RBI Monetary Policy: Banks need no approval to infuse capital in branches, overseas arms

Shaktikanta Das

No RBI approval will be required for banks to infuse capital in their branches and overseas arms, Reserve Bank of India Governor Shaktikanta Das said on Friday.

At present, banks incorporated in India can infuse capital in their overseas branches and subsidiaries, retain profits in these centres and repatriate/ transfer the profits with prior approval of the RBI.

Follow our LIVE blog for the latest updates of RBI Monetary Policy
"With a view to providing operational flexibility to banks, it has been decided that banks need not seek prior approval of the RBI if they meet the regulatory capital requirements," RBI Governor Shaktikanta Das said while announcing the bi-monthly monetary policy. The instructions in this regard are being issued separately, he added.

Extant regulatory instructions on classification and valuation of investment portfolio by scheduled commercial banks are largely based on a framework introduced in October 2000 drawing upon the then prevailing global standards and best practices.

In view of the subsequent significant developments in the global standards on classification, measurement and valuation of investments, the linkages with the capital adequacy framework as well as progress in the domestic financial markets, there is a need to review and update these norms, he said.

As a step in this direction, a discussion paper covering all relevant aspects will be placed shortly on the RBI website for comments, he noted. In view of the imminent discontinuance of LIBOR, Das said any widely accepted interbank rate or Alternative Reference Rate (ARR) applicable to the currency of borrowing may be used as a benchmark, post discontinuation.

Currently, the benchmark rate for Foreign Currency (FCY) External Commercial Borrowings (ECB)/Trade Credit (TC) is specified as six-month LIBOR rate or any other six-month interbank interest rate applicable to the currency of borrowing. To take into account the differences in credit risk and term premia between LIBOR and the ARRs, for new foreign currency ECBs and TCs, it is proposed to revise the all-in-cost ceiling from 450 to 500 basis points and from 250 to 300 basis points (bps), respectively, over the ARRs.

To enable transition of existing ECBs and TCs linked to LIBOR, it is proposed to revise the all-in-cost ceiling from 450 to 550 bps and from 250 to 350 bps respectively, over the ARRs.

RBI kept the benchmark lending rate unchanged for the ninth time in a row at 4 percent, Das informed on the day. The central bank also continued with an accommodative stance to revive and sustain growth on a durable basis, he said.

The Monetary Policy Committee of the RBI has also maintained the reverse repo rate at 3.35 percent and the MSF rate at 4.25 percent.

The announcement came in the context of fresh threats from the Omicron variant of coronavirus. So far, India has reported over two dozen Omicron cases. This has forced several states to impose fresh travel restrictions. There is a growing fear, however, that the Omicron surge will lead to a third wave of COVID-19 in the country.