HSBC Holdings Plc has purchased a minimum of $3 billion worth of Indian government bonds, utilizing a portion of the $5.5 billion in Non-Resident Indian (FCNR(B)) deposits it attracted through the Reserve Bank of India's concessional swap window. The bank achieved this by offering high leverage to non-resident Indians, enabling it to secure these significant deposits. This strategy positioned HSBC as a leader among global rivals in capturing diaspora wealth via this special RBI facility.
Foreign banks, including HSBC, have been actively deploying these foreign currency deposits into short to medium-term government securities because their retail and corporate loan books in India are not large enough to absorb such substantial inflows. This increased demand for government bonds, particularly in the three-to-five-year maturity range, has contributed to a softening of yields at the shorter end of the curve. The five-year bond yield, for instance, has fallen more sharply than the 10-year benchmark since June.
HSBC alone accounted for over $6 billion of the more than $8 billion in FCNR(B) deposits mobilized by foreign banks by the end of July. The bank has also extended over $3.5 billion in loans to support these foreign currency deposit plans. Overall, the RBI's concessional swap facility for FCNR(B) deposits saw total inflows of $36.73 billion by July 31, with total inflows across all facilities (including overseas foreign currency borrowings and external commercial borrowings) reaching $40.82 billion. SBI Research has raised its estimate for total inflows through this window to $80-85 billion.
