MUMBAI, June 23 (Reuters) – India’s RBI (central bank) has allowed domestic lenders to extend loans to non-residents against foreign currency deposits, including via their offshore branches, the Reserve Bank of India said in a notice on Tuesday.
The move is expected to boost the overall amount of FX deposits garnered via the route, which was announced earlier this month as part of a broader measures to bolster dollar inflows into the country.
Here are the details from the RBI’s notice:
- Under the scheme to raise FX deposits, Indian banks will be allowed to extend loans to non-residents from their overseas branches, including via those in India’s tax-neutral GIFT City, using deposits garnered as collateral
- Domestic lenders will also be allowed to issue a standby letter of credit against such FX deposits
- Banks will be able to extend loans to foreign currency deposit holders and place a lien on such accounts
- RBI’s swap will cover only the principal amount of the deposits and not the interest component
- Banks will be allowed to undertake swaps for tenors of less than three years for foreign currency deposits, provided they have mobilised eligible foreign-exchange deposits for a minimum period of three years
- Earlier this month, the RBI offered to subsidise hedging costs for foreign currency non-resident (FCNR) deposits as a way to encourage banks to bring in dollar flows from the Indian diaspora
- Brokerage Nomura estimates the scheme could attract $55 billion, with the bulk expected in August and September