New Delhi
Foreign Currency Non-Resident (FCNR) deposit inflows could provide Indian banks with additional funding and push overall loan growth to around 16 per cent in FY27, particularly benefiting lenders with weaker liability franchises, according to a report. The expected inflows come after the Reserve Bank of India introduced measures to encourage FCNR(B) deposits and improve foreign-currency funding for banks. Analysts expect the measures to ease pressure caused by loan growth continuing to outpace deposit mobilisation. Recent estimates suggest the RBI measures could attract substantial foreign-currency inflows into the banking system.
Banks have faced increasing competition for domestic deposits as credit demand remains strong. The resulting gap between credit and deposit growth has pushed lenders to seek alternative funding sources, including certificates of deposit and wholesale borrowings. FCNR deposits could provide a relatively stable source of foreign-currency funding and reduce dependence on more expensive liabilities. The benefit is expected to be greater for banks that have comparatively weaker liability franchises. Such lenders could use FCNR inflows to strengthen their funding base, support additional lending and reduce reliance on costly wholesale deposits. Banks with established overseas operations and stronger access to foreign-currency deposits may also be well positioned to capture the opportunity.
Earlier estimates from Motilal Oswal Financial Services had raised the FY27 credit-growth forecast for banks under its coverage to 14.6 per cent from 13.6 per cent. Large private-sector banks were projected to grow loans faster than public-sector lenders, supported by improving funding conditions and a revival in corporate credit demand. The improved funding outlook could also help banks manage their credit-deposit ratios, which have remained elevated as lending has expanded faster than deposits. However, analysts expect net interest margins to remain under pressure in the near term because deposit costs are still high and CASA growth remains subdued.
FCNR inflows could therefore become an important source of liquidity during FY27, helping banks meet rising loan demand while gradually easing funding pressures. The extent of the impact will depend on the size and speed of foreign-currency inflows and how effectively banks convert the additional liquidity into credit growth. If sustained, the funding support could help the banking sector approach the 16 per cent loan-growth mark while improving conditions for lenders seeking to strengthen their liability base.