PSU Banks Mobilise 12.7 Billion Dollars in FCNR Deposits Under RBI Swap Window

Public sector banks mobilised approximately $12.7 billion through Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, heavily aided by the Reserve Bank of India’s (RBI’s) special swap window, attractive pricing, and diaspora outreach, top lenders announced on Monday.

Speaking at the Business Standard BFSI Insight Summit in Mumbai during a panel discussion titled "The FCNR(B) Playbook," chiefs of leading state-run banks outlined how the central bank's regulatory framework turned a challenging liquidity and currency landscape into an effective deposit mobilization drive.

The panel, moderated by Business Standard’s Contributing Editor Tamal Bandyopadhyay, included Debadatta Chand, Managing Director and Chief Executive Officer of Bank of Baroda; Ashok Chandra, MD & CEO of Punjab National Bank; Asheesh Pandey, MD & CEO of Union Bank of India; Rama Mohan Rao Amara of State Bank of India; and Binod Kumar of Indian Bank.

Key Catalysts Behind the Surge

Bank leaders identified several operational mechanisms that enabled the successful dollar haul across domestic lenders:

• RBI Swap Concessions: The central bank’s concessional USD-INR forex swap window protected lenders against extreme hedging costs, allowing them to offer attractive yields while securing dollar inflows.
• Diaspora Leverage: Banks proactively engaged non-resident Indian (NRI) networks, leveraging foreign-currency fixed deposit products with maturities ranging primarily between three and five years.
• Coordinated Outreaches: Heightened awareness drives, synchronized domestic banking efforts, and competitive dollar-denominated returns encouraged NRI depositors to park funds in Indian banks.

Asheesh Pandey, MD & CEO of Union Bank of India, noted that the combination of clear financial incentives, broader awareness, and concerted execution across public sector balance sheets made the outreach effective in drawing foreign capital.

Balance Sheet and Liquidity Implications

The deployment of the RBI swap facility has brought multi-fold benefits to the domestic financial ecosystem. The surge in dollar inflows significantly strengthened India’s external balance sheet while replenishing banking system liquidity.

Money-market rates have softened as the systemic liquidity surplus expanded, leading to a marked decrease in fresh issuances of high-cost domestic certificates of deposit (CDs). By reducing dependence on expensive wholesale domestic funding, lenders have been able to ease aggregate deposit costs even amid elevated credit demand across corporate and retail portfolios.

Managing Leveraged Inflow Risks

While acknowledging the immediate benefits of the liquidity buffer, the banking chiefs highlighted the importance of prudent risk management. A significant portion of overseas deposits arrived via leveraged financing structures, where overseas depositors borrow in foreign currencies to invest in high-yielding Indian instruments.

Panelists emphasized that banks must actively monitor duration gaps and hedging mechanisms as these three-to-five-year liabilities approach maturity. Establishing prudent liquidity buffers and managing foreign currency loan books will be critical to prevent sudden refinancing frictions or pressure on the rupee when these swap contracts mature.