Systemic liquidity seen uneven as some banks continue market borrowing

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The Economic Times daily newspaper is available online now. Read Today's Paper Systemic liquidity seen uneven as some banks continue market borrowingBy Atmadip Ray, ET BureauLast Updated: Oct 21, 2026, 05:53:00 PM ISTSynopsis

Several banks in India have been borrowing from the market despite substantial foreign currency non-resident deposits inflow. This situation indicates that excess liquidity is not evenly distributed across the banking sector. Some banks experienced a significant rise in certificates of deposit while others shed expensive deposits. The inability to capitalize on FCNR deposits has led many banks to rely on costly market funding.

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Loading...×Kolkata: Several banks are regularly borrowing from the market despite the massive inflows of foreign currency funds into the banking system, indicating that the excess systemic liquidity is not evenly distributed.

Issue of certificates of deposits more than doubled to Rs 1.15 lakh crore in September from Rs 56,271 crore in August, Reserve Bank of India data showed, even as some banks shed bulk deposits using the liquidity built from cheaper foreign currency non-resident (FCNR) deposits.

India’s banks garnered $133 billion through FCNR-Bank deposits between June and August under a special Reserve Bank of India programme. But the influx of funds was highly concentrated among large banks, forcing others to rely on expensive wholesale market funding to meet credit demand.

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“We are still borrowing from the market as we do not have any surplus liquidity,” Indian Bank managing director Binod Kumar told ET.

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South Indian Bank mobilised bulk deposits during this period, going against the prevailing trend. Central Bank of India’s liquidity coverage ratio declined to 155% at the end of second quarter, indicating a depletion in liquidity from a very high level of 242% a year prior.

Indian Bank raised $2.3 billion (about Rs 21,000 crore) of FCNR-B deposits. It shed Rs 10,000 crore of bulk deposits and slowed mobilisation of term deposits.

“Normally, we used to raise term deposits in the range of Rs 10,000 crore to Rs 11,000 crore. Last quarter we targeted around Rs 5,000 crore to Rs 6,000 crore. The balance Rs 5,000 of the FCNR-B funds we used for lending. So, there is no surplus liquidity on account of FCNR with us,” Kumar said.

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South Indian Bank managing director Mahesg Pai said following the FCNR-B inflows, bulk deposits rates substantially came down and his bank took advantage of that, leading to a rise in bulk deposit in its balance sheet.

For several banks, the cushion of FCNR-B deposits helped shed high-cost bulk deposits or not go for it.

“Had FCNR not been there, bulk deposits and CD put together would have been more by Rs 30,000 crore to Rs 35,000 crore,” Canara Bank executive director Hardeep Singh Ahluwalia told analysts in a post-earnings call. “During this process, we have decreased the cost of deposit by 1%, because the FCNR deposits were at 1% less than the bulk prevailing market price,” he said.

Punjab National Bank raised $2.7 billion in FCNR deposits and used the entire proceeds to replace high-cost bulk deposits and certificates of deposit, helping it lower the share of high-cost deposits to 17% of the base from 19% in the prior quarter.

ICICI Bank executive director Sandeep Batra said the excess liquidity would be deployed in the next two quarters.

RBL Bank managing director R Subramaniakumar said the bank had large liquidity still on the balance sheet, even after prepaying or choosing not to renew borrowings and bulk term deposits which were at a higher cost.
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