Following the closure of the FCNR-B deposit scheme with $133 billion in inflows, banks are looking to deploy excess capital into personal loans. Investors are watching how this expansion affects credit growth and potential net interest margins across the sector.
Indian lenders are bracing for a surge in personal loan growth as they work to manage record surplus liquidity. Following the conclusion of the FCNR-B deposit scheme on August 31, the banking system has absorbed approximately $133 billion in inflows, roughly seven times the volume seen in the 2013 cycle. With an estimated Rs 12 trillion to Rs 13 trillion in excess capital available, banks are increasingly focusing on retail and personal lending to ensure this money is deployed effectively.
Credit portfolio data from the first quarter of fiscal year 2027 shows that larger institutions are already expanding their personal loan offerings. State Bank of India led the pack with a 15 percent year-on-year rise in personal credit, while ICICI Bank followed with 12.9 percent growth. Other major players like Axis Bank and Kotak Mahindra Bank recorded more cautious growth figures at 6 percent and 5 percent, respectively. At HDFC Bank, personal loans now account for approximately 30 percent of the total retail portfolio as of June 2026.
The current asset quality is described as the strongest seen in several quarters, supported by stable household leverage over the last three years. However, the push for retail credit comes at a time when the Reserve Bank of India is actively managing system liquidity. The regulator has been absorbing excess capital through variable rate reverse repo operations to ensure financial stability, with system liquidity currently hovering around Rs 4.7 lakh crore.
Investors should track whether this influx of capital leads to more competitive pricing on personal loans, which could put pressure on net interest margins. The ability of banks to maintain current asset quality standards while aggressively expanding their unsecured loan books will be a key monitorable in upcoming quarterly results. Banking executives have indicated that a three-to-four-month window may be required to fully deploy these excess funds, meaning the impact of this liquidity will likely materialize over the coming quarters.