Foreign Currency Non-Resident (Bank) or FCNR-B inflows are anticipated to increase aggregate bank deposit growth by up to 15% in FY27, as per a report. The report, released by SBI Research, indicates that around $13-14 billion has been raised through the FCNR-B deposit window, which is set to fortify banks’ deposit base this fiscal year.
Bank credit has consistently outpaced deposit growth since FY23, with credit expanding by 18.6% year-on-year for the fortnight ending June 30. Concurrently, aggregate deposits rose by 13.3%, widening the credit-deposit gap to 5.3 percentage points.
The report attributes the persistent gap to structural changes in deposit mobilization and credit demand post the Covid-19 pandemic, rather than a temporary liquidity mismatch. It notes a shift in deposit growth from traditional markets in large cities to semi-urban and rural areas, supported by increasing household incomes and expanding banking reach.
Urban households are diversifying savings into market-linked instruments like mutual funds, reducing the share of household deposits in the banking system. On the lending front, credit growth has diversified towards industry, infrastructure, and working capital loans, aided by the Emergency Credit Line Guarantee Scheme (ECLGS).
Supply-side shocks, such as high crude oil prices and geopolitical tensions, have a more pronounced impact on credit growth than deposits, leading to persistent liquidity gaps in the banking system. Despite this, Indian banks are well-capitalized, with strong capital adequacy and low non-performing assets, positioning the sector favorably.
The report forecasts healthy credit growth supported by consumption demand and capital expenditure, with banks expected to uphold balance-sheet discipline.
