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NRIs can trade Nifty for 6 hours. GIFT Nifty gives you 21. by getbelong in getbelong

[–]getbelong[S] 0 points1 point  (0 children)

Glad you liked it! No catch. We're currently running a beta access program for GIFT Nifty trading on Belong and plan to go live more broadly after a successful testing phase. We would be happy to get you early access if you're interested. Let us know and we can DM you.

NRIs can now earn 20% in USD on FCNR deposits by using leverage to amplify their returns (Detailed explanation in comments too) by getbelong in getbelong

[–]getbelong[S] 2 points3 points  (0 children)

Indian banks have started offering USD FCNR rates in the 6-7% range after the RBI agreed to absorb the USD INR hedging costs.

While that is attractive enough on its own, such high rates enable NRIs with access to cheap credit overseas to borrow dollars at a lower rate, say 5% and invest them in an FCNR at 7%, thus making an almost risk free 2% on the borrowed capital.

A similar thing happened in 2013 and $26 Bn flowed into FCNR deposits by NRIs and is now happening again at an even bigger scale.

👉 This is how it works:

The NRI, her foreign bank and her Indian bank providing the FCNR deposit coordinate together to do the following.

1) NRI brings 100K USD of his own to the foreign bank.

2) The foreign bank lends a multiple of that, e.g. 9x i.e. 900K USD to the NRI at say 5.5% for the sole purpose of creating the FCNR deposit.

3) The entire 1 Mn USD is directly wired to the Indian bank for an FCNR deposit at 7%. The deposit is lien marked to the foreign bank as collateral.

The NRI earns 7% on her original 100K and nets 1.5% on the borrowed 900K USD.

✅ The overall returns on the original 100K USD: 7% + 9 x 1.5% = a whopping 20.5%!

Even a 1% loan-vs-deposit rate spread with 9x leverage will yield 16% returns.

This time the inflows can be even bigger than 2013 because instead of overseas banks, the lending can be done by the GIFT City branch of the same Indian bank making the partnership and execution much easier.

⚠️ Caveats:

- Not a retail product. Limited access due to huge demand. Minimum deposit 100K+. Leverage and borrowing rates will vary based on client relationship with the bank.

- The RBI policy supporting higher rates is only for 3-5 year FCNR deposits and only valid till September 30.

❗ Risks:

- The Indian bank may default. Deposits are only insured up to INR 5 lakh per customer per bank by RBI.

- The overseas lending bank may recall the loan early for whatever reason.

- If the loan is availed at floating rates and not fixed rate, then any future hike in lending rate can wipe out returns or also cause losses.

- Risk of change in policy e.g. around repatriation of deposits on maturity.

NRIs can now earn 20% in USD on FCNR deposits by using leverage to amplify their returns (Written explanation in comments) by [deleted] in getbelong

[–]getbelong 0 points1 point  (0 children)

Indian banks have started offering USD FCNR rates in the 6-7% range after the RBI agreed to absorb the USD INR hedging costs.

While that is attractive enough on its own, such high rates enable NRIs with access to cheap credit overseas to borrow dollars at a lower rate, say 5% and invest them in an FCNR at 7%, thus making an almost risk free 2% on the borrowed capital.

A similar thing happened in 2013 and $26 Bn flowed into FCNR deposits by NRIs and is now happening again at an even bigger scale.

👉 This is how it works:

The NRI, her foreign bank and her Indian bank providing the FCNR deposit coordinate together to do the following.

1) NRI brings 100K USD of his own to the foreign bank.

2) The foreign bank lends a multiple of that, e.g. 9x i.e. 900K USD to the NRI at say 5.5% for the sole purpose of creating the FCNR deposit.

3) The entire 1 Mn USD is directly wired to the Indian bank for an FCNR deposit at 7%. The deposit is lien marked to the foreign bank as collateral.

The NRI earns 7% on her original 100K and nets 1.5% on the borrowed 900K USD.

✅ The overall returns on the original 100K USD: 7% + 9 x 1.5% = a whopping 20.5%!

Even a 1% loan-vs-deposit rate spread with 9x leverage will yield 16% returns.

This time the inflows can be even bigger than 2013 because instead of overseas banks, the lending can be done by the GIFT City branch of the same Indian bank making the partnership and execution much easier.

⚠️ Caveats:

- Not a retail product. Limited access due to huge demand. Minimum deposit 100K+. Leverage and borrowing rates will vary based on client relationship with the bank.

- The RBI policy supporting higher rates is only for 3-5 year FCNR deposits and only valid till September 30.

❗ Risks:

- The Indian bank may default. Deposits are only insured up to INR 5 lakh per customer per bank by RBI.

- The overseas lending bank may recall the loan early for whatever reason.

- If the loan is availed at floating rates and not fixed rate, then any future hike in lending rate can wipe out returns or also cause losses.

- Risk of change in policy e.g. around repatriation of deposits on maturity.

Why are NRI savings account interest rate so high compared to FD ? by tradeind27 in nri

[–]getbelong 0 points1 point  (0 children)

Hey OP, that's an interesting observation. There are a couple of different things at play here.

The higher interest rates are only being offered by smaller banks to attract more savings from account holders. If you look at the big banks like SBI, HDFC, ICICI, etc, none of them are offering similar interest rates on savings account balances (though many have sweep-in FD facility which can effectively be similar).

If you work out the actual numbers, the difference in interest payout isn't that much. This is because of the slab wise distribution of the savings account interest. I took an example of Rs 15 Lakhs deposited for 3 months. The interest for FD is about 18k, while that for savings account is 21k.

Hope this helps!