Indian Banks Get $127-Billion Boost As Foreign Currency Deposits Strengthen Funding: S&P

New Delhi: Indian banks have received a significant liquidity boost after mobilising a record $127 billion through Foreign Currency Non-Resident Bank deposits, according to S&P Global Ratings.

Indian lenders collected $127 billion through FCNR(B) accounts between June 8 and August 31, 2026.

The amount represents nearly 4.5% of the banking system’s total deposit base as of March 31, 2026. S&P described the mobilisation as a “shot in the arm” for banks facing tight funding conditions.

Credit growth has exceeded deposit growth for the past four years, increasing pressure on lenders to attract stable funds. The latest dollar inflows are expected to ease that imbalance.

RBI Support Attracts Dollar Deposits

The Reserve Bank of India supported the special deposit scheme by absorbing the entire hedging cost on the principal amount of FCNR(B) deposits with maturities of three to five years.

The facility, available between early June and August, enabled Indian banks to offer attractive interest rates on US dollar deposits and encouraged overseas Indians to place more money in India.

S&P said the medium-term maturity of these deposits would strengthen funding stability and help banks address gaps between the duration of their assets and liabilities.

Balance-Sheet Impact May Reach $220 Billion

The overall expansion in bank balance sheets could exceed the $127 billion directly mobilised through FCNR(B) accounts.

Banks have allowed some customers to borrow against existing deposits and invest the proceeds in FCNR(B) accounts. These low-spread loans and the offshore borrowings used to fund them also appear on bank balance sheets.

S&P estimates the total balance-sheet increase could reach $190–$220 billion if 50%–75% of the deposits are leveraged through loans against pledged FCNR(B) deposits.

Liquidity Is The Biggest Beneficiary

Liquidity will be the clearest beneficiary of the record mobilisation, the rating agency said.

Indian banks have been operating with elevated credit-deposit ratios amid intense competition for deposits. The sizeable foreign currency inflows provide medium-term funding, reduce immediate pressure to raise domestic deposits and strengthen the banking system’s overall liability profile.