Citigroup Inc. has tied up with Axis Bank Ltd. to finance non-resident Indians investing in foreign-currency deposits with the local lender, according to people familiar with the matter. The arrangement, reported by multiple outlets including Business Standard, The Economic Times, Moneycontrol, and The Hindu Business Line, involves Axis Bank providing standby letters of credit to support financing extended by Citigroup through its offshore operations.

The people, who asked not to be identified because the information is private, said the arrangement allows leverage on the amount invested by an NRI. This mechanism effectively lets wealthy diaspora members amplify their deposits, potentially multiplying inflows into India.

RBI's push and the leveraged trade

The tie-up illustrates how the Reserve Bank of India's push to attract dollars has spawned a leveraged cross-border trade, as reported by all four outlets. The trade is emerging as the RBI seeks to bolster foreign-exchange reserves and ease pressure on the rupee, while creating opportunities for global banks to provide financing offshore even without an Indian retail presence.

The central bank introduced a concessional swap facility in June to encourage such deposits and allowed lenders to issue standby letters of credit against them, enabling overseas banks to provide financing. Indian banks can lend against diaspora deposits or provide standby letters of credit to offshore lenders, with the RBI leaving them to determine how much financing to extend.

Regulatory response and figures

According to reports, the central bank has already moved to end its incentive a month early after deposits under the program surged past $52 billion. The RBI has since shortened the swap window to the end of August from Sept. 30 after strong inflows, as stated by The Economic Times, Moneycontrol, and The Hindu Business Line.

However, reports differ on the total deposits mobilized under the facility through Aug. 13, according to RBI data. Business Standard and Moneycontrol report the figure as $65.4 billion, while The Economic Times and The Hindu Business Line put it at about $52.3 billion. The discrepancy suggests varying interpretations of the data.

Axis Bank offers rates of as much as 6.40% on Foreign Currency Non-Resident deposits, a detail carried by all four outlets.

Background and context

Citigroup exited India's retail banking business through a sale to Axis Bank in 2022. The latest arrangement doesn't signal a return to the segment, with the Wall Street lender remaining focused on institutional clients, according to the reports. This context, mentioned by all four outlets, helps clarify that the partnership is not a revival of Citigroup's consumer operations in India.

A spokesperson for Citigroup declined to comment, and a representative for Axis Bank didn't respond to a request for comment, as stated across all sources. Notably, the arrangement came to light after Bloomberg reported it, a detail mentioned in Business Standard's article, which also carries the bylines of Saikat Das and Bhaskar Dutta.

The development underscores how the RBI's policy tools are being used by global banks to tap into diaspora wealth, though the central bank's early end to the incentive suggests it is monitoring the pace of inflows closely.