If you’re an overseas Indian with over $1 million in equity to leverage and park in a foreign current non-resident bank FCNR(B) deposit, banks are likely to answer your call. If your cheque is much smaller, they may not, three market participants aware of the matter said.
More than a month after the Reserve Bank of India (RBI) announced measures to attract foreign currency inflows, banks are increasingly prioritizing million-dollar-plus FCNR deposits as rising overseas borrowing costs and tighter credit limits make it harder to justify extending nine-times leverage on smaller transactions, they said.
This shift is different from the optimism that followed RBI’s 5 June announcement, when banks and analysts expected around $40 billion to flow into India, drawing comparisons with the 2013 FCNR mobilization scheme. That year, India received $26 billion in such deposits.
“Banks are keen to offer this only to customers with very high-ticket deposits. The credit risk also decreases with the customer’s net worth,” said Dhiraj Nim, foreign exchange strategist and economist at ANZ.
Nim said there are some teething troubles banks are facing, including getting leverage and credit arrangements sorted out, while funding costs are rising. “It’s still a bit premature to pass a verdict on how the FCNR flows will shape up,” said Nim.
Under leveraged FCNR deposits, a non-resident Indian (NRI) holding a dollar deposit at a foreign bank can pledge the deposit and borrow up to nine times the amount; the original deposit and the borrowed amount can then be combined and invested in an FCNR account in India. For example, someone with a $1 million deposit can borrow $9 million, and invest a combined $10 million in an Indian FCNR account.
However, every such transaction creates a sizable credit exposure for the lending bank. As a result, banks are increasingly reserving these structures for wealthy clients, with market participants saying lenders are largely entertaining only million-dollar-plus deposits instead of pursuing smaller-ticket business.
- Indian banks now prioritize NRI depositors who are offering over $1 million only.
- Rising overseas funding costs are squeezing margins on leveraged FCNR deposit structures.
- April's fresh FCNR inflows totaled just $166 million, according to RBI data.
- Analysts expect actual FCNR inflows to fall well short of $40 billion.
- Nuvama's Marwaha prefers a sovereign dollar bond over the FCNR scheme entirely.
Funding costs are squeezing the math
“Non-resident Indians I know are saying they are yet to see a term sheet from banks. If you have a million dollars to use as equity for the leverage, you could get a phone call,” said a foreign banker. However, the banker said that higher flows could come from next month once the arrangements are in place.
The growing selectivity comes as overseas funding has become more expensive. Bankers said Indian lenders are now borrowing dollars at around the Secured Overnight Financing Rate (SOFR) plus 120-130 basis points, up from around SOFR plus 90 basis points just a few weeks ago.
At the same time, most banks continue to offer around 6.5% on FCNR deposits, leaving little room to absorb the higher funding costs without squeezing margins.
Fresh FCNR(B) inflows have remained modest so far despite the RBI’s special swap window, market participants said. Data on FCNR deposits are subject to a lag.
Banks mobilized $166 million in fresh FCNR(B) deposits in April 2026, while the outstanding FCNR(B) deposit base stood at $33.92 billion at April-end, up from $33.76 billion a month earlier, latest RBI data showed. Overall, NRI deposits across FCNR(B), NRE and NRO accounts stood at $165.59 billion, indicating that FCNR(B) deposits account for roughly one-fifth of the total NRI deposit base.
Use a sovereign bond, say experts
Ajay Marwaha, president and head of fixed income at Nuvama Group, said the economics of the scheme are materially different from the 2013 episode.
“The returns you see today are based on spot funding costs. If global rates rise by 100 basis points, the entire leveraged structure becomes unattractive. What looks like a 14% return today could fall to 5.00-6.00%.”
While money may still come in, much of it is likely to be short-term, he said.
“The money that comes in under this scheme will be flaky money. It will go out with the same momentum that it came in,” he said.
The rise in funding costs is already affecting banks’ overseas fundraising plans. Last month, State Bank of India shelved its planned dollar bond issuance after investors demanded higher borrowing costs, reflecting the tighter global funding environment now confronting Indian lenders.
Nim said global financial conditions remain a key constraint. “The view I have maintained from the beginning is that global financial conditions are very tight, and that is bound to have an impact on the quantum of FCNR flows.”
With funding costs rising, leverage becoming more selective, market participants say the scheme is proving considerably harder to execute than initially anticipated.
“It is still a bit early because once the documentation issues are sorted out and banks market the product more aggressively, the picture could improve. From what I hear, the product hasn’t been marketed very well so far," Nim said.
Even if the FCNR scheme succeeds in attracting $30-40 billion, Marwaha questioned whether it would meaningfully strengthen India’s external position.
“Money will come, probably $30-40 billion, but my concern is about the quality of the money,” he said.
He said that a sovereign dollar bond would have been a more effective option. “If Bangladesh can issue a sovereign dollar bond, what is India waiting for? The government could simply announce a $20-25 billion international bond programme and get it done.”