Neutral impactEconomy
Have FCNR(B) deposits fuelled a surge in loans against fixed deposits?
Economic Times 2 hrs ago·5 Oct 2026, 1:45 am
The Reserve Bank of India (RBI) recently clarified that banks can lend against Foreign Currency Non-Resident (Banks) (FCNR(B)) deposits, a special facility created to attract foreign currency. This permission allows banks to offer loans to customers using these deposits as security. Consequently, some lenders have started offering loans that are several times the value of the underlying deposit, effectively allowing customers to borrow and redeploy the funds into new FCNR(B) deposits.
This development is significant as it increases the liquidity available in the banking system. It also highlights the growing role of foreign currency deposits in supporting domestic lending activities. For investors, this trend suggests that banks are actively leveraging these specific deposits to expand their loan books, which could impact their asset quality and profitability in the long run.
Investors should monitor how banks manage the risk of these high-leverage loans. A sharp rise in non-performing assets (NPAs) could negatively impact bank performance. Furthermore, keeping an eye on the RBI's future guidelines on this specific facility will be crucial to understanding the sustainability of this lending practice.
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- Category: Economy.
- Assessed as a significant, market-relevant update.
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