Banks on resource raising spree

Foreign currency funds and CDs are preferred avenues.

Commercial banks are leaving no stone unturned to raise resources as they expect the cost of funds as well as the demand for credit to shoot up in the second half of the current financial year (FY07).

While private sector banks are utilising their untapped foreign currency line of credit to mobilise foreign currency funds and swapping them into rupees, the public sector banks with widespread branch network and corporate clientele are aggressively placing certificate of deposits (CDs) of six-month to one-year maturity to mop up funds. These banks are also offering higher interest rates to raise long-term deposits.

Private banks are using the pre-shipment foreign currency (PCFC) line of credit for raising resources. Earlier, such facility went abegging as banks disbursed foreign currency credit out of their foreign currency deposits in the form of foreign currency non-resident (bank) - FCNR(B) - funds.

The banks planning to raise funds through PCFC line of credit include UTI Bank and HDFC Bank, market sources said.

In the public sector, State Bank of Indore, State Bank of Jaipur & Bikaner, Punjab National Bank and UCO Bank have floated CDs to raise money.

ICICI Bank is a major player mobilising bulk deposits. The bank has been raising money to redeem around Rs 30,000 crore later this year, when some of the high-cost bonds floated by erstwhile ICICI attain maturity.

The rush for fund raising has been intensified after the Reserve Bank of India raised its reverse repo rate by 25 basis points "� from 5.5 to 5.75 per cent. The market is factoring in another 25 basis points hike in reverse repo rate in the forthcoming quarterly review of the monetary policy in July.

"The banks are wary that the cost of funds will further go up. Hence, they are not taking any chances and rushing to mop up money from markets now," said a senior banker.

The rush for raising funds was last seen during the close of the financial year (2005-06) when liquidity was under strain and banks needed funds to expand their balance sheets. The demand for funds was so acute in February-March this year that one-year CDs were fetching around 8/ 8.5 per cent.