RBI Unveils Big Bang Relaxations For Forex Market

Mumbai, December 21: | Updated: Dec 22 2002, 05:30am hrs
The Reserve Bank has rolled out a more liberalised environment to the players in the foreign exchange market. In a single go, RBI on Saturday allowed banks to offer foreign currency-rupee swaps to their customers without any limit, allowed exporters/importers to book forward contracts up to $100 million without any documentary evidence, and permitted banks to offer hedging facility to foreign direct investments.

Cap On Loans To Directors

Mumbai, December 21: In a move to obviate conflict of interest in lending operations of financial institutions, the Reserve Bank has directed them not to grant loans or advances on the security of its own shares or enter into any commitment on behalf of their directors in which they may have interests.
FIs or its subsidiary should not grant loans to a director who holds substantial interests to an individual, who is a partner or a guarantor of the concerned director, the central bank on Saturday said in a notification to FIs.

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The central bank has allowed banks to invest freely in overseas money and debt market instruments. The banking has also said foreign banks will not be required to spread their requirement of hedging their tier-I capital over six months. All these facilities will be available up to March 31, 2003, subject to review, the central bank said, adding the relaxations has been made as part of its exchange control liberalisation.

The central bank has said the present stable market conditions and healthy forex inflows have allowed it to carry out these reforms. The countrys total forex reserves as on December 13 stood at $68.435 billion.

Experts feel that these moves will help the rupee strengthen in a big way. The rupee was at 48.00-02 on Friday. On foreign currency-rupee swaps, banks can now offer such products without any limits so as to facilitate customers to hedge their foreign currency liabilities. Earlier, there was a cap of $50 million while offering this product to customers.

Exporters and importers are now permitted to book forward contracts up to the extent of average of past three years export/import turnover, without producing any documents evidencing exports/imports, subject to the condition that at any point of time, the outstanding contracts shall not exceed 25 per cent of the eligible limit, subject to a cap of $100 million. The limit has been increased from $50 million.

It may be noted that the demand for hedging instruments are on the rise against the backdrop of the steady rupee appreciation. Banks can now offer forward cover facility to non-resident entities, without any prior approval, in respect of amounts deployed in the country after 1993 by way of FDI. Earlier such hedging required prior approval from RBI.

The RBI has removed the cap 50 per cent of their unimpaired tier-I capital or $25 million (whichever is higher) for investment in overseas money markets or debt instruments. Now, bankers will have the discretion to fix the limit.

The central bank has also freed foreign banks operating in the country to take their own decision with regard to accessing the market for hedging their tier I capital. Earlier, they were required to spread the hedging requirement over six months. Further, RBI has given corporates full freedom to rebook cancelled contracts relating to exposures falling due with in a year without any limit. For availing of this facility, entities are required to furnish details of unhedged exposure to the banks. Earlier, this facility was available subject to a cap of $100 million per fiscal.