FCNR(B) Inflows: $136 Billion Boosts Bank Liquidity; ICICI Bank, HDFC Bank, SBI Lead

Indian banks have attracted a massive pool of foreign-currency deposits through the Reserve Bank of India’s special FCNR(B) window, giving the banking system a significant liquidity boost. FCNR(B) mobilisation stood at $127.2 billion by August 31, while external commercial borrowings and overseas foreign-currency borrowings took the total inflow under the special measures to around $136.4 billion.

The response was much stronger than initially expected. The RBI had introduced the temporary measures in June 2026 to encourage foreign-currency inflows, with the government bearing hedging costs on three-to-five-year FCNR(B) deposits until September 30. Banks raised deposit rates sharply to attract non-resident deposits, with some offering rates of more than 6% during the mobilisation period.

Why did FCNR(B) deposits surge?

The special window made FCNR(B) deposits more attractive by allowing banks to offer higher rates while the government absorbed the associated hedging costs. Several lenders pushed rates above 6% for longer-tenure deposits, prompting a strong response from NRI depositors.

The mobilisation was strong enough for the RBI to close the FCNR(B) deposit window on August 31, a month before the original September 30 deadline. The related swap facility remains available for eligible deposits, while the other foreign-currency funding measures continue for a longer period.

Which banks raised the most FCNR(B) deposits?

ICICI Bank emerged as the largest individual mobiliser, raising about $17.9 billion through the scheme. HDFC Bank followed with an estimated $11.5-12 billion, while State Bank of India mobilised close to $9 billion. SBI had earlier set a target of around $10 billion for the scheme.

Axis Bank had reported net FCNR(B) mobilisation of about $1.59 billion by the end of July. The final figure is expected to reflect additional deposits raised before the August 31 cut-off.

The benefit was concentrated among larger lenders, particularly private-sector banks. This has given these banks a sizeable pool of foreign-currency funding, although the impact on individual lenders will depend on how effectively they deploy the deposits.

What happened to FCNR(B) deposit rates after the window closed?

Banks have started cutting FCNR(B) rates after the special mobilisation period ended. HDFC Bank, for instance, reduced its peak rate from 6.25% to 3.50% for three-to-four-year deposits and 3.15% for four-to-five-year deposits.

ICICI Bank has lowered its three-to-five-year rate to 3.25%, from 6.25% earlier. SBI has also reduced rates, with deposits of more than $1 million now earning 3.35% for three-to-four years, 2.95% for four-to-five years and 3.05% for five years.

Other lenders have followed the same path. PNB cut its five-year rate on deposits below $1 million from 6.50% to 3.06%, while Axis Bank is offering 3.25% for three-to-four years and 2.95% for four-to-five years on deposits below $1 million. Kotak Mahindra Bank has also brought its five-year rate down to around 3% from a peak of 6.30%.

How will FCNR(B) inflows affect bank liquidity?

The bigger impact of the scheme could be on system-wide liquidity rather than the direct earnings of the banks that mobilised the deposits. FCNR(B) deposits generally carry thinner spreads than conventional deposits, limiting the immediate profit benefit from the deposits themselves.

The large inflows have, however, added a substantial amount of liquidity to the banking system. System liquidity surplus was estimated at close to Rs 10 lakh crore in early September, easing funding conditions for lenders and reducing the pressure to compete aggressively for domestic deposits.

That could benefit banks beyond the biggest FCNR(B) mobilisers. Smaller private-sector lenders and NBFCs, which did not necessarily attract large amounts of foreign-currency deposits themselves, could also benefit if easier liquidity conditions support credit growth and reduce funding pressure across the financial system.

What does it mean for bank investors?

The FCNR(B) mobilisation gives banks greater funding flexibility, but the size of the deposits alone should not be treated as a direct earnings boost. The next leg of the story will depend on how lenders deploy the funds and at what spreads.

For large banks such as ICICI Bank, HDFC Bank and SBI, the deposits provide additional balance-sheet capacity. For the wider financial sector, the larger question is whether the liquidity surplus translates into stronger credit growth without putting excessive pressure on lending yields.

The special window has therefore eased one of the banking sector's funding constraints for now. As the one-off FCNR(B) inflows work their way through bank balance sheets, investors will be watching loan growth, margins and the pace of normal domestic deposit mobilisation more closely.

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