Banking

Reserve Bank of Indiaannouncesvarious measures to enhance forex inflows

06.07.2022

The Reserve Bank has been continuously monitoring the liquidity conditions in the forex market and has now stepped in to alleviate dollar tightness with the aim of ensuring orderly market functioning. In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, RBI decides to undertake measures to enhance forex inflows while ensuring overall macro-economic and financial stability.

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, incremental FCNR(B) and NRE deposits with reference base date of July 1, 2022 will be exempt from the maintenance of CRR and SLR. This relaxation will be available for deposits mobilised up to November 4, 2022. However, transfers from Non-Resident (Ordinary) (NRO) accounts to NRE accounts shall not qualify for the relaxation.

In current situation, 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 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. It has been 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.

Further, in order to increase the choice of G-Secs available for investment by non-resident investors under the FAR as also to augment liquidity across the sovereign yield curve, it has been decided that all new issuances of G-Secs of 7-year and 14-year tenors, including the current issuances of 7.10% GS 2029 and 7.54% GS 2036, will be designated as specified securities under the FAR.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. It has now been decided to temporarily increase the limit under the automatic route from US$ 750 million or its equivalent per financial year to US$ 1.5 billion.

Tags : Forex inflows Measures Announcement

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