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Banks Slash Costly Deposits Amidst Foreign Inflows
31 Aug
Summary
- Indian banks are reducing expensive bulk deposits.
- Foreign currency inflows are optimizing funding costs.
- Banks expect to mobilize significant amounts via FCNR-B.
Indian banks are strategically reducing their reliance on costly bulk deposits, a move facilitated by significant foreign currency inflows, primarily through the FCNR-B window. This optimization of funding costs is anticipated to enhance the net interest margins (NIMs) and overall profitability for lenders, especially larger banks.
Larger banks, in particular, could see savings of approximately 25-60 basis points in their incremental deposit costs as they replace high-cost bulk funds with FCNR-B deposits. This shift is attractive as it bypasses hedging costs and reserve requirements. Banks collectively are expected to mobilize between $80-85 billion through the FCNR-B window, surpassing initial estimates and strengthening their medium- to long-term liquidity.
