India asks state-owned banks to step up foreign currency deposits

The Centre has asked state-run banks to intensify efforts to mobilise NRI deposits as policymakers seek to strengthen foreign exchange reserves

By Siddhi Nayak

 

India has asked state-owned banks to intensify efforts to garner foreign currency deposits from the 35-million-strong diaspora, as the country seeks to boost its external buffers and shore up the flagging rupee.

 

In a meeting held Monday, Finance Minister Nirmala Sitharaman urged government-run lenders to step up engagement with non-resident Indians through outreach programs and digital channels as well as by introducing innovative deposit products, according to a statement.

 

India’s central bank Governor, Sanjay Malhotra, is scheduled to meet private and state-run bank CEOs on Tuesday to map out a plan to boost overseas deposit inflows and resolve operational issues that are limiting mobilization of funds, according to people familiar with the development. 

 

 

The Reserve Bank of India did not respond to a Bloomberg email seeking comment.

 

The back-to-back meetings in New Delhi and Mumbai underscore policymakers’ efforts to get banks to collect more foreign currency deposits from non-resident Indians as the war in the West Asia pressures local assets, including the rupee, and erodes valuable foreign exchange reserves.

 

As part of its efforts to boost reserves, India’s central bank in June offered full hedging-cost support for banks raising three- to five-year foreign currency deposits — and allowed borrowing against such funds. Since the RBI is subsidizing the plan, lenders are offering depositors interest rates as high as 7.5%, with analysts and bankers hoping the program will draw inflows of about $50 billion.

 

The drive echoes a 2013 plan launched during the taper tantrum, when India garnered about $34 billion to stem the rupee’s decline.

 

The minister also told state-run lenders to make greater use of the banking infrastructure available at India’s tax haven — GIFT City — to mobilize overseas funds, according to the statement.

 

State-run bank CEOs told the minister that foreign currency deposits have gathered momentum, helped by attractive rates. Indians in Singapore, Hong Kong, the Middle East, the UK, the US and other overseas locations have shown significant interest in the program, they said. The lenders also reported healthy appetite among companies going abroad to raise money, and expect such borrowings to pick up in the October-December period.