According to market sources, foreign banks like Standard Chartered Bank and Deutsche Bank have been the most aggressive in getting FCNR deposits. “It helps their foreign branch to show lending growth, while the Indian branch can show good deposits. They also make money on the arbitrage during the currency swap,” said a senior official at a private sector bank.
Since the bulk of the FCNR funds are flowing in through foreign banks, bankers expect deposit and credit growth within that segment of the banking system to pick up. As on June 30, foreign banks accounted for 4.2% of the banking system’s deposit base and 5.2% of the gross bank credit.
Systemic liquidity conditions will also benefit from the increased inflows, say bankers. Along with a pick-up in deposit growth, liquidity conditions too have eased as a result of the inflows.
“Slowly these flows will add to liquidity in the market,” said NS Venkatesh, head, treasury, at IDBI Bank.