FCNR Inflows to Propel Banking Growth and Stabilize Markets

IIFL Capital predicts that FCNR inflows will boost system deposit growth by 3 percentage points and loan growth by 3.7 points, with FY27 loan growth hitting 16%. Eased money-market rates benefit vulnerable banks and NBFCs, while additional inflows support increased liquidity, stabilizing the rupee and market rates.

Foreign Currency Non-Resident (FCNR) inflows are poised to significantly enhance system deposit and loan growth, according to IIFL Capital. The brokerage highlights that FCNR deposits mobilized USD 36.7 billion by July 31, outpacing 2013 levels. This injection is expected to boost system deposit growth by 3 percentage points and loan growth by 3.7 percentage points, aiming for a 16% loan growth in FY27.

The increased traction in FCNR tends to benefit from the more accommodating 2026 regulatory framework. This includes favorable principal swaps and broadened eligibility for rollovers and renewals. Projected mobilization might reach USD 80 billion, reflecting the brisk pace observed in recent months.

With the FCNR efforts and foreign portfolio investor relaxation impacting the rupee, stability has been achieved, and banking system liquidity has seen a rise to Rs 3.2 trillion. The Reserve Bank of India is expected to explore temporary measures like variable rate reverse repo operations to manage liquidity, helping banks with weaker liability foundations. Eased money-market rates are anticipated to support loan-deposit ratios and profitably affect banks, alongside an anticipated LDR rise of 0.2-1.6 percentage points and a NIM contraction of 3-15 basis points.