It is known early on that PlayStation 3 needs USB storage drive to be formated in FAT32 based on the official documentation. However, Windows OS will not be able to format a driver larger than 32GB into FAT32 format. Some suggested exFAT would work but PS3 still did not detect the drive.
There was a discussion on PlayStation forum that suggested to use third-party application to format the drive that may support up to 1TB. One of the suggestion was 2Tware Fat32Format. It worked.