Archive · 6 Oct 2026
FCNR(B) Deposit Surge May Squeeze Banks’ Margins
Banks attracted many deposits and also made more loans in the September quarter.
Some deposits came from FCNR(B) accounts, which hold money in foreign currencies.
These deposits can cost banks more, and banks may need time to lend the money out.
Until then, banks could earn less from the difference between what they earn on loans and pay on deposits.
Analysts expect private banks to feel more of this pressure than state-owned banks.
However, growing lending and mostly steady loan quality may help banks’ profits.
Analysts have different estimates for how much profits will grow.
They will watch how quickly banks use the new deposits and whether loan problems increase.
Banks’ September-quarter advances grew 19.1% year-on-year across 30 banks tracked by JM Financial, while deposits rose 15.8%.
FCNR(B) deposits helped lift deposit growth, reaching about $133 billion, or nearly 4.5% of system deposits, according to Motilal Oswal Financial Services.
Analysts expect high-cost FCNR(B) funds to pressure net interest margins until banks deploy the money into loans.
UBS estimates sequential margin declines of up to 25 basis points for banks it covers; state-owned banks may see smaller declines than large private lenders.
Strong loan growth and stable asset quality are expected to support earnings, though forecasts for profit growth differ among brokerages.
- Who
- Indian banks, including large private-sector and state-owned banks, and analysts at JM Financial, Motilal Oswal Financial Services and UBS.
- What
- Banks reported strong loan and deposit growth, while analysts warned that high-cost FCNR(B) deposits could reduce net interest margins.
- When
- The September quarter, or Q2, with forecasts covering the near term and the second half of FY27.
- Where
- India.
- Why
- Rapid FCNR(B) deposit mobilisation has increased funding, but banks may take time to deploy those relatively high-cost funds into loans.
Margin and earnings risks
Growth and resilience
Impact of FCNR(B) deposits on margins
Margin and earnings risks
UBS and Motilal Oswal expect high-cost FCNR(B) funds to weigh on margins, particularly at large private banks, while the funds are awaiting deployment.
Growth and resilience
Motilal Oswal expects margins to gradually improve as newly mobilised funds are deployed; public-sector banks may be more resilient because of lower FCNR(B) exposure and efforts to retire high-cost liabilities.
Earnings outlook
Margin and earnings risks
Margin pressure, potentially muted treasury gains amid higher bond yields, and uncertain macro conditions could constrain results.
Growth and resilience
Strong loan growth, slower operating-expense growth than balance-sheet growth, and benign credit costs are expected to support earnings.
Profit growth estimates
Margin and earnings risks
JM Financial forecasts around 12% year-on-year profit-after-tax growth for banks under coverage.
Growth and resilience
Motilal Oswal forecasts 25.4% aggregate profit growth for its coverage universe, including 24% for private banks and 27% for public-sector banks.
- FCNR(B) deposits
- About $133 billion, nearly 4.5% of system deposits, according to Motilal Oswal Financial Services.
- System credit growth
- About 18–19% year-on-year during the quarter.
- 30-bank advances growth
- 19.1% year-on-year and 6.6% sequentially in Q2, according to JM Financial.
- 30-bank deposit growth
- 15.8% year-on-year and 5.8% sequentially in Q2, according to JM Financial.
- UBS margin forecast
- Sequential NIM declines of up to 25 basis points for banks under coverage; state-owned banks are estimated at 3–6 basis points.
- JM Financial earnings forecast
- About 12% year-on-year growth in profit after tax and 12% growth in net interest income for banks under coverage.
- Motilal Oswal earnings forecast
- Aggregate profit growth of 25.4% year-on-year for its coverage universe.