HSBC and ICICI Bank are at the forefront of attracting foreign currency deposits from the Indian diaspora, particularly through India's International Financial Services Centre (IFSC) in GIFT City. They are offering highly leveraged loans, allowing Non-Resident Indians (NRIs) to borrow against their Foreign Currency Non-Resident (FCNR(B)) deposits. HSBC, for instance, has offered leverage as high as 19 times the deposit amount, enabling a customer investing $100,000 to create a $2 million FCNR(B) deposit by borrowing $1.9 million.
This strategy is proving highly effective in drawing significant funds into India. HSBC has reportedly mobilized about $5.5 billion in NRI deposits through this leveraged approach, outpacing global rivals. Its total haul under the RBI's FCNR(B) program has topped $10 billion. The high leverage, combined with a favorable interest rate spread (e.g., 5.5% deposit rate versus 5.05%-5.15% loan interest), can generate annual returns of 12%-14% on the customer's initial equity.
The Reserve Bank of India (RBI) introduced these measures, including relaxing interest rate ceilings and offering a concessional forex swap window, to attract overseas dollar deposits and boost foreign exchange inflows. This initiative has been instrumental in raising a record $127 billion in foreign-currency inflows from the diaspora since June, helping to support the rupee and provide a buffer against external pressures. The influx of these funds has also led to HSBC investing at least $3 billion in Indian government bonds, which has helped lower borrowing costs and support the Indian economy.
While HSBC is a leader in offering such high leverage, other banks like Standard Chartered have offered more conservative leverage (around 9 times), securing about $1 billion. State Bank of India also offers leveraged FCNR structures, albeit with lower leverage. The success of these programs highlights the significant role of the Indian diaspora in providing crucial external buffers and supporting the nation's financial stability.
