Government extends currency swap facility for SAARC members

NEW DELHI: The government today extended the currency swap facility for SAARC members, under which the RBI offers the facility of varying sizes not exceeding $2 billion in total.

The decision was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi, today.

The Cabinet "has given approval for the proposal to provide a two year extension with amendments to the framework on 'Currency Swap Arrangement' for SAARC member countries up to November 14, 2017, and extension thereafter, if necessary, by Finance Minister," an official statement said.

Under the facility, RBI offers swaps of varying sizes to each SAARC member country (Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka) depending on their two months import requirement and not exceeding USD 2 billion in total, in US dollar, Euro or domestic currency.

"After approval of the Cabinet, RBI will negotiate the operational details bilaterally with central banks of the respective SAARC (South Asian Association for Regional Cooperation) countries," it said.

These bilateral agreements would be signed by RBI after obtaining prior government approval, it said, adding that any amendment to the framework will require prior approval of the Finance Minister.

The arrangement will further financial stability in the region, besides improving the standing and credibility of India among the SAARC countries, the statement said.

"The extension of currency Swap facility to SAARC countries will strengthen regional integration and inter-dependence and also enhance India's economic influence in the region," it said.

Merely extending the validity of the framework arrangement has no financial implications, it added.

"If any bilateral swap arrangement is signed, then, in the event of a draw down by either party/parties, the foreign exchange reserves with RBI would be temporarily depleted up to a maximum amount of USD 2 billion," it said.

Interest would be paid by the receiving party on the "USD/Euro/INR amount" although no interest will be received on the domestic currency given in exchange thereof to the providing party, the statement said.

In the 27th SAARC Finance Group meeting held in Washington on October 9, 2013, the Central Bank Governors of the SAARC member nations approved certain amendments made to the framework based on the experience gained from operationalising the framework and with the intention to bring more clarity on the clauses of the framework.