Foreign banks to provide upfront loans to wealthy NRIs for Indian dollar deposits

Banks including Citi, DBS and Standard Chartered Bank will roll out the upfront loans for NRIs this week. (Reuters)

Foreign banks will provide upfront financing for wealthy non-resident Indian clients to entice them to place bulky dollar deposits back home in response to India's drive for dollar funding to defend its weak currency, sources said.

This would resurrect a practice which proved successful in drawing in dollars from non-resident Indians (NRIs) in 2000, when the rupee was also under pressure, and the sources said banks could raise about $10 billion or more.

Related: Leveraged NRIs on returns trip may fuel FCNR inflows

Foreign banks will finance the bulk of these dollar deposits. This is likely to be welcome news for Indian authorities 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 per cent of the foreign currency deposit placed in India, four private banking sources said.

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The banks will officially roll out the upfront loans this week, the sources said.

"Client equity in these deposits is just 10 per cent and the client effectively makes between 18 and 21 per cent on the dollars," said a private banker with a European bank.

The scheme is a variation of the foreign currency non-resident bank account (FCNR), which are term deposits non-resident Indians can maintain in five currencies, including U.S. dollars, euros and pounds, at banks onshore and earn a fixed rate of interest.

Related: Raghuram Rajan reforms to fuel $10-bn FCNR inflows

As part of efforts to rescue the rupee as it sank towards record lows near 69-per dollar in late August, the Reserve Bank of India (RBI) freed interest rates on FCNR deposits last month.