State Bank of India's $1.5 billion forex bet

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State Bank of India has raised over $1.5 billion through foreign-currency deposits under a special RBI-supported plan aimed at shoring up reserves amid geopolitical tensions. The initiative focuses on attracting deposits from India's diaspora with high interest incentives and leverage options.

State Bank of India has so far raised more than $1.5 billion from foreign-currency deposits under a special facility launched last month for overseas citizens, people familiar with the matter said.The demand reflects the program’s attractive returns. Since the Reserve Bank of India is subsidizing the plan, lenders are offering depositors high interest rates — about 7.5% in some cases.Also read: SBI’s 15-paise bet: How India's largest bank is turning a tiny cost into mindboggling 382,567% profit In June, the RBI offered full hedging-cost support for banks raising three- to five-year foreign currency deposits, as part of broader efforts to shore up reserves amid the US-Iran war. State Bank will provide leverage of nine times to depositors, the people said, asking not to be identified as the details are private. In other words, depositors put in a portion of their own money and can borrow nine times more from a bank overseas at a comparatively lower rate. They can then deposit the full amount in India, earning more on the deposits than they pay on the borrowed funds. Banks have stepped up efforts to garner deposits from India’s 35 million-strong diaspora. They’re also expanding marketing efforts and deploying relationship managers in key expatriate markets such as the Middle East, Singapore and London.Lenders are likely to cast a wider net to attract depositors beyond wealthy clients, Jefferies analyst Prakhar Sharma wrote in a report last month. That could boost the deposits banks are able to garner, he wrote.Flows from FCNR deposits across the banking system totaled $166 million in April, according to provisional RBI data, compared with $272 million a year earlier. The figures are from before the RBI announced the concessional swap facility, and show how quickly SBI has attracted deposits under the program.Also read: SBI Funds Management IPO to open on July 14. Check detailsA spokesperson for SBI did not reply to an email seeking comment.The lender offers 5.25% to 5.75% on three-to-five-year foreign-currency deposits of up to $1 million, and 5.5% to 6% on larger deposits, according to its website. The drive echoes a 2013 plan launched during the taper tantrum, when India garnered about $34 billion to stem the rupee’s decline.