Indian Banks Rise On RBI Forex Swap Window For Lenders’ Overseas Borrowings
Adedokun Waliyu
2 min read
Shares of Indian banks gained on Tuesday after the country’s central bank extended a subsidised forex swap facility to overseas foreign currency borrowings by lenders.
Banks can avail a concessional swap from the Reserve Bank of India for overseas borrowings of a minimum maturity of three years, a Reserve Bank of India notification released late on Monday showed.
The RBI has allowed lenders to use concessional swaps to raise overseas borrowings as part of a raft of measures to boost inflows into Asia’s third-largest economy that faces growth and inflation challenges from the months-long Iran war.
The Nifty Bank index (.NSEBANK), opens new tab was 1.4% higher at 12:08 p.m. IST in Mumbai, while the benchmark Nifty 50 (.NSEI), opens new tab was up 0.2%. Banks rose 0.4% on Friday, before dropping 0.8% on Monday.
“The banks are allowed to raise 100% of their unimpaired Tier I capital as Overseas Foreign Currency Borrowing (with some caveats). On that basis, the potential OFCB issuance limit stands at close to 30 trillion rupees,” Citi Research said.
The brokerage said that adjusting for the outstanding OFCB, the potential fresh issuance could be as high as $25 billion to $30 billion.
Citi said $10 billion in OFCB issuances in this fiscal year would turn India’s balance of payments positive at $5 billion for the year.
Banks will also benefit from the FX deposits raised from non-resident Indians, which will also be offered with concessions due to the forex swap facility.
ICICI Securities said the measure should improve the liability profile of banks by increasing the share of stable medium-term foreign currency deposits while reducing reliance on domestic deposit mobilisation.
India’s bank index has fallen 8.2% so far this year, while the benchmark Nifty has lost 11.4%.
