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Estimate ~150bp increase in credit growth estimate; positive tailwind for earnings

* Banks have garnered forex inflows of USD136.4b, topping street estimates, under the twin forex swap facilities announced by the RBI in Jun’26. These inflows include FCNR(B) deposits of USD127.2b (FCNR(B) deposits flows formed ~4.5% of outstanding deposits as of 15th Aug’26) and OFCB and ECBs of USD9.1b.

* The huge FX inflows have led to surplus net banking system liquidity of over INR6t as on 31-Aug-26, the highest in last four months. Deposit growth, as per the recent fortnight print, has increased to 14.7% YoY vs. 12-13% earlier.

* Among banks, ICICIBC has mobilized USD17.9b (INR1,702b) of FCNR(B) deposits, capturing 14% market share of the total FCNR(B) inflows. SBIN has garnered USD9b a few days prior to the close and is expected to beat its USD10b guidance. RBK has added USD3.4b, capturing 2.7% share, better than its deposit market share of ~0.5%.

* These FX inflows have helped to strengthen FX reserves from USD672b as of 12th Jun’26 to an all-time high of USD729b as of 21st Aug’26, with a total net addition of USD58b in this period. FIIs, who were on a selling spree before the FCNR(B) deposit scheme, have added net inflows of USD4.8b in the last two months, while INR depreciation against USD has also stabilized.

* NIMs are expected to be under pressure in the near term on account of limited spread on the overseas leveraged portion of FCNR (B) deposits, though the deployment of these deposits and an improving asset mix will drive faster balance sheet growth and support earnings.

* We remain positive about systemic credit growth and have recently increased our growth projections to 14.3% YoY, acknowledging that there is an upside risk to our estimates. We estimate a ~150bp increase in system credit growth to ~15.5-16.0% for FY27E.

USD127b of FCNR (B) deposit accretion tops street expectations by a mile

* The RBI had introduced a special window from 8th Jun’26 to 30th Sep’26 (later closed early on 31st Aug’26), wherein banks could raise FCNR (B) deposits for a tenor of 3-5 years and swap the money into INR while the RBI bore the entire hedging cost. Additionally, these deposits were exempted from CRR and SLR requirements, making the scheme fairly attractive for banks.

* Banks raised their FCNR(B) deposit interest rates by 200-300bp from 3-4% to 6-7%, transferring the benefit of hedging costs borne by the RBI to depositors. Banks also offered leverage on their overseas balance sheets to garner higher inflows, leading to total FCNR (B) inflows of USD127b.

* FCNR (B) deposits inflows of USD127b formed ~4.5% of overall deposit base as of 15thAug’26. This has aided in easing liquidity, improving forex reserves and providing temporary relief to banks in deposit mobilization.

Deposit growth has recovered to ~14.7% YoY; ICICI, RBL see strong flows

* Deposit growth has picked up to 14.7% YoY as of 15th Aug’26 from the 12-13% range in 1QFY27, aided by USD127b in FCNR(B) deposit inflows. The LDR ratio has dropped to 81.9% from 82.7% in May’26. Further, banks are also increasingly opting to raise lower-cost overseas borrowings aggressively, with the hedge cost being borne by the RBI. These flows shall temporarily cool off the deposit mobilization and liquidity crunch.

* ICICIBC has mobilized USD17.88b (INR1,702b) of FCNR (B) deposits, capturing 14% market share of the total FCNR (B) inflows. SBIN has mobilized USD9b a few days prior to the close and is expected to beat its USD10b guidance. RBK has mobilized USD3.4b, capturing 2.7% share, better than its deposit market share of ~0.5%.

* As per the RBI data as of 30th Jul’26, foreign banks like HSBC and Standard Chartered took the lead in FCNR (B) deposits, mobilizing USD6.1b (22% share) and USD1.9b (7% share), respectively, on the back of high-leverage offerings. KMB, AXSB and HDFCB garnered USD1.7b, USD1.6b and USD1.4b, respectively.

Dollar borrowings also gaining pace; window remains open until Dec’26 end

After the relaxation in hedging costs of overseas foreign currency borrowings by the RBI, banks have raised ~USD12.2b of dollar-denominated bonds. Among large banks, ICICIBC, HDFCB, BOB and SBIN have raised USD3.6b, USD2.5b, USD1.1b and USD1.1b, respectively. While all these deposits might not be under the swap facility given that total OFCB garnered under the scheme is INR5.3b, much of these overseas borrowings shall be utilized in providing the leverage facility for FCNR (B) deposits. The OFCB and ECB window remains open up to 31st Dec’26 and further flows are expected to come in.

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