FCNRs could pull USD 8-10 billion in the Indian market, but we need more clarifications on the scheme to entice investors towards it, says Shyam Shrinivasan, MD & CEO, Federal Bank.
Shyam Shrinivasan, managing director and chief executive officer, Federal Bank believes more clarifications on foreign currency non-resident deposits (FCNR) are required to draw more investors to the scheme.
Speaking to CNBC-TV18, he said, this currency-swap scheme could help bring in USD 8-10 billion in the Indian market. “It is quite possible, but I must add that there needs to be substantial clarity on their ability to borrow locally and bring in so that the borrowing cost for them is vastly lower than the opportunity that is there through the FCNR route,” he adds.
Below is the edited transcript of Shrinivasan’s interview to CNBC-TV18.
Q: Have you hawked the new product, have you got in more money. Can you give us some facts?
A: The foreign currency non-resident (FCNR) product is more attractively priced. It is Libor plus 400 for more than three year tenure and it is beginning to evince interest but the rupee deposits seem to be doing robustly. I suspect that the leverage aspect, which is very unclear yet for the customers overseas is getting sorted out. So, there must be some kind of a wait-and-watch. Therefore, right now, the amount flowing in is not profound and we are seeing movement after the increase in rates.
Q: Can you elaborate what is this leverage rule that NRI depositors are waiting clarity upon?
A: The depositors would like to see if they can get a local leverage and bring in more and try to earn on the entire amount and then, there is an obvious opportunity for them. It is probably unclear for them what the impact of the leverage is and maybe the different lenders are also trying to establish clarity so that there is no violation of any regulatory standards. That part is yet unclear and I suspect it will get sorted out in a few days and then one you will see materially more money coming in through the FCNR dollar route.
Q: Why you are saying you will get clarity. Have you approached the Reserve Bank of India (RBI)? Have they said they will write back to you shortly?
A: It is not that banks here, it’s the lending banks. I do not have an overseas branch or a network there. We only have field presence. So, they have find leverage opportunity by either the foreign banks or the banks which have overseas presence.
Q: There is an expectation by the industry and most of the industry watchers that there could an inflow of around USD 10 billion dollars into the system by November 30. Would you concur what is the on ground reality that you are facing?
A: The same number is being talked of USD 8-10 billion, which doesn't seem inconceivable. It is quite possible, but I must add that there needs to be substantial clarity on their ability to borrow locally and bring in so that the borrowing cost for them is vastly lower than the opportunity that is there through the FCNR route. Once that clarity emerges, I am sure that the numbers that has been spoken of USD 8-10 billion is quite possible and I am sure all banks are gearing up for that. In the meantime, the unleveraged money is coming in but not in a large sum. We have seen millions of dollars, not billions of dollars.
Q: The other kind of swap offered by the RBI on September 4 was that you could raise overseas bonds up to 100 percent of your tier I capital which also could be swapped at lower than market rates. Are you exploring that route?
A: Yes, that we are. We are active in the market. We have raised some money and it is not like one tranche raising. Everyday is an opportunity and at the moment this window was open, there are enough sellers and there are enough buyers, so a bargaining of price is going on and heavily dependent on the risk and the alliance that you have on overseas banks.
We are in the market. We have raised some money and we have swapped into rupees, the swap gains are not entirely one percent it could be one plus or one minus depending on the days in which. RBI allows you to swap on one given day and our day is one day so to that extent there is a variation. There is a more encouraging opportunity and we are in the markets so are other banks. So, the price discovery happens everyday.
Q: How are you looking at loan demand both for yourself and the industry?
A: Our retail and SME is trending very well. Corporate demand has picked up but I think it is more substitution from the higher cost to bank borrowings. I am not sure it is investment or new infra-led borrowing, it is just substitution and people are just shopping around for rates. The underlying corporate demand remains a question mark certainly for us and I suspect for the industry. In that retail and SME is trending very well and we had seen some slow down in gold loan in Q1 after the prices had materially dropped. That has picked back again for us.