RBI Exempts FCNR(B) & NRE Deposits from PSL

The Reserve Bank of India (RBI) has exempted advances made against new Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident External (NRE) term deposits from priority sector lending (PSL) calculations. This policy adjustment, effective immediately, aims to boost foreign currency inflows into India and reduce compliance burdens for banks.

Policy Shift to Attract Foreign Capital

This exemption represents the third in a series of policy adjustments by the RBI specifically designed to increase the flow of foreign currency into the Indian economy. By allowing banks to exclude these particular advances from their adjusted net bank credit, the central bank directly impacts the base used for calculating mandatory priority sector lending targets.

Key Financials:

• Expected yield on FCNR(B) deposits: Approximately 7%
• Total FCNR(B) deposits already attracted by banks: Over $36 billion

Mechanism and Eligibility for Banks

The core mechanism behind this change is to provide banks with greater flexibility in managing their balance sheets. This move is anticipated to enable financial institutions to achieve healthier profit margins, especially by leveraging funds from the attractive FCNR(B) deposits.

Conditions for Exemption:

• New FCNR(B) deposits must secure a tenure of three to five years.
• Mobilization period for FCNR(B) deposits is between June 8 and September 30, 2026.
• New NRE term deposits require a minimum tenure of three years.
• Mobilization period for NRE deposits is between June 19 and September 30, 2026.
• Crucially, renewals of existing deposits within these specific timeframes are also eligible for the exemption.

This targeted regulatory easing by the RBI underscores a proactive approach to strengthen India’s foreign exchange position. It simultaneously provides banks with operational relief and an incentive to attract non-resident funds more efficiently.