Loans taken against bank deposits in India have surged as banks use foreign-currency deposits mobilised through a special Reserve Bank of India (RBI) facility to expand lending. RBI data shows that advances against fixed deposits and other specified deposits increased 53.3% year-on-year to ₹2.17 lakh crore as of September 30, 2026, compared with growth of 14.3% in the corresponding period last year.
The sharp increase is linked to the RBI’s concessional foreign-exchange swap facility for Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. Banks attracted nearly $133 billion through the facility before it closed on August 31, 2026. Some lenders subsequently extended loans against these deposits, creating an additional source of credit without requiring depositors to break their original investments. The trend is changing the way banks manage deposits, lending and liquidity.
Key Takeaways
- Advances against fixed deposits surged 53.3% year-on-year to ₹2.17 lakh crore in September 2026.
- The growth was significantly higher than the 14.3% recorded a year earlier.
- Banks mobilised approximately $133 billion through the RBI’s special FCNR(B) swap facility.
- Some banks allowed customers to borrow against eligible FCNR(B) deposits.
- Overall bank credit grew 19.4% to ₹229.95 lakh crore.
- Lending against deposits remains a relatively small part of total bank credit.
- The RBI data does not separately identify the exact amount of FCNR(B)-backed loans.
- Analysts warn that these transactions can expand bank balance sheets while generating relatively narrow lending spreads.
What Are Advances Against Fixed Deposits?
Advances against fixed deposits are loans that banks provide to customers using their existing deposits as collateral.
Instead of withdrawing or prematurely breaking a fixed deposit, a customer can borrow money against it. The original deposit continues earning interest, while the borrower pays interest on the loan.
For example, someone holding a ₹10 lakh fixed deposit may be eligible to borrow a portion of that amount, depending on the bank’s lending policy.
This arrangement allows customers to access liquidity without losing the benefits of their deposit.
Banks also benefit because the deposit provides security for the loan, reducing the risk of losses if the borrower fails to repay.
The recent increase, however, is particularly interesting because of the role played by FCNR(B) deposits and the RBI’s special swap facility.
Why Have Advances Against Deposits Increased 53%?
The main development behind the surge is the RBI’s special concessional swap facility introduced in June 2026.
The facility was designed to encourage Indian banks to attract foreign-currency deposits from non-resident Indians.
Banks could mobilise FCNR(B) deposits and use the RBI’s concessional foreign-exchange swap arrangement to manage the associated currency risk.
The facility attracted approximately $133 billion in deposits before closing on August 31, 2026.
The RBI also clarified that banks could extend loans against eligible FCNR(B) deposits. This allowed some lenders to offer customers additional borrowing capacity while keeping the original deposits in place.
Some banks reportedly offered leverage of several times the underlying deposit, depending on the lending arrangement.
The result was a sharp increase in advances against deposits recorded in RBI banking data.
However, the RBI’s published category includes advances against fixed deposits and other specified deposits. It does not separately identify loans backed specifically by FCNR(B) deposits. Therefore, the entire 53.3% increase cannot be attributed exclusively to FCNR(B)-related lending.
RBI Data Shows Sharp Growth in Bank Lending
The increase in advances against deposits occurred alongside broader expansion in India’s banking system.
| Banking indicator | September 2026 | Year-on-year growth |
|---|---|---|
| Advances against fixed deposits and specified deposits | ₹2.17 lakh crore | 53.3% |
| Overall bank credit | ₹229.95 lakh crore | 19.4% |
| Non-food bank credit | ₹228.98 lakh crore | 19.1% |
| Personal loans | ₹74.27 lakh crore | 17.3% |
| Credit to services | ₹64.90 lakh crore | 28.3% |
| Credit to industry | ₹49.77 lakh crore | 19.5% |
| Credit to agriculture | ₹28.19 lakh crore | 19.5% |
Overall bank credit growth accelerated from 11.4% in September 2025 to 19.4% in September 2026.
Lending to non-banking financial companies (NBFCs) also increased sharply, rising 41.8% year-on-year to ₹22.53 lakh crore.
Within personal loans, advances against gold jewellery increased 83% to ₹5.6 lakh crore.
These figures show that lending against deposits is part of a wider expansion in bank credit, although its growth rate is substantially higher than the overall credit growth rate.
How FCNR(B) Deposits Create a Lending Opportunity
FCNR(B) deposits allow eligible non-resident Indians to maintain fixed deposits in India in foreign currencies.
Unlike ordinary rupee deposits, these accounts are denominated in freely convertible foreign currencies. This helps depositors avoid direct exchange-rate risk on the principal and interest during the deposit tenure, subject to the account’s terms.
The RBI’s special swap facility made it more attractive for banks to mobilise these deposits by reducing the cost and uncertainty associated with managing foreign-exchange exposure.
After attracting the funds, banks could use eligible deposits as collateral for lending.
The process can work as follows:
- An NRI places foreign currency into an FCNR(B) deposit with an Indian bank.
- The bank mobilises the foreign-currency funding through the special RBI facility.
- The depositor or an eligible borrower obtains a loan against the deposit.
- The original deposit remains in place while the borrower uses the loan proceeds.
- The bank earns lending income while retaining the deposit as collateral.
Some customers may also use borrowed funds for additional financial transactions, including further deposits where permitted by the applicable banking arrangements.
This creates leverage within the banking system, although the precise structure depends on the bank and the customer’s eligibility.
Why Banks Are Using This Strategy
The FCNR(B) facility provided banks with a significant source of foreign-currency funding at a time when domestic deposit mobilisation remained challenging.
Banks have been competing to attract deposits as credit demand has grown faster than traditional funding sources in several periods.
The special facility temporarily eased some of that pressure.
Banks are now looking to deploy the additional liquidity into customer lending over the coming quarters.
ICICI Bank and Kotak Mahindra Bank have indicated that they expect to use their FCNR(B)-related liquidity to support incremental lending.
Some lenders have also used part of the funds to repay expensive borrowings and bulk deposits.
This can help banks manage their funding costs and balance-sheet composition.
However, the strategy does not automatically translate into higher profitability. Loans fully secured by deposits can carry relatively narrow interest spreads.
What Are the Risks of FCNR(B)-Backed Lending?
Although lending against deposits is a familiar banking practice, the recent scale of FCNR(B) mobilisation introduces additional considerations.
1. Lower lending margins
Loans secured by FCNR(B) deposits may carry relatively low spreads because the bank has strong collateral protection.
S&P Global Ratings has estimated that offshore lending against pledged FCNR(B) deposits can generate spreads of approximately 25–50 basis points.
This can increase lending volumes without necessarily producing a proportionate increase in net interest income.
2. Balance-sheet expansion
Leveraged deposits can create additional assets and liabilities across the banking system.
S&P Global Ratings estimated that banks’ balance sheets could expand by approximately $190 billion–$220 billion if 50–75% of the relevant FCNR(B) deposits were leveraged through loans against pledged deposits.
This is an estimate based on assumptions, not a confirmed amount of additional lending.
3. Funding and maturity considerations
FCNR(B) deposits generally have fixed tenures, often ranging from one to five years.
The funds therefore provide banks with medium-term foreign-currency funding, but they also create repayment and maturity obligations.
Banks must manage these liabilities carefully and ensure that lending arrangements remain consistent with their funding and liquidity positions.
4. Dependence on special inflows
The concessional swap window closed on August 31, 2026.
Banks cannot assume that the same exceptional inflows will continue indefinitely. They will need to strengthen ordinary deposit mobilisation and maintain sustainable funding sources.
What Does This Mean for India’s Banking Sector?
The surge in advances against deposits highlights how regulatory measures can influence banking activity.
The RBI’s special FCNR(B) facility attracted substantial foreign-currency deposits, while the permission to lend against eligible deposits created additional opportunities for credit deployment.
However, the broader banking system still faces a challenge in attracting stable domestic deposits.
A Reuters report published on October 31 found that reported deposit growth at a sample of 10 banks averaged 21.1% in the September quarter. After excluding the special foreign-currency inflows, estimated domestic deposit growth fell to 12.2%.
The same analysis found that average reported credit growth of 24.2% declined to an adjusted 18.9% after excluding lending linked to the special facility.
These adjustments suggest that headline banking growth figures were boosted by exceptional foreign-currency transactions.
The Bigger Picture
The 53.3% rise in advances against deposits is not simply a story about customers borrowing more against ordinary fixed deposits. It also reflects how Indian banks used the RBI’s special FCNR(B) facility to attract foreign-currency funding and expand lending opportunities.
For banks, the arrangement offers liquidity and a relatively secured lending channel. For depositors, it can provide access to funds without breaking an existing deposit. However, the economics depend on borrowing costs, lending spreads and the terms of each transaction.
The longer-term question is whether banks can convert this temporary funding advantage into sustainable credit growth while rebuilding their domestic deposit base.
Looking Ahead
Banks are expected to deploy more of their FCNR(B)-related liquidity into lending over the next two quarters. The extent to which this translates into stronger credit growth will depend on customer demand, funding costs and the willingness of lenders to extend loans against eligible deposits.
Investors and analysts will also watch whether domestic deposit mobilisation improves after the special swap facility closes. The next few quarters should help establish how much of the recent banking growth reflects underlying demand and how much was supported by the temporary foreign-currency inflow.
Frequently Asked Questions
1. What are advances against fixed deposits?
These are loans provided by banks against the security of a customer’s existing fixed deposit. The borrower can access funds without prematurely withdrawing the deposit.
2. How much have advances against deposits increased?
RBI data shows that advances against fixed deposits and other specified deposits increased 53.3% year-on-year to ₹2.17 lakh crore as of September 30, 2026.
3. What is an FCNR(B) deposit?
FCNR(B) stands for Foreign Currency Non-Resident (Bank). It is a fixed deposit scheme that allows eligible NRIs to hold deposits in India in specified foreign currencies.
4. Why did FCNR(B) deposits increase in 2026?
The RBI introduced a concessional foreign-exchange swap facility in June 2026 to encourage banks to mobilise foreign-currency deposits. Banks attracted nearly $133 billion before the facility closed on August 31.
5. Can banks provide loans against FCNR(B) deposits?
Yes. The RBI clarified that banks could lend against eligible FCNR(B) deposits mobilised under the special facility, leaving the extent of lending to individual banks.
6. Does the 53.3% increase mean all these loans came from FCNR(B) deposits?
No. RBI data combines advances against fixed deposits and other specified deposits. It does not separately identify the amount backed by FCNR(B) deposits.
7. How much did overall bank credit grow in September 2026?
Overall bank credit increased 19.4% year-on-year to ₹229.95 lakh crore as of September 30, 2026.
8. Why are banks interested in loans against deposits?
These loans are secured by existing deposits, providing banks with collateral protection. They also allow banks to deploy funds while customers retain their original deposits.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
