The Reserve Bank of India has received $22.7 billion till date under its special concessional window to encourage banks to bring in dollars through non-resident Indian deposits and overseas borrowings.
The inflows on this account have helped prop up the rupee, which has strengthened to about 62.50 to the dollar now against the late August level of 68.50.
In a bid to stem the rupee’s downslide, the central bank had on September 4 announced the special concessional window for swapping foreign currency non-resident (bank) deposits and overseas foreign currency borrowings.
Through this window, the RBI wants banks to bring in safe money to fund the country’s current account deficit.
A foreign exchange swap is an agreement for currency exchange between two parties (in this case, the banks and the RBI). The swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk.
The RBI is offering the window to banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and above, at a fixed rate of 3.5 per cent per annum for the tenor of the deposit.
Further, the overseas borrowing limit of banks has been doubled to 100 per cent of their unimpaired Tier-I capital and the borrowings mobilised under this provision can be swapped with the Reserve Bank of India at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market.
The two schemes are open up to November 30, which coincides with the expiry date of the relaxation on NRI deposits.
In mid-August, the RBI had advised banks that incremental FCNR (B) deposits as also NRE deposits, having maturity of three years and above, mobilised by banks, will be exempt from maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
Banks are required to maintain 4 per cent of their deposits with the RBI in the form of CRR, and 23 per cent in government securities as SLR.