RBI relaxes foreign borrowing norms for banks
Mumbai: The Reserve Bank Thursday further relaxed foreign borrowing norms for banks under the recently opened swap window by allowing them to raise funds through their head offices and correspondents besides overseas branches.
Until now, the window was limited to overseas branches of banks only.
Authorised dealer category-I banks may borrow funds in foreign currency from their head office, overseas branches and correspondents or any other entity as permitted by the Reserve Bank and avail of the this window to raise up to 100 percent of their unimpaired tier I capital or USD 10 million whichever is higher, the RBI said in a notification, amending the regulations issued on September 26.
The central bank said the move is aimed at providing greater flexibility to banks in accessing overseas funds.
So far, according to dealers, the banks have raised more than USD 1 billion through this window, including USD 255 million raised by Yes Bank.
It can be noted that the RBI, in its attempt to attract foreign fund inflows to arrest the free-fall of the rupee, had last month allowed banks to borrow in foreign currencies up to 100 percent of their standard tier 1 capital with a special 100 bps concessional rate of the prevailing swap rate.
The RBI has also allowed banks to attract money from NRIs through a special swap window under which the RBI would compensate them up to 3.5 percent of their cost differential.
Last week, Governor Raghuram Rajan had said USD 5.6 billion have already arrived in the country through these mechanisms. Analysts were expecting USD 10 billion worth NRI funds through this window till November 30.
Such borrowings should be for the purpose of general banking business and not for capital augmentation and shall be subject to the conditions as specified earlier and that such borrowings would be eligible for concessional swap facility of 3.5 percent, RBI said.
As of June 30, private banks were better placed than their public sector counterparts, in terms of availing of the route, as private banks had healthier core capital. Among large public sector banks, State Bank of India, Punjab National Bank and Bank of Baroda had capital adequacy ratio of over 12 percent.