Top private banks are taking a measured approach to gathering foreign currency deposits despite RBI incentives. While the central bank removed rate caps and reserve requirements to boost inflows, lenders remain focused on balancing leverage and pricing to match customer demand.
Major private banks in India are prioritizing a selective approach toward Foreign Currency Non-Resident (FCNR-B) deposits. Even as the Reserve Bank of India (RBI) introduced measures to attract foreign capital, such as removing interest rate caps and exempting these deposits from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, banks are not rushing to aggressively accumulate funds.
Strategic Calibration by Lenders
Banks are carefully evaluating market conditions and the potential impact of leverage on their balance sheets. During recent earnings interactions, several lenders emphasized that their strategy is centered on individual customer profiles rather than a broad, uniform push for deposits. ICICI Bank, for example, highlighted that it is offering leverage based on partner arrangements and specific customer needs, noting that interest rates will continue to evolve based on market trends.
Other major players are also managing their strategies differently. HDFC Bank, which reported raising $750 million in overseas funding, has indicated it offers up to nine times leverage on these deposits. Yes Bank has adopted a similar leverage target. Meanwhile, Axis Bank has chosen to wait until the second quarter to disclose the total quantum of deposits raised, preferring to assess the overall market traction as the September deadline for the RBI’s special window approaches. Kotak Mahindra Bank is focusing on building partnerships with overseas institutions in Asia and the Middle East to support its long-term strategy for these deposits.
Market Context and Investor Impact
While the RBI's measures were initially projected to bring in significant foreign currency inflows, the actual response has been more moderate. Market observations suggest that a narrow interest rate differential—where the gap between domestic and international rates is not wide enough to offset hedging costs or taxation—has influenced how much capital is flowing through this route.
For investors, the key area of focus is how these deposit mobilization efforts influence bank margins and liquidity. Large private banks are currently offering rates between 6 percent and 6.5 percent on these deposits, while smaller finance institutions are competing with higher rates exceeding 7 percent. The willingness of banks to provide high leverage, such as nine times the deposit amount, reflects an effort to attract large non-resident deposits while carefully managing the associated risks. The effectiveness of this strategy will likely be reflected in the banks' liquidity positions and net interest margins in the upcoming quarterly results.
Investors may monitor the total quantum of FCNR-B deposits disclosed by banks in their second-quarter filings, as this will provide clarity on the actual success of the RBI's initiative and the competitive landscape of the banking sector.