A clutch of foreign banks, who have traditionally been borrowers in the overnight call money market, have become lenders of late.

According to market sources, some foreign banks that offer custodial services to foreign institutional investors are left with `float money', which forms a part of the money brought in by the FII clients.

The float money lies as a surplus with the bank between the time it comes and till it gets invested. Foreign banks are investing this surplus in the call market.

However, sources maintained that these banks are not regular lenders like the nationalised banks.

This has occurred quite often over the last few months as foreign exchange inflows from FIIs have been consistently making their way into the financial markets, as the rate of return in India are lucrative now.

Some of the other reasons cited for the trend were the foreign banks' deposit base and capital infusion by parent banks into the Indian operations.

With no investment avenues available, the excess money has been invested in treasury instruments in some way or the other.

While foreign banks have managed to mobilise substantial deposit base from the corporate clientele and urban depositors, the deposit base has become quite healthy with lack of investment avenues.

Till the middle of last month, dollar inflows from the FIIs usually went into the debt market and debt funds as the spread in interest rates between gilts in India and abroad were substantial.

However, in the recent past, with the yields on treasury securities going up in the US and elsewhere, the FII money is turning ways into the equity markets.

In India too, the equity market is offering good returns with the Sensex continuously treading northwards.

In the debt market, the money is being invested in both long-term and short-term instruments, such as treasury bills, which for sometime offered higher returns compared with the yields offered by the long-term securities.

Meanwhile, excessive dollar supplies in the foreign exchange market is forcing the rupee to rise continuously against the dollar, which, in turn, has pushed the forward premium down.

Taking into account the forward premiums and other conversion costs, dollar assets are earning better returns compared with rupee ones.