Reserve Bank of India (RBI) is slashing banks' overseas borrowing costs by 2 to 2.5 percent This move should let banks get funds at better rates,boosting liquidity in financial system,according to Motilal Oswal Financial Services report.
Beyond cutting costs,RBI's concessional USD/INR swap facility for ECBs and overseas foreign currency borrowings (OFCBs) is expected to slash hedging expenses for banks. It will help mobilize overseas funds while keeping funding costs in check. brokerage noted these steps could relieve banks facing deposit mobilization pressures .
“The borrowing cost for banks 50 percent,which will enable the system to raise resources while keeping funding costs under control,”report stated.
And RBI's actions on Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits could boost foreign exchange reserves and improve liquidity. Report highlighted attractive dynamics for depositors and banks under FCNR(B),estimating 15 to 26 percent returns on leveraged deposits for customers. Banks might see 0.65 percent extra spreads by using these funds,a win-win situation.
To draw more inflows,banks have hiked FCNR(B) deposit rates in 3 to 5-year range to 6-7 percent,after RBI's special swap window announcement running till end of September.
