RBI allows lenders to exclude advances via fresh FCNR(B) deposits from ANBC
Mumbai: Ina move to offer regulatory relief to commercial banks, the Reserve Bank of India (RBI) has allowed lenders to exclude advances backed by fresh non-resident deposits from the calculation of adjusted net bank credit (ANBC) — the benchmark used to determine priority sector lending (PSL) targets.
The RBI said advances against fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with a minimum tenure of three years and a maximum tenure of five years, mobilised by banks between 8 June 08 and September 30, would be excluded from their ANBC calculation. This includes deposits renewed upon maturity.
Similarly, advances against non-resident external (NRE) term deposits with a tenure of three years or more, mobilised by banks between June 19 and September 30, would also be excluded from the ANBC calculation. This includes deposits renewed upon maturity.
Talking to Bizz Buzz, M Narendra, Former CMD, Indian Overseas Bank, said: “Under the special swap scheme for FCNR B deposits mobilised from June 19 to September 30, RBI is bearing the swap cost, thereby encouraging Banks to mop up substantial FCNR B deposits during this period as India through this special scheme wishes to encourage substantial Foreign Currency inflows as well to enhance the foreign currency reserves of India.”
It is gratifying to note that Banks have been able to mop up so far FCNR B deposits of more than $40 billion as on recent date. It has started getting encouraging response and both RBI and Finance Ministry have been reviewing regularly the progress thereof. It is now expected that by September, the amount to be brought in under this FCNR B swap scheme may exceed $60-$80 billion. The minimum tenure of FCNR deposits under this scheme is 3 years and maximum 5 years. In order to further encourage Banks now RBI has exempted any advances provided against this deposit would be excluded from their ANBC calculation. With this exemption, these advances are not included for calculation of Adjusted Net Bank Credit and thereby the Banks need not be subjected to other directed credit as advances are exempted from ANBC. The same is the case with the advances against non-resident external (NRE) term deposits with a tenure of three years or more mobilised by banks between the above period, he said.
One is that these deposits gets steady resources base for the Banks as well funds mobilised under the scheme provides medium term steady foreign exchange reserves for the country. As a further encouragement, now advances granted against these deposits are exempted from Adjusted Net Bank Credit.
MV Hariharan, former Treasury head, State Bank of India, termed the RBI’s move as ‘Regulatory Arbitrage’ and said: “Sanctioned by the regulator reflecting the current realities.” Desperate times calling for desperately frantic steps. NRIs are PEPs..or Politically Exposed Persons..according to the aforementioned regulator, he said.
Classifying these deposits as part of priority sector lending compliance appears to gloss over and dress up Bank efforts. Might be very tempting and convenient in the short term..at best. Long term implications remain known unknowns. Possibly TANA..There Are No Alternatives. Probably for a level playing field with foreign banks, he added
What will happen now?
“Well, inflation will go up. Stocks will go up in the short run but will have major impact when the outflow starts 3-5 years down when there will be rupee crunch”, said an industry expert, requesting anonymity. Having paid all the money to the govt in the form of dividend RBI does not have the wherewithal to sell and control the USD/rupee as sales may lead to lower profits and may be losses too.