Axis Bank managing director Amitabh Chaudhry warned that India’s record inflow of foreign currency non-resident (FCNR) deposits, which reached $127.22 billion, could lead to abnormal lending by banks. He made the remarks during a fireside chat at the Global Fintech Fest 2026, highlighting the challenge banks face in deploying this large liquidity effectively, without resorting to risky lending practices, according to livemint.com.
Chaudhry explained that the unprecedented FCNR deposits have created a substantial liquidity surplus in the banking system. This surplus pressures banks to find deployment avenues, which may result in lending beyond normal risk parameters. He expressed hope that banks would avoid such abnormal lending despite the need to utilize these funds. The warning comes amid narrowing interest rate differentials between India and the US, which could prompt India to raise borrowing costs eventually, livemint.com reported.
The surge in FCNR deposits reflects strong foreign currency inflows into India, driven by global investors and non-resident Indians seeking to benefit from interest rate differentials. While this inflow strengthens banks’ balance sheets, it also complicates monetary policy transmission and credit risk management. Chaudhry’s cautionary stance aligns with broader concerns in the financial sector about managing liquidity without fueling asset bubbles or excessive credit growth, a challenge for Indian banks amid evolving global financial conditions, as noted by livemint.com.
Axis Bank’s remarks underscore the delicate balance Indian banks must maintain in deploying FCNR funds. The next key indicator will be the Reserve Bank of India’s response to liquidity and credit trends, including any adjustments to borrowing costs. Amitabh Chaudhry’s comments at the Global Fintech Fest 2026 provide a timely alert on the risks associated with the $127.22 billion FCNR deposit inflow.