Foreign Currency Non-Resident (Bank) or FCNR-B inflows in India are expected to boost aggregate bank deposit growth up to 15 per cent in FY27, helping narrow the gap between deposits and credit, although credit expansion is likely to remain robust
NEW DELHI — Foreign Currency Non-Resident (Bank) or FCNR-B inflows in India are expected to boost aggregate bank deposit growth up to 15 per cent in FY27, helping narrow the gap between deposits and credit, although credit expansion is likely to remain robust, according to a report released on Monday.
According to a report from SBI Research, around $13-14 billion has already been mobilised through the FCNR-B deposit window, which is expected to strengthen banks' deposit base during the current financial year.
It highlighted that bank credit has continued to outpace deposit growth since FY23.
For the fortnight ended June 30, bank credit grew 18.6 per cent year-on-year, while aggregate deposits increased 13.3 per cent, widening the credit-deposit gap to 5.3 percentage points.
According to the report, the persistent gap reflects structural changes in both deposit mobilisation and credit demand following the Covid-19 pandemic, rather than a temporary liquidity mismatch.
Traditional deposit markets in large metropolitan cities have become saturated, with deposit growth increasingly shifting towards semi-urban and rural areas, aided by rising household incomes, women-centric welfare schemes and expanding banking penetration, it said.
At the same time, urban households are increasingly diversifying their savings into market-linked instruments such as mutual funds and equities, reducing the share of household deposits in the banking system.
On the lending side, the report said credit growth has become more broad-based after regulatory measures curbed unsecured personal loans.
Incremental lending has increasingly shifted towards industry, infrastructure, working capital loans and loans against gold jewellery, supported by the Emergency Credit Line Guarantee Scheme (ECLGS).
SBI Research also said supply-side shocks, including elevated crude oil prices and geopolitical tensions, have a stronger impact on credit growth than on deposits, creating persistent liquidity gaps in the banking system. However, the report said Indian banks remain well-capitalised, with strong capital adequacy and low non-performing assets, placing the sector in a 'Goldilocks' phase.
It added that credit growth is expected to remain healthy, supported by consumption demand and capital expenditure, while banks are likely to maintain balance-sheet discipline.