RBI's Dollar-Rupee Swap Boosts Private Banks Q2 Growth

Despite a slower-than-expected pace, domestic headline growth has continued to show resilience, bolstered by a more measured approach that has yielded a healthier overall trajectory.

As part of its June facility, HDFC Bank has seen a significant influx of deposits, with the bank also extending its reach through overseas lending, thereby bolstering its balance sheet. The facility has proven particularly beneficial for FCNR mobilisation, enabling banks to exchange dollars with the RBI at preferential rates.

The RBI's concessional dollar-rupee swap facility for FCNR(B) deposits has been a significant boost to private banks' Q2 growth. This facility, introduced in June, has allowed banks to mobilise more funds and deploy them overseas. This has been a key driver of their growth.

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According to Yes Bank, the facility has helped to moderate credit growth to 17.7% from 23.8% and deposit growth to 13.2% from 19.5% after adjusting for FCNR-linked lending/mobilisation.

The facility has also helped to reduce the gap between headline and underlying growth. As banks have been able to deploy more funds overseas and grow their deposits and advances, their overall growth has been more stable. IDFC First Bank's gross advances grew 29.9%.

Against 20.4% domestically after excluding Rs 24,885 crore of IBU leverage, a shows the facility's effectiveness in boosting bank growth.

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The concessional dollar-rupee swap facility has been a major shift for private banks in India. This enables them to tap into the global dollar market and deploy funds overseas. With this facility, banks can now exchange dollars with the RBI at preferential rates, making it easier for them to mobilise funds and deploy them overseas.

A sign of the facility's positive impact on the bank's growth. Kotak's underlying deposit growth was around 12.7% after excluding Rs 55,344 crore of FCNR(B) deposits, a notable achievement for the bank.

As the Indian banking sector continues to navigate the global economic landscape, the concessional dollar-rupee swap facility is likely to play an increasingly important role in driving growth and stability. With its ability to mobilise funds and deploy them overseas. This facility is set to remain a key driver of private bank growth in the coming months.