Indians have a global presence — from Silicon Valley and the financial centres of London and Hong Kong to the oil and gas hubs of the Middle East. Many maintain close economic ties with home, notably through steady remittance flows.

In times of stress, India has turned to this 37 million‑strong diaspora for support.

A recent scheme launched by the Reserve Bank of India (RBI) is the latest example. Announced earlier this month to help shore up a weak rupee, the RBI is offering to absorb the cost of hedging foreign currency deposits placed with Indian banks for three to five years. This allows overseas Indians to earn relatively high domestic interest rates without taking on currency risk.

It is now being aggressively marketed by banks, who have raised rates on such deposits to around 6% to 7%.

Analysts see it drawing in significant dollar inflows, supporting the beleaguered local currency when banks exchange those funds for rupees at the RBI.

Nomura puts the potential at about $55 billion, while Axis Bank sees scope for around $100 billion.

Banks are seeking the RBI's approval to offer dollar loans to these clients to maximize their investments. Typically this has been the purview of foreign banks, but local lenders want to offer leverage via their overseas branches or locations in India's tax-neutral hub, GIFT City.

With such leverage, returns could approach 12%, according to Macquarie analysts, who estimate inflows of $30 billion to $50 billion. Axis' estimates show that returns could rise to 15% at higher levels of leverage.

Banks stand to be big beneficiaries.

The inflows could revive deposit growth, which has lagged in recent years, while also improving liquidity in the financial system and pushing down market interest rates.

Lower borrowing costs have already encouraged companies to tap bond markets more actively.

Bank stocks have responded, with the Nifty Bank index rising nearly 7.2% over the past month, outperforming a 1.6% advance for the broader Nifty 50.

Large lenders with a strong overseas presence, such as State Bank of India and HDFC Bank, are seen gaining the most.

The scheme should help ease pressure on banks’ loan‑to‑deposit ratios, analysts at Ambit Capital said, noting that the deposits are exempt from reserve requirements, making them a more efficient source of funding and supportive of lending margins.

There are trade‑offs, however.

Bearing the hedging costs could weigh on the RBI's income and limit the surplus it transfers to the government. It will also need to return the dollars at maturity, building up forward obligations that could create future dollar demand, offsetting some of the currency support over time.

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