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FCNR deposits ease Indian bank funding, but margins likely face pressure
Analysts expect private-bank net interest margins to fall 8.0 to 20.0 basis points in the September quarter as banks hold FCNR(B)-linked liquidity before deploying it into loans.
A surge in foreign-currency deposits tied to FCNR(B) is giving Indian banks more liquidity to support credit growth, but analysts warn that the surplus will likely squeeze net interest margins in the September quarter, especially for private lenders, according to LiveMint Markets.
Motilal Oswal Financial Services expects private-bank NIMs to decline by 8.0 to 20.0 basis points in the September quarter, while Nomura Global Markets Research expects margins to remain under pressure as banks carry surplus FCNR(B)-linked funding in lower-yielding assets.
The pressure comes from a timing mismatch, LiveMint Markets reports, with banks mobilizing the funds faster than they can deploy them into loans at normal lending spreads, temporarily diluting profitability.