Even though the government’s scheme to raise foreign exchange is going very well, NRIs are continuously increasing the dollars or rather foreign currency in India by investing in this scheme, on the other hand, a worrying news has come to the fore for the banks. Analysts say that the leverage (borrowing facility) that banks are providing to attract foreign currency non-resident (bank) i.e. FCNR (B) deposits may put pressure on margins. The reason for this is that the interest rates in foreign countries are low and the lending spread (margin available on lending) is low. Its impact is likely to be greater on banks with low funding costs like ICICI Bank, HDFC Bank and Kotak Mahindra Bank. They may have to offer competitive lending rates abroad while keeping deposit rates attractive.
$100 loan for $800
Sandeep Batra, executive director of ICICI Bank, admitted in the ET report that the cost of new deposits raised under the FCNR(B) scheme may be higher. Batra said during the bank’s post-earnings media call that NIM (net interest margin) may be slightly lower from FCNR(B) deposits. However, we will continue to make best use of all the tools at our disposal while maintaining a risk-balanced approach to profitability. He said that if there is no change in domestic interest rates, the margins should remain in the current range.
Equirus Securities analyst Rohan Mandora said in a media report that banks are offering different leverage products to their customers, some of which are offering leverage up to eight or nine times. In such a situation, for every $100 deposited, a loan of about $80 can be taken from the bank. Due to low interest rates abroad, these loans will be given at very low rates and typically at low margins of 80 to 90 basis points, which may have some impact on banks’ profits.
warning from experts
The amount of leverage offered will depend on the customer’s credit profile and their relationship with the bank. These funds are also likely to be used for lending in India, where banks can earn higher returns. However, analysts cautioned that the benefits of the special FCNR(B) scheme will depend on how well banks are able to utilize these funds profitably. In a note on July 21, Macquarie Capital Securities analyst Suresh Ganapathy said that since the Reserve Bank of India swap covers only the principal amount. Therefore, the effective cost of a bank offering 6 per cent on FCNR(B) deposits becomes more than 6.5 per cent after adding the interest swap cost.
This increases further after adding the insurance cost, making it at par with domestic term deposit rates. Ganapathy said that the only thing is that on FCNR you do not have to maintain CRR (Cash Reserve Ratio) or SLR (Statutory Liquidity Ratio)… So, it is beneficial in that respect. If there are good opportunities to invest your money, you need a deposit… So really, it all depends on how well you can use them, but the idea that this is ‘cheap’ money has now been proven completely wrong.
Lowest margin in these banks
ICICI Bank reported a net interest margin of 4.36 percent for the quarter ending June 2026, compared to 4.34 percent a year ago. This bank is among those lenders whose cost of funds at 4.51 percent is the lowest in the industry. This also includes Bank of Maharashtra (4.01 percent), HDFC Bank (4.40 percent) and Kotak Mahindra Bank (4.46 percent). Analysts say that aggressive leverage and pricing competition may increase the blended cost of funds for such banks. Yuvraj Chaudhary, research analyst at Anand Rathi Securities, said that for banks for which the cost of funds is high, these additional deposits will not come at much different cost.
This will have greater impact on those banks which have till now kept their cost of funds under control, because there is a possibility that the mixed cost of funds will increase. According to RBI data, more than $32 billion has been deposited till July 17, 2026 under the FCNR(B) scheme available till September 30, 2026. Deposits and withdrawals can be made in foreign currencies such as US Dollar, Canadian Dollar, Australian Dollar, British Pound, Euro and Japanese Yen. The interest received on these deposits is not taxed in India.
Leave a Reply