FCRN-B: Comparing Rates & IRRs; Tad Higher IRRs Can Lift Mobilization

Research evidence excerpt

FCRN-B: Comparing Rates & IRRs; Tad Higher IRRs Can Lift Mobilization

ge IRRs (11-12%) from large private banks and PSU banks; and lower

FCNR-B: RBI FAQs Supportive, But SomeIRRs (sub-11 %) from SBI.

Rate Hikes Needed to Lift Mobilisation

SBI's IRR: lower for 3yr IRR, but higher for 5yr. SBI's IRR for 3yr FCNR-B deposit at 10% is

Feedback from Banks and Depositors;below peers (11-12%), due to lower rack rate. However, its IRR for a 5yr (14%) is above peers

Select Rate Revision May Be Neededat (12-13%), as its rack rate is at par with peers & cost of funds is lower.

FCNR-B: Clarity on Foreign BranchDifferentiated IRRs can be offered: While baseline IRRs on FCNR-B deposits may not look

Leveraging Key; Watch out for FAQ fromvery attractive to financially savvy investors (3yr IRR of 10-12%), banks indicate (1) UHNI and

RBIbroader communities seem content, (2) banks have scope to offer higher IRR (through higher

rack rate or leverage) to UHNI/HNI to improve. FCNR-B Deposits: What Do Banks' New

Rates Tell?Borrow before lending. Banks are currently focused on raising funds to provide leverage/loans

to clients. Interestingly, if the sector aims to raise $60bn in FCNR-B with blended leverage Terms of FCNR-B and ECB Allow Leverage

of 6x-9x, then the banks will need to raise >US$50bn in funds through bonds or credit lines That Can Boost Forex Inflows

from partner/ foreign banks. So far, through bonds, banks have raised only a fraction of the

requirement, even as clarity on credit lines is not publicly available. FCNR-B Announced, But Clarity on

Leverage Key to Large-scale Inflows

Cross-currency swap cost and hedging cost on interest rates are a drag on the client's IRR.

While RBI will bear the cost of hedging the principal value of deposits from clients in US$ terms,