Citigroup Inc. has established a strategic partnership with Axis Bank Ltd. to facilitate leveraged investments by non-resident Indians in foreign-currency deposits, according to people familiar with the matter as reported by Moneycontrol and Bloomberg. Under this arrangement, Axis Bank will issue standby letters of credit to support financing provided by Citigroup through its offshore operations. The partnership leverages RBI rules that allow standby letters of credit against such deposits, enabling the leverage of the amount invested by NRIs. As per Moneycontrol and Bloomberg, the tie-up shows how the Reserve Bank of India's push to attract dollars has spawned a leveraged cross-border trade, potentially multiplying inflows from wealthy members of the diaspora. The structure allows NRIs to use leverage against the money they invest in the deposits, potentially increasing the overall amount flowing into India's banking system.
The RBI has already moved to end its incentive scheme a month earlier than initially planned after deposits under the program surged sharply, as reported by Moneycontrol and Bloomberg. Deposits mobilized under the facility totaled $65.4 billion through August 13, according to RBI data, representing a significant increase from the earlier reported $52.3 billion. The central bank has shortened the swap window to the end of August from September 30 after strong inflows, demonstrating the program's success in attracting dollar deposits from the diaspora. The trade has emerged as the RBI seeks to strengthen India's foreign-exchange reserves and reduce pressure on the rupee, while creating opportunities for global banks to provide offshore financing without needing to operate a retail banking network in India.
Axis Bank currently offers interest rates of up to 6.40% on Foreign Currency Non-Resident deposits, according to Moneycontrol and Bloomberg. The RBI introduced a concessional swap facility in June to encourage such deposits and allowed lenders to issue standby letters of credit against them. This structure enables overseas banks to provide financing without requiring an Indian retail presence, creating opportunities for global banks to expand their offshore operations. A spokesperson for Citigroup declined to comment on the arrangement, while a representative for Axis Bank didn't respond to requests for comment. The framework has effectively opened the trade to foreign banks with extensive offshore private banking networks, allowing them to tap into wealthy NRI clients even without a retail banking presence in India.
The partnership demonstrates how the RBI's push to attract dollars has spawned a leveraged cross-border trade, potentially multiplying inflows from wealthy members of the diaspora, as reported by Moneycontrol and Bloomberg. The arrangement allows Indian banks to lend against diaspora deposits or issue standby letters of credit to support overseas lenders, with the RBI leaving them to determine how much financing to extend. This has opened the trade to foreign banks with large offshore private-banking networks even if they lack a retail presence in India. Notably, Citigroup exited India's consumer banking business after selling the operations to Axis Bank in 2022, and the latest arrangement does not represent a return to retail banking, with the Wall Street lender continuing to focus primarily on institutional and other clients.
