Foreign currency non-resident (bank) or FCNR(B) deposits raised by Indian banks under a special forex swap facility are expected to strengthen their funding and liquidity positions, ratings agency Moody’s said on September 9, according to Reuters.

The Reserve Bank of India (RBI) said on September 3 that banks had mobilised $136.38bn through its forex swap facility as of August 31, with most of the inflows coming through a dollar deposit scheme targeted at the Indian diaspora.

Moody’s said the increase in FCNR(B) deposits was credit positive for banks as it would help limit further increases in their loan-to-deposit ratios.

The additional foreign-currency funding could also reduce competition among banks for domestic deposits, while allowing some lenders to replace more expensive wholesale funding, the ratings agency said.

FCNR(B) deposits typically have maturities of three to five years, providing banks with a more stable source of funding. However, Moody’s warned that the concentration of deposits raised over a relatively short period could increase refinancing and maturity-concentration risks.

The ratings agency said banks would therefore need to manage the maturity profile of the additional deposits as they approach redemption.