HSBC buys at least US$3 billion of India bonds after deposit boost

[MUMBAI] HSBC Holdings has purchased at least US$3 billion of Indian government bonds since July, deploying a large pool of funds garnered under a special diaspora dollar deposit programme, according to people familiar with the developments.

The lender has bought bonds around the 5-year maturity bracket over the past couple of months as it seeks avenues to park the funds it has attracted under the Reserve Bank of India’s so-called foreign currency non-resident, or FCNR(B) programme, the people said, asking not to be named discussing private matters.

HSBC has outpaced global rivals in collecting funds under the programme, with latest data showing the lender had mobilised US$6.3 billion as of July 30. The UK bank’s haul has now topped the US$10 billion mark, the people said.

An HSBC spokesperson did not respond to an email seeking comment.

The development underscores how the enthusiastic response to the central bank’s dollar inflow programme has not only supported the rupee but also anchored borrowing costs in the economy. Even as global bond markets face pressure from concerns of elevated debt supply, Indian sovereign notes have been supported by the huge boost to cash from the hefty foreign flows.

Yields on 5-year government notes have dropped around 31 basis points since June 5, when the RBI announced the overseas dollar window as it sought to attract foreign capital and support the rupee. That outstrips a fall of 12 basis points in the benchmark 10-year yield. The lower borrowing costs cushion the economy even as the US-Iran war keeps oil prices elevated, straining India’s external finances. 

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Under the RBI’s programme, lenders have been given a window to swap dollars for rupees with the central bank at a concessional rate for a limited period. This eliminates currency risk for the lenders, allowing them to offer lucrative rates of interest to overseas clients. When those dollars are swapped, banks have rupees at their disposal that need to be invested. 

Banks have garnered US$65.4 billion under the diaspora deposit scheme, the RBI said at weekend. Meanwhile, surplus liquidity in the local banking system rose to about 4 trillion rupees (US$41.8 billion) last week, the highest since April, according to a Bloomberg Economics index. BLOOMBERG