Small and mid-sized private sector banks in India are looking for new ways to grow their FCNR (B) deposits. FCNR (B) stands for Foreign Currency Non-Resident (Bank) deposits, which allow NRIs to keep money in foreign currencies like Dollars or Pounds in Indian banks. These smaller banks often do not have branches outside India or offices in GIFT City. GIFT City is India's special financial zone in Gujarat where international rules apply. To compete with bigger banks, these small lenders want to help NRI customers get 'leverage' (borrowed money used to invest more).

The plan involves a special partnership. Small banks want to issue a 'stand-by letter of credit' (a bank guarantee) to their NRI customers. Using this guarantee, the NRI can take a loan from a large bank's International Banking Unit (IBU) in GIFT City. The NRI then takes that loan money and puts it back into the small bank as a fresh FCNR (B) deposit for 3 to 5 years. This helps the NRI invest a much larger amount than they actually have in cash.

Right now, there is a big difference in how banks operate. Large banks like State Bank of India, HDFC Bank, and ICICI Bank already have units in GIFT City. Because they can offer easy loans to NRIs, they offer lower interest rates of around 6 percent. Small banks and Small Finance Banks (SFBs) do not have this advantage yet. To attract customers, they are currently forced to offer much higher interest rates, sometimes between 7 percent and 7.50 percent.

Top leaders at these smaller banks are already taking action. P.N. Vasudevan, the CEO of Equitas Small Finance Bank, confirmed that his team has visited GIFT City. They are also talking to banks in West Asia to check if such partnerships can work. However, these talks are in the early stages. Large banks in GIFT City stay busy serving their own customers first. They will only help the customers of smaller banks if they have extra funds available after meeting their own needs.

This rush for deposits is happening because of special rules from the Reserve Bank of India (RBI). The RBI wants to bring more US Dollars into the Indian banking system to keep the Rupee stable. To help with this, the RBI is offering a 'concessional swap window' (a cheaper way for banks to swap foreign money for Rupees). The RBI is also exempting these specific deposits from CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio). This means banks do not have to keep a portion of this money idle with the RBI and can use the full amount for business.

Experts believe that Indian banks could collect between $30 billion and $50 billion through these foreign currency deposits by September 2026. For bank officers, this means a high pressure to reach out to NRI clients. For customers, it means better chances to earn high returns on their foreign savings. The banking industry is now waiting to see if these small-and-large bank tie-ups actually happen, as it would change how NRI banking works in India.