Archive · 5 Sep 2026
FCNR Inflows Drive Lower Short-Term Borrowing Costs Amid Liquidity
Banks have received a large amount of foreign-currency deposits through the FCNR (B) scheme.
This has left the banking system with more money available to lend.
As a result, the cost of borrowing for short periods has fallen.
Three-month certificate of deposit rates dropped by more than 100 basis points from their peak.
ICICI Bank expects liquidity to stay high in the coming months.
The bank warned that extra money in the system can eventually push inflation higher.
It said the central bank may need to temporarily or permanently remove some of the extra liquidity.
ICICI Bank expects interest rates to rise gradually if needed.
Three-month certificate of deposit rates have fallen more than 100 basis points from their peak this year.
Gross FCNR (B) inflows reached about $127 billion, lifting banking-system liquidity.
System liquidity rose from ₹1.6 lakh crore in May to approximately ₹10.5 lakh crore currently.
ICICI Bank Research said elevated liquidity could contribute to higher future inflation.
The bank suggested permanent liquidity absorption and forecast a shallow rate-hike cycle of 50 to 75 basis points.
- Who
- ICICI Bank Research analyzed the effects of FCNR (B) inflows on banking-system liquidity, borrowing costs and inflation.
- What
- Short-term certificate of deposit rates have declined as substantial FCNR (B) inflows increased system liquidity.
- When
- The report was published on September 5, 2026; it references liquidity levels in May and August 2026 and expectations through March.
- Where
- The developments concern the banking system and money market reflected in Indian-rupee measures.
- Why
- Gross FCNR (B) inflows of about $127 billion increased available liquidity, pushing short-term borrowing rates lower and potentially affecting future inflation.
- Three-month CD rates
- Down more than 100 basis points from their peak this year.
- Six-month CD rates
- Down around 100 basis points from their earlier peak.
- One-year CD rates
- Down around 90 basis points from their earlier peak.
- Gross FCNR (B) inflows
- Approximately $127 billion.
- Current system liquidity
- Around ₹10.5 lakh crore, or 3.9% of net demand and time liabilities.
- Expected March surplus
- Around 2.5% of net demand and time liabilities, according to ICICI Bank.
- Inflation forecast
- Headline inflation at 4.5% in FY28 and core inflation excluding precious metals at around 4%.