MUMBAI: Top private bank chiefs are taking a cautious view of RBI’s FCNR(B) deposit window, with lenders saying tax rules, overseas liquidity conditions and regulatory constraints could limit inflows below initial estimates.HDFC Bank MD & CEO Sashidhar Jagdishan said potential inflows under the scheme may be lower than initially expected because tax rules make the ‘borrowing to invest’ option unattractive for many overseas Indians outside West Asia and Singapore. “When the scheme was launched, the impact of taxation for NRIs was not fully assessed. Subsequently, we’ve realised that jurisdictions outside the Middle East and Singapore do not make economic sense because taxation is on a gross interest basis,” Jagdishan said, adding that many OCIs and NRIs in Europe, the US and Australia are therefore unlikely to use the window.Jagdishan said this could reduce the initial estimate of $60-80 billion in potential inflows. He also said liquidity constraints in West Asia, where geopolitical tensions have prompted central banks in countries such as the UAE and Oman to discourage or cap leverage and require banks to maintain higher liquidity buffers, have reduced the amount banks can raise.
“What was $60-80 billion could be somewhere around $50-55 billion is what the country is expected to get,” Jagdishan said, adding that he was relying on estimates from market experts rather than his own assessment. He said HDFC Bank had raised substantial amounts in the past few days but declined to disclose the amount.Jagdishan said HDFC Bank also faces constraints because of an embargo imposed by the UAE regulator on onboarding new customers. He added that an advisory by the Central Bank of the UAE covering foreign representative offices in the region has further constrained their activities.Kotak Bank MD & CEO Ashok Vaswani, like other private bank chiefs, did not disclose any targets. “It really is a matter of how much we can tie up with partner banks to provide the leverage. That’s what will determine the quantum of leverage. That determines the size at which we give leverage. It’s still early days,” he said.ICICI Bank executive director Sandeep Batra said the bank would offer leverage based on the customer’s profile and “whatever leverage our partners are willing to offer.”“We will be tapping the Indian diaspora. You are aware that we have got a large international presence, and we will leverage all our international branches, especially those in West Asia.” While Batra did not disclose any targets, he said an FCNR(B) deposit programme would be marginally NIM-dilutive overall.Axis Bank MD & CEO Amitabh Chaudhry said, the scheme was an opportunity to grow and bring down costly liabilities. On the amount banks can raise, Chaudhry said several factors would determine the outcome. “We have to look at leverage, we have to look at the rate at which the lending is being done, we have to look at what the base deposit rate is. When people pick up just one parameter and start quoting it as if some miracle is happening, that can be avoided. Every parameter has to be looked at, and finally, you have to look at the overall return being given to the customer. So, I think it’s an evolving space. There’s no point in speculating on what, where or how much,” Chaudhry said.
