The London-based lender has extended more than US$3.5 billion in loans to back the bespoke foreign currency deposit plans, allowing it to reel in the deposits through a special Reserve Bank of India (RBI) concessional window, said the people who asked not to be identified because the information is private. 

Under the structure of HSBC’s offering, a customer investing US$100,000 in foreign currency non-resident deposits offered by any bank in India can borrow up to US$1.9 million against a five-year deposit. This is expected to generate an annual return of about 14.25% while paying loan interest of 5.05% to 5.15%, according to a document reviewed by Bloomberg.

That strategy has helped dwarf competitors such as Standard Chartered Bank Plc, which has garnered about US$1 billion in similar deposits after adopting a more conservative lending stance, two other people familiar with the matter said, asking not to be named discussing information that isn’t public.

HSBC has offered leverage of as much as 19 times the deposit, compared with about nine times at Standard Chartered, Bloomberg News has reported. 

The numbers highlight a widening divide in how international banks are capturing lucrative diaspora capital. HSBC has surged forward by capitalising on its vast universe of wealthy clients and a footprint that spans from India’s GIFT City to Singapore, Hong Kong, and Dubai. The bulk of its inflows are going into five-year deposits, according to the people familiar with the matter.

Other institutions are weighing similar moves. Some large foreign banks, including an Asian and a US lender, are pondering leverage policies amid fluctuating swap rates and have yet to start offering loans to offshore non-resident depositors, some of the people said.

HSBC and Standard Chartered Bank did not reply to Bloomberg’s e-mailed queries seeking comment. 

The deposit push has provided a crucial external buffer to India. Banks have mobilised about US$32 billion, largely through Foreign Currency Non-Resident, or FCNR(B), deposits, RBI governor Sanjay Malhotra said.

A majority of existing FCNR deposits which are going to mature in August and September will be renewed under the RBI’s new plan and will boost such inflows, Soumya Kanti Ghosh, group chief economic adviser at State Bank of India said in a note Monday. 

Uploaded by Liza Shireen Koshy