HSBC has purchased at least $3 billion of Indian government bonds since July, deploying funds raised through a special foreign currency deposit program for overseas residents, according to people familiar with the transactions.
The bank tapped India's FCNR(B) scheme, which allows non-resident Indians and overseas citizens to deposit dollars and other foreign currencies at Indian banks. The Reserve Bank of India created the program to attract diaspora capital and build foreign exchange reserves. HSBC's bond purchases represent one of the largest recent deployments under the scheme by a single foreign lender.
The FCNR(B) program offers higher interest rates than standard dollar deposit accounts to encourage inflows from the diaspora. Deposits under the scheme are typically 1-year, 2-year, or 3-year fixed-term instruments. Banks that raise capital through FCNR(B) deposits are required to invest a portion of those funds in approved securities, primarily government bonds, creating a direct link between diaspora inflows and sovereign debt purchases.
HSBC's $3 billion bond purchase since July follows the bank's broader push into India's foreign currency deposit market. The bank has competed aggressively for FCNR(B) deposits alongside rivals including State Bank of India and ICICI Bank, all seeking to tap the estimated $200 billion in overseas Indian savings that remain outside formal banking channels.
The government has been issuing securities at a steady pace to fund infrastructure and social spending. Foreign institutional purchases of Indian government debt have remained volatile, making diaspora-linked inflows an increasingly important source of stable capital for the sovereign.
HSBC's deployment of FCNR(B) deposits into bonds at this scale demonstrates the scheme's effectiveness as a liquidity tool for both banks and the government. Since the program's redesign under RBI policy changes, inflows have accelerated, with multiple foreign banks entering the market to compete for diaspora deposits that were historically concentrated with Indian lenders.
The three-month window from July through September saw heightened competition among global banks for FCNR(B) deposits, with HSBC's $3 billion purchase representing a material allocation of its raised capital into sovereign securities. If similar deployment patterns hold across other foreign banks active in the space, the scheme could channel an additional $10 billion to $15 billion into Indian government bonds over the remainder of 2026.
