The Reserve Bank of India has put a cap of $10 million on banks' sale of global products to resident Indians. The government has allowed resident individuals to invest up to $25,000 per annum overseas.
This means if individuals turn up to invest the maximum possible amount of $25,000, each bank will be able to remit the funds of only 400 such customers.
The RBI has imposed this cap to keep a check on outflows from the system and monitor banks offering global deposit products. If a bank touches the prudential limit of $10 million, it can approach the RBI to raise its ceiling.
No formal circular was issued to banks in this respect, but banks were informally directed to the effect at a recent meeting. Currently, all banks offering the global deposit product, essentially foreign currency fixed deposits, are way below the prudential $10 million limit.
"The cap sends confusing signals to the market. On the one hand, the government wants to open the door to enable individual Indians to invest overseas. On the other hand, the RBI puts roadblocks in the system. First, by limiting the type of product one can invest in, and now by imposing a ceiling on the amount a bank can undertake in terms of marketing this product," said a senior executive of a leading bank offering the product.
"The $10 million cap is not big enough for us to push the product. This is because huge investment goes into marketing, distribution and branding," said the general manager of a public sector bank.
About a year back, banks had pushed global fixed deposit products by offering enticing interest rates, 25-50 basis points higher than the market. Today, they are no longer pushing the product.
Many banks, including Citibank, ICICI Bank, HSBC, Standard Chartered Bank and Bank of Baroda, started investing and marketing foreign currency fixed deposit products through their domestic branches.
"We had started offering the plain vanilla fixed deposit product in the hope of offering more attractive global mutual fund products and other derivatives," said an executive dealing with foreign remittances at a foreign bank.
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