Indian banks record robust deposit growth in Q2 through foreign currency mobilisation

Indian banking sector witnessed accelerated deposit growth during the July-September quarter, with financial institutions tapping into overseas remittances through the RBI's Foreign Currency Non-Resident Account (FCNR(B)) window. The central bank's concessional swap arrangement, designed to ease liquidity pressures and attract foreign inflows, proved instrumental in supporting the overall deposit expansion across both public sector undertaking banks and private lenders.

The FCNR(B) mobilisation scheme allowed banks to offer competitive rates on deposits held by non-resident Indians and overseas corporate entities, denominated in foreign currencies. This mechanism provided banks with an alternative avenue to shore up their deposit bases at a time when domestic retail deposit growth faced headwinds from elevated interest rates and competing investment options.

Analysts attributed the robust performance to a combination of factors, including strong overseas remittance inflows, improved confidence among non-resident depositors, and banks' active deployment of the RBI's window. The facility enabled lenders to manage their asset-liability mismatches while maintaining adequate capital buffers amid ongoing credit expansion.

The deposit growth trajectory has implications for banks' lending capacity and profitability metrics going forward. Financial sector observers noted that sustained mobilisation efforts through both domestic and external channels would be critical for banks to maintain operational flexibility as economic activity remains dynamic across various sectors of the Indian economy.