More Stories

Informist, Tuesday, Jun. 23, 2026

 

By Aaryan Khanna and Pratiksha

 

NEW DELHI – Banks are reporting tepid pickup in foreign currency non-resident bank deposits in the first two weeks after the Reserve Bank of India operationalised a swap facility, according to treasury officials. Lack of clarity on how to leverage deposits has resulted in a failure to convert client queries into healthy foreign capital inflows under one of the central bank's flagship schemes launched for the purpose earlier this month.

 

Non-resident Indians are also being dissuaded by the opportunity cost of putting money into FCNR(B) accounts in Indian banks at a time when interest rates globally are high. The increase in interest rates by scheduled commercial banks on dollar-denominated three- to five-year deposits has come keeping in mind this opportunity cost. Though the RBI lifted the ceiling on deposit rates Wednesday, no bank has so far gone past the initial regulatory ceiling of around 7.13% for dollar-denominated deposits.

 

However, some lenders, such as Bank of Baroda and Federal Bank, have raised deposit rates twice, while Bandhan Bank introduced a new category with higher rates. Some smaller private-sector and small finance banks are reassessing rates they can offer to depositors under this scheme, even above 7.13%, but the lack of returns in domestic investments of 3-5 years has prevented an immediate update, officials said. This, however, is only one reason for the slow start.

 

"There was initial interest but on a standalone basis the scheme does not offer them (NRIs) any great benefit," a treasury head at a private-sector bank said. "I think more people have called to check what the change in rate has been but are also asking for how much leverage we can provide them."

 

The RBI introduced a concessional swap facility from Jun. 8 with the aim of attracting fresh FCNR(B) deposits by bearing all the hedging costs, essentially bringing the cost of raising dollar deposits on a par with the cost of rupee deposits. As per data compiled by Informist, DCB Bank Ltd., Ujjivan Small Finance Bank Ltd., and Equitas Small Finance Bank Ltd. have offered the highest interest rate of 7.13% for three- to five-year deposits.

 

As per the notification on the swap facility for FCNR(B) deposits, such deposits are exempt from the regulation that bars banks from issuing guarantees, letters of credit, and other non-fund-based credit facilities to any entity to assure repayment of funds through these deposits. This is expected to pump up both the quantum of inflows and the returns offered to depositors. The allowance was responsible for the bulk of the inflow the last time the RBI ran a special scheme to attract capital through FCNR(B) deposits which offer both half-yearly payments and are not taxed. 

 

However, the central bank has not given banks clarity on whether their own overseas or Gujarat International Finance Tec-City units can offer loans as leverage to clients which would then be deposited under the FCNR(B) scheme. The regulatory concern on this is that banks' balance sheets can balloon if they lend up to 20 times the amount that depositors have put in and then show it as a liability.

 

"Several banks are going slow on raising deposits so far because of the lack of the FAQ (frequently asked questions) on leverage," a senior treasury official at a state-owned bank said. "Across the industry we are hearing the same and right now we don't expect any major inflow will happen in the June quarter."

 

Leveraging other banks' letters of credit under the clearly defined RBI guidelines would ring-fence the risk and is itself expected to lead to over $50 billion of inflows. However, self-leveraging would be cheaper for banks and more beneficial from a commercial standpoint, prompting a standstill before the regulator gives the go-ahead, officials said. As such, only a handful of banks have operationalised internal procedures to offer leverage to NRI customers and deposit accretion has been sluggish.

 

State Bank of India is said to have gone ahead and offered NRIs dollar loans that can then be parked as deposits under the scheme, likely on the basis of a bilateral communication with the central bank, officials said. While several other banks have reached out to the RBI for clarity, they have been told the release of detailed answers to frequently asked questions is imminent.

To be sure, some inflow has started, but it has barely made a difference either in alleviating the mismatch between credit and deposit growth at the end of the quarter or on the dollar-rupee exchange rate. "There are inflows of small lots that have started coming, but these are barely going to make any difference," a treasury head of another private-sector bank said. "This framework will only work out well if banks are allowed to self-leverage." 

 

Some clients have also closed prior FCNR(B) deposits offered at lower rates and rebooked them under the new rates that banks are offering, effectively leading to nil net gain in deposits, officials said. The longer the opaqueness lasts, the more banks are likely to go ahead with their own interpretation of the rules, or be forced to raise FCNR(B) deposit rates with only high-return credit disbursal in mind.

 

"The last time (in 2013) the RBI had given the go-ahead. State Bank of India is already raising money through the scheme by lending directly, which is self-leverage," a senior treasury official at a foreign bank said. "Since the letter of the law has allowed it, I don't know why people are hesitating in implementing the scheme and getting the inflows in."  End

 

US$1 = INR 94.73

 

Edited by Rajeev Pai

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.