RBI announces measures to boost forex inflows, rupee slide

MUMBAI: The Reserve Bank of India (RBI) on Wednesday announced a slew of measures to boost foreign exchange (forex) inflows amid a slump in the value of rupees. The Reserve Bank has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning, the RBI said in a statement.

In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, it has been decided to undertake measures to enhance forex inflows while ensuring overall macroeconomic and financial stability, the central bank said. In a bid to boost forex inflows the RBI has announced an exemption from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on incremental Foreign Currency Non-Resident (Bank) and Non-Resident (External) Rupee deposits.

At present, banks are required to include all Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposit liabilities for computation of Net Demand and Time Liabilities (NDTL) for maintenance of CRR and SLR. "It has been decided that with effect from the reporting fortnight beginning July 30, 2022, incremental FCNR(B) and NRE deposits with reference base date of July 1, 2022, will be exempt from the maintenance of CRR and SLR," the RBI said in a statement.

This relaxation will be available for deposits mobilised up to November 4, 2022. Transfers from Non-Resident (Ordinary) (NRO) accounts to NRE accounts shall not qualify for the relaxation, it added. The RBI has also decided to temporarily permit banks to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates, with effect from July 7, 2022. This relaxation will be available for the period up to October 31, 2022.

At present, interest rates on Foreign Currency Non-Resident Bank [FCNR(B)] deposits are subject to ceilings of Overnight Alternative Reference Rate (ARR) for the respective currency/swap plus 250 basis points for deposits of 1 year to less than 3 years maturity and overnight ARR plus 350 basis points for deposits of 3 years and above and up to 5 years maturity. In the case of NRE deposits, as per extant instructions, interest rates shall not be higher than those offered by the banks on comparable domestic rupee term deposits.

The RBI has announced changes in Foreign Currency Lending by Authorised Dealer Category I (AD Cat-I) Banks. At present, AD Cat-I banks can undertake overseas foreign currency borrowing (OFCB) up to a limit of 100 per cent of their unimpaired Tier 1 capital or $10 million, whichever is higher. The funds so borrowed cannot be used for lending in foreign currency except for the purpose of export finance.

The RBI has now decided that AD Cat-I banks can utilise OFCBs for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings (ECBs). The measure is expected to facilitate foreign currency borrowing by a larger set of borrowers who may find it difficult to directly access overseas markets. This dispensation for raising such borrowings is available till October 31, 2022.

Under the automatic ECB route, eligible borrowers are allowed to raise funds through their AD banks, without approaching the RBI, as long as the borrowing is in conformity with the prudential parameters of the ECB framework such as all-in-cost ceiling, minimum maturity requirements and the overall dynamic ceiling. It has now been decided to temporarily increase the limit under the automatic route from $750 million or its equivalent per financial year to $1.5 billion, the RBI said.

The all-in-cost ceiling under the ECB framework is also being raised by 100 basis points, subject to the borrower being of investment-grade rating. These dispensations will be available up to December 31, 2022.