Mumbai: HSBC's IFSC Banking Unit in GIFT City is offering a financing structure that allows non-resident Indians (NRIs) to borrow up to 19 times their own funds, the highest leverage offered by any bank so far for the special deposit programme.
According to a customer illustration seen by ET, an NRI investing $100,000 can create a $2 million FCNR(B) deposit by borrowing $1.9 million against the deposit. At an illustrative FCNR(B) deposit rate of 5.5% and an all-in loan cost of about 5.05%-5.15%, the resulting net interest carry could generate an indicative annual return of 12%-14% on the customer's equity, depending on the tenure.
The product comes after the Reserve Bank of India (RBI) temporarily relaxed interest rate ceilings on fresh three-to-five-year FCNR(B) and NRE deposits and offered banks a concessional forex swap window, under which the central bank absorbs the currency hedging cost.
The measures, valid until September 30, 2026, are aimed at attracting overseas dollar deposits and boosting foreign exchange inflows. An HSBC spokesperson declined to comment.
HSBC's IFSC Banking Unit in GIFT City is offering two structures.
In one, an NRI contributes $ 100,000 and borrows $900,000 to create a $1 million FCNR deposit. In the higher leverage option, the same equity supports a $1.9 million loan, creating a $ 2 million deposit, equivalent to 19 times leverage on the borrowed amount, or a 20-times total investment. The bank will have the discretion in selecting the customer to be offered the higher leverage option.
With several banks currently offering 6%-plus rates on long-tenor FCNR deposits under the RBI scheme, and loan rates priced below the deposit yield, the interest rate spread results into double-digit returns on the customer's equity. HSBC's illustration shows annual net returns of about 12%-14%, depending on the tenure and leverage level.
State Bank of India is also offering leveraged FCNR structures, although with lower leverage of up to around nine times.
