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# Q2 Bank Results: What the Dollar Deposits Cost
- URL: https://www.moatmarginresearch.com/q2-bank-results-fcnr-margin-cost/
- Published: 2026-10-18T05:38:44.000Z
- Updated: 2026-10-18T05:38:44.000Z
- Description: ICICI, Axis and Yes Bank grew fast in Q2, but partly on FCNR(B) dollar deposits. Strip them out and growth slows; CASA ratios and margins fell.
- Author: A K Karthikeyan
- Tags: Moat Insights

**Two weeks ago, the banks' quarterly updates showed that much of their deposit growth came from FCNR(B) dollar deposits raised in the RBI's swap window. Now the full results are out, and they show the cost. Without those deposits, ICICI Bank's deposits grew 17.0%, not 27.1%. Its share of cheap current and savings deposits fell to 35.8%, and the bank itself puts that down to the FCNR(B) inflows. Axis Bank says the same deposits took 0.11 percentage points off its margin.**

## Where we left off

In early October we read the banks' business updates (\[FC1\], \[FC2\]). Between June and August, the RBI ran a swap window that made foreign-currency FCNR(B) deposits cheap to raise and hedge. Seven private banks took in large amounts, and much of it was matched by loans against the same deposits. Deposit growth looked strong, but some of it was borrowed money.

The results filed on 17 October answer the next question: what did it do to the business?

## Growth, with and without the dollar deposits

Three banks now report both numbers:

|                      | Reported growth         | Without FCNR(B) | Source  |
| -------------------- | ----------------------- | --------------- | ------- |
| ICICI Bank, deposits | +27.1%                  | +17.0%          | \[ICR\] |
| ICICI Bank, loans    | +30.0%                  | +24.1%          | \[ICR\] |
| Yes Bank, advances   | +23.7%                  | +17.6%          | \[YB\]  |
| Axis Bank, deposits  | +21%                    | not given       | \[AX\]  |
| HDFC Bank, deposits  | +18.8% (our arithmetic) | not given       | \[HD\]  |

Axis raised ₹1,018 billion of these deposits; ₹438 billion was backed by advances from its own overseas branches and ₹449 billion by standby letters of credit (\[AX\]).

## The moat: cheap deposits fell behind

A bank's funding moat is its current and savings accounts (CASA): money that pays little or no interest. The FCNR(B) deposits are term deposits, so they dilute it:

| CASA ratio (cheap deposits ÷ all deposits) | A year ago | Q2 FY27 | Source  |
| ------------------------------------------ | ---------- | ------- | ------- |
| ICICI Bank (quarterly average)             | 39.2%      | 35.8%   | \[ICP\] |
| Axis Bank (period end)                     | 40%        | 36%     | \[AX\]  |
| Yes Bank                                   | 33.7%      | 30.0%   | \[YB\]  |

ICICI Bank says its 35.8% reflects "the increase in the term deposit base due to FCNR (B) deposit inflows" (\[ICR\]). Its average CASA deposits still grew 10.7%. The cheap money didn't shrink; the expensive money grew faster.

## The margin: what it cost

| Net interest margin              | Q1 FY27                           | Q2 FY27                     | Source  |
| -------------------------------- | --------------------------------- | --------------------------- | ------- |
| ICICI Bank                       | 4.28% (excl. tax-refund interest) | 4.18%                       | \[ICR\] |
| Axis Bank                        | —                                 | 3.36% (3.47% excl. FCNR(B)) | \[AX\]  |
| Yes Bank                         | 2.7%                              | 2.6%                        | \[YB\]  |
| IDBI Bank (no FCNR(B) mentioned) | 3.61%                             | 4.11%                       | \[ID\]  |

- **Axis puts a number on it:** 0.11 percentage points of margin, from 3.47% to 3.36% (\[AX\]).
- **ICICI's margin fell 0.10 points** on its own like-for-like basis. Its cost of deposits rose to 4.50% from 4.41% (\[ICP\]).
- **HDFC Bank's filing gives no margin.** Its net interest income grew about 9.7%, while its deposits grew about 18.8% (our arithmetic, \[HD\]). That gap is consistent with lower-yielding growth, but the filing doesn't break it down.

The contrast is IDBI Bank, which doesn't mention FCNR(B): its margin rose 50 basis points in the quarter, to 4.11% (\[ID\]).

## Profit still rose

None of this dented profit growth this quarter:

|            | Profit, Q2 FY27 | Growth |
| ---------- | --------------- | ------ |
| ICICI Bank | ₹14,843 crore   | +20.1% |
| Axis Bank  | ₹7,003 crore    | +38%   |
| HDFC Bank  | ₹19,610 crore   | +5.2%  |
| Yes Bank   | ₹1,080 crore    | +65.0% |

Axis, for one, credits "strong NII growth at 12% YOY and improving asset quality" (\[AX\]). The margin cost is real, but small so far.

## Yes Bank: one more thing

Yes Bank's joint auditors issued a "Qualified Conclusion" on its Q2 results. The results do not reflect the Supreme Court's 15 October judgment on the \~₹8,415 crore AT-1 bond write-down, which the bank is still evaluating (\[YBA\]). On the same day, Crisil and India Ratings upgraded its long-term rating to AA+ (\[YB\]).

## Moat and margin

**Focus moat: low-cost funding.** It held in absolute terms, with CASA still growing at ICICI and Axis, but weakened as a share. All three banks that report it now fund themselves with fewer cheap rupees per rupee of deposits than a year ago.

**Margin: weaker, by a measurable amount.** Axis quantifies the drag at 0.11 points and ICICI's like-for-like margin fell 0.10 points. The swap window bought growth, and the margin paid for part of it.

**MoatSCOREs** (Moat Screener, banks): ICICI Bank 6.05, HDFC Bank 6.04, Kotak Mahindra Bank 6.03 (all AMBER, deep dive); Central Bank of India 5.63, Yes Bank 5.60 (AMBER, first pass); IDBI Bank 5.25 (AMBER+, first pass); Axis Bank 5.14 (AMBER+, gated) (\[MS\]).

## The bear case

- **The growth was partly rented.** Strip out FCNR(B) and ICICI's deposit growth falls by ten points.
- **The CASA moat is thinner.** Ratios fell 3 to 4 points in a year at all three banks.
- **The deposits will come due.** The filings don't say what happens to margins and balance sheets when they mature or reprice.

## The case for

- **Profit grew strongly** at three of the four.
- **Cheap deposits still grew** in absolute terms.
- **The cost is small and disclosed.** Axis's 0.11 points is a number, not a guess.

## What to watch

1. Kotak Mahindra Bank's and other banks' results this week: do they report growth without FCNR(B)?
2. HDFC Bank's margin, in its presentation and call.
3. The Q3 CASA ratio: does it recover once the window's inflows stop growing?
4. Yes Bank's accounting for the AT-1 judgment.

## Sources

- **\[ICR\]** [ICICI Bank, Q2 FY27 results release](https://nsearchives.nseindia.com/corporate/ICICI2022%5F17102026152039%5FNSEBSE17102026.pdf) · **\[ICP\]** [presentation](https://nsearchives.nseindia.com/corporate/ICICI2022%5F17102026164525%5FBSENSE17102026.pdf) (NSE)
- **\[AX\]** [Axis Bank, Q2 FY27 press release and presentation](https://nsearchives.nseindia.com/corporate/AXISBANK1%5F17102026130712%5FPressRelease%5FIR%5FPPT%5FQ2FY27Signed.pdf) (NSE)
- **\[YB\]** [Yes Bank, Q2 FY27 results presentation](https://nsearchives.nseindia.com/corporate/YESBANK%5F17102026201157%5FSE%5FIntimation%5Fsigned.pdf) · **\[YBA\]** [results and auditors' review report](https://nsearchives.nseindia.com/corporate/YESBANK%5F17102026191757%5FSE%5FIntimation%5FSigned.pdf) (NSE)
- **\[HD\]** [HDFC Bank, Q2 FY27 results](https://nsearchives.nseindia.com/corporate/HDFCBANK%5F17102026135520%5FOutcomeofBMResults%5F17oct2026.pdf) (NSE)
- **\[ID\]** [IDBI Bank, Q2 FY27 press release](https://nsearchives.nseindia.com/corporate/MANESHJ%5F17102026145022%5FSE%5FPressRelase%5FResults%5F17102026.pdf) (NSE)
- **\[FC1\]** [HDFC Bank, Yes Bank, RBL: The RBI Swap Inside Q2 Deposit Growth](https://www.moatmarginresearch.com/rbi-fcnr-swap-q2-bank-deposits/) · **\[FC2\]** [₹3.4 Lakh Crore of FCNR Deposits, and Most of It Was Borrowed](https://www.moatmarginresearch.com/fcnr-deposits-seven-banks-leveraged/)
- **\[MS\]** [Moat & Margin, Moat Screener](https://www.moatmarginresearch.com/moat-screener/) and [How MoatSCORE works](https://www.moatmarginresearch.com/moatscore/)

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> Educational research, not investment advice. Every figure above is drawn from the banks' own filings, read from the primary documents on 18 October 2026; derived figures are our arithmetic, labelled as such. MoatSCOREs read live from the Moat Screener on 18 October 2026\. No buy/sell recommendations, no price targets, no share prices. Moat & Margin is not a SEBI-registered Research Analyst or Investment Adviser.