FCNR(B) related liquidity may take 3-4 months to get deployed: SBI Chairman Setty
SBI Chairman CS Setty indicated that the significant FCNR(B) related liquidity flowing into the banking system, which amounted to a ₹10.5 lakh crore surplus as of September 8, is unlikely to be deployed immediately. He expects the absorption process to take approximately three to four months. This measured approach suggests banks will gradually integrate these funds into their lending operations rather than a rapid, immediate deployment.
What this means
While FCNR inflows provide substantial liquidity, the gradual deployment strategy implies that the immediate impact on credit growth may be moderate. Banks will likely exercise caution in allocating these funds to ensure productive use and avoid potential asset-liability mismatches. This also suggests the market should not anticipate an immediate surge in lending due to these inflows.
Most affected: PSU Bank Treasuries, Corporate Lending
Key takeaway: Factor in a phased deployment of FCNR liquidity over the next few months when assessing its impact on credit growth and interest rate dynamics.
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