Mumbai: Indian lenders have sharply raised rates on foreign-currency deposits to attract the nation's overseas residents, offering an early test of the central bank's recent measures to channel fresh dollar inflows and support the rupee.Yes Bank and AU Small Finance Bank are offering 7.1% on five-year deposits, while HDFC Bank and Central Bank of India are offering up to 6% on comparable tenures to non-residents. Karur Vysya Bank has raised its FCNR(B) dollar deposit rates for maturities of three to five years to 7% per annum. The rates are dynamic and subject to change.India Ratings expects the arrangement to generate between $60–70 billion, providing a meaningful buffer to the rupee while easing broader funding pressures within the financial system. "Against this backdrop of robust inflows, the currency is likely to recover to sub Rs 95 per dollar, before appreciating closer to Rs 90 per dollar, and eventually averaging around Rs 93.10 in FY27," India Ratings said.The Reserve Bank of India last week unveiled measures giving lenders more room to offer attractive rates on overseas deposits while containing funding costs — part of wider efforts to attract foreign capital and strengthen the rupee, which has slipped to a series of record lows despite multiple attempts to support it, as elevated oil prices weigh on the nation's balance of payments."Larger, well-established banks already benefit from a sizable NRI deposit base and therefore face less pressure to raise rates aggressively," said Madhavi Arora, economist at Emkay Global Financial Services. "In contrast, smaller banks need to attract and build a new NRI customer base, requiring them to offer a higher yield premium to remain competitive."The real force multiplier in the RBI's FCNR(B) scheme, however, lies not in the deposit rates themselves but in a single sentence buried in a subsequent circular that scrapped a restriction barring banks from issuing letters of credit or guarantees against these deposits. That tweak unlocks a leverage play that could amplify inflows by 10–20 times the actual capital deployed.In practice, an NRI depositing $1 million as collateral can use the bank's letter of credit to borrow an additional $10–20 million, channelling the entire leveraged amount into India — while earning an effective dollar return of upwards of 12% on his actual investment. It is this feature that nearly doubled inflow projections overnight, from $25 billion when the scheme was first announced to $45–55 billion after the fine print of the leverage relaxation emerged.The initiative also marks a broader shift in India's currency defence strategy — away from direct foreign exchange intervention or interest rate increases, and toward attracting fresh dollar inflows through a mix of bank incentives, overseas borrowings and foreign currency deposits.The strategy revives a playbook last deployed during the 2013 taper tantrum, when the RBI introduced swap windows for similar deposits and bank overseas borrowings after the rupee plunged to record lows. That programme ultimately attracted $34 billion and helped stabilise India's external position during one of the most turbulent periods for emerging markets.The stakes this time are equally significant. "Foreign inflows could support deposit growth and reduce the loan-to-deposit ratio," said Pranav Gundlapalle, Head of India Financials at Bernstein. "Weak foreign flows and the resulting balance of payments deficit have been key contributors to subdued system deposit growth, which has lagged credit growth for an extended period. A meaningful inflow could help narrow this gap — an inflow of $25 billion alone could add one percentage point to system deposit growth." Gundlapalle added that expectations of stronger inflows may also support the balance of payments and help stabilise the rupee, which has weakened sharply year-to-date.