Banks May Use FCNR Bank Deposits To Cut Funding Costs: Axis Bank CEO

Lenders in India are expected to increasingly rely on foreign-currency deposits raised from the Indian diaspora over the coming months to replace high-cost funds on their balance sheets before deploying capital to businesses, according to Axis Bank CEO Amitabh Chaudhry.

Axis Bank is the country’s third-largest private sector lender by assets.

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In an interaction with Bloomberg, Chaudhry said banks will initially focus on reducing or pausing growth in expensive domestic deposits.

Once liquidity stabilises, funds are likely to be deployed into sectors such as infrastructure, data centre development, commercial real estate, and large capital expenditure projects.

The strategy follows a recent Reserve Bank of India initiative that allows banks to pass on hedging costs on foreign currency borrowings.

This has made it easier for lenders to raise dollar deposits at competitive rates, forming part of a broader policy effort to attract foreign capital inflows and support the Indian rupee.

Banking stocks have rallied in recent weeks on expectations that improved access to cheaper foreign funds will strengthen margins and profitability.

Analysts estimate that the RBI’s measures could attract up to $50 billion in foreign inflows. Chaudhry expects a a significant portion would come from the Gulf region and Southeast Asia.

RBI Allows Banks To Lend Against FCNR(B) Deposits

The move is also helping banks manage a widening gap between loan growth and deposit growth.

Lending has been expanding faster than deposits, forcing banks to offer higher interest rates on instruments such as certificates of deposit. In March, three-month CD rates touched as high as 7.525%.

Recent central bank data shows that loans grew 18% in the two weeks ended May 31, marking the fastest pace in nearly two years, while deposits rose 12% during the same period.

Chaudhry, who became Axis Bank CEO in 2019, has overseen key milestones including the acquisition of Citigroup’s consumer business in India and significant expansion in digital banking capabilities.

Under his leadership, Axis Bank’s stock has more than doubled, although it has underperformed some larger peers.

The bank now allocates about 15% of its technology budget to artificial intelligence initiatives. Chaudhry said AI investment is expected to increase significantly as banks seek competitive advantage through technology.

Axis Bank has also appointed a Chief AI Officer to drive adoption across operations, customer acquisition, and workforce planning.

He emphasised that effective use of AI could help Axis Bank differentiate itself in an increasingly competitive banking landscape.

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