Citi-Axis Bank Partner on Leveraged NRI Dollar Deposits

The partnership lets Axis Bank issue standby letters of credit that back Citigroup's offshore financing for non-resident Indians putting money into foreign-currency deposits. This structure allows NRIs to borrow against their deposits, multiplying the amount of dollars that flow into India's banking system.

The move comes as the Reserve Bank of India pushes to attract foreign currency and shore up its reserves. In June, the RBI introduced a concessional swap facility to encourage banks to mobilize FCNR deposits and allowed lenders to issue standby letters of credit against them, opening the door for overseas banks to provide linked financing.

Axis Bank is offering interest rates up to 6.40% on FCNR deposits. Deposits mobilized under the RBI facility reached $65.4 billion as of August 13, prompting the central bank to move the facility's closing date to the end of August from September 30.

For Indian Americans and other NRIs, the arrangement offers a way to earn returns on dollar savings while keeping funds in foreign-currency deposits with an Indian bank. The leverage structure could make larger deposits more attractive to wealthy diaspora investors.

The framework lets global banks with offshore private-banking networks participate without maintaining retail operations in India. Indian banks can lend against diaspora deposits or issue standby letters of credit to support overseas lenders, with individual banks deciding how much financing to provide.