Bank deposits achieved a record 17.8% year-on-year growth at the end of August, marking the fastest pace in a decade according to Reserve Bank of India data. This milestone surpassed the previous decadal high of 15.4% recorded in July, as reported by The Economic Times. In the fortnight ended August 31, net ₹9.4 lakh crore was added to bank deposits, bringing the outstanding amount to ₹278.7 lakh crore. The surge was primarily driven by FCNR-B deposits after the RBI opened a special window for dollar inflows, with overseas Indians parking $127 billion in foreign currency-linked non-resident deposits in about two-and-a-half months since the scheme's launch. The window was closed on August 31, a month before the RBI had originally scheduled, as reported by Business Standard.
Costs on FCNR(B) deposits are likely to rise by 15-20 basis points for Indian banks, over and above the interest cost committed to depositors, as banks have to separately hedge the dollar liability arising from interest payments on these deposits, according to Business Standard. A senior banker at a private sector bank explained that if a bank offers 6.5% interest on an FCNR(B) deposit, its effective cost could work out to 6.65-6.70% once hedging costs are factored in. The Reserve Bank of India is absorbing the hedging cost on the principal amount but not on the interest payable, as clarified in FAQs released in June after operationalising the concessional swap window. Banks have mobilised $127 billion through FCNR(B) deposits under this scheme, with the strong mobilisation driven partly by banks offering higher interest rates and providing leverage against FCNR(B) deposits, which allows non-resident Indians to potentially enhance returns on their investments.
Consumer durable loans are driving new borrower acquisition, while home and gold loans account for much of the portfolio growth, as reported by The Times of India. Credit growth eased slightly to 19.1%, down from 19.4% at the end of July, according to RBI data. As per RBI Governor Sanjay Malhotra, "credit growth has been secular across sectors" with the credit-deposit ratio standing at 80.32%. The outstanding credit stood at ₹223.9 lakh crore at the end of August, reflecting the widening gap between borrower additions and loan values that indicates credit becoming more accessible to a broader range of consumers.
The widening gap between borrower additions and loan values suggests that credit is becoming more accessible to a broader range of consumers, particularly in the consumer durables segment. This trend indicates changing consumer behavior and credit market evolution in India's retail sector, with improving sentiment and clearing redemption backlog supporting private credit firms and asset managers, as noted by The Economic Times. The record deposit growth, driven primarily by foreign currency inflows, provides banks with improved liquidity positions to support continued credit expansion across sectors, though banks continue to face challenges in mobilising domestic savings and managing the additional hedging costs associated with FCNR(B) deposits.
