The Reserve Bank of India (RBI) has announced additional regulatory relief for banks raising fresh foreign currency non-resident (bank) or FCNR(B) deposits and non-resident external (NRE) term deposits.
Under the latest notification, loans extended against fresh FCNR(B) deposits raised between June 8 and September 30 will be excluded from net bank credit calculations. As a result, such advances will not be considered while determining banks’ mandatory priority sector lending requirements.
Similarly, loans provided against NRE term deposits mobilised between June 19 and September 30 will also be kept outside these calculations, the central bank said.
RBI Extends Relief On Deposits And Bank Lending
The latest move builds on earlier measures announced by the RBI to encourage banks to attract foreign currency deposits and strengthen foreign exchange inflows.
The central bank had previously exempted fresh FCNR(B) deposits, including deposits renewed after maturity, from the requirement to maintain cash reserve ratio (CRR) and statutory liquidity ratio (SLR).
Loans backed by these deposits will now also receive regulatory relief in the form of exclusion from net bank credit for priority sector calculations.
Under existing RBI norms, banks are required to allocate at least 40% of their net bank credit towards priority sectors. These include agriculture, micro, small and medium enterprises (MSMEs), export credit, education, housing and lending to weaker sections, among other segments.
By excluding eligible loans against fresh FCNR(B) and NRE deposits from the relevant calculations, the RBI is providing banks greater flexibility while encouraging them to mobilise overseas deposits.
Special Forex Measures Draw Strong Inflows
The RBI’s measures appear to have helped attract substantial foreign exchange into the banking system.
According to the central bank’s data, the special measures had resulted in foreign exchange inflows of $40.81 billion as of July 31. FCNR(B) deposits accounted for the bulk of these inflows, contributing $36.72 billion.
The mobilisation has already surpassed the $26 billion raised under a similar initiative launched in 2013, highlighting the strong response from overseas depositors and participating banks.
Banks can also swap the FCNR(B) deposits mobilised under the special measures with the RBI through a zero-cost hedging facility. This facility will remain available until September 30.
