Indian banks are staring at a deposit erosion of Rs 1.5-2 lakh crore between September and November as Foreign currency non-resident deposits (FCNR) mobilised in 2013 mature around that time. This could result in an acute liquidity shortage and a possible de-growth of balance sheets.

• At the deposit growth rate now, banks mobilise roughly Rs 2.4 lakh crore of deposits in three months.
• To maintain the same growth, banks will have to raise at least Rs 4 lakh crore in those three months.
• “The liquidity impact to be felt by banks around the maturity time could be significant,” said Indranil Pan, chief economist at IDFC Bank.
• Banks have started preparing for the outflow. Some are even planning to raise deposit rates around that time to replenish their books.
• This is despite the Reserve Bank of India (RBI) getting ready to provide liquidity support and extend special measures to nullify the shortage.
• The central bank might even announce some measures in its April 5 policy review, or at least communicate to the market its preparedness for supporting the liquidity of banks, as lenders have asked the central bank to assure the market that all would be well.
• The central bank has also built up a formidable long forwards position in dollars for that time — $21.15 billion in more than three months and up to one year segment that can be used to honour the pay-outs.
• The central bank’s short position then would be $24.67 billion, indicating RBI was ready to infuse enough dollars to avoid exchange rate volatility.