Citigroup, Axis Bank team up to leverage NRI deposits and boost dollar inflows

Citigroup Inc has entered into an arrangement with Axis Bank Ltd to finance non-resident Indians investing in foreign-currency deposits with the Indian lender, according to Bloomberg, citing people familiar with the development.

Under the arrangement, Axis Bank will issue standby letters of credit to support financing provided by Citigroup through its offshore operations, Bloomberg reported.

The structure allows NRIs to use leverage against the money they invest in the deposits, potentially increasing the overall amount flowing into India's banking system.

The partnership highlights how the Reserve Bank of India's efforts to attract foreign currency have spurred leveraged cross-border trade that could multiply inflows from wealthy members of the Indian diaspora. The central bank, however, has moved to end its incentive scheme a month earlier than initially planned after deposits mobilised under the program surged sharply.

The trade has emerged as the RBI looks to strengthen India's foreign-exchange reserves and reduce pressure on the rupee. It has also created an opportunity for global banks to provide offshore financing without needing to operate a retail banking network in India.

Citigroup exited India's consumer banking business

Citigroup exited India's consumer banking business after selling the operations to Axis Bank in 2022. The latest arrangement does not represent a return to retail banking, as the Wall Street lender continues to focus primarily on institutional and other clients.

Axis Bank currently offers interest rates of up to 6.40% on Foreign Currency Non-Resident, or FCNR, deposits. In June, the RBI introduced a concessional swap facility to encourage banks to mobilise such deposits and also allowed lenders to issue standby letters of credit against them, opening the way for overseas banks to provide financing.

Following the strong response, the RBI shortened the swap facility's deadline to the end of August from 30 September. Deposits raised under the facility had reached $65.4 billion as of 13 August, according to RBI data.

Indian banks are permitted to lend against diaspora deposits or issue standby letters of credit to support overseas lenders. The RBI has left it to individual banks to decide how much financing they are willing to provide.

The framework has effectively opened the trade to foreign banks with extensive offshore private banking networks, allowing them to tap into wealthy NRI clients even without a retail banking presence in India.