A torrent of dollar deposits has crashed short-term borrowing costs for banks, as India’s ambitious plan targeting overseas citizens closes with a resounding success.
Banks had increased their reliance on CDs as retail deposit growth struggled to keep pace with credit demand, using the wholesale funding route to bridge the gap and support loan growth. However, with the surge in FCNR(B) inflows, banks are now flush with funds and their need to raise money through CDs has fallen sharply, reducing CD issuance and pushing rates lower. The central bank said on Wednesday that the scheme brought in a total of $136.4 billion till August 31 when its FCNR(B) component ended. Of this, foreign currency non-resident bank or FCNR(B) that targets dollar deposits from non-resident Indians fetched $127.2 billion or about 93.3%, while overseas foreign currency borrowings (OFCBs) contributed $5.3 billion and external commercial borrowings (ECBs) $3.9 billion. As liquidity swelled, touching ₹ 7.8 lakh crore on September 1 from ₹ 1.85 lakh crore on June 5, rates cooled in the CD market. Central Bank of India on Tuesday raised ₹ 1,000 crore by issuing CDs maturing on December 2 at 6.38%, compared to ₹ 500 crore it raised at 6.60% on August 27 for a similar maturity. On March 6, the bank had raised ₹ 250 crore through three-month CDs at 7.15%, Crest Finserv data showed.
