobilisation, noting that banks have already raised about $1.97 billion under the External Commercial Borrowing (ECB) swap facility and another $1.34 billion through the Overseas Foreign Currency Borrowing (OFCB) swap window.
According to the brokerage, these inflows are running ahead of the guidance shared by several banks during their recent earnings calls.
It added that large private sector banks have indicated that mobilisation is likely to accelerate further in the coming weeks, providing additional support to funding and credit growth.
Similarly, Macquarie described the latest FCNR(B) flow data as a positive surprise and said the trend would be a net positive for the Indian banking system.
The brokerage believes foreign banks have stepped up participation in the mobilisation drive, helping sustain the pace of inflows.
The improved liquidity environment is also expected to provide lenders with greater flexibility to expand credit while lowering dependence on costlier sources of funding, according to the brokerages.
--IANS
