Record USD 127 Bn FCNR(B) Deposits Give Indian Banks Liquidity Boost: S&P

(MENAFN- KNN India) New Delhi, Sep 22 (KNN) Indian banks have received a significant liquidity boost after mobilising a record USD 127 billion through Foreign Currency Non-Resident Bank (FCNR(B)) deposits, easing funding pressures and strengthening medium-term liquidity, according to S&P Global Ratings.

Banks raised the deposits between June 8 and August 31, 2026, with the amount equivalent to around 4.5 per cent of the banking system's deposit base as of March 31, 2026.

S&P said the inflows are broadly positive for banks, particularly as credit growth has exceeded deposit growth over the past four years, creating tighter funding conditions.

RBI Support Drives Record Mobilisation

The Reserve Bank of India (RBI) absorbed the full hedging cost on the principal of three-to-five-year FCNR(B) deposits during June-August to encourage foreign-currency inflows, reported PTI.

The support enabled banks to offer more attractive interest rates on US-dollar deposits, prompting a strong response from the Indian diaspora.

“The FCNR(B) deposits have tenors of three to five years, and will improve the bank's funding stability and bridge asset-liability duration gaps,” said Geeta Chugh, credit analyst at S&P Global Ratings.

Bank Balance Sheets Could Expand Up To USD 220 Bn

S&P said the impact on bank balance sheets could exceed the USD 127 billion raised, as some banks have allowed customers to borrow against their FCNR(B) deposits and reinvest the funds in such accounts.

It estimated that the overall increase in bank balance sheets could reach USD 190-220 billion, assuming 50-75 per cent of the deposits are leveraged through loans against pledged FCNR(B) deposits.

Medium-Term Funding Eases Deposit Constraints

S&P said liquidity is the clearest beneficiary of the mobilisation, as Indian banks have been operating with elevated credit-deposit ratios amid increasing competition for deposits.

The three-to-five-year FCNR(B) deposits provide sizeable medium-term funding, improving funding stability and helping banks manage asset-liability duration mismatches.

The inflows therefore provide banks with an additional source of stable funding at a time when domestic deposit mobilisation has struggled to keep pace with credit expansion.

(KNN Bureau)

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