Stories
FCNR(B) Inflows Fuel Private Banks Growth While Margins Face Pressure
- •Treasury income dropped significantly across HDFC Bank, ICICI Bank, and Axis Bank in Q2 FY27 due to market movements, with ICICI Bank reporting a treasury loss.
- •RBI foreign currency non-resident deposit swap windows helped major private banks mobilise a combined $40 billion in overseas deposits to boost balance-sheet growth.
- •Excluding FCNR(B)-linked activity, underlying loan and deposit growth figures for the banks were notably more subdued.
- •Net interest margins compressed across all three lenders during the quarter, driven by funding costs, asset yields, and FCNR(B) deployment impacts.
- •Key focus for Q3 will be whether banks can effectively deploy FCNR(B) funds at yields that support margins amid changing interest rates.
Key Questions Answered
The Reserve Bank of India’s FCNR(B) deposit swap window helped large private banks mobilise substantial overseas deposits, significantly boosting reported balance-sheet, loan, and deposit growth. For instance, ICICI Bank mobilised $17.88 billion, HDFC Bank $11.50 billion, and Axis Bank $10.62 billion, though underlying growth trends appeared less robust when excluding these FCNR-backed activities.
Treasury income weakened across HDFC Bank, ICICI Bank, and Axis Bank in Q2 FY27 due to market movements. While HDFC Bank and Axis Bank reported year-on-year gains that were down sharply by 67.4% and 82.9% respectively, ICICI Bank swung from a profit to a treasury loss of ₹230 crore.
Axis Bank recorded the sharpest year-on-year net interest margin (NIM) compression among the major lenders at 37 basis points, dropping from 3.73% in Q2 FY26 to 3.36% in Q2 FY27. ICICI Bank saw its NIM decline by 12 basis points to 4.18%, while HDFC Bank's NIM fell by 10 basis points to 3.2%.
