The Reserve Bank of India has announced an exemption for loans against specific foreign currency deposits, particularly fresh FCNR(B) and NRE term deposits. According to reports from The Economic Times and The Times of India, this strategic shift ensures these loans will not factor into the mandatory priority sector lending requirements. The exemption applies to advances against FCNR(B) deposits with a minimum tenure of three years and maximum tenure of five years, mobilised by banks between June 8 and September 30, 2026, as well as NRE term deposits with tenure of three years or more, mobilised by banks between June 19 and September 30, 2026. This includes deposits renewed upon maturity. As per Mint, the RBI has provided exemption from maintenance of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on fresh FCNR(B) deposits, and these loans will now be exempt from central bank norms. The new rule takes immediate effect and allows banks to exclude such advances from the computation of adjusted net bank credit, which is used to determine priority sector lending targets.
The exemption is significant as it removes these loans from adjusted net bank credit calculations, which are required to maintain a minimum of 40% of adjusted net bank credit to priority sectors. As reported by The Economic Times, priority sectors include loans to agriculture, MSMEs, export credit, education, housing, and weaker sections. The amendment allows exclusion of advances extended in India against eligible deposits, thereby lowering the base on which these targets are calculated. According to The Times of India, under existing norms, banks are required to allocate a defined share of their adjusted net bank credit to sectors such as agriculture, MSMEs, and affordable housing. The central bank clarified that the amount to be excluded from ANBC for computation of priority sector targets shall not exceed the fresh FCNR (B) / NRE deposits eligible for exemption from maintenance of CRR / SLR. According to Mint, this exemption means banks are free to use these funds for loans without setting anything aside for the mandated priority sector targets.
The RBI's special measures to attract foreign exchange have proven highly effective, bringing in $36.72 billion until the end of last month. According to The Economic Times, FCNR(B) deposits accounted for $36.72 billion of the inflows, exceeding the $26 billion mobilised under a similar scheme in 2013. This represents a significant increase in foreign exchange inflows compared to previous years, driven largely by the enhanced attractiveness of these deposit schemes. In June, the central bank introduced a US dollar-rupee swap facility for fresh FCNR(B) dollar funds mobilised for a minimum tenure of three years and maximum tenure of five years to incentivise capital inflows and strengthen the country's balance-of-payments position. As per Mint, HSBC, State Bank of India (SBI) and ICICI Bank garnered half of all inflows under the deposit incentive scheme to attract dollars and strengthen the rupee. The yields on these deposits are around 7%, enabling banks to earn a decent spread by deploying funds raised from FCNR(B) deposits.
Banks can swap these deposits with the RBI under a zero-cost hedging facility available until September 30, as reported by The Economic Times. This facility provides banks with additional flexibility in managing their foreign currency exposure while maintaining the benefits of the special deposit schemes. The new FCNR accounts scheme allows NRIs to make leveraged and unlevered deposits at Indian banks in foreign currency, with RBI taking the hedging risk to offer the potential for high returns. The scheme, announced on June 5 and rolled out three days later, will run till the end of September. The availability of this swap facility enhances the attractability of the FCNR(B) and NRE deposit schemes for both banks and foreign investors.
Despite strong inflows, RBI has no immediate plans to end the FCNR(B) scheme before the September 30 deadline, governor Sanjay Malhotra said on Wednesday. As per Mint, "We have got robust flows as you have mentioned, and we do hope to get good healthy flows going forward. But as of now, there is no proposal under consideration to close the scheme prematurely. We will keep you posted on this." During the monetary policy announcement, he also said the country's balance of payments (BoP) would see a healthy surplus in the current financial year. India's BoP surplus in FY27 is estimated at $40 billion, scaled up from the earlier estimate of $25 billion, according to a report by IDFC FIRST Bank dated August 3. The current account deficit (CAD) is estimated at 1.7% of GDP, providing additional support for the country's external balance sheet.
