India and the United Arab Emirates' central banks have held discussions to resolve issues hampering India's efforts to boost foreign-currency deposits from one of the world's largest remittance corridors. At meetings held in Dubai between the Reserve Bank of India and the Central Bank of the UAE last week, the UAE regulator raised concerns that banks operating in Dubai's special economic zone would prioritize India's fundraising efforts at the expense of serving local customers, according to people familiar with the matter. The UAE is a key market for Indian banks looking to raise overseas deposits, as the region accounts for about one-fifth of remittances to India. As the Middle East conflict flares up, UAE regulators have also warned some smaller banks against offering aggressive leverage to Indian lenders due to concerns over excessive capital outflows.
The Indian rupee has depreciated nearly 11% last fiscal year and touched a record low of 96.96 against the US dollar in May, closing at 95.11 on Friday. This dramatic decline has intensified the Reserve Bank of India's push to attract foreign currency deposits from non-resident Indians through enhanced incentives and support measures. The central bank is urging banks to ramp up efforts in attracting foreign currency non-resident deposits (FCNR(B)) to bolster dollar inflows and fortify the stability of the Indian rupee. The back-to-back meetings come as the war in the Middle East pressures local assets and erodes valuable foreign exchange reserves.
India's central bank offered full hedging-cost support for banks raising three- to five-year foreign currency deposits in June, allowing borrowing against such funds. As reported by Business Standard, the Reserve Bank of India is subsidizing this program, enabling lenders to offer depositors interest rates as high as 7.5%. Analysts and bankers hope the program will attract inflows of about $50 billion. The scheme, announced on 5 June and valid till 30 September, allows banks to raise FCNR(B) deposits of three to five years and swap the dollars with the RBI at a concessional rate. The drive echoes a 2013 plan launched during the taper tantrum, when India garnered about $34 billion to stem the rupee's decline. However, to garner $60 billion-$80 billion, banks will need to further raise deposit rates, with Jefferies noting that a 20-30 basis points increase in rates can improve investor return by over 200 basis points.
Domestic banks do not expect significant FCNR(B) deposit inflows from the US under the RBI's latest incentive scheme, as many non-resident Indians remain wary due to stricter tax scrutiny and compliance challenges following the 2013 programme. According to Mint, several US-based NRIs who had invested in FCNR(B) deposits in 2013 allegedly failed to disclose the interest income to US tax authorities, leading to penalties and compliance headaches later. "People have burnt their fingers last time, and will be more careful now," said one banker. The second banker reported that banks have got about $5-7 billion so far, while most PSU banks have received millions, with some private banks getting a couple of billion dollars. Indian media has reported that restrictions by the UAE's central bank on representative offices could dampen expectations of strong dollar deposits from UAE-based non-resident Indians.
The minister also told state-run lenders to make greater use of the banking infrastructure available at India's tax haven — GIFT City — to mobilize overseas funds. According to Mint, Indian lenders are trying to route their dollar mobilization through GIFT City in Gujarat, as bankers fear foreign jurisdictions could question why their banks are lending for unproductive purposes outside the US. Latest RBI data shows banks mobilized $166 million in fresh FCNR(B) deposits in April 2026, while the outstanding FCNR(B) deposit base stood at $33.92 billion at the end of April, up from $33.76 billion a month earlier. Overall, NRI deposits across FCNR(B), non-resident external (NRE) and non-resident ordinary (NRO) accounts stood at $165.59 billion, indicating that FCNR(B) deposits account for roughly one-fifth of the total NRI deposit base. However, Indian banks are increasingly tapping foreign lenders for dollars, a move that has raised their cost of borrowings and makes it difficult for smaller banks to offer leverage under the plan.
Central Bank Governor Sanjay Malhotra is scheduled to meet private and state-run bank CEOs on Tuesday to map out a comprehensive plan to boost overseas deposit inflows and resolve operational issues limiting fund mobilization. As reported by Mint, the meeting, chaired by RBI governor Sanjay Malhotra, also included the deputy governors and executive directors, with Malhotra urging banks to continue meeting the needs of all segments with renewed vigour and prudence. On Monday, Union finance minister Nirmala Sitharaman met chiefs of state-owned banks, calling for enhanced NRI outreach. The back-to-back meetings underscore policymakers' efforts to get banks to collect more foreign currency deposits from non-resident Indians, with the Reserve Bank of India asking banks to report daily data on FCNR deposits. Officials from both central banks also discussed steps to ease the time frame for due diligence processes handled by UAE-based banks for wealthy customers.
