That doesn’t seem related to this thread.
I’d just be careful not to think of this as a “leveraged deposit.” Economically it’s a leveraged carry trade.
If the bank is really offering a deposit rate that’s consistently above the borrowing rate, I’d ask myself why. Markets usually don’t leave free money lying around, so there has to be some risk you’re getting paid for—whether that’s counterparty risk, FX risk, liquidity, or something hidden in the structure.
The tax deduction is obviously nice if it works, but I’d make sure the trade still makes sense before taxes. Otherwise you’re relying on the tax treatment rather than the investment itself.
Out of curiosity, what’s the bank and what’s actually backing the deposit? That’s probably the most important part of the whole trade.
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All good, sir. Appreciate it for taking the time to point out the possible hidden risks involved. All in all, it seems too good to be true and there are safer/better investment options. Cheers !
Yeah, actually if the tax treatment does not work out in my favor, it will be a negative position.
Quite a lot of banks - all the major nationalized banks (say SBI), private ones (HDFC, ICICI) and the foreign ones (HSBC, Standard Chartered, Deutsche, Citi)
i have the HSBC factsheet with me which states the below
The Hongkong and Shanghai Banking Corporation Limited – GIFT IFSC Banking Unit (’HIBU’), has prepared this illustration based on your ask to explain, on an illustrative basis, a structure where you may take a USD loan fromHIBU, and place a USD FCNR(B) deposit with The Hongkong and Shanghai Banking Corporation Limited, India (’HSBC India’) to create different leverage outcomes.
Gift city is a designated financial free-zone operates under a special regulatory framework—separate from the rest of the domestic economy. Banks have offshore units specially for foreign exchange.
So, the bank backing the loan is the offshore entity of the same bank that takes the deposit.
Why not forget the leverage and just to a simple FCNR USD deposit? As far as I know
Indian banks are offering higher rate than US bonds with similar tenure
That should definitely have lower risk than leveraged scheme. I know RBI India is supporting this to get some foreign capital to India but I would be careful with the leverage. It’s not an infinite money pit as it sounds like. There are some YouTube channels explaining the concerns with leverage
Is unleveraged worth it given FX and taxation?
3 year deposits for USD are offered at 6.25%. It’s about 2% more than US 3Y bond yield.
So for a USD investor who trust large banks in India (let’s say NRIs), this could be a good deal. Tax will be paid in home country and not in India because these deposits are part of tax free accounts.
I personally don’t invest in this scheme because they don’t offer CHF deposits
yeah, i am wondering the same. Considering a 3% drag on USDCHF and taxation on the interest, is it indeed worth the effort..
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I think the key question is not whether 6.25% looks attractive, but what the net return in CHF after all costs, taxes and FX risk actually is. 
For a USD investor, the 6.25% FCNR rate can indeed look very interesting versus ~4% on comparable US government bonds, assuming you are comfortable with the Indian bank/country risk.
For a CHF investor, however, I would be much more cautious. The important calculation is:
6.25% deposit yield − loan interest (if leveraged) − taxes − fees − FX/conversion costs = actual return
And I would separate the 3% USD/CHF drag into two things: a one-off conversion spread/fee versus an actual annual currency depreciation. The latter is not a guaranteed cost — it is FX risk. 
One useful test: calculate the investment assuming USD/CHF is +10%, unchanged, and −10% at maturity. If the investment only works in the first scenario, the yield is probably compensating you for taking FX risk rather than providing a genuine arbitrage.
Personally, I would also compare the unleveraged FCNR deposit directly with a 3-year US Treasury after CHF conversion. If the extra ~2% yield disappears after tax, FX costs and risk, the complexity probably isn’t worth it. 
This case can be closed.
RBI India has closed this scheme after receiving more than 50 billion USD in FCNR deposits . Looks like they exceeded their goal
As far as I understand, the risk was entirely borne by Central bank of India and that’s why Indian banks were promoting this heavily as they had almost no risk themselves
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