State banks tap $5bn in foreign currency deposits for rupee needs

State-owned Bank of India and Indian Bank have collectively raised close to $5 billion through Foreign Currency Non-Resident (FCNR) deposits, tapping into lower-cost overseas funding sources to address rupee liquidity requirements.

The two lenders are deploying the foreign currency funds to meet their rupee needs, expand lending operations, and reduce dependence on high-cost domestic deposits and borrowing instruments. FCNR deposits, which allow non-resident Indians and foreign nationals to maintain savings accounts in foreign currencies, have emerged as a more economical funding avenue for Indian banks facing persistent pressure on deposit costs.

This strategy reflects a broader shift among Indian financial institutions to diversify their funding base and optimize borrowing costs in a competitive lending environment. By securing foreign currency deposits at relatively attractive rates, the banks can convert or utilize these funds more efficiently to support domestic operations.

The mobilisation comes as Indian banks continue to grapple with rising costs of domestic deposits and increased competition for retail savings. State-owned banks have been actively exploring alternative funding channels to maintain healthy loan growth while managing net interest margins amid volatile interest rate conditions.

Both lenders' approach underscores the growing importance of overseas deposit mobilisation for Indian banks seeking to balance their asset-liability management while maintaining competitive loan pricing for customers.