HSBC's IFSC Banking Unit, located in GIFT City, is providing a financing structure that allows Non-Resident Indians (NRIs) to borrow up to 19 times their initial investment to establish Foreign Currency Non-Resident (Banking) or FCNR(B) deposits. This represents the highest leverage offered by any bank for this special deposit program. For instance, an NRI investing $100,000 can secure a $1.9 million loan to create a $2 million FCNR(B) deposit. This initiative builds on the Reserve Bank of India's (RBI) temporary relaxation of interest rate ceilings on fresh three-to-five-year FCNR(B) and NRE deposits, along with a concessional forex swap window, measures valid until September 30, 2026, designed to attract overseas dollar deposits and enhance foreign exchange inflows.
This high leverage structure can lead to significant returns for NRIs. With an illustrative FCNR(B) deposit rate of 5.5% and an all-in loan cost hovering around 5.05%-5.15%, the resulting net interest carry could generate an indicative annual return of 12%-14% on the customer's equity, depending on the tenure. Many banks are currently offering over 6% on long-term FCNR deposits under the RBI scheme, with loan rates priced below deposit yields, contributing to double-digit returns on customer equity. HSBC's offering includes two categories of leverage: a lower option of nine times and a higher option of 19 times, with the bank retaining discretion in offering the higher leverage.
The industry-wide move towards higher leverage in FCNR(B) deposits comes as initial inflows from the special scheme have been slower than anticipated. While most large domestic banks initially offered leverage around nine times, some foreign banks, including HSBC, have substantially increased this multiple to attract more FCNR(B) inflows. State Bank of India, for example, offers leveraged FCNR structures, but with lower leverage of up to around nine times. The RBI hopes to mobilize $30-$40 billion through this scheme, which is modeled after the successful 2013 FCNR program that helped stabilize the rupee during capital outflows. The RBI's allowance for banks to extend loans against foreign currency deposits signals a concerted effort to boost dollar inflows.
Bankers have noted strong interest from NRIs in the scheme, particularly from the Indian diaspora in Singapore, Hong Kong, West Asia, the United Kingdom, and the United States. Inflows are expected to accelerate from mid-July as banks intensify their customer outreach and finalize leverage arrangements, with August and September anticipated to account for the bulk of the deposits. So far, flows under the FCNR(B) scheme have been around $6-$7 billion, with State Bank of India attracting approximately $2 billion. Barclays forecasts the potential for $25-$30 billion in FCNR(B) inflows as a reasonable base case over the coming months.
