Indian banking stocks are in focus after Jefferies analysed the economics of Foreign Currency Non-Resident Bank (FCNR-B) deposits. The brokerage highlighted that while banks compete on deposit rates, the ultimate profitability depends on the Internal Rate of Return (IRR), funding costs and leverage strategies rather than headline interest rates alone.

• Differences in FCNR-B deposit rates are larger than differences in Internal Rate of Return (IRR).
• State Bank of India's (SBI) three-year IRR is below several peers.
• SBI's five-year IRR compares more favourably and is above peers.
• Foreign banks generally offer lower deposit rates but achieve better IRRs through balance-sheet leverage.
• Banks may need to strengthen funding for leveraged clients before significantly increasing FCNR-B mobilisation.

FCNR-B deposits allow Non-Resident Indians (NRIs) to maintain fixed deposits in foreign currencies without bearing exchange rate risk on the principal and interest. These deposits provide banks with an important source of foreign currency funding and can support lending, liquidity management and overseas business operations.

• Future FCNR-B deposit mobilisation across major banks.
• Funding costs and Net Interest Margin (NIM) trends.
• Liquidity management strategies.
• Growth in NRI deposits.
• Competitive pricing among public and private sector banks.

• State Bank of India (SBI).
• Large private sector banks with significant NRI business.
• Foreign banks operating in India.
• Banks actively mobilising overseas deposits.

Investor Takeaway

Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, observes that Jefferies' analysis highlights an important distinction between offering attractive deposit rates and generating sustainable returns from those deposits. For long-term investors, the focus should remain on banks that efficiently manage funding costs, maintain healthy margins and deploy capital effectively rather than simply offering higher deposit rates.

Disclaimer: This article is for educational purposes only and summarizes a brokerage's analysis. Brokerage opinions are subject to change and should not be considered investment advice.

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