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RBI sets rules for banks to swap offshore borrowings

It said despite the swaps being for the entire tenor of the borrowing, the rate shall be reset after every one year from the date of the swap at 100 bps lower than the prevailing market rate, at the time of reset.

September 11, 2013 / 06:37 PM IST

The Reserve Bank of India (RBI) said on Tuesday banks can raise funds overseas above 50 percent of their Tier I capital with a minimum maturity of three years and swap these borrowings with the central bank at a concessional rate for one to three years.


"The swaps shall 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 per cent of their unimpaired Tier I capital or not," the RBI said.


It said despite the swaps being for the entire tenor of the borrowing, the rate shall be reset after every one year from the date of the swap at 100 bps lower than the prevailing market rate, at the time of reset.


The RBI said banks are free to borrow in any foreign currency but the swaps will be available only for conversion of the US dollar equivalent into rupees and will be computed at relevant cross rates on that day.


Some dealers said the new rules may not be able to attract enough dollar inflows as it was not easy for banks to get access to more than one-year funds overseas.


"The circular is quite restrictive. If they are allowing concessional swaps for NRI (non-resident Indian) deposits for one to three years, then why not give the same facility to overseas borrowings instead of restricting it to a minimum three years?" said one foreign bank dealer.

Raghuram Rajan, the new RBI governor, announced in his inaugural address on September 4 that the RBI will raise overseas borrowing limit for banks to 100 percent of their Tier I capital from 50 percent.

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