$127 bn later, Indian banks get 'a shot in the arm'
In a significant move, Indian banks have raised a record USD 127 billion in deposits through foreign currency non-resident bank (FCNRB) accounts between June and August 2026, according to S&P Global Ratings. This influx of funds, equivalent to about 4.5% of the banking system's deposit base as of March 2026, has provided a much-needed boost to Indian banks, easing funding conditions and bolstering liquidity.
The Reserve Bank of India (RBI) absorbed the full hedging cost for the principal on these 3-5 year tenor deposits, enabling banks to offer higher interest rates on US-dollar deposits. This strategy not only improved banks' funding stability but also helped bridge asset-liability duration gaps. S&P credit analyst Geeta Chugh noted that the momentum created by this deposit surge is broadly positive and has eased the tough funding conditions that have persisted for the past four years, where credit growth has exceeded deposit growth.
To attract foreign capital, the RBI facilitated this process by covering the hedging costs for the deposits. The FCNR (B) deposits, with tenors ranging from three to five years, will enhance the banks' funding stability and address duration mismatches between assets and liabilities. Chugh further suggested that banks' balance sheets could expand by more than the USD 127 billion raised, potentially reaching USD 190-USD 220 billion overall.
This is based on the assumption that 50-75% of the deposits are leveraged through loans against pledged FCNR (B) deposits, with low-spread loans and offshore borrowings funding these liabilities.
The primary beneficiary of this FCNR (B) deposit mobilisation is liquidity. Indian banks have been grappling with elevated credit-deposit ratios and increasing competition for deposits, which the FCNR (B) inflows effectively alleviate. These medium-term funding sources extend the lending horizon for banks, providing the necessary cushion to navigate the challenging credit environment while fostering growth.
Written by urgent.news from The Economic Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
