Home / Business and Economy / Uneven Liquidity: India Banks Seek Market Funds
Uneven Liquidity: India Banks Seek Market Funds
21 Oct
Summary
- Banks borrow from the market despite significant foreign currency deposit inflows.
- Some banks struggle with liquidity due to uneven distribution of FCNR deposits.
- Certificate of Deposit issuance more than doubled in September to Rs 1.15 lakh crore.
Despite significant inflows from foreign currency non-resident (FCNR) deposits, numerous banks in India are resorting to market borrowing. This situation underscores an uneven distribution of excess liquidity across the banking sector, as reported on October 21, 2026. The period between June and August 2026 saw banks garner $133 billion through FCNR-Bank deposits, a Reserve Bank of India initiative.
However, this influx was heavily concentrated among larger institutions. Consequently, smaller banks found themselves unable to reduce their reliance on expensive wholesale market funding to meet credit demands. In September 2026, the issuance of certificates of deposit more than doubled, reaching Rs 1.15 lakh crore from Rs 56,271 crore in August, according to Reserve Bank of India data.
Some banks, like Indian Bank, used FCNR-B deposit funds for lending after shedding bulk deposits, indicating no surplus liquidity. Conversely, institutions such as South Indian Bank capitalized on reduced bulk deposit rates post-FCNR-B inflows. Other banks, including Canara Bank and Punjab National Bank, utilized FCNR deposits to replace high-cost bulk deposits and certificates of deposit, thereby lowering their overall deposit costs.
