Large banks may opt to lend 9X against FCNR(B) deposits

Following the Reserve Bank of India’s (RBI’s) clarification that commercial banks, including their overseas branches, can extend loans to non-residents against foreign currency non-resident (bank)/FCNR (B) deposits mobilised under the special swap facility, large lenders are working on structured offerings that could provide up to 9x leverage against such deposits.

- SUBRATA PANDA

The structures are expected to enable non-resident Indians (NRIs) to earn effective returns of 12-18 per cent, bankers said.

Though the regulator clarified that banks can lend against such deposits, individual banks will decide how much they will lend against FCNR (B) deposits. “Our sense is that inflows of more than $50 billion should happen. Most banks are gravitating towards offering around 9x leverage. RBI has not specified a cap — whether it should be 3x, 9x or even higher — but my sense is that most banks will settle around 9x. There can be exceptions, but that seems to be the market norm emerging,” said a senior banker at a private-sector bank (PVB), adding that returns for customers will vary depending on the bank because deposit rates and cost of funds differ across institutions.