Deposits in India’s banking system have surged by nearly ₹11 lakh crore over the six weeks ended July 31, reaching a record level as banks saw a strong increase in dollar inflows through the Reserve Bank of India’s foreign-currency non-resident deposit scheme.
The sharp rise comes after deposits had fallen significantly at the start of the financial year. RBI data shows that deposits declined by a net ₹3.87 lakh crore between April 1 and June 15. However, they recovered strongly during the following three fortnights.
A major reason behind the recent increase has been the conversion of incoming dollars into Indian rupees. A trader at a state-owned bank said the pace of dollar-to-rupee conversion had increased considerably, contributing to the jump in bank deposits.
FCNR Scheme Boosts Dollar Inflows
The RBI introduced discounted swap windows in June to encourage foreign-currency non-resident, or FCNR, deposits. The central bank also urged banks and state-owned companies to raise funds in dollars at lower costs.
These measures helped attract nearly $41 billion in inflows by the end of July, according to RBI data.
Total deposits across India’s banking system reached a record ₹269.4 lakh crore at the end of July. Despite the sharp rise in recent weeks, deposits had increased by only around ₹71,000 crore on a net basis during the first four months of the financial year that began in April, highlighting the steep fall recorded earlier.
Higher Deposits Could Support Bank Lending
The increase in deposits could improve banks’ ability to lend and help restore a better balance between credit growth and deposit mobilisation.
ICICI Securities Primary Dealership said stronger deposit growth driven by FCNR inflows could help correct the imbalance in banks’ credit-to-deposit ratios and support credit conditions.
Banks had entered the new financial year under pressure as loan growth was running ahead of deposit growth. The recent foreign-currency inflows could help narrow this gap by giving banks a larger deposit base to support lending activity.
