Large $127 Bn Foreign Currency Deposit Mobilisation A 'Shot In The Arm' For Indian Banks: S&P

S&P Global Ratings on Monday said the $127 billion mobilised by Indian banks through a special deposit scheme to attract US dollars is a "shot in the arm" for Indian banks as it has eased the tough funding conditions and boosted liquidity.

Indian banks raised a record $127 billion in deposits through foreign currency non-resident bank (FCNRB) accounts between June 8 and August 31, 2026.

S&P said the amount is equivalent to about 4.5% of the banking system's deposit base as of March 31, 2026.

"India's banks have received a shot in the arm. Favourable rates mobilised the country's diaspora to channel large deposits back home. We see this as broadly positive.

"The momentum has eased the tough funding conditions, in which credit growth has exceeded deposit growth for the past four years," it added.

To attract foreign capital, the Reserve Bank of India (RBI) between early June and August absorbed the full hedging cost for the principal on these 3-5 year tenor deposits. This allowed banks to offer higher interest rates on such US-dollar deposits.

"The FCNR (B) deposits have tenors of three to five years, and will improve the bank's funding stability and bridge asset-liability duration gaps," S&P Global Ratings credit analyst Geeta Chugh said.

The banks' balance sheets could increase by more than the $127 billion raised through the accounts, as banks have been allowing customers to borrow more cash against their deposits and place it in FCNR (B) accounts, S&P said.

"Low-spread loans and the offshore borrowings that fund them are on bank balance sheets. We therefore forecast the increase could be about $190-$220 billion overall, assuming 50-75 of the deposits are leveraged through loans against pledged FCNR (B) deposits," S&P said.

S&P said Liquidity is the clearest beneficiary of the FCNR(B) deposit mobilisation as banks in India have been operating with elevated credit-deposit ratios and increasing competition for deposits.

"FCNR (B) inflows ease this constraint by providing sizeable medium-term funding. These deposits have tenors of three to five years, improving funding stability and liability duration," it added.