India Introduces Up to 9% Leverage for NRIs to Boost Forex Inflows, Promises Returns Exceeding 7%

India is seeking to enhance its foreign currency inflows by leveraging its overseas community. The Reserve Bank of India (RBI) has authorized banks to extend loans against special foreign-currency deposits, allowing lenders to place a lien on these deposits. This initiative aims to attract capital amid ongoing challenges in the foreign exchange market.

New Lending Framework

On Tuesday, the RBI announced that banks could issue loans to overseas residents based on their foreign-currency deposits. Additionally, banks will be allowed to issue letters of credit against these deposits. Banking officials indicate that lenders may offer leverage of up to nine times the deposit amount. Alok Singh, head of treasury at CSB Bank Ltd, noted that returns on deposits exceeding 6% and leveraged rates above 10% could significantly boost dollar inflows into India.

Targeting the Diaspora

The initiative is part of a broader strategy to strengthen India’s foreign currency reserves, particularly in light of the recent conflict in the Middle East. Policymakers are implementing various measures to counter foreign fund outflows that have pressured the rupee. Under this new program, banks are promising guaranteed returns of over 7.1% on dollar deposits and are actively promoting these offerings through advertisements and social media to attract overseas investors.

Anticipated Impact

Some bankers estimate that this initiative could generate more than $80 billion in additional inflows. The RBI also introduced a buy-sell foreign exchange swap for eligible deposits, covering the principal amount but not the interest. These measures complement other recent actions by the government and the central bank, including a concessional forex-swap facility aimed at encouraging overseas borrowings by state-owned companies.

India’s diaspora, which numbers around 35 million, is expected to play a crucial role in this effort. Non-resident Indian remittances are already among the highest globally, and authorities hope that the combination of attractive deposit rates and leverage options will further stimulate inflows. Inward remittances for the fiscal year 2025-26 exceeded $155 billion, and with the new program, total inflows this year could surpass $200 billion.

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