Surging FCNR deposits provide liquidity boost but squeeze bank margins

A surge in foreign-currency deposits is giving Indian banks ample liquidity to sustain strong credit growth this quarter.

However, analysts expect the surplus funds to squeeze net interest margins as banks carry FCNR-linked liquidity in lower-yielding assets.

Motilal Oswal expects private-bank margins to decline by 8-20 basis points in the September quarter due to slower deployment into loans.