RBI to allow Domestic Banks to extend Loans against Overseas Foreign Exchange Deposits

• Dushyant Sharma
• 24 Jun 2026
• 13 Views

The Reserve Bank of India has now authorized domestic lenders to extend loans to non-residents against foreign currency ​deposits, including via their offshore branches. It is anticipated that this move would increase the total amount of foreign exchange (FX) deposits collected through the newly announced route, which is part of broader measures aimed at enhancing dollar inflows into the country. 

RBI Notice’s Details

Here are the details from the RBI's notice:

1. Under the scheme to raise FX deposits, Indian banks will be permitted to extend loans to non-residents through their overseas branches, including via those located in India's tax-neutral GIFT City, using the deposits collected as collateral. 

2. Additionally, domestic lenders will be allowed to issue standby letters of credit against these FX deposits. 

3. Banks will have the authority to provide loans to holders of foreign currency deposits and may place a lien on such accounts. 

4. The central bank’s swap will cover only the principal amount of the deposits. It will exclude the interest component. 

5. Banks will be allowed to engage in swaps for tenors < 3 years for foreign currency deposits provided they have mobilized eligible foreign exchange deposits for a minimum period of three years.

Earlier this month, the RBI offered to subsidize hedging costs for Foreign Currency Non-Resident (FCNR) deposits so as to motivate banks to attract dollar flows from the Indian diaspora. According to Brokerage firm Nomura, it is estimated that the scheme could attract $55 billion, with most of the inflows expected in August and September.