The Reserve Bank of India has introduced another incentive for banks to attract foreign currency and non-resident deposits, allowing eligible advances against fresh FCNR(B) and NRE deposits to be excluded from the Adjusted Net Bank Credit used to calculate priority-sector lending targets. The move is aimed at making it easier for banks to deploy funds raised through the central bank’s special deposit mobilisation measures without increasing their priority-sector lending burden.
The decision comes after a sharp increase in FCNR(B) deposits following the RBI’s special measures to attract overseas funds. As of July 30, outstanding FCNR(B) deposits had risen to $60.55 billion from $32.56 billion on June 5, an increase of about $28 billion. The latest relaxation adds another layer of support to the RBI’s broader effort to bring more foreign currency into India’s banking system and strengthen external liquidity.
What Happened
The RBI has amended its Priority Sector Lending — Targets and Classification Directions to allow banks to exclude certain advances against eligible fresh FCNR(B) and NRE term deposits from their Adjusted Net Bank Credit, or ANBC, for calculating priority-sector lending requirements. The amendment took effect immediately.
The benefit is restricted to fresh deposits that qualify for the RBI’s earlier exemptions from cash reserve ratio and statutory liquidity ratio requirements. This means banks cannot automatically exclude every loan backed by an FCNR(B) or NRE deposit from their PSL calculations.
For FCNR(B), the eligible deposits are those with a three-to-five-year tenor mobilised between June 8 and September 30, 2026. For NRE deposits, the facility applies to fresh term deposits with a tenor of three years or more mobilised between June 19 and September 30, 2026.
Key Details
| Category | RBI’s Latest Provision |
|---|---|
| Deposits covered | Fresh FCNR(B) and NRE deposits |
| FCNR(B) eligible tenor | 3–5 years |
| NRE eligible tenor | 3 years or more |
| FCNR(B) mobilisation window | June 8–September 30, 2026 |
| NRE mobilisation window | June 19–September 30, 2026 |
| Benefit | Eligible advances excluded from ANBC |
| Linked regulatory relief | CRR and SLR exemption |
| Effective date | Immediate |
| Maximum exclusion | Cannot exceed eligible fresh deposits |
How the New Rule Works
The latest change is primarily a regulatory incentive for banks.
Banks are required to meet specified priority-sector lending targets based on their ANBC. When certain advances are excluded from ANBC, the base used to calculate the lending requirement becomes lower.
Under the new framework, advances extended in India against eligible fresh FCNR(B) and NRE deposits can be excluded from this calculation. However, the amount excluded cannot be greater than the fresh deposits that qualify for the corresponding CRR and SLR exemption.
In practical terms, banks can attract eligible foreign-currency deposits and then extend loans against those deposits without the resulting advances increasing the ANBC base used for PSL calculations.
This makes the deposits more attractive from a bank’s balance-sheet perspective.
Why FCNR(B) Deposits Matter
FCNR(B), or Foreign Currency Non-Resident (Bank), deposits allow eligible non-resident Indians to maintain term deposits in permitted foreign currencies with Indian banks.
Unlike conventional rupee deposits, the principal and interest are denominated in the foreign currency selected for the account. This means the depositor does not have to convert the money into rupees simply to hold the deposit.
For India, however, the bigger attraction is the foreign currency that enters the banking system when an NRI places funds into an FCNR(B) account.
The RBI has therefore been using a combination of incentives to encourage fresh FCNR(B) mobilisation.
RBI’s Broader FCNR(B) Strategy
The latest PSL change is part of a broader package introduced by the central bank in June.
The RBI introduced a special foreign-exchange swap facility under which banks could swap eligible fresh FCNR(B) deposits with the central bank on concessional terms. It also provided CRR and SLR exemptions for qualifying deposits.
The objective was to reduce the cost for banks of attracting foreign-currency deposits and make it commercially viable for them to offer more competitive rates to overseas customers.
The response has been significant.
As of July 30, total FCNR(B) deposits had increased by $28 billion from June 5, reaching $60.55 billion. That represented an 86% increase in the outstanding balance over the period.
FCNR(B) Deposit Growth
| Bank Category | June 5, 2026 | July 30, 2026 | Change |
|---|---|---|---|
| Public-sector banks | $16.75B | $25.59B | Strong increase |
| Private-sector banks | $14.95B | $25.68B | Strong increase |
| Foreign banks | $0.60B | $8.97B | Nearly 15x |
| Total FCNR(B) deposits | $32.56B | $60.55B | +$28B |
Foreign banks recorded the sharpest percentage increase, with aggregate FCNR(B) deposits rising nearly 15-fold during the period, according to RBI data cited by ETBFSI. HSBC and Standard Chartered were among the institutions driving that increase.
Why the RBI Is Encouraging Dollar Inflows
The measures come against a backdrop of pressure on India’s external accounts and the rupee.
Foreign-currency inflows provide banks with additional access to overseas funds and can contribute to the country’s broader foreign-exchange liquidity.
The RBI has also been seeking to make India’s financial system more resilient to external shocks. Foreign-currency deposits can provide banks with a stable source of funding, particularly when global markets are volatile.
The central bank’s measures therefore serve two purposes: attracting foreign currency from overseas Indians and improving the economics for banks that mobilise those funds.
How Banks Could Benefit
For banks, the latest change reduces one potential regulatory cost associated with lending against the newly attracted deposits.
Priority-sector lending is an important obligation for banks, requiring them to allocate a prescribed portion of their credit to specified sectors of the economy.
If advances backed by qualifying FCNR(B) and NRE deposits are excluded from ANBC, banks can potentially deploy those deposits without increasing the denominator used to determine their PSL requirement.
That can provide banks with greater flexibility in managing their balance sheets.
Benefits for Banks
- Easier mobilisation of overseas deposits
- Lower regulatory burden associated with eligible advances
- Greater flexibility in deploying deposit-backed credit
- Additional foreign-currency funding
- Potential improvement in liquidity management
- Stronger incentives to market FCNR(B) products to NRIs
The impact will vary by bank depending on its deposit base, lending mix and ability to attract new overseas funds.
NRE Deposits Also Get Relief
The RBI’s decision also covers fresh NRE term deposits.
NRE, or Non-Resident External, accounts are rupee-denominated accounts available to eligible non-residents. Unlike FCNR(B), the funds are held in Indian rupees, meaning they are subject to currency conversion when foreign money is brought into the account.
The inclusion of NRE deposits broadens the scope of the incentive beyond foreign-currency deposits.
However, the qualifying period and minimum tenor differ from the FCNR(B) framework. NRE deposits must be fresh term deposits with a tenor of at least three years and must have been mobilised during the specified June 19 to September 30 window.
Earlier Rules Have Been Removed
The RBI has also removed an older methodology for determining the amount of advances that could be excluded from ANBC.
The previous framework relied on historical outstanding advances and specified base dates from 2013 and 2014. The amended system instead directly links the exclusion to fresh FCNR(B) and NRE deposits that qualify for CRR and SLR exemptions.
This makes the framework more directly connected to the current deposit mobilisation programme.
For banks, the simpler linkage could make the incentive easier to understand and implement.
What It Means for NRIs
For NRIs, the latest move adds to the attractiveness of the special FCNR(B) deposit window.
Banks have already been able to offer more competitive rates because of the RBI’s foreign-exchange swap support. The ability to lend against eligible deposits adds another mechanism through which banks can potentially generate returns from the funds they attract.
However, the RBI’s latest decision does not itself guarantee higher deposit rates for customers. Individual banks remain responsible for setting the rates they offer within the applicable regulatory framework.
The attractiveness of FCNR(B) deposits will therefore continue to depend on interest rates, currency preferences, tenure and the customer’s individual financial circumstances.
Impact on the Rupee and Foreign Exchange Market
The broader objective is to increase the supply of foreign currency entering India’s financial system.
When overseas Indians send dollars or other permitted foreign currencies into India and place them in FCNR(B) deposits, banks gain access to additional foreign-currency resources.
The RBI’s swap facility can then help banks manage the foreign-exchange exposure associated with those deposits.
The scale of the recent inflows suggests that the combination of higher deposit rates and regulatory incentives has been effective in attracting overseas funds.
However, the eventual impact on the rupee will depend on several factors, including the persistence of inflows, India’s trade balance, oil prices, capital flows and global dollar conditions.
Challenges and Risks
The biggest challenge is that the current incentives are time-bound.
The special eligibility windows run only through September 30, 2026. This means banks and NRIs have a relatively limited period to take advantage of the specific regulatory benefits.
There is also no guarantee that the unusually strong pace of FCNR(B) mobilisation will continue once the special measures expire.
For banks, another consideration is how effectively they can deploy the funds. Attracting deposits is useful only if the resulting liquidity can be managed profitably and without creating additional balance-sheet risks.
Industry Impact
The RBI’s decision strengthens the incentive structure around NRI deposits and could intensify competition among banks for overseas customers.
Public-sector banks, private lenders and foreign banks are already competing for FCNR(B) deposits, with the latest RBI data showing particularly strong growth at foreign banks.
The measures could also deepen India’s connection with the global NRI financial market by making Indian banks more competitive in attracting foreign-currency savings.
For the broader banking sector, the policy demonstrates how regulatory incentives can be used to influence the composition of bank funding while supporting India’s external liquidity.
Looking Ahead
The RBI’s latest decision adds another incentive for banks to mobilise fresh FCNR(B) and NRE deposits at a time when India is actively seeking stronger foreign-currency inflows. By excluding eligible advances backed by these deposits from ANBC calculations, the central bank is reducing a regulatory constraint for lenders while preserving the broader priority-sector lending framework. Combined with the earlier swap facility and CRR/SLR exemptions, the measures have already contributed to a substantial increase in FCNR(B) deposits.
The key issue now will be whether the surge in foreign-currency deposits can be sustained beyond the September 30 eligibility window and whether banks can deploy the additional funding efficiently. Investors and policymakers will be watching the pace of FCNR(B) inflows, the rupee’s performance, foreign-exchange reserves and the impact on banks’ funding costs. For NRIs, the competitiveness of deposit rates and the availability of related lending products will remain important factors as banks compete to capture a larger share of overseas Indian savings.
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