RBI opens special window to swap foreign currency deposit

The RBI today allowed banks to swap funds mobilised through foreign currency deposits to attract overseas funds.

“It has been decided accordingly to offer such a window to the banks to swap the fresh foreign currency non-resident (banks) FCNR(B) dollar funds, mobilised for a minimum tenor of three years and over at a fixed rate of 3.5 per cent per annum for the tenor of the deposit,” RBI said in a notification after new Governor Raghuram Rajan announced these measures in his maiden press briefing.

RBI has been receiving requests from banks to consider a special concessional window for swapping FCNR(B) deposits that will be mobilised as per the recent relaxations permitted by the central bank.

It said that based on requests received from banks, it has also been decided that the current overseas borrowing limit of 50 per cent of the unimpaired Tier I capital may be raised to 100 per cent.

The borrowings mobilised under this provision can be swapped with RBI at the option of the bank at a concessional rate of 1 per cent below the ongoing swap rate prevailing in the market, it said.

The above schemes will be open up to November 30, it said, adding that RBI reserves the right to close the scheme earlier with due notice.

These moves will help banks bring in safe money to fund our current account deficit which is expected to be around $70 billion in the current fiscal.

Since end—May there has been volatility in the foreign exchange market. The rupee has declined by over 20 per cent since May on account of global and domestic factors including sharp rise in the Current Account Deficit (CAD).