Citigroup has partnered with Axis Bank to finance non-resident Indians investing in foreign-currency deposits in India, creating a new channel that could increase dollar inflows from the Indian diaspora.
Under the arrangement, Axis Bank will issue standby letters of credit to support financing provided by Citigroup through its offshore operations, according to reports. The structure allows NRIs to leverage money invested in foreign-currency deposits, potentially increasing the funds flowing into India’s banking system.
The partnership comes as the Reserve Bank of India seeks to attract more foreign currency into the country and strengthen its foreign-exchange reserves while reducing pressure on the rupee.
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The RBI introduced a concessional swap facility in June to encourage banks to mobilize Foreign Currency Non-Resident, or FCNR, deposits. It also allowed Indian lenders to issue standby letters of credit against such deposits, enabling overseas banks to provide financing linked to the deposits.
Axis Bank is offering interest rates of up to 6.40% on FCNR deposits. Deposits mobilized under the RBI facility had reached $65.4 billion as of August 13, according to RBI data cited by Mint. The strong response prompted the central bank to bring forward the facility’s closing date to the end of August from September 30.
For Indian Americans and other NRIs, the arrangement could provide another way to earn returns on dollar savings while keeping funds in foreign-currency deposits with an Indian bank. The leverage structure could also make larger deposits more attractive to wealthy diaspora investors.
The framework has opened an opportunity for global banks with offshore private-banking networks to participate in the market without maintaining a retail banking operation in India. Indian banks can lend against diaspora deposits or issue standby letters of credit to support overseas lenders, while individual banks determine the level of financing they are prepared to provide.
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The Citigroup-Axis Bank arrangement does not mark Citigroup’s return to India’s consumer banking market. Citigroup sold its Indian consumer banking operations to Axis Bank in 2022 and continues to focus primarily on institutional and other clients in the country.
The deal illustrates how RBI measures designed to attract foreign currency are creating new cross-border financing opportunities. As India’s banks compete for NRI deposits, offshore lenders can use those deposits as a basis for financing, potentially multiplying the impact of diaspora funds entering the Indian financial system.