A very big and positive news is coming for the Indian banking sector and the country’s macro-economy. According to Reuters report, the country’s state-run banks hope that through a special Overseas Deposit Scheme, huge foreign funds of about $ 30 billion (about Rs 2.9 lakh crore) can come into the Indian banking system. After this news quoted by economic sources, the turmoil in the financial markets has intensified, because this inflow can prove to be a game-changer in removing the liquidity crisis in Indian banks.
Estimated to be $30 billion
Five bankers with knowledge of the matter told Reuters that India’s public sector banks have told senior government officials that they expect to raise about $30 billion, or Rs 2.9 lakh crore, through the central bank’s subsidized dollar deposit window. Two sources said that the heads of public sector banks had given this estimate in a meeting held with Finance Minister Nirmala Sitharaman and other Finance Ministry officials earlier this week. A banker with direct knowledge of the matter said that public sector banks have given estimates about the amount of dollars each bank can raise during the period of the scheme. Large banks have estimated inflows of around $4-5 billion, while smaller banks will try to target $1-2 billion.
The scheme was started on June 5
On June 5, the RBI had announced a zero-cost foreign-exchange swap facility for deposits raised from non-resident Indians, allowing banks to offer higher returns on such deposits. This scheme is closing on 30th September. Earlier this week, Reuters, quoting sources with knowledge of the matter, had reported that India had received inflows of about $10 billion through the central bank’s special deposit program. The funds raised so far are a small part of the total inflow, which analysts had estimated at between $40 billion and $70 billion.
Where can foreign money come from?
Binod Kumar, Managing Director and CEO of Indian Bank, said in a Reuters report that the start has been slow, but we are confident that by September we will raise $ 2 billion under this scheme, in which most of the flow will come from Gulf countries and Singapore. Indian Bank has raised about $150 million so far. On June 23, the Central Bank clarified that banks would be allowed to give loans against these deposits and place liens on them, which would allow the use of leverage and make the program more attractive. Inflows have picked up since then, but three out of five bankers said executives expect most of the flows to come in a later period, as seen in 2013.
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