SBI expects $10 billion FCNR(B) deposits to support lending, lower funding costs
Mumbai: State Bank of India (SBI) has mobilized about $6 billion in deposits under the Reserve Bank of India’s special foreign currency non-resident (FCNR-B) deposit window and expects to raise about $10 billion (close to ₹1 trillion), chairman C.S. Setty said on Friday.
Speaking after the bank announced its first-quarter results, Setty said SBI did not have a specific mobilization target, but the additional funds would help finance loan growth while reducing reliance on expensive bulk deposits.
Calling the liquidity from FCNR(B) deposits a “good, positive development”, Setty pointed out that large banks stand to benefit more from these flows.
“Everyone will try to see that the bulk deposits are priced reasonably, if not completely moving out of bulk deposits. Essentially, as long as these flows are adequate to cover credit growth, SBI will not be aggressively pricing the bulk deposits,” he said.
Setty added that an inflow of around ₹1 trillion does not materially “move the needle” on the bank’s ₹60 trillion deposit base and will help fund incremental loan growth. “I do not think deploying ₹1 lakh crore (trillion) is a problem for SBI where we are looking at 15% credit growth, which means in around a year, we will be growing ₹5-6 lakh crore,” he said.
The RBI has allowed banks to extend leverage against FCNR(B) deposits, enabling overseas depositors to reinvest the proceeds for potentially higher returns. Several lenders have offered leverage of 9-10 times, while some foreign banks have gone higher to attract inflows, Mint reported on 16 July.
Setty said SBI has largely been providing leverage through its own overseas branches, particularly its GIFT City branch, instead of tying up with foreign banks. The lender is also exploring the use of standby letters of credit (SBLCs) to extend such leverage. “We have an SBLC bank product also, but it’s not widely used at this moment,” he said.
Asked whether the large FCNR(B) inflows would dilute net interest margins (NIM), as some private-sector lenders have indicated they could, Setty said it was too early to assess the impact because lower funding costs could offset any pressure on margins.
“We are sticking to our guidance of 3% NIM for the full year and RoA (return on assets) of 1% and RoE (return on equity) of about 15%,” he said.
SBI reported an NIM of 2.86% in the June quarter, up five basis points sequentially. RoA stood at 1.11%, while RoE was 17.87%.
On Friday, India’s largest bank reported a 10.2% year-on-year (y-o-y) rise in net profit to ₹21,121 crore for the April-June quarter and a 14.9% rise in net interest income (NII) to ₹46,992 crore.
Following the results, shares of the bank jumped 3.6% to ₹1,124.5 on the NSE, but later pared some gains to close 1.1% higher at ₹1,097.20. Comparatively, the Nifty Bank Index ended 0.55% lower today at 57,746.45.
Credit vs deposit
In terms of outlook, Setty pegged overall deposit growth for the year at 10-11%. In the first quarter, total deposits of the bank grew 9.73% y-o-y and 0.5% sequentially to ₹60.1 trillion.
On the other hand, credit growth for FY27 is seen at 14-15%, slower than the over 18% growth seen in Q1. Gross advances rose 18.6% y-o-y to ₹50.5 trillion as of 30 June.
On the persistently wide gap between the pace of loan and deposit growth at the bank, Setty said: “With our excess liquidity, what we have in our balance sheet at this moment, 10-11% deposit growth rate will comfortably provide the adequate funding for our credit growth.”
The bank also has liquidity in the form of excess statutory liquidity ratio (SLR) to the tune of ₹3.1 trillion, which it can tap into to fund its lending.
Setty attributed the accelerated credit growth in Q1 to a low base in the corresponding quarter of the previous year.
“The first quarter has been a surprise quarter across the banking industry because the Q1 of the previous year was generally muted. But what we are seeing is the traction in terms of credit growth, which is likely to continue into Q2,” Setty said, adding that there will be some moderation in credit growth from Q3 onwards given that credit growth in the second half of the previous year was “very robust”. “That’s the reason 14-15% growth overall seems to be a more realistic guidance.”
“I think we have a potential to go up to 80% CD (credit-deposit) ratio without having any stress on our funding ability,” Setty said. The bank posted a CD ratio of 74.23% for Q1.
As such, credit demand remains strong across sectors, including retail, agriculture and MSME. The bank also has a strong pipeline for corporate loan sanctions across sectors such as renewable energy, power, services sector and data centres, Setty said.
