Top private bank chiefs are tempering expectations for the Reserve Bank of India's FCNR(B) deposit window, with lenders pointing to tax rules, overseas liquidity conditions, and regulatory constraints that could keep inflows below initial estimates, according to executives speaking in Mumbai.
Revised Inflow Estimates
HDFC Bank MD & CEO Sashidhar Jagdishan said potential inflows under the scheme may be lower than initially expected because tax rules make the 'borrowing to invest' option unattractive for many overseas Indians outside West Asia and Singapore. "When the scheme was launched, the impact of taxation for NRIs was not fully assessed. Subsequently, we've realised that jurisdictions outside the Middle East and Singapore do not make economic sense because taxation is on a gross interest basis," Jagdishan said, adding that many OCIs and NRIs in Europe, the US and Australia are therefore unlikely to use the window.
Jagdishan said this could reduce the initial estimate of $60-80 billion in potential inflows to around $50-55 billion. He also cited liquidity constraints in West Asia, where geopolitical tensions have prompted central banks in countries such as the UAE and Oman to discourage or cap leverage and require banks to maintain higher liquidity buffers, reducing the amount banks can raise. Jagdishan said HDFC Bank had raised substantial amounts in the past few days but declined to disclose the amount.
Tax and Regulatory Hurdles
Jagdishan noted that HDFC Bank also faces constraints because of an embargo imposed by the UAE regulator on onboarding new customers. He added that an advisory by the Central Bank of the UAE covering foreign representative offices in the region has further constrained their activities.
Kotak Bank MD & CEO Ashok Vaswani said it really is a matter of how much the bank can tie up with partner banks to provide leverage. "That's what will determine the quantum of leverage. That determines the size at which we give leverage. It's still early days," he said. Vaswani did not disclose any targets.
Bank-Specific Strategies
ICICI Bank executive director Sandeep Batra said the bank would offer leverage based on the customer's profile and "whatever leverage our partners are willing to offer." He added: "We will be tapping the Indian diaspora. You are aware that we have got a large international presence, and we will leverage all our international branches, especially those in West Asia." Batra did not disclose any targets but said an FCNR(B) deposit programme would be marginally NIM-dilutive overall.
Axis Bank MD & CEO Amitabh Chaudhry called the scheme an opportunity to grow and bring down costly liabilities. On the amount banks can raise, Chaudhry said several factors would determine the outcome. "We have to look at leverage, we have to look at the rate at which the lending is being done, we have to look at what the base deposit rate is. When people pick up just one parameter and start quoting it as if some miracle is happening, that can be avoided. Every parameter has to be looked at, and finally, you have to look at the overall return being given to the customer. So, I think it's an evolving space. There's no point in speculating on what, where or how much," Chaudhry said.
| Bank | Executive | Key Comment |
|---|---|---|
| HDFC Bank | Sashidhar Jagdishan | Inflows may be $50-55 bn vs $60-80 bn estimate; tax, liquidity constraints |
| Kotak Bank | Ashok Vaswani | Quantum depends on partner bank leverage; early days |
| ICICI Bank | Sandeep Batra | FCNR(B) marginally NIM-dilutive; leveraging West Asia branches |
| Axis Bank | Amitabh Chaudhry | Multiple factors at play; avoid single-parameter speculation |
Implications for Trade Finance and Capital Flows
The cautious outlook on FCNR(B) inflows carries direct implications for India's external financing and bank funding costs. These deposits, typically swapped into rupees, help shore up the country's foreign exchange reserves and provide a stable source of foreign currency funding for banks. Lower-than-expected inflows may reduce the immediate pressure on the rupee but also limit banks' ability to lower their overseas borrowing costs. Treasury professionals should monitor the actual drawdown under the window, as well as any further regulatory guidance from the RBI or Gulf central banks, to assess the impact on trade finance cost of capital and broader capital flow dynamics.
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