State-owned banks are ramping up efforts to attract NRI funds into FCNR(B) deposits following a directive from the Finance Minister. The initiative has already drawn $8 billion in inflows, with banks using innovative 9x leverage structures to boost potential returns for depositors. This move is designed to strengthen India's foreign exchange reserves as the scheme deadline approaches.
Finance Minister Nirmala Sitharaman has called on leaders of public sector banks to intensify their outreach to Non-Resident Indians to increase mobilization under the Reserve Bank of India's Foreign Currency Non-Resident (FCNR-B) deposit scheme. This directive comes as Indian lenders look to bolster foreign exchange reserves amid ongoing global economic uncertainty. The FCNR(B) window, which allows banks to offer competitive interest rates without previous regulatory ceilings, is currently set to remain open until September 30, 2026.
Mobilization Trends and Bank Performance
Recent data shared during the meeting indicates that approximately $8 billion has been successfully funneled into these accounts. The State Bank of India has been a significant participant in this drive, reporting over $1.5 billion in mobilization. Interest rates for these deposits currently hover between 6 percent and 6.5 percent at larger banks, while some private sector lenders are offering higher rates of up to 7.5 percent to attract capital.
Impact of Leverage on Deposit Inflows
To appeal to high-net-worth NRIs, banks are increasingly using a 9x leverage structure. In this model, banks provide financing of up to $9 million for every $1 million deposited. This structure aims to push potential returns for depositors above 15 percent, making these products more attractive than standard foreign currency deposits. While this strategy accelerates capital inflow, it also increases the exposure of banks to leveraged positions. Investors should monitor how these structures impact the balance sheets and liquidity management of the participating lenders as these volumes grow.
Broader Funding Strategy and GIFT City Utilization
Beyond FCNR(B) deposits, the government is encouraging the use of International Banking Units located at GIFT City to tap into global jurisdictions. Major lenders including HDFC Bank, Axis Bank, and the Power Finance Corporation have already utilized international bond markets to secure significant funding through concessional swap facilities. The focus remains on leveraging these facilities to maintain robust foreign exchange levels through the end of the year, with external commercial borrowings eligible for the swap facility until December 31, 2026. The effectiveness of these outreach efforts and the stability of the mobilized funds will be key areas for investors to track in upcoming quarterly results, particularly regarding the impact on net interest margins and the sustainability of these high-leverage products.