Banks can offer loans for FCNR (B), rebook deposits, RBI clarifies

Mumbai: Indian banks and their overseas branches can extend loans to customers against FCNR(B) deposits raised through the RBI swap facility, the central bank clarified. But the RBI will only provide the forex swap for the deposit received and not the interest on these deposits, RBI said in a FAQ published on its website.

Indian banks are also allowed to issue a stand by letter of credit (SBLC) to overseas lenders against FCNR(B) deposits mobilised by them. “Banks are permitted to extend loans to the FCNR (B) account holders and mark lien on such deposits,” RBI clarified.

Also Read: Banks seek RBI clarity on leveraged NRI FCNR deposit structures


Bankers were awaiting a clarification from the regulator on extension of loans for these deposits because it allows them to substantially enhance the amount of dollars they can bring in through the use of such leveraged structures, before the RBI’s special window closes in September. The RBI’s bespoke swap facility, which came into effect on June 8, is open up to October 16 for deposits mobilized until September 30.

The RBI also clarified that the swap facility will be only for the principal deposit received and does not cover the interest. “The facility is a plain buy/sell foreign exchange swap from the RBI side covering only the principal amount of the deposits and not the interest component,” the central bank said.

In a bid to attract dollars into the country, the RBI is absorbing the entire currency hedging cost for banks on fresh three to five year FCNR (B), allowing banks to raise fresh foreign currency deposits without worrying about the heading costs. This concessional swap facility has lifted FCNR (B) rates, permitting them to offer higher interest rates of 6% to 7.1% on major foreign currencies.

Banks have also been allowed to cancel and rebook FCNR (B) deposits if the residual maturity is less than three years. “The bank will be allowed to undertake swaps for tenors of less than three years provided they have mobilised fresh eligible FCNR (B) deposits for minimum original tenor of three years as per the scheme,” the RBI said.

Also Read: RBI temporarily eases FCNR(B), NRE deposit rate norms to attract overseas funds

RBI has also allowed banks to offer FCNR (B) deposits without the swap facility provided records for such deposits are maintained separately.

The central bank has also launched a swap facility for external commercial borrowings by banks and public sector enterprises under which a bank can sell dollars to the RBI and simultaneously agree to buy back the dollars at the end of the tenure of the loan at a fixed rate of 1.5% per annum compounded semi-annually, removing the need for them to hedge their future dollar liabilities.

In the FAQ on Tuesday, RBI said the ECBs of average maturity of three years and above are eligible for this facility while the tenor of the swap will be co-terminus with the repayment schedule / maturity of the ECB, subject to maximum period of five years.