Bank loans against fixed deposits have surged 53% to ₹2.17 lakh crore, reflecting increased use of fixed deposits as collateral for borrowing. The sharp rise comes alongside greater mobilisation of foreign-currency deposits under the FCNR(B) scheme, highlighting a growing interaction between deposit mobilisation and bank credit.
Loans against deposits provide borrowers with access to liquidity without requiring them to prematurely break their fixed deposits. For banks, the structure can offer relatively secured lending because the underlying deposit provides collateral against the loan.
The increase is particularly significant in the context of FCNR(B) deposits. Non-resident depositors can potentially use their foreign-currency deposits as a funding base while accessing credit against deposits, creating what has been described as a leverage play.
From a banking-risk perspective, however, rapid growth in such lending requires careful monitoring of collateral coverage, borrower leverage, liquidity and foreign-currency exposure. Banks also need to ensure that lending against deposits does not create unintended concentration or maturity mismatches.
The development comes at a time when Indian banks are paying greater attention to deposit mobilisation and liquidity management. FCNR(B) deposits have provided banks with access to foreign-currency funding, while loans against deposits provide an additional avenue for credit generation.
The growth therefore illustrates how changes in deposit behaviour can influence both sides of a bank’s balance sheet. While lending against deposits can carry lower credit risk than unsecured lending, risk managers still need to assess the overall exposure created by the structure.
For banks, the key challenge will be ensuring that the growth of deposit-backed lending remains supported by sound collateral controls, appropriate risk pricing and effective monitoring of leverage and liquidity risks.
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