# Private banks’ profit margins recover as FCNR(B) inflows ease deposit funding pressure — retained record

> Retained news record from news:india-et-markets.

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source: [news](https://highsignal.app/data/news) (news:india-et-markets)  published 2026-09-07 19:23 ingested 2026-09-08 02:58

[original source ↗](https://economictimes.indiatimes.com/markets/stocks/news/private-banks-profit-margins-recover-as-fcnrb-inflows-ease-deposit-funding-pressure/articleshow/133903170.cms)

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Fresh spreads at private banks increased 22 basis points month-on-month to 3.13% in July, nearly twice the 1.58% at public sector banks, Reserve Bank of India (RBI) data showed. One basis point is a hundredth of a percentage point.
The improvement came as private lenders reduced fresh deposit rates by 25 basis points to 5.96%, while lending rates remained relatively sticky. In contrast, fresh spreads at public sector banks narrowed by 5 basis points, the data showed.
"The key risk is whether banks can sustain deposit mobilisation once FCNR(B)-related inflows fade," said Vineet Jain, senior director - BFSI, Care Ratings. "With credit demand remaining healthy, competition for deposits is likely to persist, potentially limiting the scope for further funding cost moderation. Although surplus system liquidity should provide near-term support to margins, elevated bond yields and ongoing deposit repricing pressures could offset some of these benefits. As a result, the recent improvement in spreads may be difficult to sustain, with margin expansion likely to remain gradual and uneven across banks."
The turnaround follows months of intense competition for deposits as credit growth consistently outpaced deposit mobilisation, forcing banks, particularly private lenders, to offer higher rates and tap more expensive market funding.
FCNR(B) inflows have provided a breather. Higher foreign currency deposits and their conversion into rupees boosted system liquidity and reduced banks' dependence on certificates of deposit (CD) and other wholesale funding. CD issuances fell sharply to about ₹95,000 crore in July from ₹1.71 lakh crore in June, as per data from Care Ratings.
"Banks may be able to normalise margins over two to four quarters by reducing their dependence on high-cost wholesale deposits, reducing the share of G-Secs held toward the LCR (liquidity coverage ratio) and lowering the share of low-margin overseas trade financing," said Prakhar Sharma, equity analyst at Jefferies.
Bank credit increased 18.3% year-on-year as of August 15 compared with deposit growth of 14.7%. However, the gap between credit and deposit growth narrowed to around 360 basis points from about 500 basis points a month earlier, helped by FCNR(B) mobilisation.
At the system level, fresh spreads widened 8 basis points sequentially to 2.62% in July as fresh deposit rates declined 9 basis points to 5.90%, while fresh lending rates were broadly unchanged at 8.52%.
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