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RBI further eases norms to encourage capital flows

Last Updated: Tuesday, September 10, 2013 - 22:57

Mumbai: Seeking to increase the inflow of foreign capital, the Reserve Bank Tuesday further relaxed norms that would encourage banks to raise funds in overseas market.

Under the new norms, RBI has allowed swap facility for term deposits in dollar denomination ranging from 1-3 years at a concessional rate of 1 percent below the market rate, RBI said in a notification.

Besides, it has relaxed norms for banks to borrow funds from overseas market, up to 100 percent of equity capital, with upper limit of USD 10 million.

"In view of the prevailing market conditions, it has further been decided that banks, at their option, can enter into a swap transaction with RBI in respect of the borrowings raised after the date of this circular," it said.

"The swaps should be available at a concessional rate of a hundred basis points below the market rate for all fresh borrowing with a minimum tenor of one year and a maximum tenor of three years, irrespective of whether such borrowings are in excess of 50 percent of their unimpaired Tier I capital or not," RBI added.

A bank can sell dollars in multiples of a million to RBI. At the end of the swap period, the bank would have to buy the same amount of dollars.

Several measures taken by RBI to promote forex inflow has 63.84 against a dollar from the record high of 68.80 earlier this month.

Further, it said, while the swaps would be for the entire tenor of the borrowing, the rate would be reset after every one year from the date of the swap at hundred basis points lower than the market rate prevailing on the date of reset.

While the banks are allowed to borrow in any freely convertible currency, the swap will be available only for conversion of US dollar equivalent into rupees and the American currency equivalent would be computed at the relevant cross rate prevailing on the date of the swap, it said.

The concessional swap window shall be open till November 30, 2013.

The notification further said banks can now borrow funds from their Head Office, overseas branches and correspondents and overdrafts in nostro accounts up to a limit of 100 percent of their unimpaired Tier I capital as at the close of the previous quarter or USD 10 million, whichever is higher, as against the existing limit of 50 percent.

Making amendment to Overseas Direct Investment norms, RBI said it has also been decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the approval route, provided the Indian Party indirectly holds 51 percent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.

In a separate notification, RBI said it has been decided to allow one additional transfer to HTM (Held to Maturity) bonds for the current quarter.

On the basis of review of the current market conditions relating to excessive volatility in yields of government securities, it has been decided to increase the quantum of securities that can be classified as HTM from 100 percent to 200 percent of the audited net owned fund of the bank as at end March.

It has also been decided to allow one additional transfer to HTM for the current quarter, it added.


First Published: Tuesday, September 10, 2013 - 22:57
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