RBI clarifies FCNR(B) loan, SBLC eligibility under swap scheme

The Reserve Bank of India (RBI) on Tuesday clarified that Indian banks, including their overseas branches, can extend loans to non-residents and issue standby letters of credit (SBLCs) against FCNR(B) deposits mobilised under its recently announced swap facility.

In a set of frequently asked questions (FAQs) on swap facilities for FCNR(B) deposits, external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), the central bank also said banks are permitted to extend loans to FCNR(B) account holders and mark a lien on such deposits.

The clarification comes days after several lenders sought guidance on whether overseas branches of Indian banks could lend to non-resident customers who subsequently place the funds as FCNR(B) deposits with the bank. People familiar with the matter had told ET that some bankers wanted explicit regulatory comfort on such structures before marketing them more widely.


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The RBI further clarified that the forex swap facility announced on June 8 covers only the principal amount of eligible FCNR(B) deposits and not the interest component.

"Reserve Bank of India will be providing a Forex Swap for the deposit received. 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.

The FAQs also clarified that banks can undertake swaps with residual maturities of less than three years, provided the underlying FCNR(B) deposits were originally mobilised for a minimum tenor of three years under the scheme.

Banks may continue to offer differential rates of interest on FCNR(B) deposits in accordance with the Reserve Bank's deposit rate directions, under which rates may vary based on the tenor and size of deposits, the RBI said.

The central bank also said banks can continue to offer regular FCNR(B) deposits with maturities of three to five years without availing the swap facility, although records for such deposits must be maintained separately.

The June 8 scheme was introduced to encourage foreign currency inflows by allowing banks to swap eligible FCNR(B) deposits, ECBs and overseas foreign currency borrowings with the RBI at a concessional rate.

On ECBs, the RBI clarified that borrowers can raise such loans for periods longer than five years under existing regulations. However, only ECBs with an average maturity of three years and above are eligible for the swap facility. The tenor of the RBI swap will remain co-terminus with the repayment schedule or maturity of the borrowing, subject to a maximum period of five years.

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The swap facility is also available for overseas foreign currency borrowings raised by authorised dealer banks with a minimum maturity of three years.