First Abu Dhabi Bank PJSC, the United Arab Emirates' largest lender, is reportedly offering up to $1.5 billion in financing to non-resident Indians investing in India's foreign-currency deposit program. The bank is targeting customers across the Middle East and is discussing arrangements with Indian banks that could provide standby letters of credit to support the funding. These guarantees would help ensure repayment if a borrower defaults, potentially allowing First Abu Dhabi Bank to expand lending tied to the deposit initiative. The facility is part of a wider effort by foreign and Indian banks to attract overseas funds as New Delhi looks to rebuild its foreign-exchange reserves and slow the rupee's sharp decline. Analysts estimate the program could bring in about $50 billion in deposits.
First Abu Dhabi Bank's proposed structure would allow non-resident Indian customers to borrow against their foreign-currency deposits while gaining access to the higher interest rates offered by banks in India. The lender is reportedly providing nine times leverage, meaning a customer investing $1 million could borrow another $9 million and raise the total deposit amount to $10 million. This structure could significantly increase the amount of foreign currency entering India without requiring customers to contribute the full deposit themselves. The United Arab Emirates may be an important market for the program because the region accounts for about one-fifth of remittances sent to India. Officials from the Reserve Bank of India, India's central bank, and the Central Bank of the UAE, the country's monetary authority, also met in Dubai earlier this month to address issues slowing the foreign-currency deposit campaign.
Under the special program announced in June, the Reserve Bank of India is absorbing the full hedging cost for Indian lenders raising three- to five-year foreign-currency deposits. The central bank used a similar approach during the 2013 taper tantrum, when expectations of tighter U.S. monetary policy triggered substantial capital outflows from emerging markets. HSBC Holdings Plc NYSE:HSBC, a global banking group, Standard Chartered Plc, an international lender, and State Bank of India, an Indian bank, are among the institutions competing for deposits from India's 35-million-strong diaspora. Some lenders are offering interest rates of up to 7.75% on five-year deposits, which could make the program more attractive to Indians living overseas. Investors may view the initiative as a potentially meaningful source of foreign-currency inflows for India, although First Abu Dhabi Bank declined to comment on the reported financing discussions.