RBI forex measures to lower banks' overseas borrowing costs by 2-2.5 per cent, aid inflows: Report

Mumbai: The RBI's recent measures to incentivise overseas borrowings could lower funding costs for banks by 2-2.50 per cent through the external commercial borrowing (ECB) route, helping lenders raise resources at cheaper rates while improving liquidity conditions, according to a report.

It also said that the RBI's concessional USD/INR swap facility for ECBs and overseas foreign currency borrowings (OFCBs) will significantly reduce hedging costs for banks, allowing them to mobilise overseas funds while keeping funding costs under control.

"The borrowing cost for banks via the ECB route is expected to fall by 2-2.50 per cent, which will enable the system to raise resources while keeping funding costs under control," said brokerage firm Motilal Oswal Financial Services in its report.


The brokerage firm said the central bank's twin measures on ECBs and Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits are likely to strengthen forex reserves, improve systemic liquidity and provide temporary relief to banks facing deposit mobilisation pressures.

The report highlighted attractive economics for both depositors and lenders under the FCNR(B) framework, estimating that customers can earn returns of 15-26 per cent on leveraged deposits, while banks may generate around 0.65 per cent of additional spreads by deploying such funds, making it a 'win-win proposition'.

It said banks have already raised FCNR (B) deposit rates in the 3-5 year bucket to 6-7 per cent to attract inflows after the RBI opened a special swap window till September-end.