Now Reading: Banks offer NRIs up to 29x leverage on FCNR deposits
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Banks offer NRIs up to 29x leverage on FCNR deposits
Banks are offering non-resident Indians leverage of up to 29 times their own capital for investments in FCNR(B) deposits under a special Reserve Bank of India framework, ETBFSI reports. Most banks offer…
The Story in Brief
Banks are offering non-resident Indians leverage of up to 29 times their own capital for investments in FCNR(B) deposits under a special Reserve Bank of India framework, ETBFSI reports. Most banks offer around 9 times leverage, while select private and foreign banks offer 12 to 15 times and 19 to 29 times, respectively.
At a 6.45% deposit rate and 5.75% borrowing cost, CareEdge Ratings estimates that 9x leverage could lift returns on an investor’s capital to 12.75%, while 29x leverage could take it to 26.75%. The outcome depends on the interest-rate spread. FCNR(B) mobilisation reached $52.3 billion by August 13. The framework gives eligible deposits a zero-cost hedge on principal, while banks bear hedging costs on interest payments.
The Indian Opinion
The eye-catching 26.75% figure is not a deposit return. It is a leveraged return based on a narrow 0.70 percentage-point spread and assumes borrowing costs stay below deposit rates. Claims that the scheme offers easy, near-guaranteed gains ignore that leverage magnifies any adverse rate movement. The useful test is whether that spread survives through the deposit term, after hedging and other charges.
Source: bfsi.economictimes.indiatimes.com
This story was synthesised by AI from the source linked above.
