Media365
First Abu Dhabi Bank (FAB), the UAE’s largest lender, is planning to provide up to $1.5 billion in financing to non-resident Indians (NRIs) investing in India’s foreign-currency deposit scheme, a move that could significantly boost New Delhi’s efforts to shore up foreign exchange reserves and support the rupee.
The proposed financing structure allows NRIs to leverage their investments rather than fund the entire deposit amount themselves. According to reports, FAB is offering up to nine times leverage, enabling an investor who contributes $1 million to borrow an additional $9 million, taking the total deposit to $10 million.
The bank is also in talks with Indian lenders to arrange standby letters of credit, which would guarantee repayment in case of borrower defaults. Such credit support could reduce risks for FAB while expanding lending linked to India’s special foreign-currency deposit programme.
The initiative comes as India intensifies efforts to attract overseas capital following pressure on its foreign exchange reserves and the rupee. Market analysts estimate that the Reserve Bank of India’s (RBI) foreign-currency deposit programme could mobilize around $50 billion from the Indian diaspora.
The UAE is expected to play a pivotal role in the campaign, given that it accounts for nearly 20% of remittances flowing into India. Earlier this month, officials from the RBI and the Central Bank of the UAE met in Dubai to discuss ways to remove bottlenecks in the deposit mobilisation programme.
Under the scheme unveiled by the RBI in June, the central bank has agreed to absorb the entire hedging cost for banks raising three- to five-year foreign-currency deposits. The move mirrors a strategy adopted during the 2013 taper tantrum, when India successfully attracted overseas deposits to cushion the economy against capital outflows.
Global and Indian lenders have joined the race to tap India’s 35-million-strong diaspora. Banks including HSBC, Standard Chartered and State Bank of India are offering interest rates of up to 7.75 per cent on five-year foreign-currency deposits to attract NRI funds.
If executed, FAB’s financing model could substantially amplify overseas inflows by allowing investors to deploy leveraged capital into India’s deposit programme, adding momentum to one of the country’s biggest efforts in recent years to bolster foreign exchange reserves.
