Indian bank deposits surge to $115 billion on strong FCNR inflows

MUMBAI — Deposits in India’s banking system have risen sharply over the past three fortnights, reaching a record high as foreign-currency inflows from non-resident Indians (NRIs) boosted liquidity, according to Reserve Bank of India (RBI) data.

Banking system deposits increased by a cumulative 11 trillion rupees (about $115 billion) in the three fortnights leading up to July 31, reversing an earlier decline and marking one of the strongest deposit expansions in recent months.

The surge follows a period of weakness, during which deposits recorded a net decline of 3.87 trillion rupees between April 1 and June 15.

The turnaround came after the RBI introduced special measures in June aimed at attracting foreign-currency deposits from overseas Indians. The central bank launched discounted swap windows for Foreign Currency Non-Resident (FCNR) deposits and encouraged banks and state-owned companies to raise lower-cost dollar funding from international markets.

According to RBI data, the initiatives generated inflows of nearly $41 billion by the end of July.

Market participants said the conversion of these dollar inflows into rupees has been a key factor behind the recent acceleration in deposit growth.

“The conversion of dollars into rupees has gained pace, which is the major reason for the recent boost in deposits,” a trader at a state-run bank said.

Total deposits in India’s banking system stood at a record 269.4 trillion rupees at the end of July. Since the start of the current fiscal year in April, deposits have increased by 7.1 trillion rupees.

Analysts expect the strong inflow trend to support banking sector liquidity and improve the balance between credit growth and deposit mobilisation. A faster rise in deposits could help ease pressure on banks that have faced elevated credit-deposit ratios in recent quarters.

ICICI Securities Primary Dealership said credit conditions are likely to remain favourable as stronger deposit growth, driven by FCNR inflows, helps correct the imbalance between lending and deposit accumulation.

The increase in deposits is expected to strengthen the banking system’s funding base and support continued credit expansion in the months ahead.