RBI notifies norms for banks to swap overseas borrowings

The Reserve Bank of India, in a notification, said that banks can raise funds overseas above 50% of their Tier I capital with a minimum maturity of 3 years and swap these borrowings with the RBI at a concessional rate of a 100 basis point below the market rate with a minimum tenor for 1 to a maximum of 3 years.  Bank can use this swap facility to 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.

As per the new norms by the RBI for banks to swap overseas borrowings:
  • The swaps should be available at a concessional rate of a 100 basis points below the market rate for all fresh borrowing with a minimum tenor of 1 year and a maximum tenor of 3 years, irrespective of whether such borrowings are in excess of 50% of their unimpaired Tier I capital or not.
  • While the swaps would be for the entire tenor of the borrowing, the rate would be reset after every 1 year from the date of the swap at 100 basis points lower than the market rate prevailing on the date of reset.
  • Although the banks are permitted 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.
  • Banks can now borrow funds from their Head Office, overseas branches and correspondents and overdrafts in nostro accounts up to a limit of 100% of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 50%.
  • Issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the approval route for Overseas Direct Investment, provided the Indian Party indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.



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