Indian banks have raised a record $127 billion through foreign currency non-resident bank (FCNR) deposits between June 8 and August 31, 2026. S&P Global Ratings said the mobilisation has strengthened banks by easing funding pressure and improving liquidity.

The amount raised through the special deposit scheme is equal to around 4.5% of the Indian banking system’s deposit base as of March 31, 2026. S&P said the strong inflow has helped banks deal with difficult funding conditions, particularly as credit growth has remained higher than deposit growth for the past four years.

"India's banks have received a shot in the arm. Favourable rates mobilised the country's diaspora to channel large deposits back home. We see this as broadly positive.

"The momentum has eased the tough funding conditions, in which credit growth has exceeded deposit growth for the past four years," it added.

The Reserve Bank of India introduced measures between early June and August to attract more foreign capital. Under the scheme, the RBI absorbed the full hedging cost for the principal amount of three- to five-year FCNR deposits. This enabled banks to offer higher interest rates on US-dollar deposits and encouraged the Indian diaspora to bring more funds into the banking system.

S&P said the longer tenure of these deposits will also improve the stability of bank funding. It said the deposits could help banks manage gaps between the duration of their assets and liabilities.

"The FCNR (B) deposits have tenors of three to five years, and will improve the bank's funding stability and bridge asset-liability duration gaps," S&P Global Ratings credit analyst Geeta Chugh said.

S&P also estimated that the impact on bank balance sheets could be larger than the $127 billion directly raised through FCNRB accounts. Some banks have allowed customers to borrow against their FCNRB deposits and then place the borrowed funds into such accounts.

"Low-spread loans and the offshore borrowings that fund them are on bank balance sheets. We therefore forecast the increase could be about $190-$220 billion overall, assuming 50-75 of the deposits are leveraged through loans against pledged FCNR (B) deposits," S&P said.

The ratings agency said liquidity remains the clearest benefit of the deposit mobilisation. Indian banks have been operating with high credit-deposit ratios while facing growing competition to attract deposits.

"FCNR (B) inflows ease this constraint by providing sizeable medium-term funding. These deposits have tenors of three to five years, improving funding stability and liability duration," it added.