India’s RBI offers concessional swaps, allows leverage for NRI deposits to drive forex inflows

MUMBAI, June 8 (Reuters) – The Reserve Bank of India announced a series of forex measures last week, including offering concessional swaps to encourage overseas fundraising by state-owned firms and foreign currency non-resident deposits.

The swap facility will be provided through September 30 to compensate banks for hedging costs on three- to five-year foreign currency non-resident deposits. The RBI has also enabled banks to offer leverage to clients for such deposits.

Here are the detailed guidelines published by the RBI on Monday.

o The RBI has allowed banks to mobilize deposits in any freely convertible currency

o Swap facility will be available in U.S. dollars only

o The facility comes into effect immediately and will remain open up to October 16, 2026 for deposits mobilized till September 30.

o Underlying deposits will have a lock in-period of one year.

o The swap facility with the RBI cannot be cancelled

o Banks may exclude the swap positions arising out of Foreign Currency Non-Resident deposits, External Commercial Borrowings while computing net open rupee position

o In its notification, the RBI said existing restrictions on banks issuing non-fund based facilities assuring redemption or repayment of funds would not apply to these deposits

o Removing that condition will allow Indian banks to offer Standby Letters of Credit to foreign banks who offer leverage to their customers to park dollar deposits in Indian banks.

o Earlier in the day, brokerage house Jefferies said allowing leverage would be crucial to the success of the scheme, as it was in 2013 when it was last offered.

o Separately, the RBI said external commercial borrowings of average maturity of 3 years and above by public sector undertakings will be eligible for a separate RBI swap facility

o Swap will be undertaken at a fixed rate of 1.5% per annum compounded semi-annually

o Swap facility comes into effect from today and will remain open up to January 15, 2027 for eligible ECB drawdowns

(Reporting by Gopika Gopakumar; Editing by Anil D’Silva and Joyjeet Das)

By Gopika Gopakumar