India’s banking sector is preparing to tap foreign-currency deposits from the Indian diaspora to strengthen balance sheets before directing fresh funds into key sectors of the economy, according to Axis Bank Managing Director and CEO Amitabh Chaudhry. The Reserve Bank of India’s (RBI) recent decision to absorb hedging costs for banks raising overseas dollar deposits has created an opportunity for lenders to access cheaper funding. The policy is expected to improve banks’ funding profiles while encouraging greater foreign capital inflows into the country.
Chaudhry said lenders are expected to prioritise replacing expensive sources of funding before deploying the newly raised money into productive sectors.
“The first thing banks will do is reduce or pause growth in other very expensive deposits for some time,” Amitabh Chaudhry told Bloomberg News in an interview. Following that, the quickest areas for deployment would be across infrastructure projects, data-centre investments, commercial real estate and large capital-expenditure plans, he said.
The RBI’s move enables banks to offer more competitive interest rates on foreign-currency deposits by taking on the hedging costs that lenders would otherwise incur. The initiative is aimed at attracting overseas funds while also supporting the Indian rupee.
Analysts estimate that the policy could bring nearly $50 billion in foreign deposits into India’s banking system. According to Chaudhry, a majority of these inflows are likely to come from non-resident Indians living in the Gulf region, followed by Southeast Asia.
Deposit Pressure Offers Fresh Opportunity
The new funding avenue comes at a time when Indian banks have been dealing with an imbalance between loan growth and deposit mobilisation. Credit demand has remained significantly stronger than deposit accumulation, forcing lenders to rely on higher-cost funding options such as certificates of deposit.
Three-month certificates of deposit issued in March carried rates as high as 7.5250 per cent, reflecting the pressure on banks to secure liquidity.
Data from the Reserve Bank of India showed that loans grew 18 per cent in the two weeks ended May 31, marking the fastest pace in almost two years. During the same period, deposits expanded by 12 per cent, highlighting the funding gap banks have been managing.
Axis Bank’s Growth Story Continues With AI Focus
Since taking charge as CEO in January 2019, Chaudhry has overseen several major strategic initiatives at Axis Bank. One of the biggest milestones during his tenure was the acquisition of Citigroup Inc.’s consumer banking business in India, strengthening the lender’s retail presence.
Axis Bank now manages assets exceeding 18 trillion rupees (about $191 billion), making it India’s third-largest private-sector lender behind HDFC Bank and ICICI Bank.
Alongside business expansion, the bank has accelerated investments in digital capabilities. The company’s share price has more than doubled during Chaudhry’s leadership, although it has lagged the performance of larger rivals such as State Bank of India and ICICI Bank over the same period.
Artificial intelligence has emerged as another strategic priority. Axis Bank has allocated nearly 15% of its technology budget this year to AI-related initiatives, reflecting its belief that automation and intelligent systems will reshape customer engagement, internal operations and workforce planning.
Chaudhry indicated that AI investments are expected to rise sharply over the coming years as banks increasingly compete through technology rather than traditional banking services alone.
“If we can understand, use and implement AI well, internally and externally, we can create a difference between us and competition,” Chaudhry said, adding that the bank has hired a Chief AI officer to lead the vertical.
