2 hrs ago
Small Finance Banks Paid More Yet Won Little FCNR(B) Funding
Small finance banks tried to attract money from people living outside India by offering higher interest rates.
But they received less than 1% of the money raised through these deposits.
Bigger banks attracted more because they have more services and stronger connections overseas.
Higher rates can help bring in deposits, but they also make borrowing that money more expensive for the banks.
This can make it harder to earn a profit.
Small finance banks are also moving into loans that may earn less than microfinance loans.
Crisil Ratings expects their margins to improve in the coming years, but says managing funding costs will matter.
The banks may need to compete in ways other than offering the highest rates.
Small finance banks (SFBs) offered higher rates on FCNR(B) deposits but captured less than 1% of inflows.
Larger universal banks had advantages including scale, broader product offerings and established international presence.
Retail deposits make up more than 70% of SFBs’ total deposits, according to Crisil Ratings.
Crisil Ratings expects sector net interest margins to rise from about 6.2% in FY2026 to 7.1–7.3% in FY2027.
The rating agency says SFBs need more cost-efficient funding strategies as they diversify into lower-yielding loans.
- Who
- Small finance banks and larger universal banks.
- What
- SFBs offered higher rates on FCNR(B) deposits but captured less than 1% of inflows.
- Where
- The article discusses Indian banks and deposits from non-resident Indians.
- When
- During the recent FCNR(B) mobilisation drive; the article does not give a specific date.
- Why
- Larger banks had greater scale, broader product offerings and established international reach, while higher rates raised SFBs’ funding costs.
Key facts
- SFB share of FCNR(B) inflows
- Less than 1%
- Retail share of SFB deposits
- More than 70%, according to Crisil Ratings
- Expected sector NIM in FY2026
- Around 6.2%
- Expected sector NIM in FY2027
- 7.1–7.3%
- Expected drivers of NIM recovery
- Easing microfinance stress and lower interest income reversals
- Funding challenge
- Higher deposit rates increase funding costs and may pressure margins
Sources
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