Mumbai, Sep 5: Indian banks have emerged as major beneficiaries of the strong rise in Foreign Currency Non-Resident (FCNR-B) deposits, as overseas funds have flowed into the banking system through the Reserve Bank of India’s special forex swap facility.
The special window attracted more than $127 billion through FCNR(B) deposits before it closed at the end of August. The strong response has provided banks with a significant source of foreign-currency funding while also supporting India’s foreign exchange position.
Private sector and foreign banks, including ICICI Bank, have been among the major beneficiaries. ICICI Bank alone mobilised around $17.9 billion through FCNR(B) deposits under the special facility.
The inflow gives banks additional resources that can support lending and strengthen their balance sheets. Increased liquidity can also help banks serve businesses and individuals by improving their ability to provide loans for working capital, investment and expansion.
For the corporate sector, stronger banking liquidity can support financing for new projects, business expansion and infrastructure investment. Easier access to funds can also help companies manage working capital and maintain business activity during periods of global uncertainty.
The large foreign-currency inflows have also strengthened India’s external financial position. Foreign exchange reserves have risen to record levels, giving the country a larger buffer against volatility in the rupee and global financial markets.
The development comes at a time when global interest rates, crude oil prices and geopolitical tensions remain important risks for emerging markets. A stronger reserve position gives policymakers greater room to respond to external pressures.
The FCNR(B) inflows therefore provide benefits beyond individual banks. They add to financial-system liquidity, support credit availability, strengthen foreign exchange reserves and can indirectly help investment and economic activity.
However, the sudden increase in liquidity also creates a challenge for the banking system and the RBI, which has been taking steps to absorb excess funds and keep short-term interest rates aligned with its monetary policy framework.
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