Mumbai, Sept. 4: Banks can now swap dollar funds they raise through their foreign currency non-resident FCNR (B) accounts.
The swap will be at a fixed rate of 3.5 per cent per annum for the tenor of the deposit. The swap facility will be available for a minimum tenor of three years.
The central bank also doubled the overseas borrowing limit available to lenders. While lenders are now subject to an overseas borrowing limit of 50 per cent of their core capital, this has been raised to 100 per cent. Funds raised from this route can also be swapped with the RBI. To encourage the swap, the central bank will offer a discount to the ongoing rate in the market.
These measures have been taken to improve the nation’s foreign exchange reserves.
The decisions are expected to positively impact the sentiment on the bourses tomorrow with analysts expecting the rupee to stage a rally against the dollar.
In another bold step, the central bank doubled the limit available to exporters to re-book cancelled forward exchange contracts to provide more flexibility in their hedging operations.
While exporters are permitted to re-book cancelled forward exchange contracts to the extent of 25 per cent of the value of cancelled contracts, the central bank today increased the limit to 50 per cent.
Forward exchange contracts are agreements between two parties to buy or sell a foreign currency at a future date at a price agreed today.
It also extended a similar facility to importers but the limit has been capped at 25 per cent. Earlier importers were not allowed to use such a facility.
“These are certainly good measures and it goes to indicate that the new RBI governor may take more steps in the days to come. That could prove beneficial to the rupee as the bearish sentiment surrounding the currency may ebb at least in the next few days. This is, however, assuming that there are no adverse international developments,” said a senior official with a foreign bank.
Rajan told a packed news conference that the steps announced today were only the first instalment of a host of measures he intended to introduce.
“Together with the government and regulators such as Sebi, we will steadily but surely liberalise our markets, as well as restrictions on investment and position taking. Given the current market turmoil, our actions will have to be at a measured pace,” he added.
The new RBI governor further indicated that the Indian central bank would look for more currency swap agreements with its counterparts from other countries.
“This might be a strange time to talk about rupee internationalisation, but we have to think beyond the next few months. As our trade expands, we will push for more settlement in rupees,” he added.