RBI allows use of foreign currency deposits as collateral

The Reserve Bank of India (RBI) eased restrictions on the usage of foreign currency deposits by allowing banks to use funds from foreign currency non-resident deposits as collateral against lending to related local residents.

RBI had, on 4 May relaxed interest rate ceiling on foreign currency non-resident (FCNR) deposits.

Banks can now use FCNR deposits for foreign exchange needs or for working capital needs in rupees for exporters and corporates, a move that could help attract dollar inflows.

''Authorised dealer banks have been permitted to deploy foreign currency funds for granting loans to resident constituents for meeting their foreign exchange requirements or for the rupee working capital/capital expenditure needs subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force,'' RBI said in a notification.

RBI said such deposits can be used for the ''rupee working capital/capital expenditure needs of exporters /corporates who have a natural hedge or a risk management policy for managing the exchange risků. subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force.''