FCNR(B) Deposits Boost Liquidity Amid Festive Season, Enhances Economic Activity

Increased flows from Foreign Currency Non-Resident Bank deposits could enhance bank liquidity, enabling lending support for consumer demand during the festive season. Former Standard Chartered Bank MD Sanjeev Mehta highlighted how this boosts economic activity while mitigating risks if banks adhere to their credit standards.

In a significant financial boost, Foreign Currency Non-Resident Bank (FCNR(B)) deposits have been reported to increase liquidity among banks, potentially spurring lending during India's festive season. This development was highlighted by Sanjeev Mehta, the former Managing Director of Standard Chartered Bank, during the Global Fintech Fest in Mumbai.

Mehta explained the necessity for banks to utilize incoming deposits due to associated costs. He noted, 'As liquidity enters the banking system, it is imperative for banks to deploy those funds effectively, as holding idle funds incurs a significant expense.' The rising cost of deposits, including hedging expenses, underscores the importance of strategic fund deployment.

The timing of these increased deposits aligns with heightened consumer spending during festive months, fostering economic activity in sectors like consumer durables. However, Mehta warned that liquidity surges do not inherently elevate lending risks if banks maintain their credit standards. He also acknowledged FCNR(B) inflows' role in addressing rupee depreciation against the US dollar due to increased dollar inflows from overseas Indian deposits.