)
The Reserve Bank of India (RBI)’s concessional swap window for foreign currency non-resident (bank), or FCNR (B), dollar funds has not only allowed banks to collect low-cost deposits, but also helped some of these to accelerate credit growth. This is because some of the top private sector lenders in the country have been drawing non-resident Indians to open FCNR (B) accounts by offering foreign currency loans against these deposits.
HDFC Bank saw its advances rising 22.9 per cent from a year ago to Rs 2,96,742 crore at the end of December 2013. However, if one doesn’t factor in the foreign currency loans against FCNR (B) deposits, the bank’s credit growth was only 18.3 per cent. Rival Axis Bank reported a 18 per cent year-on-year growth in advances at the end of the third quarter; but excluding the foreign currency loans against FCNR (B) deposits, its credit growth was about 15 per cent.
“Our loan growth would have been a little slower if loans against FCNR (B) deposits were taken out. These loans certainly helped us get more FCNR (B) deposits. We have raised around $1.57 billion of FCNR (B) deposits,” said Somnath Sengupta, executive director of Axis Bank.
Bankers say the credit risk for these loans is lower than that for unsecured personal loans. “These are secured advances, as we are lending the money against a deposit. Typically, these loans were given through our foreign branches for a period of three years,” said Paresh Sukthankar, deputy managing director of HDFC Bank. The lender raised $3.4 billion of FCNR (B) deposits.
To arrest the slide in the rupee, the Reserve Bank of India had, on September 4, 2013, announced a window for swapping FCNR (B) dollar funds mobilised for at least three years at a fixed rate of 3.5 per cent a year for the duration of the deposit. The scheme was operational till the end of November, 2013.
A senior executive at a mid-sized private bank said, “The main objective was to make use of the special window and get low-cost deposits. Loans were offered only to encourage foreign high net worth clients to open FCNR (B) accounts. These loans were often offered as part of a wealth management product suite that included FCNR (B) deposits.”
