FCNR inflows may push FY27 loan growth to 16%; weaker-liability banks to benefit: Report

Foreign Currency Non-Resident (FCNR) inflows are projected to lift overall deposit growth by roughly three percentage points and loan growth by about 3.7 points, pushing FY27 loan expansion to 16%; at the same time, easing money‑market rates should favor banks with weaker liability bases and wholesale‑funded NBFCs, according to IIFL Capital.

Key Takeaways

• FCNR inflows are projected to lift FY27 loan growth to 16%, per IIFL Capital.
• Banks gathered $36.7 billion in fresh FCNR deposits by July 31, exceeding the entire 2013 window’s $24.5 billion.
• FCNR flows are expected to add about 3 percentage points to deposit growth and 3.7 points to loan growth.
• Easing money-market rates should favor banks with weaker liability bases and wholesale-funded NBFCs.

The brokerage pointed out that FCNR inflows are outpacing forecasts, with banks gathering $36.7 billion of fresh FCNR deposits by July 31 — more than the $24.5 billion raised throughout the whole 2013 window, which equated to 2 % of system deposits and 9 % of FCA.

It emphasized that FCNR flows are expected to contribute roughly three percentage points to deposit growth (projected at 13.5 % for FY27E) and 3.7 points to loan growth (forecast at 16.1 %).

IIFL Capital attributes the accelerated uptake to the more liberal 2026 framework, which permits principal swaps at par — eliminating hedging costs for banks compared with an annual 3.5 % cost in 2013 — and extends eligibility to rollovers and renewals, not just new deposits.

Assuming the current pace continues for the next two months, total FCNR mobilization is expected to reach roughly $80 billion, the firm noted.

After the FCNR announcement and the easing of rules for foreign portfolio investors (FPIs) in government securities, the Indian rupee steadied, and government‑security yields along with money‑market rates fell by 20‑65 basis points.

Banking system liquidity has risen to ₹3.2 trillion and is anticipated to grow further with extra FCNR inflows through September 2026; however, currency leakage and forward unwinds lasting until March 2027 are likely to absorb most of the excess, IIFL noted.

Consequently, the brokerage anticipates that the RBI will employ temporary liquidity‑absorbing tools like variable‑rate reverse repo (VRRR) operations instead of permanent steps such as open‑market‑operation (OMO) sales or an increase in the cash reserve ratio (CRR).

“Lower money‑market rates are favorable for banks with weaker liability franchises and wholesale‑funded NBFCs,” the report said, adding that the loan‑to‑deposit ratio (LDR) could climb by 0.2‑1.6 percentage points while net interest margin (NIM) might shrink by 3‑15 basis points, translating into a profit‑after‑tax (PAT) boost of 1‑9 %.

Published on August 12, 2026