Punjab National Bank (PNB), one of India's largest public sector lenders, is preparing to raise approximately $1 billion through a five-year loan arrangement coordinated with international financiers. The fundraising initiative is designed to bolster the bank's foreign currency resources and expand participation in overseas deposit programs.

The loan will be eligible for the Reserve Bank of India's (RBI) special swap facility, a mechanism that allows banks to convert foreign currency deposits into rupees at a concessional exchange rate, thereby reducing currency risk and lowering the cost of raising dollar funds.

The initiative reflects a broader trend among Indian banks, which are increasingly seeking to tap into dollar funding to capitalize on overseas client deposits. Lenders are targeting potential leveraged investors in the foreign exchange deposit program, aiming to strengthen their foreign currency non-resident (FCNR) account offerings. The move mirrors earlier large-scale dollar fundraising efforts by peers such as State Bank of India, which has periodically accessed overseas markets to support FCNR on-lending and trade finance.

FCNR deposits, denominated in foreign currencies such as the US dollar, the British pound, and the euro, allow non-resident Indians to park their overseas earnings with Indian banks without exposure to exchange rate fluctuations. These deposits have historically been an important source of foreign exchange inflows for the Indian banking system. They gained particular prominence in 2013, when the RBI opened a special concessional swap window for FCNR(B) deposits during a period of rupee volatility, mobilizing roughly $34 billion in foreign exchange inflows over a short window.

The RBI has periodically introduced special swap windows for FCNR deposits to attract foreign currency inflows and stabilize the rupee. The facility enables banks to access dollar funding at competitive rates while managing the currency and interest rate risks associated with mobilizing overseas deposits.

PNB's fundraising plan comes as Indian banks look to diversify their funding sources and build foreign currency buffers to support trade finance and overseas lending activities. The fundraising also comes at a time when India's external sector remains a focal point for policymakers, with the country's foreign exchange reserves fluctuating and the rupee's exchange rate against the dollar being closely monitored by market participants.

Source: Economic Times Markets