NRI deposits: RBI to subsidise banks

Governor Raghuram Rajan says RBI will offer a swap window to banks for dollar deposits from NRIs.

The Reserve Bank of India (RBI) will offer a swap window to banks for fresh dollar deposits mobilised from non-resident Indians,which will be available to lenders till November 30,2013,new governor Raghuram Rajan said on Wednesday in his first media briefing after taking charge.

The central bank will open a special window for banks to swap foreign currency non-resident (FCNR) dollar deposits at a fixed rate of 3.5% per annum at a concessional rate of 100 basis points below the market rate for the tenor of the deposits. The facility will be available for deposits of a minimum tenor of three years.

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The cost of funds for banks on these deposits should come down as a result of these measures, explained Jamal Mecklai of Mecklai Financial.

The central bank has sounded out lenders on offering forex swap lines at below-market rates for banks raising deposits from non-resident Indians as it considers ways to attract funds to support the battered Indian rupee.

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The RBI has been receiving requests from banks to consider a special concessional window for swapping FCNR(B) deposits that will be mobilised as per the recent relaxations permitted by the central bank.

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It said that based on requests received from banks,it has also been decided that the current overseas borrowing limit of 50 per cent of the unimpaired Tier I capital may be raised to 100 per cent.

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The borrowings mobilised under this provision can be swapped with RBI at the option of the bank at a concessional rate of 1 per cent below the ongoing swap rate prevailing in the market,it said.

The above schemes will be open up to November 30,it said,adding that RBI reserves the right to close the scheme earlier with due notice.

These moves will help banks bring in safe money to fund our current account deficit which is expected to be around USD 70 billion in the current fiscal.

Since end-May there has been volatility in the foreign exchange market. The rupee has declined by over 20 per cent since May on account of global and domestic factors including sharp rise in the Current Account Deficit (CAD).

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Taking over as the 23rd governor of the Reserve Bank of India,Raghuram Rajan on Wednesday had announced a whole host of near-term and medium-term policy changes aimed at sending a message to domestic and international investors,who have long complained of policy inertia in India at a time when the economy continues to struggle.

We would like domestic and international audiences to see that a lot is being done, said Rajan as he announced measures ranging from steps aimed at shoring up the rupee to short- and medium-term reforms for the banking sector. (With agency inputs)