India’s state-run banks expect to raise nearly $30 billion through a special foreign currency deposit programme introduced by the Reserve Bank of India, according to five bankers familiar with discussions between lenders and government officials.
The estimate was presented by heads of state-owned banks during a meeting earlier this week with Finance Minister Nirmala Sitharaman and other officials from the finance ministry, two sources said. The programme aims to attract dollar deposits from non-resident Indians by allowing banks to offer more attractive returns through a subsidised foreign-exchange swap facility provided by the central bank.
“The state-run banks have given estimates about the quantum of dollars each of them will be able to garner through the tenor of this scheme,” one banker directly familiar with the matter said. The bankers spoke on condition of anonymity because the discussions were private.
According to the estimates shared with officials, India’s largest public sector banks expect to attract around $4 billion to $5 billion each, while smaller state-run lenders are targeting inflows of approximately $1 billion to $2 billion.
The Finance Ministry did not respond to a Reuters request for comment.
The Reserve Bank of India announced the zero-cost foreign-exchange swap facility on June 5, allowing banks to raise deposits from non-resident Indians and provide higher returns on those accounts. The scheme is scheduled to remain open until September 30.
Earlier this week, Reuters reported that India had attracted around $10 billion in inflows through the special deposit programme, based on information from sources familiar with the matter. The amount represents only a portion of the $40 billion to $70 billion in total inflows analysts had previously estimated could be generated through the initiative.
Indian Bank Managing Director and CEO Binod Kumar said participation had started slowly but expressed confidence that his bank could raise about $2 billion through the programme by September. The bank has collected around $150 million so far, with expected inflows primarily from investors in the Gulf region and Singapore.
“The start has been slow, but we are confident of garnering $2 billion under this scheme till September, with major flows coming from the gulf and Singapore,” Kumar said.
The pace of inflows improved after the RBI issued further clarification on June 23, allowing banks to lend against these deposits and place a lien on them. The change enables banks to use the deposits as a source of leverage, potentially increasing the attractiveness of the programme.
Despite the initial slow response, officials expect the majority of deposits to arrive closer to the end of the scheme period. Three of the five bankers said the pattern could resemble the experience of a similar initiative launched in 2013, when large inflows came toward the final stages of the programme.
The RBI’s deposit initiative is designed to encourage foreign currency inflows into India’s banking system by giving lenders greater flexibility to offer competitive returns to overseas Indians. State-run banks are now preparing for a potential surge in deposits as the September deadline approaches, with expectations that much of the remaining inflow could come in the final weeks of the programme.
