RBI gives banks relief on priority sector lending, proposes Basel rule changes

The Reserve Bank of India (RBI) has tweaked its priority sector lending (PSL) framework to give banks relief on certain advances backed by fresh FCNR(B) and NRE term deposits, while separately proposing changes to the leverage ratio framework to align it with the latest Basel standards.Priority sector lending (PSL) refers to the mandatory share of loans that banks must extend to sectors such as agriculture, MSMEs, affordable housing and weaker sections of society.The PSL amendment has come into force with immediate effect. Under the revised framework, advances extended in India against fresh FCNR(B) deposits with a tenor of three to five years, mobilised between June 8 and September 30, 2026, will be excluded from the calculation of Adjusted Net Bank Credit (ANBC).Similarly, advances against fresh NRE term deposits of three years or more, mobilised between June 19 and September 30, 2026, will qualify for the exclusion. Deposits renewed upon maturity are also covered.What the PSL change means for banksANBC is the base on which banks’ PSL targets are calculated. In practical terms, the change means banks raising deposits under the RBI’s special FCNR(B) and NRE window will not see their PSL requirement increase simply because their loan book rises through these eligible deposit-backed advances.In simple terms, the RBI has ensured that banks using this special deposit window will not have to make additional priority sector loans solely because these deposits temporarily increase their lending base.The exclusion, however, is capped. The amount of advances excluded from ANBC for calculating PSL targets cannot exceed the fresh FCNR(B) and NRE deposits that are eligible for exemption from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements under the RBI’s June 2026 directions.The RBI had earlier provided CRR and SLR exemptions for fresh FCNR(B) deposits of three to five years mobilised between June 8 and September 30, and fresh NRE term deposits of three years or more mobilised between June 19 and September 30.The latest amendment modifies the RBI’s Priority Sector Lending – Targets and Classification Directions, 2025 and replaces the earlier framework for calculating the eligible ANBC deduction.RBI proposes Basel-aligned leverage frameworkSeparately, the RBI has issued draft norms to align banks’ leverage ratio framework with the latest Basel standards.A leverage ratio is a simple measure of a bank’s capital relative to its total exposures and is designed to prevent excessive borrowing and risk-taking.The draft retains the minimum leverage ratio at 4% for Domestic Systemically Important Banks (D-SIBs) and 3.5% for other banks.The proposed framework covers banks’ on-balance-sheet, derivative, securities-financing and off-balance-sheet exposures, with revised provisions for how these exposures would be reflected in the leverage ratio calculation.The RBI has also proposed allowing balances maintained with the central bank to be temporarily excluded from leverage-ratio exposure in exceptional macroeconomic conditions.Under the draft framework, banks would be required to disclose their Basel III leverage ratio every quarter, on both a standalone and consolidated basis.The proposed directions are slated to come into effect from April 1, 2027, subject to the finalisation of the framework.

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