Banks seek $50B from diaspora to bolster India's reserves

Indian banks are actively pursuing strategies to attract significant capital from non-resident Indians (NRIs) to bolster the nation's foreign exchange reserves and support the rupee. A key initiative involves urging the Reserve Bank of India (RBI) to clarify regulations for a new Foreign Currency Non-Resident (FCNR) deposit scheme, with the ambitious goal of attracting over $50 billion. Banks are seeking specific regulatory tweaks that would permit NRIs to leverage these funds multiple times for investment purposes, thereby enhancing the scheme's attractiveness.

This push for NRI deposits occurs against a backdrop of shifting domestic savings patterns. Indian households are reportedly returning to traditional bank deposits, moving away from volatile stock markets and in response to geopolitical concerns. This trend could provide much-needed relief to lenders who have been experiencing intense competition for credit demand, as bank credit growth has been outpacing deposit increases. Concurrently, the RBI's recent policy measures are projected to reduce banks' funding costs by approximately 2-2.5% through the external commercial borrowing (ECB) route. These initiatives are designed to improve overall liquidity conditions and strengthen forex reserves, offering temporary respite to banks facing deposit mobilization pressures.

Despite these efforts to attract capital, India's foreign exchange reserves have seen a recent decline. According to RBI data, reserves fell by $711 million to $681.610 billion in the week ending June 5. This decrease was primarily attributed to a reduction in foreign currency assets, although gold reserves experienced an increase during the same period. The ongoing efforts by banks and the RBI aim to counteract such drawdowns and ensure the stability of India's financial position.