Welcoming the RBI's moves to allow banks swap fresh FCNR(B) dollars, Shyam Srinivasan, managing director and chief executive officer, Federal Bank says the move will present at least 100-150 bps opportunity.
Speaking to CNBC-TV18, Srinivasan says the popularity of FCNR (B)s will now go up, providing the bank an opportunity to raise more dollars.
“FCNR deposits relative to the rupee are less attractive for the NRI depositors particularly the mid-tier segment. However, more recently, after the last liberalisation, we have taken it up from Libor plus 300 to Libor plus 400 and now it gets more attractive for the bank because our swap cost is now sharply lower,” adds Srininvasan.
Below is the edited transcript of Srinivasan’s interview to CNBC-TV18.
Q: Coming to loan raising, will you tap that window since you can swap it with the Reserve Bank of India (RBI) at cheaper than market rate?
A: This has opened up a very good window for us. So, certainly we will explore the options. This is definitely a big boon for us in the near term.
Q: How much cheaper will money be?
A: It depends on what the demand is and how much is the overseas lender willing to, but it will definitely produce at least 100-150 bps opportunity.
Q: You have substantial amount of non-resident Indian (NRI) depositors. Will you be able to hawk the FCNR (B) or foreign currency non-resident (banks) deposits very effectively to them and how will that arithmetic work?
A: FCNR (B) deposits relative to the rupee are less attractive for the NRI depositors particularly the mid-tier segment. However, more recently, after the last liberalisation, we have taken it up from Libor plus 300 to Libor plus 400 and now it gets more attractive for the bank because our swap cost is now sharply lower. So, RBI is certainly reaching out, presenting options to clients and if they come in with leverage, it is going to be attractive but that is not something that will open up on day one.
It opens a window and certainly there is going to be more energy behind it. But so far the focus has been largely rupee. Now there is a scope for raising the dollar deposit also.
Q: What about the fact that the overseas borrowing limits have been doubled at this point. Currently what is the limit that you are operating under and how will this help you?
A: It produces an opportunity almost up to USD 500-550 million for us. It depends on two things. The first one being the overseas lenders, there is a demand certainly and they will raise pricing. So, we will have to figure out what is the best price possible but it is going to be 100 bps opportunity and as we find lending opportunities more meaningful in the country, this is going to be quite interesting for us to raise overseas money and then swap it into rupee. So, it is something that we look forward to.
Q: Will we hear from you on this count before the month is out, before the week is out?
A: On the FCNR certainly yes. On using the tier one capital, we will evaluate and then only be able to make a meaningful statement. But for the retail customers, for the NR depositors certainly yes, in fact overnight we have made some changes on that also.
Q: Do you fear that you will cannibalize your other NRI deposits or do you think you will net-net get more money?
A: I think there will be net increase because the segment is quite sharply divided. The rupee market client and the dollar deposit clients are fairly differentiated and I see this as particularly for us opening a newer window.