RBI Concessional Forex Swap Facility Drives Surge in Private Banks Q2 Deposit and Credit Growth

Provisional business updates for the July–September quarter (Q2) reveal that Indian private sector banks logged sharp accelerations in deposit and credit growth, significantly propelled by the Reserve Bank of India’s (RBI) concessional USD-INR forex swap facility.

The special facility, which was introduced on June 8 to bolster external buffers and support domestic liquidity, permitted lenders to mobilise fresh three-to-five-year Foreign Currency Non-Resident (Bank), or FCNR(B), deposits and swap them with the central bank at concessional rates. By the time the window for fresh FCNR(B) deposits closed on August 31, the banking system had mobilised approximately $133 billion under the scheme. According to a report by Motilal Oswal Financial Services, the massive inflow lifted system-wide deposit growth from 11–12% to nearly 17% year-on-year, with FCNR(B) deposits accounting for roughly 4.5% of total system deposits.

Widening Divergence: Headline vs. Underlying Growth

While headline numbers showed private banks outpacing public sector peers—posting deposit growth ranging between 17% and 34% year-on-year compared to 6.87% to 17.01% for state-owned lenders—the underlying domestic operational momentum tells a different story. A significant portion of the mobilised foreign currency was deployed through offshore branches or International Banking Units (IBUs) in centres like GIFT City, inflating both loan books and deposit totals.

Key Private Bank Disclosures:

• HDFC Bank: Mobilised $11.5 billion under the swap window, reporting headline advances growth of 16.3% and deposit growth of 18.8% year-on-year, alongside $5.7 billion in overseas loans and $3.1 billion of standby letters of credit against these deposits.
• Kotak Mahindra Bank: Logged a 23.2% increase in total deposits to ₹6.51 lakh crore and a 24.7% rise in advances. However, after excluding ₹55,344 crore ($5.78 billion) of FCNR(B) deposits—against which overseas branches lent ₹16,110 crore—underlying deposit growth normalised to approximately 12.7%.
• Axis Bank: Reported gross advances growth of 22.7% and deposit expansion of 20.7%. Excluding ₹43,800 crore of FCNR-linked overseas advances, credit growth settled at 18.8%, while core deposit growth adjusted to 17%.
• YES Bank: Posted headline deposit growth of 19.5% and advances expansion of 23.8%. When adjusted for the FCNR(B) deposits, deposit growth stood at 6.5%, and foreign currency term loan adjustments brought core loan growth down to 3.3%.
• IDFC First Bank: Gross advances grew 29.9% at the headline level versus 20.4% domestically when excluding ₹24,885 crore in IBU leverage, while deposit growth moderated to 17% from 25.9%.
• IndusInd Bank: Mobilised $3.51 billion (₹33,627 crore) via the window, recording an overall net advances growth of 11.2% to ₹3.62 lakh crore and deposit growth of 10.1% to ₹4.29 lakh crore.

Public Sector Peers and Market Implications

State-owned banks also participated, though their overall reliance on the facility was comparatively modest. Bank of Baroda mobilised around $8 billion under the concessional swap window, posting a 17.01% year-on-year rise in domestic deposits. Other state-owned peers registered moderate gains: Central Bank of India's deposits rose 14.43%, Canara Bank grew global deposits by 13.13%, and Punjab National Bank expanded global deposits by 9.90%.

For market participants and equity analysts on Dalal Street, the distinction between headline balance-sheet expansion and domestic operational metrics is critical. Because FCNR(B) deposits are swapped or deployed in lower-yielding foreign-currency assets or foreign currency term loans, they carry distinct margin dynamics. Analysts caution that while the swap facility solved immediate liquidity concerns and supported balance-sheet expansion, investors must dissect the upcoming Q2 earnings calls to evaluate core net interest margins (NIMs), domestic credit demand, and fee income trajectories.

Tags: Reserve Bank of India HDFC Bank Kotak Mahindra Bank Axis Bank Yes Bank Banking Sector