In an extraordinary display of mobilization, Indian banks collectively secured more than $60 billion in Foreign Currency Non-Resident (Bank) or FCNR(B) deposits during the final 10 days before the August 31 deadline. This last-minute rush propelled total FCNR(B) inflows into the banking system to an impressive $136.4 billion, according to data from Jefferies.
Intense Competition Drives Late Surge
The significant influx came as banks intensified their efforts to attract FCNR(B) deposits under the Reserve Bank of India's concessional swap facility. Analysts at Jefferies noted that fund mobilization "shot up in the last week," with the final 10 days alone accounting for a substantial portion of the system-wide flows.
Major Lenders Lead the Charge
Several prominent banks played a key role in this deposit drive. State Bank of India (SBI) mobilized nearly $9 billion, closely aligning with its $10 billion guidance. Among large private sector banks, ICICI Bank emerged as a leader, attracting $17.88 billion, as reported by Macquarie. This gave ICICI Bank an estimated 18% share of FCNR(B) deposits, significantly higher than its approximately 7% share of the overall deposit market.
HDFC Bank also reported a higher mobilization than initially indicated, with its FCNR(B) deposits estimated to be between $11.5 billion and $12 billion, according to sources cited in the report.
Smaller Banks and Foreign Lenders Punch Above Their Weight
The FCNR(B) deposit surge wasn't limited to the largest institutions. Smaller private banks and foreign banks also demonstrated notable success. RBL Bank, despite its smaller overall market presence, mobilized around $3.4 billion, securing a 2.7% share of FCNR(B) deposits compared to its roughly 0.5% share in the normal deposit market, as per Motilal Oswal data.
Foreign lenders significantly increased their participation, with their share of incremental FCNR(B) flows rising from just 1-2% in early June to 15-30% by the end of July, according to Jefferies. HSBC, for instance, mobilized approximately $6.14 billion by the end of August.
Liquidity Boost and Economic Impact
This substantial inflow of foreign currency is expected to provide a significant liquidity boost to the Indian banking system. Jefferies data shows a positive market reaction, with NBFC stocks gaining 15% and small private banks rising 11% over three months, outperforming the Nifty 50's 2% gain.
While FCNR(B) deposits typically offer lower margins than conventional deposits, Jefferies anticipates that the enhanced system liquidity will particularly benefit Non-Banking Financial Companies (NBFCs) and smaller private banks. The brokerage also suggests these flows could improve liquidity ahead of the festive season and help maintain lower interest rates.
Motilal Oswal has consequently raised its systemic credit-growth estimate for FY27 to 14.3%, with potential upside to 15.5-16%, as banks integrate this liquidity windfall from the FCNR(B) mobilization.