Blitz Bureau
NEW DELHI:Punjab National Bank expects the banking sector to raise $35 billion to $40 billion via foreign currency deposits under a scheme announced by the central bank on June 5, a top executive told Reuters.
The Reserve Bank of India will bear the full hedging cost for three-year to five-year foreign currency non-resident (FCNR) deposits, it said, as part of a broader set of measures to encourage dollar flows and stem the depreciation pressure on the rupee.
The scheme – a redux of a similar window opened in 2013 – will allow banks to offer overseas customers a more lucrative rate of interest to draw dollar deposits.
The rate that banks will offer will be higher than the US treasury rate and definitely will attract investors, PNB CEO Ashok Chandra said in an interview with Reuters on June 8, declining to specify what rate the bank will offer.
Three-year US treasuries yield 4.203 per cent while five-year notes offer 4.273 per cent. Non-resident deposits earn 3.5 per cent but with RBI bearing the hedging cost, banks will be able to offer a higher rate to customers.
“It is a win-win situation for non-resident Indians and for the banks,” Chandra said.
PNB, the country’s eighth largest bank by market capitalisation, aims to raise about $2.5 billion to $3 billion through its own bank, he added.
The scheme – a redux of a similar window opened in 2013 – will allow banks to offer overseas customers a more lucrative rate of interest to draw dollar deposits.
It plans to market these deposits aggressively in key Indian diaspora markets such as the United States, Canada, United Kingdom and West Asia, pitching returns that exceed US Treasury yields, Chandra said.
Other mid-sized state-run lenders such as Indian Bank, Canara Bank and Central Bank of India pegged likely inflows at between $20 billion and $25 billion, while private sector lender Federal Bank expected possible flows of $30 billion.
“Unlike 2013 where the interest differential between US and India was in the range of 5-6 per cent, compared to 1-2 per cent, the relative attractiveness is lower,” said Harsh Dugar, Executive Director, Federal Bank.
RBI had last launched the scheme in 2013 when rupee had depreciated sharply due to the US Federal Reserve’s “taper tantrum”.
Details of the scheme, in particular, whether banks will be allowed to offer customers leverage to park such deposits is awaited and could be key to its success, brokerage house Jefferies said in a note.
“We will watch out for RBI’s stance on client leverage as this may be key determinant of extent of mobilisation under this scheme,” Jefferies analysts said.