Industry Odisha Bureau, Oct 19: Foreign-currency deposits have eased funding constraints at India’s private banks. But deploying the cash into normal lending takes time, squeezing September-quarter margins. Loan growth and profits have nonetheless held firm.
A surge in FCNR inflows has eased liquidity constraints at India’s largest private banks. The same money, however, has dented their lending margins. The trade-off showed up clearly in results for the July–September quarter of FY27.
HDFC Bank, ICICI Bank and Axis Bank all reported narrower net interest margins (NIMs). ICICI Bank’s NIM fell 18 basis points to 4.18% from 4.36%. Axis Bank’s and HDFC Bank’s each slipped 10 basis points, to 3.36% and 3.2%.
The inflows are Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. Eligible non-resident depositors hold these accounts in currencies such as the US dollar. The Reserve Bank of India has sought to attract such inflows. Banks have raised the money faster than they can lend at normal lending spreads. Until deployed, surplus funds sit in lower-yielding assets, diluting margins.
ICICI Bank alone mobilised about $18 billion in FCNR(B) deposits. It attributed 9–10 basis points of its margin decline to the changed deposit mix. That is roughly half the quarter’s fall. Executive director Sandeep Batra expects the full impact in the December quarter, then a recovery.
Axis Bank put the FCNR(B) drag on its NIM at about 11 basis points. Excluding it, core NIM edged up to 3.47% from 3.46%. Chief financial officer Rajeev Mantri said the bank is reworking its asset-liability mix. FCNR(B) funds will back new advances and replace higher-cost deposits and borrowings.
HDFC Bank chief executive Sashidhar Jagdishan expects margins to rise from next quarter. He said rising rates should help, as much of its book tracks variable benchmarks. Federal Bank’s NIM held near steady at 3.32%, against 3.33% a quarter earlier. Elara Securities said FCNR(B)-backed lending kept NIM steady despite 6.7% sequential NII growth. Managing director K.V.S. Manian expects a 5–6 basis-point gain over the rest of FY27.
Thinner margins have not stopped profits from rising. A bank can earn more in total even as each rupee lent earns less.
ICICI Bank’s net profit rose over 20% to ₹14,843 crore. Net interest income climbed 17.7%, as loans grew 30% and deposits 27%. Excluding FCNR(B) funds, loan and deposit growth stood at 24.1% and 17%.
HDFC Bank’s standalone profit rose 5% to about ₹19,510 crore. Net interest income grew 9.7%, but treasury gains shrank to ₹780 crore from ₹2,390 crore. Bernstein said higher provisioning also weighed, trimming return on assets to about 1.8%. Its gross NPA ratio improved to 1.11% from 1.17%.
Axis Bank’s profit jumped 38% to ₹7,003 crore. Net interest income rose 12%, while a steep fall in provisions lifted earnings. Its gross NPA ratio eased 12 basis points to 1.16%.
RBL Bank bucked the trend, with NIM rising to 4.61% from 4.13%. Still, management warned margins may face pressure next quarter as FCNR(B) effects play out.
Care Ratings director Sanjay Agarwal tied the margin dip to heavy FCNR inflows. He expects some reversal in the December quarter, then a return to normal. That recovery depends on how fast banks move surplus funds into normal lending. For now, private banks have liquidity to spare but margins to rebuild.
