India Presses Banks to Court Diaspora Deposits as the Rupee Slides

India’s government has told state-run banks to chase diaspora dollars harder, and the push has already pulled in nearly $10 billion in six weeks toward a $50 billion goal. The Reserve Bank of India (RBI), the country’s central bank, is footing the hedging bill so lenders can offer higher rates without absorbing currency risk themselves.

The campaign is a rerun of a script India wrote in 2013, when a similar scramble for diaspora deposits raised $34 billion in weeks flat. The rupee has slid more than 6% against the dollar this year, and the fine print on today’s dollar deposits, due back in three to five years, is getting far less attention than the headline rate.

Sitharaman Tells State Banks to Chase Diaspora Cash

Finance Minister Nirmala Sitharaman has urged the chief executives of government-run lenders to intensify outreach to the roughly 35 million people who make up India’s overseas diaspora, pressing them to lean on digital channels and design new deposit products rather than rely on branch visits alone. Bank CEOs have told her the response has gathered momentum, with attractive rates drawing interest from Indians in Singapore, Hong Kong, the Middle East, the UK and the US.

The push rides on a specific piece of central bank plumbing. At its June 5 policy meeting, the RBI opened a zero-cost foreign exchange swap facility for fresh deposits raised from Non-Resident Indians, or NRIs.

• Banks swap the fresh dollars they raise with the RBI at the same exchange rate, both directions, at no fee.
• The central bank, not the lender, absorbs the currency mismatch on its own balance sheet.
• Freed from that hedging cost, banks pass the savings to depositors as a higher headline rate.
• The relaxed rate window covers fresh Non-Resident External, or NRE, deposits of three years or more and FCNR(B) deposits of three to five years, running through September 30.

When the rate cap first came off in June, banks could offer between 5.5% and 7% a year, tax-free in India. By mid-July, competition for diaspora dollars had pushed some offers as high as 7.5%.

• FCNR(B) deposit – a fixed-term account that lets Non-Resident Indians hold savings in a foreign currency such as dollars, pounds or yen, so the depositor carries no rupee risk; under the current window it runs three to five years.

Asia’s Worst-Performing Currency

The urgency traces back to the currency itself. The rupee has weakened more than 6% against the dollar in 2026, one of the worst showings in Asia, while India’s foreign exchange reserves have slipped from a February peak of $728 billion to around $682 billion.

Part of the drain is structural. India imports most of its crude oil, and elevated oil prices have widened the gap between what the country earns from exports and what it spends on imports. Delhi’s separate push to blend more ethanol into petrol targets that same import bill, even as it has kept pump prices elevated for drivers.

The deposit shortfall was already visible before this drive began. Flows into NRI deposit accounts fell to $14.41 billion in the last fiscal year, down from $16.16 billion a year earlier, RBI bulletin data show. FCNR(B) inflows specifically collapsed to $946 million from $7.08 billion, even as NRE rupee account inflows held up better at $7.94 billion.

Banks Are Chasing Wealthy NRIs Hardest

The campaign is not aimed evenly at every overseas Indian. Its pitch, a dollar return plus leverage and easier access to Indian banking relationships, tends to land harder with wealthy NRIs than with ordinary savers sending money home for family expenses. Private banks have leaned on their wealth-management arms to court that segment specifically, alongside the state-run lenders Sitharaman addressed directly.

Reaction among the diaspora itself has split. Some overseas Indians, particularly in the UK, have described the FCNR(B) rates as a smart way to earn a strong return while staying connected to India’s growth story, and say they are recommending the accounts to friends. Others have pushed back online, noting that the deposits are borrowed dollars that must eventually be repaid, and arguing Delhi needs to channel the money into productive investment rather than simply parking it as a reserve cushion.

India Has Run This Play Before

The 2026 drive borrows its structure directly from 2013, when a currency crisis tied to the US Federal Reserve’s taper tantrum forced then RBI Governor Raghuram Rajan to open a similar FCNR(B) swap window. That scheme pulled in about $34 billion from the diaspora in a matter of weeks, a figure this year’s $50 billion target is explicitly trying to beat. India’s outstanding NRI deposit stock, which stood at $165.65 billion at the end of March, shows how much of that relationship was already built before this year’s push even started.

Is This Just 2013 Again?

Not quite. The 2013 window opened during an acute currency panic, with the rupee in free fall and investors pulling out of emerging markets broadly. The 2026 version is more of a preemptive top-up, launched while the rupee’s decline has been steady rather than sudden. Momentum has still built fast: banks had raised an estimated $4 billion within weeks of the window opening, according to one assessment of the scheme, before that total nearly doubled again by mid-July.

Every Dollar Raised Now Must Be Repaid

The RBI’s swap subsidy is a temporary fix by design. It lowers the cost of raising dollars today, but it does not touch the trade and current-account gaps pushing the rupee down in the first place, and the relaxed rate window itself shuts on September 30.

The deposits it raises do not disappear once the window closes. Money placed under three-to-five-year FCNR(B) terms this summer will mature between 2029 and 2031, when banks must repay it or persuade depositors to roll it over, whatever dollar rates and India’s external position look like by then.

There is leverage built into the product too. NRIs can pledge FCNR(B) deposits as collateral and borrow against them through an overseas branch of the same Indian bank, backed by a standby letter of credit, with some banks reportedly allowing borrowing of up to nine times the deposit, according to an assessment of the scheme published on Policy Circle. That turns a tool meant to steady the rupee into a fresh pocket of credit risk sitting on bank balance sheets.

• Bankers and the RBI point to the pace of inflows as proof the swap facility works, with nearly $10 billion gathered in about six weeks against 2013’s $34 billion over a similar stretch.
• Diaspora critics online counter that the deposits are borrowed money that must eventually be repaid, and want the proceeds funneled into productive investment rather than treated as a reserve buffer.
• Structural economists note the scheme treats the symptom, a reserves and rupee squeeze, without touching the trade and current-account gaps that caused it.

The window closes September 30. Banks have found about a fifth of the $50 billion Delhi wants, with roughly eleven weeks left to find the rest.

Frequently Asked Questions

How Big Is India’s Diaspora, and Who Can Open These Accounts?

About 35 million people make up India’s overseas diaspora, the population Sitharaman’s outreach directive is aimed at. While her request targeted state-run lenders specifically, the RBI’s relaxed rate rules apply to any authorized bank taking qualifying NRE or FCNR(B) deposits, and private lenders have used their wealth-management teams to chase wealthy overseas depositors too.

Were NRI Deposits Already Slowing Before This Push?

Yes. Inflows into NRI deposit schemes had dropped 24% to $11.04 billion in the April-to-February stretch of the last fiscal year, RBI data show, and FCNR(B) inflows alone were down 39% in April 2026 even as the total outstanding balance held near $167.58 billion. That slide is what prompted Sitharaman’s directive and the RBI’s swap facility in the first place.

Can NRIs Borrow Against These Dollar Deposits?

Yes, and that is where some analysts see risk building. Depositors can pledge FCNR(B) balances as collateral and borrow against them through an overseas branch of the same Indian bank, backed by a standby letter of credit, with some banks said to allow leverage of up to nine times the deposit.

What Is the Difference Between an NRE Account and an FCNR(B) Deposit?

An NRE account holds rupees, so the depositor absorbs any further slide in the currency. An FCNR(B) deposit stays in the original foreign currency throughout its term, so the bank and the RBI carry that risk instead. Both now qualify for the relaxed rate rules if opened with a long enough term, but only FCNR(B) shields the saver from a weaker rupee.

When Does the Special Deposit Window Close?

The relaxed rate window is scheduled to shut on September 30, 2026. Deposits placed before then keep their full three-to-five-year terms regardless, so the dollars gathered this summer will still be sitting on bank books well beyond the deadline itself.