Indian banks have raised $12 billion through overseas debt, riding a wave of foreign-currency borrowing linked to the Reserve Bank of India's (RBI) swap support for foreign currency non-resident (bank), or FCNR(B), deposits.

This week was the busiest for forex debt issuance by Indian lenders. ICICI Bank, Kotak Mahindra Bank, IDFC First Bank, HDFC Bank and Bank of Baroda together raised $4.4 billion, and the bulk of the proceeds may be used to help fund the leverage for FCNR(B) deposits, the Economic Times reported.

FCNR(B) deposits booked by August 31 qualify for the swap support.

FCNR(B) accounts are term deposits that non-resident Indians can hold with Indian banks in permitted foreign currencies, such as the US dollar. Under the RBI's swap facility, banks are able to hedge the currency risk associated with such foreign-currency deposits, a mechanism that supports the mobilization of overseas funds by Indian lenders. Because such deposits must be repaid in foreign currency, an unhedged book leaves banks exposed if the rupee weakens against the dollar; the swap transfers that exposure to the central bank, which is what allows lenders to scale up overseas fund-raising.

The RBI has used this playbook before. During the 2013 taper-tantrum episode, when the rupee slid to then-record lows, the central bank opened a concessional swap window for FCNR(B) deposits and bank overseas borrowings that drew about $34 billion, a mobilization widely credited with helping steady the currency at the time. How much Indian banks ultimately raise under the current window will become clear once the August 31 booking deadline has passed.

Source: Economic Times Markets