RBI allows banks to borrow overseas up to 100% of capital
The Reserve Bank of India has allowed banks to borrow overseas up to 100% of their capital and swap it at a subsidized rate.
This was one of the first few announcements made by Rajan to liberalise currency movement boosting market sentiment on rupee, which rallied 7% to 63.85 a dollar in a week after the former International Monetary Fund chief economist stepped into the governor's shoes.
RBI said banks can borrow up to a limit of 100% of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher. Earlier, the limit was 50%, excluding borrowings for financing of export credit in foreign currency and capital instruments.
Banks can enter into dollar-rupee swaps with RBI in respect of the borrowings raised after September 10. However, banks can borrow in any freely convertible currency. The swaps for all fresh borrowing for one-to-three years will be available at 100 basis points lower than market rate. RBI also said that swap rates can be reset after every one year.
The concessional swap window will remain open till November 30, 2013.
To avail of this facility, RBI said banks need to maintain a minimum 12% CRAR and take clearance from their respective board.