Foreign banks step up leverage to attract FCNR(B) deposits from NRIs

Some foreign banks are offering leverage of up to 19 times FCNR(B) deposits to attract NRI funds as lenders intensify mobilisation efforts under the RBI's special scheme

With initial inflows from the special FCNR(B) deposit scheme lagging expectations, some foreign banks have stepped up the leverage offered to non-resident Indian (NRI) customers to as much as 19 times the value of their deposits.

 

Most large domestic banks had initially settled around a leverage of 9x. However, sources said some foreign banks have since raised the multiple significantly in a bid to attract higher FCNR(B) inflows. Leverage refers to the multiple of the FCNR(B) deposit that a bank is willing to lend against.

 

While large banks are offering 6 per cent on such deposits, smaller lenders are offering over 7 per cent. Earlier this month, Ujjivan Small Finance Bank revised its FCNR(B) deposit rate to 7.50 per cent for a tenure of 3-5 years.

   

According to Barclays, flows under the FCNR(B) scheme have been around $6-7 billion, with State Bank of India (SBI) attracting around $2 billion. The foreign brokerage sees the potential for $25-30 billion of FCNR(B) inflows as a reasonable base case over the next few months, with upside risks.

 

Bankers said interest among NRIs in the scheme remains strong, with inflows expected to gather pace from the third week of July as lenders intensify customer outreach and finalise leverage arrangements. August and September are likely to account for the bulk of the deposits.

 

In a meeting with Finance Minister Nirmala Sitharaman this week, public sector bankers said there was an encouraging response from the Indian diaspora, particularly in Singapore, Hong Kong, West Asia, the United Kingdom, the United States and other overseas markets.