Govt taps inputs from public sector banks to lure foreign capital

Mumbai: The government has called a two-day meeting with state-owned lenders to brainstorm measures to attract foreign investments, a move aimed at stabilising the rupee and bridging the current-account gap that has widened largely because of the high energy import bill.

The finance ministry has scheduled the annual two-day PSB Manthan with all public sector lenders on August 17 and 18 in New Delhi. Finance minister Nirmala Sitharaman will meet bankers and review their proposals on August 18, senior bankers said.

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The meeting will also focus on improving deposit mobilisation, encouraging investors to set up global capability centres in India, strengthening the flow of funds to medium and small enterprises, and helping scale the agriculture and horticulture sector, they said.

The meeting will be attended by the chiefs of all PSU banks, led by State Bank of India chairman CS Setty. The heads of the National Bank for Financing Infrastructure and Development, Power Finance Corporation, National Housing Bank and Small Industries Development Bank of India, among others, will also attend.

Economists said fresh foreign capital inflows would help build foreign exchange reserves, boost domestic manufacturing and support long-term economic growth.

Lenders will also discuss ways to improve deposit mobilisation which continues to lag credit growth. Latest data released by the Reserve Bank of India for July 15 show bank deposits rose 12.7% while credit grew 17.7% from a year earlier.

Foreign capital is essential as India runs a current-account deficit (CAD), which implies that gross domestic savings are not enough to fund domestic investment.

"A growth cycle which is led by investment tends to last longer as it creates capacity and jobs. In FY26, CAD was 0.6% of GDP which is expected to widen to 1.5% to 1.7% of GDP in FY27 due to elevated crude oil prices," said IDFC First Bank chief economist Gaura Sengupta. "Even China in its initial high-growth phase was critically dependent on FDI to build its domestic manufacturing," she added.

To encourage foreign currency inflows, the RBI on June 5 announced a dollar-swap facility at concessional rates on foreign currency deposits and external commercial borrowings raised by state-run lenders. India attracted $40 billion in foreign currency inflows, with FCNR deposits alone contributing $36 billion, under this programme until July 30, according to the government.

However, FCNR deposits can only help slow the pace of depreciation of the rupee, which fell 11% in FY26.

"FCNR deposits can't be used frequently to attract capital. Hence, it's important to build other more stable forms of foreign capital such as foreign direct investments," said Sengupta. "Moreover, the FCNR deposit inflows will mature after three to five years. India will need to build forex reserves to pay dollars when these deposits mature."

A stable currency is positive for foreign investment as it protects returns in dollar terms.

Speaking to the media soon after announcing the monetary policy last week, RBI governor Sanjay Malhotra said FDI is certainly more durable, sticky and preferable. The government is taking several steps, including signing trade agreements, which will indirectly help attract investments, he said.