India’s private sector banks have mopped up close to half of the bumper inflows of $130 billion of special foreign currency non-resident (bank), or FCNR(B), deposits, with state-owned lenders and foreign banks bringing in the rest.
Official sources told FE private banks netted a staggering $61 billion, or 46.9% of the total $130 billion, as per information available on September 3. Public sector banks came in a distant second raising $37 billion (28.5% share), while foreign banks picked up $32 billion (24.6%).
To be sure, the final tally is likely to be higher than $130 billion when the data is fully captured. The FCNR (B) scheme ended on August 31 but banks can use the dollar swap facility offered by the Reserve Bank of India (RBI) until September 11. In its last official update, the RBI put the inflows at $127.22 billion as on August 31.
Rupee Liquidity Surplus
Even as the overwhelming response to the special deposit scheme has boosted the country’s forex reserves and helped stabilize the currency and seen it appreciate, the flows have also resulted in a huge rupee liquidity surplus. The liquidity surplus in the banking system hit a fresh record of Rs 10.3 lakh crore on September 3, surpassing the previous high of Rs 9.7 lakh crore a day before.
The central bank has been attempting to drain out some of this liquidity via variable rate reverse repo, VRRR, auctions across various periods. On September 4, the RBI announced a 30-day VRRR for an amount of Rs 7 lakh crore to be held on Monday. “Mopping up the surplus banking liquidity is a challenge and the RBI may have to employ a panoply of liquidity absorption tools,” Nomura Research economists wrote last week. The surplus liquidity, while not evenly distributed among lenders, will lower borrowing costs in the money market.
Funding Pressures Ease
Interest rates on certificates of deposit (CD) are already falling as banks that have collected FCNR (B) deposits are staying away from bulk borrowings. The bigger banks are estimated to have saved about 25-60 basis points in terms of incremental cost of deposits in August as they shed bulk funds. Smaller banks and non-banking financial companies (NBFC) will also benefit.
As of August 15, 2026, system credit growth at 18.3% on-year continued to grow faster than deposit growth at 14.7%, although the gap narrowed to around 360 bps from around 500 bps a month earlier, supported by FCNR(B) deposit mobilisation, CareEdge Ratings said.
Analysts at Jefferies noted that the fortnightly data on deposit growth will show net FCNR (B) inflows, estimated at 80% plus of the gross $136 billion of inflows. “This can lift deposit growth from 12% pre-FCNR-B to 17%. We expect a slight normalisation by the end of March, 2027 to 16%,” they said.
With credit growth outpacing deposit growth and deposit costs rising, fresh FCNR inflows could ease funding pressures and potentially bring down deposit rates by a few basis points, officials said “Banks’ loans were rising faster than the deposits. The inflows of FCNR deposits will help the lenders balance the two portfolios,” a senior official said. Public sector banks would utilise the additional liquidity to step up lending, especially for the priority sector, sources said.
Among the lenders, ICICI Bank has garnered around $17.88 billion (Rs 1.7 lakh crore), HDFC Bank is estimated to have mobilised around $12 billion, State Bank of India at around $10 billion and RBL Bank at $3.4 billion.
Banks have offered interest rates of 6-7% on the FCNR(B) deposits for tenures of 3-5 years making it attractive for investors. This has been possible because the RBI absorbed the hedging costs. The bulk of the deposits have a tenure of five years. These deposits do not also attract CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements sparing lenders from these costs. “The interest rate offered on FCNR(B) deposits was lower than that on bulk deposits and CP/CD rates, making it attractive for banks as well,” Bank of Baroda economist Aditi Gupta said.