Strong interest from overseas depositors has helped State Bank of India (SBI) raise more than $1.5 billion through foreign currency deposits under a special facility introduced by the Reserve Bank of India (RBI) last month.
The scheme has attracted significant demand due to its higher returns. With the RBI covering the full hedging cost, banks are offering attractive interest rates of around 7.5% in some cases for eligible deposits.
The special facility was announced in June as part of the RBI’s efforts to strengthen India’s foreign exchange reserves amid uncertainties caused by the US-Iran conflict. It supports banks raising 3-year to 5-year foreign currency deposits by subsidising hedging costs.
According to people familiar with the matter, SBI is also providing depositors with leverage of 9 times. Under this arrangement, customers invest a portion of their own funds, borrow 9 times that amount from an overseas bank at a lower interest rate, and deposit the total amount in India to earn higher returns.
Banks have intensified efforts to attract deposits from India’s 35 million-strong diaspora. They are expanding marketing campaigns and deploying relationship managers in key overseas markets, including the Middle East, Singapore, and London.
Industry experts believe banks may also widen their focus beyond high-net-worth individuals to increase participation under the scheme.
Provisional RBI data showed that foreign currency non-resident (FCNR) deposits across the banking system stood at $166 million in April, compared to $272 million during the same period last year. These figures were recorded before the concessional swap facility was introduced, highlighting the strong response SBI has received since the scheme began.
According to SBI’s website, the bank currently offers interest rates of 5.25% to 5.75% on 3-year to 5-year foreign currency deposits of up to $1 million, while deposits above $1 million earn between 5.5% and 6%.
The initiative is similar to the 2013 programme launched during the taper tantrum, when India mobilised nearly $34 billion to stabilise the rupee.
Also read: Viksit Workforce for a Viksit Bharat
Do Follow: The Mainstream LinkedIn | The Mainstream Facebook | The Mainstream Youtube | The Mainstream Twitter
About us:
The Mainstream is a premier platform delivering the latest updates and informed perspectives across the technology business and cyber landscape. Built on research-driven, thought leadership and original intellectual property, The Mainstream also curates summits & conferences that convene decision makers to explore how technology reshapes industries and leadership. With a growing presence in India and globally across the Middle East, Africa, ASEAN, the USA, the UK and Australia, The Mainstream carries a vision to bring the latest happenings and insights to 8.2 billion people and to place technology at the centre of conversation for leaders navigating the future.