Why $143.5-billion FCNR inflows may not mean abundant bank liquidity
Record foreign-currency inflows have lifted bank deposits, but SBI Research says the liquidity impact may be far smaller than the headline numbers suggest. CRR, SLR, LCR requirements, along with UPI and Sparsh, are limiting how much of these deposits can translate into additional credit.
- Oct 2, 2026,
- Updated Oct 2, 2026 3:21 PM IST
Record foreign-currency inflows into Indian banks have boosted deposits, but SBI Research says the headline liquidity numbers may overstate the amount of funds actually available for lending. Regulatory requirements, along with the impact of UPI and Sparsh, are limiting the banking system’s operating multiplier.
Forex inflows under the RBI’s special USD-INR swap facility reached $143.5 billion as of September 18, with FCNR(B) deposits accounting for $132.9 billion, according to SBI Research. However, the research house argues that the resulting increase in deposits does not translate one-for-one into deployable liquidity.
CRR, SLR and LCR constrain lending
Banks are required to maintain portions of their incremental resources under the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR) frameworks. This means a part of the additional deposits has to remain either with the RBI or in prescribed liquid assets rather than being deployed as fresh loans.
SBI Research therefore argues that “liquidity under the hood” is a more meaningful measure than headline deposit growth. Once these regulatory requirements are accounted for, effective liquidity creation and the potential for broader monetary expansion are considerably more muted.
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The report also highlights the impact of SNA-Sparsh and UPI on the banking system’s operating multiplier. SBI Research estimates that the multiplier is well below the RBI’s 6.15 level for 2026, partly because household and retail deposits are shifting towards financial-institution deposits, which carry a higher run-off factor.
₹8.2 lakh crore deposit gap
The implications become more significant when projected credit growth is taken into account. SBI Research assumes 16% credit growth in FY27, equivalent to incremental credit of about ₹34 lakh crore.
Against this, the research house estimates incremental deposits of around ₹40 lakh crore, assuming 15.5% deposit growth. But after factoring in CRR, SLR and LCR requirements, as well as UPI and Sparsh, the system would require approximately ₹48.2 lakh crore of incremental deposits to support the projected credit expansion.
That leaves an estimated ₹8.2 lakh crore deposit gap even after the FCNR inflows, according to SBI Research. The finding suggests that the record FCNR(B) mobilisation, while significant, does not necessarily translate into an equivalent expansion in banks’ lending capacity.
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Liquidity expected to normalise
SBI Research expects the liquidity position to adjust automatically as the impact of regulatory requirements works through the banking system. It sees core surplus liquidity declining from ₹13.9 lakh crore on September 15 to around ₹7 lakh crore by December-end and about ₹3.5 lakh crore by March 2027.
The report also notes that bank credit growth was running at 18.1% year-on-year for the fortnight ended September 15, while deposits grew 17.3%. This divergence reinforces the importance of deposit creation for sustaining credit expansion.
SBI Research’s assessment, therefore, is that the FCNR(B) inflows have helped banks fund recent credit growth, but the broader liquidity impact should not be judged solely by the headline rise in deposits.
DO READ: ₹5 lakh crore profit, not loss? SBI Research’s case for FCNR(B) scheme explained
Record foreign-currency inflows into Indian banks have boosted deposits, but SBI Research says the headline liquidity numbers may overstate the amount of funds actually available for lending. Regulatory requirements, along with the impact of UPI and Sparsh, are limiting the banking system’s operating multiplier.
Forex inflows under the RBI’s special USD-INR swap facility reached $143.5 billion as of September 18, with FCNR(B) deposits accounting for $132.9 billion, according to SBI Research. However, the research house argues that the resulting increase in deposits does not translate one-for-one into deployable liquidity.
CRR, SLR and LCR constrain lending
Banks are required to maintain portions of their incremental resources under the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR) frameworks. This means a part of the additional deposits has to remain either with the RBI or in prescribed liquid assets rather than being deployed as fresh loans.
SBI Research therefore argues that “liquidity under the hood” is a more meaningful measure than headline deposit growth. Once these regulatory requirements are accounted for, effective liquidity creation and the potential for broader monetary expansion are considerably more muted.
MUST READ: Fair case for the rupee to not just stabilise, but even appreciate: RBI Deputy Governor
The report also highlights the impact of SNA-Sparsh and UPI on the banking system’s operating multiplier. SBI Research estimates that the multiplier is well below the RBI’s 6.15 level for 2026, partly because household and retail deposits are shifting towards financial-institution deposits, which carry a higher run-off factor.
₹8.2 lakh crore deposit gap
The implications become more significant when projected credit growth is taken into account. SBI Research assumes 16% credit growth in FY27, equivalent to incremental credit of about ₹34 lakh crore.
Against this, the research house estimates incremental deposits of around ₹40 lakh crore, assuming 15.5% deposit growth. But after factoring in CRR, SLR and LCR requirements, as well as UPI and Sparsh, the system would require approximately ₹48.2 lakh crore of incremental deposits to support the projected credit expansion.
That leaves an estimated ₹8.2 lakh crore deposit gap even after the FCNR inflows, according to SBI Research. The finding suggests that the record FCNR(B) mobilisation, while significant, does not necessarily translate into an equivalent expansion in banks’ lending capacity.
ALSO READ: BT Big Story: How the FCNR(B) deluge has created two new problems for the RBI
Liquidity expected to normalise
SBI Research expects the liquidity position to adjust automatically as the impact of regulatory requirements works through the banking system. It sees core surplus liquidity declining from ₹13.9 lakh crore on September 15 to around ₹7 lakh crore by December-end and about ₹3.5 lakh crore by March 2027.
The report also notes that bank credit growth was running at 18.1% year-on-year for the fortnight ended September 15, while deposits grew 17.3%. This divergence reinforces the importance of deposit creation for sustaining credit expansion.
SBI Research’s assessment, therefore, is that the FCNR(B) inflows have helped banks fund recent credit growth, but the broader liquidity impact should not be judged solely by the headline rise in deposits.
DO READ: ₹5 lakh crore profit, not loss? SBI Research’s case for FCNR(B) scheme explained