FM asks banks to increase outreach to NRIs and increase foreign capital mobilization

New Delhi: Union Finance Minister Nirmala Sitharaman on Monday asked banks to step up outreach to non-resident Indians (NRIs), introduce innovative deposit products and maintain momentum in mobilization under the Reserve Bank of India’s (RBI) swap initiatives. According to the official press statement, these initiatives relate to non-resident (banking) (FCNR(B)) foreign currency deposits, external commercial borrowings (ECB) and overseas foreign currency loans (OFCB).

Sitharaman reviewed the progress of RBI’s swap programs during an interaction with CEOs and managing directors of public sector banks and public financial institutions in New Delhi. The meeting was further attended by the Secretaries of Financial Services, Economic Affairs and Revenue, Chief Economic Adviser, Deputy Governor RBI and other senior officials.

Mint announced in July that the Finance Ministry had convened a high-level meeting of heads of public sector banks, On July 13, IDBI Bank and other public financial institutions will define a strategy for mobilizing foreign capital.

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According to the Finance Ministry, the CEOs and CEOs have informed the Finance Minister that the RBI’s swap facility schemes for FCNR(B), ECB and OFCB deposits saw an encouraging response with healthy interest across all three instruments.

FCNR(B) Deposits are term deposits held by NRIs, Persons of Indian Origin and Overseas Citizens of India in designated foreign currencies such as US Dollar, Pound Sterling, Euro, Japanese Yen, Canadian Dollar and Australian Dollar. Deposits remain denominated in a foreign currency, protecting depositors from exchange rate fluctuations. Both principal and interest are freely repatriable.

OFCBs refer to foreign currency loans 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.

reach of NRIs

Bank bosses said lenders are offering attractive returns on FCNR(B) deposits – including a five-year tenure – thanks to a suspended cap on interest rates on new deposits under the scheme. They added that interest was strong among NRIs living in Singapore, Hong Kong, West Asia, UK, US and other overseas jurisdictions.

Banks have outlined plans to capitalize on the positive sentiment and accelerate deposit mobilization for the remainder of the program period. They also expressed confidence that the ECB’s mobilization will see stronger traction during the third quarter of FY27.

Public sector banks have informed the finance minister that they have put in place customized outreach strategies, including digital channels, to engage with the NRI diaspora and enhance deposit mobilization. They also noted that FCNR(B) deposit mobilization is showing a clear accelerating trend supported by the attractive yields offered by the banks, according to an official press statement.

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The banks also informed the Finance Minister that the International Banking Units (IBUs) at the International Financial Services Center (IFSC) at GIFT City, Gujarat, are being used to mobilize funds from various jurisdictions including the United Kingdom, United States, West Asia, Hong Kong, Singapore and Southeast Asia. Sitharaman urged banks to maximize the use of financial services and institutional infrastructure GIFT City.

During the interaction, the RBI Deputy Governor said that the central bank is actively supporting banks and financial institutions in mobilizing deposits and facilitating eligible loans. The finance ministry said the RBI’s daily reporting framework enables transparent real-time monitoring of progress across participating institutions.

The ministry said the sustained and wide participation of public sector banks, private sector banks and public financial institutions underscores the effectiveness of swap instruments in mobilizing foreign exchange inflows, strengthening India’s foreign exchange reserves and strengthening the resilience of the external sector amid global uncertainty.

Schematic mechanics

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

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

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Under the interim FCNR (B) arrangement, the central bank will absorb all hedging costs – estimated at 280-300 basis points – allowing banks to offer substantially higher returns on foreign currency deposits without bearing the associated currency risk. This facility makes FCNR(B) deposits attractive to non-resident Indians, with several banks raising interest rates as high as 7.1% on some US dollar deposits.