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FCNR(B) bonanza: From funding constraint to deployment opportunity

ICICIdirect Research 04 Sep 2026 DISCLAIMER

FCNR(B) mobilisation witnessed an exceptional final sprint, with deposits surging from US$52.3 billion as of August 13 to US$65.4 billion by August 21 and US$127.2 billion (~₹12 lakh crore) by August 31, significantly exceeding market expectations of US$80–100 billion.
Continuous depreciation in Indian Rupee was one of the major impediments for fresh foreign capital inflows. With significant FCNR inflows, RBI has sufficient arsenal in its bag to prevent Rupee from further depreciation. The same could be a turning point leading to sustained FPI inflows going forward.
We could be at the turning point of a significant higher credit growth cycle (2-3 year) going forward as credit supply by banks is well placed to match rising private capex cycle (private capex is already showing sign of improvement in last 1 year).
Including OFCBs and ECBs, total forex mobilisation under RBI’s special facility reached US$136.4 billion, nearly 4x the ~US$34 billion raised through comparable measures in 2013. FCNR(B) inflows amount to a sizeable ~4.5% of system deposits.
The massive inflow has decisively eased the system’s liquidity constraint, with core liquidity touching ₹10 lakh crore during September. For banks, the focus now shifts from raising deposits to putting the money to work—

  • Replacing expensive bulk/wholesale deposits
  • Easing CD ratios and
  • Deploying surplus liquidity towards incremental credit growth.

The bigger takeaway is that funding availability is no longer the constraint; with lenders focus turning towards profitable deployment. While increasing disbursement to large corporates could be near-term margin dilution, CRR/SLR exemptions and concessional hedging provide a cushion. As liquidity gets progressively deployed, stronger lending capacity and sustained credit growth should support absolute earnings growth, making FCNR(B) a meaningful tailwind for the banking sector. 
System rates may start coming down once global concern ease-off; FCNR flows provide additional comfort
Short term bond yields have fallen by around 25-30bps in last one week as liquidity surplus touched a record of Rs 10 lakh crore. Long bond yields so far been under pressure as it continues to mirror the rising yields in global markets. India 10-year G-Sec yield is trading near 7.0%. 
India bond yields have the potential to be lower than current levels despite RBI maintaining status quo on benchmark rates.
Fall in bond yields will also have positive impact on equities in general and for sectors like PSU banks in particular.

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