Surging Liquidity Pushes Short-Term Borrowing Costs Lower Amid Rising FCNR Inflows
India's banking system has seen a significant surge in liquidity due to foreign currency non-resident (FCNR) inflows, leading to lower short-term borrowing costs. According to ICICI Bank Research, gross FCNR (B) inflows have reached around USD 127 billion, which is significantly changing the liquidity outlook for the rest of the financial year.
The report states that before the FCNR (B) scheme, average system liquidity stood at around INR 1.6 lakh crore, or 0.6 per cent of net demand and time liabilities (NDTL), in May 2026. This rose to INR 3.7 lakh crore, or 1.3 per cent of NDTL, in August, while current liquidity has reached around INR 10.5 lakh crore, or 3.9 per cent of NDTL.
ICICI Bank Research expects liquidity to remain elevated in the coming months, with the banking system surplus likely to be around 2.5 per cent of NDTL by March, even after accounting for seasonal demand for currency and reserve balances.