Smaller and mid-sized banks are approaching the GIFT City branches of Indian lenders to access the leverage-backed FCNR(B) deposit mobilisation opportunity opened up by the Reserve Bank of India (RBI), as they lack the overseas presence and operational capabilities needed to directly navigate stringent foreign compliance requirements, bankers said.
“Since we do not have foreign branches, we would have to connect with foreign branches of Indian banks or with foreign banks for leverage,” said a treasury official at a small finance bank, adding that they are reaching out to banks with whom they already have an existing relationships.
Credit Rating Barriers
Mandar Pitale, head of financial markets at SBM Bank India, said the success of leverage-backed FCNR(B) mobilisation would depend significantly on the credit profile of the Indian bank. Overseas lenders are likely to assess transactions based on ratings and creditworthiness rather than depositor sentiment, he said.
As a result, lower-rated lenders may find it difficult to secure the same level of leverage support available to larger banks.
Bankers said GIFT City could emerge as a preferred route for smaller lenders as it provides an easier mechanism to connect with overseas investors and financial institutions without requiring them to establish a large international presence.
KYC Compliance Bottlenecks
Industry experts also flagged challenges around customer KYC requirements. “If the client already has an account with both banks, there should not be any issue. For example, if a customer of an Indian Bank also holds an account with a Dubai bank and KYC is already completed there, the process is straightforward,” said VRC Reddy, head of treasury at Karur Vysya Bank.
The challenge arises when customers do not have an existing relationship with the overseas lender. In such cases, completing know-your-customer (KYC) formalities can take 10-15 days or longer due to stricter compliance requirements in foreign jurisdictions, Reddy said.
Bankers said the leverage route — under which NRIs can borrow against FCNR(B) deposits placed with Indian banks to amplify returns — could become a key driver of foreign currency deposit mobilisation after the RBI temporarily removed interest rate caps on fresh FCNR(B) deposits.
However, access to these structures is expected to remain easier for large banks with extensive overseas networks and established NRI customer bases.
The development comes as banks step up efforts to attract foreign currency deposits after the RBI allowed lenders to offer higher rates on FCNR(B) deposits until September 30. Industry estimates of potential inflows vary widely, with projections ranging from $50 billion to $80 billion depending on the success of mobilisation efforts and the adoption of leverage structures among NRIs.