Finance minister Nirmala Sitharaman has asked Indian banks to intensify their outreach to non-resident Indians (NRIs) and develop new deposit products as the government seeks to attract more foreign currency and reinforce the country’s external finances.
Sitharaman issued the direction during a meeting with the managing directors and chief executives of public-sector banks and public financial institutions in New Delhi on Monday, 13 July. The meeting reviewed the response to three Reserve Bank of India (RBI) measures covering foreign-currency deposits and overseas borrowing.
The initiatives include a US dollar-rupee swap facility for fresh FCNR(B) deposits and concessional swap arrangements for eligible external commercial borrowings (ECBs) and overseas foreign-currency borrowings (OFCBs).
They were announced by the RBI on 5 June to encourage capital inflows, support the balance of payments and make it cheaper or less risky for banks and companies to bring foreign currency into India.
Bank executives told the minister that the measures had attracted interest from NRIs in Singapore, Hong Kong, the Middle East, the UK, the US and other markets.
Banks are offering more attractive returns on FCNR(B) accounts, including five-year deposits, after the RBI temporarily suspended the applicable interest-rate ceiling.
Sitharaman asked lenders to turn that initial response into a broader mobilization campaign. The finance ministry said she called for more intensive engagement with the diaspora, innovative deposit products and continued efforts during the remaining period of the schemes.
The timelines are relatively short. Fresh FCNR(B) deposits mobilized by 30 September will qualify, with the related RBI swap window remaining open until 16 October. Eligible ECBs and OFCBs must be raised by 31 December, with swaps available into January 2027.
The appeal comes as India faces a more difficult external environment. The country’s merchandise trade deficit widened to $30.43 billion in June, the highest in five months, as imports grew faster than exports from a year earlier. Oil prices and shipping costs have also risen as conflict around the Strait of Hormuz threatens energy supplies and trade routes.
India imports more than four-fifths of the crude oil it consumes. A sustained increase in oil prices raises the dollar import bill, places pressure on the rupee and can widen the current-account deficit.
NRI deposits can provide banks with a relatively durable source of foreign currency, although their stability depends on pricing, maturity and rollover behavior. Unlike portfolio flows, which can reverse quickly when global risk appetite deteriorates, deposits from the diaspora have historically been less volatile.
FCNR(B) accounts also protect depositors from rupee exchange-rate movements because the deposits are denominated in foreign currencies. Banks bear or hedge the associated currency risk.
The RBI’s swap mechanism can reduce that risk by allowing banks to exchange the mobilized dollars for rupees at predetermined terms. That makes it more attractive to collect foreign-currency deposits without leaving lenders fully exposed to fluctuations in the exchange rate.
The RBI has also allowed banks, including their overseas branches, to lend against eligible FCNR(B) deposits and issue standby letters of credit. The provision can allow depositors to use borrowed funds or obtain liquidity against their deposits, potentially increasing the scale of inflows.
The government is also looking beyond household savings. External commercial borrowings allow Indian companies and financial institutions to raise money abroad. Overseas foreign-currency borrowings can similarly expand access to international funding. The concessional swap facility is intended to reduce the cost of converting those funds into rupees or managing their currency exposure.
Public-sector banks told Sitharaman they expected stronger external commercial borrowing activity in the October-to-December quarter.
The strategy recalls earlier episodes when India used special deposit windows to attract diaspora savings during periods of pressure on the currency and balance of payments.
In 2013, the RBI introduced a concessional swap facility for FCNR(B) deposits after the rupee fell sharply during the “taper tantrum.” Banks raised billions of dollars through the window, helping rebuild confidence in India’s external position.
The present situation is not identical. India has substantially larger foreign-exchange reserves and a more manageable current-account position than during earlier balance-of-payments scares. But the simultaneous rise in oil prices, the trade deficit and geopolitical risk has strengthened the case for securing additional foreign-currency funding before market conditions worsen.
There are limits to the approach. Banks may have to pay more to attract NRI deposits, which can raise their funding costs. The money also carries maturity and rollover risks. If depositors do not renew accounts when the special terms end, banks must repay the foreign currency or find replacement funding.
The effectiveness of Sitharaman’s outreach push will therefore depend not only on how much money banks raise, but on its tenure, cost and concentration across markets, analysts said.
The government is seeking to turn the initial response into a larger and more durable pool of foreign-currency funding before the temporary windows close.
