The Reserve Bank of India (RBI) has issued a crucial update to its priority sector lending (PSL) framework, declaring that loans made against newly mobilised FCNR(B) and NRE term deposits will **no longer count** toward banks’ Priority Sector Lending (PSL) targets when calculating Adjusted Net Bank Credit (ANBC). This change, effective immediately, could affect banks’ achievement of mandated PSL obligations.
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## What Exactly Has Changed?
### Exclusion Criteria
Under the revised Directions announced on August 7, 2026:
– **Advances made against fresh Foreign Currency Non-Resident (Bank), or FCNR(B) deposits** with tenors of **three to five years** will be excluded from ANBC for computing PSL targets. This applies to deposits brought in or renewed between **June 8, 2026, and September 30, 2026**.
– Similarly, **advances backed by fresh Non-Resident (External), or NRE deposits** with tenors of at least **three years**, mobilised or renewed **between June 19, 2026, and September 30, 2026**, will also be excluded.
### Other Key Measures
– The RBI is retaining exemptions for eligible FCNR(B) deposits from **Cash Reserve Ratio (CRR)** and **Statutory Liquidity Ratio (SLR)** requirements. The amount banks can exclude from ANBC cannot outweigh the deposits that qualify for CRR/SLR exemption.
– This shift marks a modification to the **Priority Sector Lending ‒ Targets and Classification Directions, 2025**, deleting a prior footnote that permitted incremental advances funded via eligible FCNR(B)/NRE deposits to be included in PSL calculations.
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## Why RBI Making This Adjustment
In June 2026, the RBI introduced incentives to attract foreign currency inflows. Policies included:
– A **US dollar–rupee swap facility** for fresh three- to five-year FCNR(B) deposits.
– Exemptions from CRR and SLR for eligible FCNR(B) deposits and for fresh NRE deposits of at least three years within certain dates.
These measures succeeded—by **July 31, 2026**, banks had mobilised **USD 36.7 billion** through the FCNR(B) scheme, lifting India’s **foreign exchange reserves** to **USD 692.9 billion**.
Given these substantial inflows and regulatory relief, the RBI now appears to be recalibrating PSL metrics to ensure that the system isn’t disproportionately allowing these specific advances to inflate banks’ compliance with priority sector norms.
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## Implications for Banks
### On PSL Target Fulfilment
Banks that have been using advances against FCNR(B) and NRE deposits to meet PSL targets must re-evaluate their performance strategies. The recent amendments mean:
– Such advances will **not count** toward PSL targets under ANBC.
– Banks may see a sudden drop in recognized PSL advances, especially if a significant portion came via the now-excluded FCNR(B)/NRE-backed lending.
### On Reporting and Compliance
– Institutions must ensure their **PSL reporting systems** are updated to exclude the specified advances while calculating ANBC.
– Any prior dependency on resources generated via FCNR(B) or NRE deposits to fulfill priority sector obligations will need reassessment now that the removed footnote no longer applies.
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## Timeline of Key Dates
| Milestone | Deposit Type | Tenor | Mobilisation/Renewal Window |
|———-|—————|——–|—————————–|
| FCNR(B) deposits | 3-5 years | June 8, 2026 – September 30, 2026 |
| NRE term deposits | ≥ 3 years | June 19, 2026 – September 30, 2026 |
These timeframes signal the only windows in which fresh FCNR(B) and NRE term deposits can qualify for both CRR/SLR exemptions *and* be excluded from ANBC as per the amended PSL norms. Deposits outside these dates or durations fall under standard rules without special exclusion.
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## Final Thoughts
RBI’s amendment recalibrates the relationship between deposit mobilisation and priority sector lending norms. While encouraging foreign currency inflows has been a major policy push—reflected in the successful FCNR(B) scheme—the regulator now emphasises that only certain advances linked to eligible deposits will remain exempt from PSL calculations. Banks must adjust fast, both operationally and strategically, to these freshly drawn boundaries.
This shift will likely lead lenders to revise their PSL compliance strategies—potentially increasing lending directly into the priority sector rather than channeling through deposit-backed advances alone.
This article is AI-generated content. Please verify the information independently before taking any action based on this article.
