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The Reserve Bank of India plays a vital role in maintaining the stability of the Indian banking system. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are two of the most important regulatory measures.
These rules are also applicable to Small Finance Banks (SFBs), which operate under a small finance bank license issued by the RBI. These banks must maintain cash reserves with the RBI and hold approved liquid assets as part of their CRR and SLR obligations. This helps maintain financial discipline in the banking system.
On 5 June 2026, the RBI Governor, Sanjay Malhotra, made an important announcement. He announced that a USD-INR Swap Facility will be introduced for new Foreign Currency Non-Resident (Bank) or FCNR(B) dollar deposits. The RBI also issued the Second Amendment Directions 2026 regarding CRR and SLR for small finance banks.
This amendment aims to encourage foreign currency deposits and provide additional liquidity support to banks. In this article, we will discuss the key points of the amendment, its impact, benefits, and compliance issues.
The Cash Reserve Ratio is a specified percentage of a bank’s Net Demand and Time Liabilities (NDTL) that the bank must maintain as cash with the RBI.
RBI controls the flow of cash in the banking system through this system. When there is excess liquidity in the market, the RBI can increase CRR. Besides this, CRR can be reduced when there is a need to support liquidity or economic activity.
CRR helps maintain banks’ financial stability. It allows the RBI to conduct monetary policy effectively.
Statutory Liquidity Ratio is the mandatory reserve of the bank. This is required to be kept in the form of cash, gold, or RBI-approved government securities.
The SLR ensures adequate liquid assets with the bank. So, the bank can meet its obligations when necessary. It also plays an important role in maintaining confidence in the banking system. SLR acts as a safety net for banks in financial uncertainty.
Small finance banks serve small businesses, low-income people, and customers in rural areas. So, proper liquidity management is very important for them.
CRR and SLR have a direct impact on the lending capacity of banks. It has relatively less money to lend when the bank has to hold more reserves.
Adhering to these rules is an important compliance responsibility. If a bank violates the rules related to CRR or SLR, regulatory action may be taken.
Small finance banks can maintain a balance between their liquidity, risk management, and regulatory obligations by properly managing CRR and SLR.
RBI has officially named this amendment as “Reserve Bank of India (Small Finance Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026.”
This direction was published in June 2026 and came into effect immediately upon publication. Banks have been asked to follow the new provisions without any additional time.
This amendment is related to the policy announcement of the RBI Governor dated June 5, 2026. In the announcement, it was said to launch a special USD-INR Swap Facility to increase foreign exchange reserves.
The most important change in the Second Amendment Directions is the exemption of certain FCNR(B) deposits collected within a certain period from the obligation to maintain CRR and SLR.
According to the RBI, this step will help increase foreign exchange inflows. It will also create additional funding opportunities for small finance banks. This could be positive for the overall banking system.
On June 5, 2026, the RBI governor announced that a special USD-Rupee Swap Facility will be launched for new FCNR(B) dollar deposits.
This move attracts more foreign currency deposits from Indians living abroad. The country’s foreign exchange position becomes stronger when banks can collect more foreign currency.
In addition, keeping foreign exchange reserves strong is an important policy objective during times of global economic uncertainty. The RBI can help fulfil that objective.
A Foreign Currency Non-Resident (Bank) Deposit is a special deposit account where NRIs can deposit money in foreign currencies.
These accounts are usually held in US dollars, British pounds, euros, or other approved foreign currencies. The tenor of the deposit is usually fixed for a specific period.
FCNR(B) deposits are an important source of foreign funds for Indian banks. Banks can raise long-term foreign exchange and contribute to the country’s foreign exchange reserves through them.
The key changes introduced by the Second Amendment are as follows-
The most important change in the Second Amendment Directions, 2026, is the exemption of certain FCNR(B) deposits from the requirement to maintain CRR and SLR.
As per the RBI directive, this facility will be applicable in case of new FCNR(B) deposits. However, the deposit tenure should be a minimum of 3 years and a maximum of 5 years.
RBI has clearly stated that this facility will be applicable for FCNR(B) deposits collected between 8 June 2026 and 30 September 2026.
The eligible deposits that the bank collects during this specific period will get the benefit of CRR and SLR exemption.
The reporting of this exemption will start from 1 July 2026. As per the RBI guidelines, NDTL (Net Demand and Time Liabilities) will be calculated for this on the basis of 15 June 2026.
So, the banks will have to follow the new reporting method from the prescribed time and report the eligible FCNR(B) deposits correctly.
This amendment adds a new Sub-paragraph 20(6) to Paragraph 20. It states that new FCNR(B) deposits collected between 8 June 2026 and 30 September 2026 will be exempt from maintaining CRR. However, the tenure of the deposit should be a minimum of 3 years and a maximum of 5 years.
Renewal deposits will also be covered under this facility. However, this exemption will be applicable only to the amount of the original deposit. The RBI has created a clear framework to help banks identify eligible deposits.
A significant change has been made in Paragraph 29(5). Earlier, this paragraph referred to Paragraph 20(3), 20(4), and 20(5). Now, a new Paragraph 20(6) has also been added.
So, the new exemption regarding FCNR(B) deposits has become a formal part of the reporting and compliance regime. Banks will now have to include this new provision in their regular reports.
Some technical changes have also been made to Form A of Annex A. Some old reference words have been changed, and new paragraph references have been added. In addition, a new reporting category has been included called “FCNR(B)-2026 [Para. 20(6)].”
Another change is that Item VIII.7 has been renumbered as VIII.8, and a new FCNR(B) entry has been added as VIII. 7. These changes were made to make the reporting process clearer and more streamlined.
The RBI introduced this facility to increase foreign currency inflows. Encouraging Indians living abroad to invest in FCNR(B) deposits will enable banks to collect more foreign currency. This will strengthen the country’s foreign exchange reserves. This is an important step in the current global economic situation.
This relaxation creates an additional source of funds for banks. Since these deposits do not have to be maintained in CRR and SLR, banks will have more usable money. So, small finance banks will be able to conduct their lending activities and other banking services more effectively.
Banks have to set aside a portion of their funds to maintain CRR and SLR. However, this temporary relaxation will not apply to eligible FCNR(B) deposits.
This will reduce the pressure on banks to maintain reserves and allow them to use foreign currency funds more efficiently. It will also improve bank funding management.
This amendment has made it more attractive for small finance banks to collect FCNR(B) deposits. Since CRR and SLR are not required to be maintained on certain FCNR(B) deposits, banks may be more interested in collecting such deposits.
So, banks can introduce new deposit schemes or attractive offers for NRI customers. This will also increase the opportunity to collect deposits in foreign currencies.
More importantly, the funding base of the bank will be wider. A large and diversified funding base helps increase the financial stability of the bank.
This facility will increase the amount of usable money with the bank. The money usually kept aside as CRR and SLR will not be required in this case. So, banks will be able to use a larger part of their collected funds for various business purposes.
This will strengthen the liquidity position of the bank. The ability to disburse loans will also increase. It is a big advantage for small finance banks.
The balance sheet management of banks may become easier with the pressure of maintaining reserves reduced. They will be able to plan and use funds more efficiently. It will also be easier to maintain a good balance between liquidity and assets.
This change may provide some additional benefits to small finance banks in managing their day-to-day operations and long-term financial planning.
FCNR(B) deposits may become more attractive to NRI investors. Since banks will get more incentives to collect such deposits, they can offer better services or competitive benefits to their customers.
FCNR(B) accounts are already a popular investment vehicle for Indians living abroad. The new facilities may increase confidence in these products. It will also help in keeping NRI customers more connected to the Indian banking system.
An increase in FCNR(B) deposits will also increase the inflow of foreign currency into the country’s banking system.
This can help strengthen India’s foreign exchange position. It helps banks meet their foreign exchange needs. This initiative enhances the stability of the banking sector and help strengthen the country’s external sector.
Small finance banks will first have to ensure that eligible FCNR(B) deposits are correctly identified and classified.
Deposits that fall under the exemption should be properly reported in regulatory reports. In addition, the return and reporting formats prescribed by the RBI will also need to be updated.
The deposit tenure should be a minimum of 3 years and a maximum of 5 years to avail this facility. So, banks should regularly monitor the tenure of each deposit. Showing wrong tenure deposits under exemption can create compliance risk.
It is very important to record the principal amount of eligible deposits accurately. In addition, renewed deposits should also be tracked separately. This reduces the chances of confusion or errors during reporting. Maintaining accurate records is also helpful in future audits and regulatory reviews.
Banks should update their internal compliance policies and guidelines. It is also important to train the relevant staff in the new amendments. This will reduce reporting, accounting, and compliance errors. Regular internal reviews help the bank identify potential risks quickly.
Not all FCNR(B) deposits are eligible for this facility. If the deposit tenure is less than 3 years or more than 5 years, then it may not be eligible for exemption. It is a common mistake to show the deposit as exempt without checking this.
Sometimes the wrong amount is mentioned while preparing the report. If the exempted deposit amount is not reported correctly, then incorrect information may be submitted to the RBI. This can create compliance issues in the future.
Renewed deposits do not automatically become eligible. The bank has to ensure that the renewed deposit also fulfils all the relevant conditions. This lack of checking is a common compliance error.
NDTL calculations are very important for CRR and SLR calculations. If NDTL is calculated incorrectly, then the reserve maintenance calculation may also be incorrect. This may create regulatory risk.
Even after the new rules come into effect, the bank’s software or internal systems are not updated quickly. Due to this, errors can occur in reporting, accounting, and deposit classification. So, the necessary system updates should be made as soon as the amendments come into effect.
Have a look at the key benefits of the RBI Second Amendment Directions, 2026-
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The Reserve Bank of India (Small Finance Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026. It is an important regulatory step to encourage FCNR(B) deposits. This amendment exempts certain FCNR(B) deposits from the obligation to maintain CRR and SLR.
This facility can create additional liquidity for small finance banks, increase efficiency in fund utilization, and help increase foreign exchange inflows. It has the potential to strengthen the country’s banking sector and foreign exchange management.
However, banks need to ensure accurate reporting, proper recordkeeping, and regulatory compliance to get the full benefit of this facility. Enterslice helps institutions follow RBI norms and reduce potential compliance risks. So, connect with us for the best compliance.
RBI (Small Finance Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026 is a regulatory amendment issued by the RBI. Certain FCNR(B) deposits have been temporarily exempted from the obligation of maintaining CRR and SLR. This step increases foreign exchange inflows and creates additional liquidity for small finance banks.
The Second Amendment Directions, 2026 of the RBI came into effect immediately after their publication. It will come into effect immediately as per the direction. So, small finance banks have been asked to follow the new provisions without any additional time. Banks must make necessary changes in their reporting system and compliance process immediately.
The FCNR(B) or Foreign Currency Non-Resident (Bank) Deposit is a deposit account where NRIs can deposit money in foreign currencies. This account is maintained in US Dollar, Euro, Pound Sterling, or other approved foreign currencies. It is a popular banking product for NRIs and an important source of foreign funds for Indian banks.
As per RBI guidelines, only FCNR(B) deposits with a minimum maturity of 3 years and a maximum maturity of 5 years are eligible for this facility. Moreover, these deposits must be collected between 8 June 2026 and 30 September 2026. The relevant deposit will not get the benefit of CRR and SLR exemption when the specified conditions are not met.
Yes, renewed FCNR(B) deposits can also be covered under this facility. However, the renewed deposit must fulfil all the conditions prescribed by the RBI. It is important to check the tenure of the deposit and other eligibility factors. Banks must ensure that the renewed deposits also fall under the revised guidelines.
RBI has announced that eligible FCNR(B) deposits collected between 8 June 2026 and 30 September 2026 will get this facility. However, the exemption benefit is not limited to the collection period only. The CRR and SLR exemption benefit can continue as long as the original deposit amount remains in the bank's books.
As per the amendment, Small Finance Banks will have more usable funds. Since CRR and SLR are not required to be maintained for certain FCNR(B) deposits, banks can use that money for other banking activities. This can help them increase their liquidity, improve their lending capacity, and make fund management more effective.
Small Finance Banks are required to properly identify eligible FCNR(B) deposits and report them appropriately in RBI reports. It is also important to regularly monitor the maturity of deposits, track renewed deposits separately, and maintain proper records. Updating internal compliance policies and training employees is also important.
Not following RBI directions properly can create various types of regulatory risks. Incorrect reporting, incorrect NDTL calculation, or showing ineligible deposits under exemption can create compliance issues. This may result in regulatory oversight, fines, or other administrative action. So, maintaining proper compliance is the most important thing.
Enterslice provides professional assistance in meeting various RBI-related compliance and regulatory requirements. Organizations can get assistance with RBI reporting, FEMA compliance, risk assessment, licensing, regulatory filings, and legal compliance management. In addition, we help organizations mitigate regulatory risk through ongoing compliance monitoring and expert advice.
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