FM asks banks to boost NRI outreach, step up foreign capital mobilization

New Delhi: Union finance minister Nirmala Sitharaman on Monday asked banks to intensify outreach to non-resident Indians (NRIs), introduce innovative deposit products, and sustain the momentum of mobilization under the Reserve Bank of India's (RBI’s) swap initiatives. According to an official press statement, these initiatives cover foreign currency non-resident (bank) [FCNR(B)] deposits, external commercial borrowings (ECBs), and overseas foreign currency borrowings (OFCBs).

Sitharaman reviewed the progress of the RBI's swap facility schemes during an interaction with managing directors and chief executive officers of public sector banks and public financial institutions in New Delhi. The meeting was also attended by the secretaries of the departments of financial services, economic affairs, and revenue, the chief economic adviser, the RBI deputy governor, and other senior officials.

Mint reported on 10 July that the finance ministry had convened a high-level meeting of chiefs of public sector banks, IDBI Bank and other public financial institutions on 13 July to chalk out a strategy to mobilize foreign capital.

According to the finance ministry, managing directors and chief executive officers informed the finance minister that the RBI's swap facility schemes for FCNR(B) deposits, ECBs and OFCBs have received an encouraging response, with healthy interest across all three instruments.

FCNR(B) deposits are fixed-term deposits maintained by NRIs, persons of Indian origin, and overseas citizens of India in designated foreign currencies such as the US dollar, pound sterling, euro, Japanese yen, Canadian dollar and Australian dollar. The deposits remain denominated in the foreign currency, insulating depositors from exchange-rate fluctuations. Both the principal and interest are freely repatriable.

OFCBs refer to foreign currency borrowings raised by Indian banks from overseas, while ECBs are foreign currency loans raised by eligible Indian companies and institutions from international lenders for permitted end-uses, including infrastructure and capacity expansion.

NRI outreach

Bank chiefs said lenders are offering attractive returns on FCNR(B) deposits—including five-year tenures—thanks to the suspended interest rate ceiling on new deposits under the scheme. They added that interest has been strong among NRIs living in Singapore, Hong Kong, West Asia, the UK, the US, and other overseas jurisdictions.

The banks outlined plans to capitalise on the positive sentiment and accelerate deposit mobilisation during the remainder of the scheme period. They also expressed confidence that ECB mobilisation would see stronger traction during the third quarter of FY27.

Public sector banks informed the finance minister that they have put in place customised outreach strategies, including digital channels, to engage with the NRI diaspora and enhance deposit mobilisation. They also noted that FCNR(B) deposit mobilisation has shown a clear accelerating trend, supported by the attractive returns being offered by banks, according to the official press statement.

The banks also informed the finance minister that international banking units (IBUs) at the International Financial Services Centre (IFSC) at GIFT City, Gujarat, are being used to leverage fund mobilisation from multiple jurisdictions including the United Kingdom, the United States, West Asia, Hong Kong, Singapore and Southeast Asia. Sitharaman urged banks to maximise their use of the financial services and institutional infrastructure at GIFT City.

During the interaction, the RBI deputy governor said the central bank is actively supporting banks and financial institutions in mobilising deposits and facilitating eligible borrowings. The finance ministry said the RBI's daily reporting framework has enabled transparent, real-time monitoring of progress across participating institutions.

The ministry said the sustained and broad-based participation of public sector banks, private sector banks and public financial institutions underscores the effectiveness of the swap facilities in mobilising foreign currency inflows, reinforcing India's foreign exchange reserves and strengthening the resilience of the external sector amid global uncertainty.

Scheme mechanics

The RBI had announced the schemes in the monetary policy statement on 5 June. They comprise a US dollar-rupee forex swap facility at par for fresh FCNR(B) deposits and a concessional swap facility for eligible ECBs and OFCBs to attract foreign capital, strengthen the balance of payments, and incentivise capital inflows.

FCNR(B) deposits are eligible under the scheme until 30 September 2026, while ECBs and OFCBs are eligible until 31 December 2026. The move was aimed at accelerating foreign currency inflows as bank credit growth continues to outpace deposit growth, increasing the need for diversified funding sources.

Under the temporary FCNR (B) arrangement, the central bank will absorb the entire hedging cost—estimated at 280-300 basis points—allowing banks to offer substantially higher returns on foreign currency deposits without bearing the associated currency risk. The facility makes FCNR(B) deposits attractive for non-resident Indians, with several banks increasing interest rates to as much as 7.1% for certain US dollar deposits.