The Reserve Bank of India (RBI) has exempted advances against fresh FCNR(B) and NRE term deposits from priority sector lending calculations, according to Business-Today. The circular, issued on Friday, takes effect immediately and completes a three-part policy push to boost foreign currency inflows and ease compliance burdens for banks. Banks have already raised over $36 billion in FCNR(B) deposits until the end of last month.
How the priority sector exclusion works
Under existing norms, banks are required to allocate a defined share of their adjusted net bank credit to priority sectors, Business-Today reported. These sectors include:
- Agriculture
- MSMEs
- Affordable housing
The amendment allows banks to exclude advances extended in India against eligible deposits from the computation of adjusted net bank credit, which is the base used to determine priority sector lending targets. By removing these advances from the calculation, the central bank lowers the base against which banks must meet their priority sector obligations.
Eligibility requirements for FCNR(B) and NRE deposits
To qualify for the exclusion, advances must be backed by deposits that meet specific criteria, the RBI circular stated. Fresh FCNR(B) deposits must have a tenor of three to five years and be mobilised between June 8 and Sep 30, 2026. Fresh NRE term deposits must have a minimum tenor of three years and be mobilised between June 19 and Sep 30, 2026. Renewals of existing deposits during these windows will also be eligible.
| Deposit type | Minimum tenor | Mobilisation window | Renewals eligible |
|---|---|---|---|
| Fresh FCNR(B) | 3 to 5 years | June 8 – Sep 30, 2026 | Yes |
| Fresh NRE term | 3 years | June 19 – Sep 30, 2026 | Yes |
Yield and funding backdrop
Business-Today reported that the move will enable banks to earn a decent spread by deploying funds raised from FCNR(B) deposits, where yields are around 7%. With more than $36 billion raised in FCNR(B) deposits through the end of last month, the policy change eases compliance burdens and gives banks room to deploy these foreign currency funds without expanding their priority sector lending base.
Business impact for treasury and trade finance
For CFOs and treasury directors, the exclusion directly affects the economics of FCNR(B)- and NRE-backed advances by removing them from the adjusted net bank credit base, which determines priority sector lending obligations. Since the advances no longer count in the base, banks can extend them without altering their priority sector targets. The change comes as banks are actively mobilising such deposits under the June-to-September 2026 windows, with renewals of existing deposits also qualifying for the exclusion.
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