India’s Banks Are Flush With NRI Deposits But Can’t Chase Risky Loans

By Katya Naidu

What?

India’s banks have suddenly found themselves with more money to lend. 

Non-resident Indians have parked $127.2 billion (about ​​Rs 12.2 lakh crore) with Indian banks through FCNR(B) deposits, giving lenders more room to expand credit after years in which deposit growth struggled to keep pace with loans.

This is good news for banks that have been struggling to balance robust credit growth with muted deposit growth — and will now have more headroom to grow. 

The inflows have helped push system liquidity to Rs 7.8 lakh crore as of September 1 from Rs 6.7 lakh crore in mid-August. 

However, FCNR(B) deposits are costing banks roughly 6.5% to 7%, compared with around 4% to 6% for conventional domestic deposits.

That creates pressure to put the money to work, preferably in loans that generate double-digit returns.

The obvious answer is unsecured credit. Experts said that it is also the area where banks have the most reason to remain cautious.

“The sizable inflows under FCNR(B) deposits have significantly augmented system liquidity, prompting banks to seek profitable deployment opportunities. However, ICRA does not expect the banks to be pursuing aggressive growth in unsecured lending segments to enhance their yields,” Sachin Sachdeva, VP and sector head of financial sector ratings at ICRA told The Core.

Why? 

Deploying these funds in loans that provide double-digit interest rates could be margin accretive, experts believe. 

The avenues for such have been shrinking in the last few years. 

Housing loans have long had relatively low yields. Prime corporate loans typically carry single-digit interest rates. Gold loans can fetch around 10%. Personal loans, by contrast, can carry interest rates above 20%, depending on the borrower’s credit profile.

But, banks might not rush into personal loans in a big way. 

“Personal loan growth may rise marginally but not principally. Housing credit is long tenor and competitively priced, while prime corporate loans have thin spreads; this creates a temptation to seek yield in unsecured consumer loans, credit cards and small-business finance. But this would be imprudent,” Manoranjan Sharma, chief economist at Infomerics Ratings, told The Core. 

Lending to riskier avenues might be the last resort of banks. 

Banks have been on high alert ever since the RBI signalled concerns regarding unsecured retail-credit risk through higher risk weights. SBI chairman CS Setty also said that FCNR(B) inflows would not lead to ‘abnormal lending’. 

What Does This Mean?

FCNR (B) inflows are also expected to aid banks in ways beyond lending as well. Initially, banks could use the liquidity to replace commercial paper, corporate deposits and other relatively costly sources of funds rather than immediately expanding their loan books.

“The interest rate offered on FCNR (B) deposits was still lower than other avenues such as bulk deposits and CP/CD rates, making it attractive for banks as well,” said Aditi Gupta, economist at Bank of Baroda, in a note.

That could also reduce the pressure on banks to raise domestic fixed-deposit rates.

“Banks can use the liquidity to replace existing expensive liabilities rather than necessarily increasing their overall borrowings. They also need not be in a hurry to increase Fixed Deposit rates, even if there is a rate hike. They could prolong the repricing of existing deposits for as long as possible. Banks could also look at increasing foreign currency lending to eligible borrowers, subject to the applicable regulatory framework,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap.

All the above can add to the margins in the long term, but these funds could flow into a variety of asset classes. 

Don’t Miss a Beat: The Hidden Risks to Indians

For people making high-stakes decisions every day, stress can become routine. Long hours, poor sleep and constant pressure are often treated as part of the job. But cardiovascular risk can build quietly. High blood pressure, cholesterol, diabetes and genetic risk may show few obvious signs, even in people who feel healthy and perform at a high level.

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759.4 mm

That’s how much rainfall India received during the June-September monsoon this year: 12.6% below normal and the lowest rainfall in more than a decade, according to the India Meteorological Department.

Outcome: The shortfall, driven partly by El Niño, was unevenly distributed across the country.

Still, its impact is already showing up in food prices. India’s food inflation rose to 5.95% in August, from 5.52% in July, while rural food inflation climbed to 6.13%, from 5.79% in July, according to government data.

Impact: The bigger concern now is what happens to farm incomes over the coming months. 

Crisil Intelligence says the risk has shifted from acreage to yields, particularly for crops such as cotton, maize, pulses, groundnut and soybean. Lower yields could leave farmers with less produce to sell, even where they have managed to maintain sowing.

That could hit the wider rural economy. ICRA expects weaker crop output to weigh on rural demand in the second half of FY2027, particularly if real rural wages and rural sentiment continue to weaken.

Future: The effects could eventually extend beyond rural India: weaker food production can keep prices elevated for consumers, while weaker rural incomes can slow demand across the wider economy.

Indian Entrepreneurs Look Abroad

Nearly three-quarters of wealthy Indian entrepreneurs plan to relocate abroad or add another residency, according to HSBC’s 2026 Global Entrepreneurial Wealth Report. The survey covered high-net-worth business owners with at least US$2 million in investable assets.

Setup: Singapore is the most popular destination, with 14% of Indian respondents considering it, followed by France, the UK and US at 11% each. The findings point to a growing appetite among India’s wealthy business owners for a more global lifestyle and greater diversification of their wealth.

Critical Moment: But taking up overseas residency does not necessarily mean giving up Indian citizenship or cutting ties with India. Many entrepreneurs can maintain their Indian businesses and economic interests while establishing residence in another country. HSBC found that 97% of Indian entrepreneurs remain positive about their business prospects, while 97% expect their personal wealth to improve.

New Car Emission Norms Split Opinion

Former NITI Aayog CEO Amitabh Kant has slammed India's newly notified vehicle fuel-efficiency norms, known as the Corporate Average Fuel Economy (CAFE-3), calling them a "huge missed opportunity" that are backwards-looking at worst and status quoist at best.

He said India could have leapfrogged technologically, as it did with UPI and smartphones, but the rules follow the industry instead of leading it. He also noted that the 2032 target of 11% electric cars is only slightly above the near 8% share EVs already hold in current-year sales.

Context: As India steps up efforts to cut vehicular emissions and push automakers toward more fuel-efficient models, the Ministry of Power has notified norms that set fuel-efficiency and CO2 requirements for passenger vehicles from April 1, 2027, to March 31, 2032. The rules seek to reduce average emissions from each carmaker's fleet, as carmakers get extra benefits for cleaner vehicles.

Catch Up Quick: The Society of Indian Automobile Manufacturers (SIAM) welcomed the "clear predictability" of the rules for investment planning. Deloitte India's Rajat Mahajan said the norms will accelerate India's transition to new energy vehicles, though carmakers will need "careful product planning and substantial investment" in new-age technologies.

India's Economy to Grow 7% in FY27

India's economy grew 7.8% in fiscal 2025-26, significantly outperforming expectations despite high US tariffs and global uncertainty, but growth is expected to moderate to around 7.0% in fiscal 2026-27, according to S&P Global and Crisil's India Forward: Reimagining Growth report.

Fast Facts: The Strait of Hormuz disruption cut India's crude imports by 20%, LPG by 12% and LNG by 16%, highlighting the country's energy vulnerability. More than half of India's crude imports move through the strait.

The report says India must build integrated storage, diversified supply chains and strategic reserves for crude, refined products and gas to strengthen energy resilience.

The Shift: The E20 ethanol blending programme has generated $22 billion in farmer income and saved over $25 billion in foreign exchange since 2014-15, but faces bottlenecks as grain-based ethanol diverts corn from animal feed, according to the report.

The report also notes that over 70% of actively managed Indian funds underperformed their benchmarks over the 10 years ended June 30, 2026, pointing to the need for deeper, more efficient capital markets.

DoorDash Expands In India

US-based food delivery company DoorDash is expanding its technology footprint in India, opening a global technology hub in Hyderabad that will create 3,000 jobs over the next two years. The centre will initially house customer support and general and administrative teams, with 500 professionals to be hired in the first phase.

Context: DoorDash, one of the world’s largest food delivery platforms, connects consumers with restaurants and other local businesses through its technology platform. Its India expansion comes as the country’s food-delivery market is already dominated by established players such as Zomato and Swiggy.

What's Next? However, DoorDash’s Hyderabad hub is primarily a global operations and technology play rather than a direct food-delivery launch. The company already has a technology office in Pune, focused on software, data and analytics.

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Oil Flows Through The Strait Of Hormuz Are Only 11% Shy Of The Pre-War Peak

On Episode 994 of The Core Report, financial journalist Govindraj Ethiraj talks to K. Ravichandran is the Executive Vice President and Chief Rating Officer at ICRA Limited as well as Vaiibhavv Chugh, CEO at Abakkus Mutual Fund.

• Oil Flows Through The Strait Of Hormuz Are Only 11% Shy Of The Pre-War Peak

• The Sensex Has Fallen 20% This Year In Dollar Terms, Steepest In 15 Years

• India Sees Lowest Rainfall In Decade

• India Should Convert Macroeconomic Resilience Into Sustained Economic Momentum, Says S&P Global Ratings 

• Indian Companies Have Strong Balance Sheets Going Into The Second Half

• Why Stock Selection Is Going Beyond The Classic Large Cap And Small Cap Definition

• How 74% Of Indian Entrepreneurs Want To Live Elsewhere