Axis Bank CEO Amitabh Chaudhry expects bank credit growth to slow to 15-16% in FY27 and says the RBI could raise interest rates as early as October.
Axis Bank managing director and CEO Amitabh Chaudhry has warned Indian banks to be careful in deploying the more than $127 billion raised through FCNR(B) deposits, saying the sudden surge in liquidity could encourage “abnormal lending”.
Speaking at the Global Fintech Fest 2026 in Mumbai on September 9, Chaudhry said banks would have to find ways to deploy the large pool of funds attracted through the Reserve Bank of India’s special foreign exchange swap facility.
“FCNR could lead to some abnormal lending, because we will have to deploy this,” Chaudhry said, adding that he hoped bankers would avoid that outcome.
The warning comes after banks mobilised $127.23 billion through the FCNR(B) route by August 31, when the special scheme closed. Including other foreign-currency inflows through external commercial borrowings and overseas foreign-currency borrowings, the total stood at about $136.4 billion.
Why the $127 Billion FCNR Inflow Matters
The RBI introduced the limited-period scheme in June to encourage foreign-currency inflows from non-resident Indians and other overseas sources.
The response was far larger than many market participants had expected. The scheme was closed on August 31, almost a month earlier than its original end date, after banks attracted more than $127 billion.
The inflows have created a substantial liquidity surplus in India’s banking system. RBI data showed the surplus had reached ₹7.76 lakh crore by early September, the highest level in more than four and a half years.
That creates a challenge for lenders. Banks now have large amounts of liquidity to deploy, but pushing the money into loans too aggressively could encourage weaker underwriting standards, excessive competition for borrowers or credit growth that is difficult to sustain once the temporary liquidity effect fades.
That is the concern behind Chaudhry’s warning.
Axis Bank CEO Expects Credit Growth to Slow to 15-16%
Chaudhry said India’s banking system could record 15% to 16% credit growth in FY2026-27, below the current pace of around 18% to 19%.
He said the unusually high current growth rate is partly a result of a lower base in the previous financial year.
That distinction is important because the FCNR(B) inflows could temporarily make loan growth appear stronger as banks seek to deploy surplus funds.
Chaudhry’s expectation suggests that lenders should not treat the current pace as the new normal.
The challenge will be to put the additional liquidity to productive use without sacrificing credit quality simply to maintain headline loan-growth numbers.
Chaudhry Sees an RBI Rate Hike Soon
The Axis Bank chief also warned that interest rates could start rising again.
Chaudhry said he expects the Reserve Bank of India could raise rates as early as October, although he acknowledged that economists are also looking towards December.
He pointed to the narrowing gap between Indian and US interest rates as a particular concern, describing the difference as being at a level not seen in decades.
The RBI has kept its policy rate at 5.25% through four monetary policy meetings in 2026, according to Moneycontrol’s report of Chaudhry’s comments. The central bank’s policy stance has remained neutral.
A future rate increase would have implications for borrowing costs, bank margins and loan demand, particularly if lenders have already expanded credit aggressively in response to the current liquidity surplus.
Chaudhry’s warning therefore comes at a time when banks may simultaneously be dealing with excess liquidity and the possibility of tighter monetary conditions.
RBI Is Already Managing the Liquidity Surplus
The scale of the foreign-currency inflow has also required the RBI to manage the resulting rupee liquidity.
Reuters reported on September 9 that the central bank was likely using near-maturity dollar-rupee sell-buy swaps to absorb excess rupee liquidity generated by the overseas deposit surge. Bankers and foreign-exchange brokers estimated that the liquidity surplus could be as high as ₹14 trillion to ₹15 trillion, with the RBI looking to drain a substantial portion through swaps and other instruments.
The central bank also conducted a 30-day variable-rate reverse repo operation, although demand for the facility was relatively weak, according to Reuters.
This means banks are dealing with a liquidity environment that is unusually favourable in quantity, but potentially complicated in terms of how quickly and where that money should be deployed.
Axis Bank Sees More Banking Consolidation
Chaudhry also expects greater consolidation across India’s banking sector over the next few years.
He said the industry would increasingly need larger banks, arguing that scale itself can act as a defence and become more important as competition and regulatory demands evolve.
Axis Bank, he said, will continue to look for opportunities as consolidation gathers pace.
The comments come as Indian lenders face rising technology spending, increased competition from digital financial companies and growing demands for capital and risk management.
Larger banks can spread those costs across a bigger balance sheet, while scale can also provide advantages in technology investment, distribution and access to funding.
Fintech Competition Is Not an Existential Threat
Despite the rapid growth of fintech companies, Chaudhry does not see them as an existential threat to traditional banks.
He said banks would continue to face competition from fintech businesses but argued that the challenge was manageable.
For Axis Bank, the relationship is not simply competitive. Chaudhry said the lender also views fintech companies as potential partners, creating opportunities for banks to work with technology firms rather than compete with them in every part of the financial-services value chain.
That reflects the broader evolution of India’s financial sector, where banks, fintech firms and digital platforms increasingly operate alongside one another.
The Bigger Concern Is Where the Liquidity Goes
The $127 billion FCNR(B) inflow gives Indian banks an unusually large funding pool, but it does not automatically translate into sustainable loan growth.
Chaudhry’s comments suggest that lenders need to resist the temptation to chase borrowers simply because they have money available to lend.
With credit growth expected to settle closer to 15% to 16% in FY27, and with the possibility of an RBI rate hike as soon as October, banks may have to balance liquidity deployment with underwriting discipline and changing funding conditions.
The RBI’s own efforts to absorb excess liquidity underline the scale of the challenge.
For Indian banks, therefore, the FCNR(B) windfall is both an opportunity and a test. The money is already in the system. The question is whether lenders can deploy it without turning a temporary liquidity boost into a period of excessive or “abnormal” lending.
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Axis Bank CEO Amitabh Chaudhry flags the India-US yield gap and expects an RBI rate hike soon.
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