RBI opens currency swap window to Indian banks abroad

The Reserve Bank of India (RBI) will provide foreign exchange liquidity to overseas branches and subsidiaries of Indian banks through currency swaps.

The central bank will also consider easing banks' requirement to buy government debt in specific cases to free up cash to fund the currency swaps and will consider any specific relaxation of Statutory Liquidity Ratio (SLR) requirements for this purpose.

RBI will offer currency swaps maturing in up to three months. The swaps will be priced using domestic and overseas money-market rates and the dollar-rupee reference rate published daily by the central bank.

''In the context of the global developments and in order to provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices, the Reserve Bank of India will provide forex liquidity to Indian public and private sector banks having foreign branches or subsidiaries, through forex swaps of tenors up to three months,'' an RBI release said

''This facility will be available on request until further notice. The pricing of swaps will be based on the interest rates in the domestic as well as the overseas markets using the Reserve Bank reference rate for the USD-INR exchange rate,'' the release added.

For funding the swaps, banks can borrow under the Liquidity Adjustment Facility (LAF) for the corresponding tenor at the prevailing repo rate. RBI will also consider any specific relaxation of statutory liquidity ratio (SLR) requirements for this purpose.

Central banks across the world have taken action to ease the liquidity situation through measures such as inter-central bank swap lines, collateralised lending and forex swaps, in response to the unfolding events relating to the global turmoil and its impact on international money markets, RBI said.

Banks unable to get credit from foreign banks can now tap the RBI window. This will help Indian banks with an overseas presence to tide over the liquidity crisis.

The RBI measure is a temporary one as banks have to return the dollars in three months. This means they will have to either arrange another line of dollar credit or reduce the size of the overseas book.

While there is no mention of how much banks can draw under the swap facility, RBI is expected to set bank-wise limits on drawals. The limit may be linked to the size of banks' overseas books.

The State Bank of India, Bank of Baroda, Bank of India, ICICI Bank and Axis Bank are among the banks that have a sizeable overseas presence.

Meanwhile, foreign exchange reserves with the Reserve Bank of India continued to decline, for a sixth consecutive week, falling by $5.532 billion to touch $252.883 billion for the week ended 31 October.

The reserves have fallen by more than $31 billion in the past one month alone amidst sustained dollar sales by the RBI in the forex markets, huge FII outflow from the domestic equity markets, and the revaluation of the reserves.