MUMBAI: The Reserve Bank of India (RBI) has eased priority sector lending requirements for banks by allowing them to exclude certain advances backed by fresh FCNR(B) and NRE term deposits from the calculations used to determine lending targets.
The measure is aimed at encouraging foreign currency inflows while reducing the compliance pressure on banks. It also gives lenders greater flexibility to deploy funds mobilised through these deposit schemes, particularly as banks seek to improve returns on foreign currency resources.
Under the revised framework, eligible advances extended in India against specified FCNR(B) and NRE term deposits will not be included in adjusted net bank credit for priority sector lending calculations. The change took immediate effect following an RBI circular issued on Friday.
Banks are required to direct a prescribed portion of their adjusted net bank credit towards priority sectors, including agriculture, micro, small and medium enterprises (MSMEs) and affordable housing. By reducing the credit base on which these obligations are calculated, the latest amendment provides lenders with additional flexibility.
The RBI has also specified conditions that deposits must satisfy to qualify for the exemption.
Fresh FCNR(B) deposits must carry a maturity period of three to five years and be mobilised between June 8 and September 30, 2026. Fresh NRE term deposits, meanwhile, must have a minimum maturity of three years and be mobilised during the period from June 19 to September 30, 2026.
Renewals of existing deposits during the specified windows will also qualify for the benefit, provided they meet the prescribed conditions.
The policy change comes as banks have significantly increased their mobilisation of FCNR(B) deposits. More than $36 billion had been raised through these deposits by the end of July, highlighting the growing importance of foreign currency deposits as a source of funding.
FCNR(B) deposits allow eligible non-resident customers to hold deposits in designated foreign currencies, while NRE accounts provide a rupee-denominated avenue for non-resident Indians to maintain their overseas earnings in India.
For banks, the latest relaxation could improve the economics of lending against these deposits by reducing the additional priority-sector lending obligation associated with such advances. It may also encourage lenders to make greater use of the funds raised through the limited-period deposit mobilisation window.
The RBI’s decision forms part of a broader policy effort to strengthen foreign currency inflows and make the banking system more responsive to funding opportunities while maintaining the overall framework governing priority sector lending.
The exemption, however, remains subject to the eligibility conditions and mobilisation periods prescribed by the central bank. Banks will therefore need to ensure that both the underlying deposits and the corresponding advances satisfy the revised requirements before excluding them from adjusted net bank credit.