Overseas Indian Deposits Could Help Banks Lower Funding Costs as Interest Rates Ease. Indian banks may increasingly rely on deposits from non-resident Indians (NRIs) to replace expensive domestic funding, according to Axis Bank Chief Executive Amitabh Chaudhry. The shift could help lenders reduce funding costs as competition for deposits begins to ease and interest rates gradually stabilize.
Chaudhry said banks have been paying higher rates over the past two years to attract retail deposits, but inflows from the Indian diaspora could provide a cheaper and more stable source of funding if market conditions continue to improve.
Banks Look Beyond Domestic Deposits
Indian lenders have faced intense competition for deposits as credit growth outpaced the growth in customer savings.
To maintain lending activity, many banks raised deposit interest rates, increasing their overall funding costs. According to Chaudhry, greater inflows from overseas Indians could reduce the need for these high-cost deposits and improve profitability.
Diaspora Funds Offer Lower-Cost Capital
Deposits from NRIs have traditionally been an important funding source for Indian banks.
These accounts often provide long-term and relatively stable funding, making them attractive during periods of tight domestic liquidity. As global interest-rate conditions change, banks expect overseas deposits to become an even more significant part of their funding strategy.
Interest Rate Environment Improving
The comments come as expectations grow that funding conditions in India may gradually become more favorable.
If deposit competition continues to cool, banks may no longer need to offer aggressive interest rates to attract customers. Lower funding costs could improve profit margins while supporting continued loan growth across the banking sector.
Credit Demand Remains Strong
Despite higher funding costs, demand for loans in India has remained resilient.
Banks continue to see healthy borrowing from businesses and consumers, supported by economic growth and rising investment activity. Maintaining sufficient deposits remains essential to supporting this expansion without increasing financial pressure.
Banking Sector Outlook
Analysts believe Indian banks will continue balancing loan growth with efforts to strengthen their deposit base.
Diversifying funding sources through overseas deposits, retail savings and institutional funding could help lenders manage liquidity more efficiently while protecting profitability if interest-rate conditions remain uncertain.
Focus on Sustainable Growth
Axis Bank expects funding conditions to gradually improve as financial markets stabilize and competition for deposits becomes less intense.
The bank believes a greater contribution from diaspora deposits, combined with easing funding pressures, could help strengthen the banking sector while supporting future credit expansion across the Indian economy.
