Axis Bank has raised the interest rate on FCNR(B) deposits of more than $1 million to 6.40 per cent for a three-to-five-year tenor, effective August 17. According to reports from Business Standard, the lender was earlier offering 6.25 per cent on these deposits, up from 6 per cent when the scheme was operationalised. The bank now offers 6.25 per cent on FCNR(B) deposits of less than $1 million, making it one of the first large banks to raise rates after the Reserve Bank of India (RBI) truncated the concessional swap window for FCNR(B) deposits by a month. Federal Bank has also raised the interest rate on FCNR(B) deposits to 6.40 per cent from 6.25 per cent, effective August 17, offering 6.40 per cent on US dollar FCNR(B) deposits of $500,000 to less than $3 million for tenors of three to five years, while providing 6.25 per cent for deposits of $3 million and above for three to five years, and 6.40 per cent for four to five years and five years. Latest data shows that Axis Bank now offers the highest rate on such deposits among large banks, with competitors HDFC Bank and ICICI Bank still offering 6.25 per cent on these deposits.
Banks are implementing aggressive strategies to attract FCNR(B) deposits before the August 31 deadline. As reported by Business Standard, HDFC Bank and ICICI Bank have put countdown timers on their websites showing NRI customers the days, hours, minutes and seconds remaining to take advantage of attractive interest rates on FCNR(B) deposits before the window closes. ICICI Bank has tapped the overseas bond market to raise $750 million through five-year US dollar-denominated bonds at attractive rates, with other banks expected to follow suit to raise capital quickly for leveraging and mobilising more FCNR(B) deposits. A senior banker at a private sector bank noted that "Banks might also do it tactically. We are seeing some of the banks doing that at this point in time. But that may not necessarily increase the overall pie; it may perhaps attract a little more money to one bank versus the other."
Four Indian private lenders have fast-tracked plans to raise dollar bonds before the end of August, seeking to take advantage of a central bank swap facility before its early closure, after larger peers ICICI Bank and Axis Bank raised more than $1 billion. According to The Economic Times, Kotak Mahindra Bank, YES Bank, IDFC First Bank and Federal Bank are together aiming to raise $1.85 billion through bond sales with maturities of up to five years. Kotak Mahindra Bank leads this effort, setting final price guidance for its issuance, with other banks preparing offerings. YES Bank has appointed merchant bankers for a three-year bond offering, with investor calls scheduled for this week, marking the first time the private financier taps the offshore market after defaulting on its perpetual additional tier-1 bonds in 2020. Federal Bank and IDFC First Bank, which are relatively smaller and are looking to debut in the dollar bond market, have just started scouting the market for investors.
Axis Bank now offers the highest rate on such deposits among large banks. As reported by Business Standard, its competitors — HDFC Bank, India's largest private sector lender, and ICICI Bank, India's second-largest private sector lender — are still offering 6.25 per cent on these deposits, while SBI is offering 6 per cent on deposits of more than $1 million for a five-year tenor. Other mid-sized private banks may follow suit and revise their FCNR(B) interest rates to mobilise as much as possible before the window closes. According to a senior banker at a private sector bank, "What would have typically happened from September 15 to September 30 is now happening between August 15 and August 30. To that extent, yes, there is a lot more activity now. Because of the closure, clients also have a sense of urgency."
Banks have already mobilised over $52 billion as of August 13 under the scheme, with the latest data showing $52.3 billion mobilised by August 14. According to Business Standard, total mobilisation under the RBI's concessional swap window through FCNR(B) deposits could still reach $60-70 billion by August-end, despite the RBI closing the scheme early. Indian banks have collectively raised $6.3 billion since the scheme was implemented on June 5, up from $850 million earlier this year, data from Cbonds showed, notching a record high for any calendar year. SBI Research has said that FCNR(B) mobilisation could reach $60-65 billion, even as the RBI's decision to truncate the window had come as a surprise to market participants, particularly after RBI Governor Sanjay Malhotra had indicated in a recent media interaction that there was no intention to close the scheme early.
