FCNR(B) inflows squeeze margins of India's top private banks in Q2FY27

During Q2FY27, the Reserve Bank of India's special swap window spurred a massive inflow of FCNR(B) deposits, weighing on the net interest margins of HDFC Bank, ICICI Bank and Axis Bank. HDFC Bank reported a 10-basis-point drop to 3.16%, attributing the decline to faster asset repricing and lagging funding costs, but expects a reversal as loan mix shifts toward retail and MSME segments. ICICI Bank saw its NIM fall by 18 basis points to 4.18%, blaming the contraction largely on the new deposits and planning to deploy the funds over the next two quarters.

Axis Bank’s margin slipped to 3.36% and the bank used part of the deposits to retire higher-cost term deposits, anticipating a margin uplift in the following quarter. All three lenders anticipate that the upward turn in policy rates and the deployment of the stable, multi-year funding will restore margin levels.