RBI Boosts Bank Incentives for NRI Foreign Currency Deposits

The exemption applies to loans against fresh and renewed FCNR-B deposits of three to five years mobilized between 8 June and 30 September, and to loans against NRE term deposits of three years or more mobilized between 19 June and 30 September. Banks can now use these funds for lending without allocating a portion to priority sectors, which typically include agriculture, small businesses, and weaker sections.

The central bank also waived the cash reserve ratio and statutory liquidity ratio requirements on these deposits, reducing the cost for banks. The FCNR-B scheme, announced on 5 June and launched three days later, allows NRIs to deposit foreign currency with Indian banks, with the RBI bearing the hedging risk to offer potentially higher returns.

HSBC, State Bank of India, and ICICI Bank together accounted for half of the inflows under the scheme, according to official data. Despite the strong response, RBI Governor Sanjay Malhotra said on Wednesday that the central bank has no immediate plans to close the scheme before the 30 September deadline. 'We have got robust flows as you have mentioned, and we do hope to get good healthy flows going forward. But as of now, there is no proposal under consideration to close the scheme prematurely,' he said at a press conference.

The RBI also projected a healthy surplus in India's balance of payments for the current financial year, with an estimated surplus of $40 billion, up from an earlier estimate of $25 billion. The current account deficit is projected at 1.7% of GDP, according to a report by IDFC FIRST Bank dated 3 August.