Foreign banks will provide upfront financing for wealthy non-resident Indian (NRI) clients, to attract them to place bulky dollar deposits back home in response to India’s drive for dollar funding to defend its weak currency, banking sources said on Monday.
This would resurrect a practice which proved successful in drawing in dollars from NRIs in 2000, when the rupee was also under pressure, and sources said banks could raise about $10 billion or more.
Foreign banks will finance the bulk of these dollar deposits. This is likely to be welcome news for the government and policymakers because it could avoid the need for a sovereign bond or special government-backed deposit schemes to attract dollar inflows to support the rupee.
Banks including Citi, DBS and Standard Chartered Bank are offering the terms to the richest segment of their private banking clients by providing roughly 90% of the foreign currency deposit placed in India, sources said.
The banks will officially roll out the upfront loans this week, they added.
“Client equity in these deposits is just 10% and the client effectively makes between 18 and 21% on the dollars,” said a private banker with a European bank.
The new scheme allows banks to pool their resources with non-residents and place deposits in India, thus creating bigger deposits with each new account.
One source at a European bank said banks were cherry-picking clients for this product.
“For every billion dollar I place in India, the bank has to fund $900 million,” he said. “We can’t allow just any customer to piggyback on us, only a handpicked few.”