Money flows from overseas Indians to India exceeded $52 billion during the first half of the year, prompting the central bank to end its foreign deposit attraction program early.
Data released by the Reserve Bank of India on Friday showed that Indian banks received $52.3 billion in deposits from non-resident Indians during the first six months of the year. Including foreign currency loans and offshore trade loans, total foreign exchange inflows to Indian banks reached approximately $56.85 billion, according to Bloomberg.
The program to attract deposits from Indians abroad was scheduled to continue until September 30, but the central bank decided to end the foreign currency account deposit swap service for non-residents for deposits collected up to August 31.
The central bank said the decision came in light of the encouraging response to the currency swap deposit mechanism for non-residents, and the large inflows of foreign currency that resulted from the program.
Jura Sen Gupta, senior analyst at IDFC First, said the early termination of the program reflects demand exceeding the central bank's estimates, noting that total cash inflows under the program could reach around $70 billion.
The Reserve Bank of India launched the program in June with the aim of attracting funds from the Indian diaspora, estimated at around 35 million people, by bearing the costs of hedging against exchange rate volatility risks for banks that collect deposits from non-resident Indians, while also allowing borrowing against these funds.
Indian banks competed to attract these deposits, offering interest rates as high as 7.75% on five-year term deposits, in an attempt to boost foreign exchange inflows into the country.
