Bank deposits hit decade-high growth as NRI dollar inflows cross $37 billion

Bank deposits surged by 15.4% year-on-year at the end of July, reaching record highs as overseas Indians deposited nearly $37 billion in foreign currency-linked non-resident accounts in just two months. The Reserve Bank of India introduced a special window to attract these dollar inflows, leading to an unprecedented acceleration in bank credit growth, which rose by 19.4% during the same period, the fastest since June 14, 2024.

Scheduled commercial banks had previously recorded faster growth on December 9, 2016, with a growth rate of 15.9%, a figure not seen since before that date. India has garnered about $41 billion in inflows by July 31, with foreign currency non-resident (FCNR-B) deposits accounting for $36.72 billion, surpassing the $26 billion mobilized under a similar scheme in 2013.

Banks are facing challenges in attracting local deposits as savers explore market-linked investment products to maximize returns. Despite these challenges, outstanding deposits have risen to Rs 269.4 lakh crore as of July, up from Rs 233.5 lakh crore in the previous year. Bank credit has also increased to Rs 220.8 lakh crore from Rs 185 lakh crore.

The growth in deposits is primarily driven by corporate demand for loans, as higher bond yields force companies to borrow from banks. Additionally, banks have increased lending to micro, small, and medium enterprises (MSMEs) through a government-backed financial assistance program introduced in response to the West Asia crisis.