Skip to main content

Steps taken by RBI for liberalisation of forex inflows

Reserve Bank of India (RBI) has taken various steps for liberalisation of forex inflows in India. Here is the list of those.

Exemption from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on Incremental FCNR(B) and NRE Term Deposits

Previous Instructions Relaxation
Banks are required to include all Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposit liabilities for computation of Net Demand and Time Liabilities (NDTL) for maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). With effect from the reporting fortnight beginning July 30, 2022, incremental FCNR(B) and NRE term deposits with reference base date of July 01, 2022, are exempt from the maintenance of CRR and SLR. This relaxation is available for deposits mobilised up to November 04, 2022. Transfers from Non-Resident (Ordinary) (NRO) accounts to NRE accounts does not qualify for the relaxation.

Interest Rates on FCNR(B) and NRE Deposits

Previous Instructions Relaxation
Interest rates on Foreign Currency Non-Resident Bank [FCNR(B)] deposits are subject to ceilings of Overnight Alternative Reference Rate (ARR) for the respective currency / swap plus 250 basis points for deposits of 1 year to less than 3 years maturity and overnight ARR plus 350 basis points for deposits of 3 years and above and up to 5 years maturity. With effect from July 07, 2022, the interest rate ceiling applicable to FCNR (B) deposits is temporarily withdrawn for incremental FCNR (B) deposits mobilized by banks until October 31, 2022.
Interest rates on NRE deposits shall not be higher than those offered by the banks on comparable domestic rupee term deposits. With effect from July 07, 2022, the restriction with respect to interest rates offered on incremental NRE deposits mobilized by banks until October 31, 2022, is temporarily withdrawn.

FPI Investment in Debt

Foreign Portfolio Investors (FPIs) can invest in government securities and corporate bonds through three channels –

  1. Medium-Term Framework (MTF) introduced in October 2015
  2. Voluntary Retention Route (VRR) introduced in March 2019
  3. Fully Accessible Route (FAR) introduced in April 2020

Previous Instructions Relaxation
All central government securities (G-Secs) with 5-year, 10-year and 30-year tenors are categorized as “specified securities” under the FAR. All new issuances of G-Secs of 7-year and 14-year tenors, including the current issuances of 7.10% GS 2029 and 7.54% GS 2036, have been designated as specified securities under the FAR.
Under the MTF, short-term investments by an FPI in government securities (Central Government securities, including Treasury Bills and State Development Loans) and corporate bonds shall not exceed 30% of the total investment of that FPI in any category. Investments by FPIs in government securities and corporate bonds made between July 08, 2022 and October 31, 2022 are exempted from the limit on short-term investments, till maturity / sale of such investments.
Under the MTF, FPI investments in corporate bonds are subject to a minimum residual maturity requirement of one year. FPIs are allowed to invest in commercial papers and non-convertible debentures with an original maturity of up to one year, during the period between July 08, 2022 and October 31, 2022. These investments are exempted from the limit on short-term investments till maturity / sale of such investments.

Foreign Currency Lending by Authorised Dealer Category I (AD Cat-I) Banks

Previous Instructions Relaxation
AD Cat-I banks can undertake overseas foreign currency borrowing (OFCB) up to 100% of their unimpaired Tier-1 capital or US$10 million, whichever is higher. The funds so borrowed cannot be used for lending in foreign currency except for the purpose of export finance. AD Cat-I banks can utilise OFCBs raised between July 08, 2022 and October 31, 2022, for lending in foreign currency to entities in India, subject to the end-use prescriptions as applicable to External Commercial Borrowings (ECBs). This facility is available till maturity / repayment of OFCB.

External Commercial Borrowings (ECBs)

Previous Instructions Relaxation
All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route.

 

 The automatic route limit stands increased from USD 750 million or equivalent to USD 1.5 billion or equivalent for ECBs to be raised till December 31, 2022.
Under the automatic ECB route, the all-in-cost ceiling per annum is –
FCY denominated ECB –
Benchmark Rate + 550 bps spread – for existing ECBs linked to LIBOR whose benchmarks are changed to ARR.
Benchmark rate + 500 bps spread – for new ECBs.
Rupee denominated ECB –
Benchmark rate + 450 bps spread. 		All-in-cost ceiling has been temporarily increased by 100 bps for ECBs raised till December 31, 2022. The enhanced ceiling is available only to eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs).


References

Reserve Bank of India. (2022, July 07). '‘Fully Accessible Route’ for Investment by Non-residents in Government Securities – Additional specified securities'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12354&Mode=0

Reserve Bank of India. (2022, August 01). 'External Commercial Borrowings (ECB) Policy – Liberalisation Measures'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12366&Mode=0

Reserve Bank of India. (2022, July 28). 'Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12377&Mode=0

Reserve Bank of India. (2022, July 07). 'Investment by Foreign Portfolio Investors (FPI) in Debt - Relaxations'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12355&Mode=0

Reserve Bank of India. (2022, July 06). 'Liberalisation of Forex Flows'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53979

Reserve Bank of India. (2022, July 06). 'Master Direction on Interest Rate on Deposits - Foreign Currency (Non-resident) Accounts (Banks) Scheme [FCNR(B)] and Non-Resident (External) Rupee (NRE) Deposit'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12350&Mode=0

Reserve Bank of India. (2022, July 07). 'Overseas foreign currency borrowings of Authorised Dealer Category-I banks'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12356&Mode=0

Reserve Bank of India. (2022, July 06). 'Section 42 of the Reserve Bank of India Act, 1934 and Section 18 and 24 of the Banking Regulation Act, 1949 – FCNR (B)/NRE Term deposits - Exemption from maintenance of CRR/SLR'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12351&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Credit Facilities – Lending against Gold and Silver Collateral

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to lending against gold and silver collateral. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) Non-Banking Financial Companies (NBFCs) for all layers – Deposit taking NBFC (NBFC-D) NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MFI)  NBFC-Infrastructure Finance Company (NBFC-IFC)  Infrastructure Debt Fund-NBFC (IDF-NBFC)  Housing Finance Company (HFC)  To whom are the directions partially applicable? The prudential regulations are not applicable to ‘NBFCs-B...
Post a Comment
Read more

Credit Facilities – Digital Lending Guidelines

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to digital lending. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export Import Bank of India (EXIM Bank) National Bank for Agriculture and Rural Development (NABARD) National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI) National Bank for Financing Infrastructure and Development (NaBFID) Non-Banking Financial Companies (NBFCs) for all layers – Deposit taking NBFC (NBFC-D) NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro...
Post a Comment
Read more

Guidelines on Money Changing Activities (Updated as on May 06, 2026)

Reserve Bank of India (RBI) has updated the guidelines on money changing activities. What are the guidelines for appointment of agents / franchisee? RBI had permitted Authorised Dealers (ADs) Category - I, ADs Category - II and Full Fledged Money Changers (FFMCs) to enter into agency or franchisee agreements at their option for the purpose of carrying restricted money changing business i.e. conversion of foreign currency notes, coins or travellers' cheques into Indian Rupees (INR).  A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of ₹10 lakh.  Franchisees can undertake only restricted money changing business. Franchisees of AD Category - I / AD Category - II / FFMCs functioning within 10 kms from the borders of Pakistan and Bangladesh may also sell the currency of the bordering country, with the prior approval of RBI.  Other franchisees of AD Category - I / AD Category - II / FFMCs cannot sell foreign currency. An authorised pers...
Post a Comment
Read more

Credit Facilities – Finance to Non-Banking Financial Companies (NBFCs)

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable in respect of finance to Non-Banking Financial Companies (NBFCs). To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Primary (Urban) Co-operative Banks (UCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export Import Bank of India (EXIM Bank) National Bank for Agriculture and Rural Development (NABARD) National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI) National Bank for Financing Infrastructure and Development (NaBFID) What are the conditions on finance to NBFCs? Commercial Banks and SFBs The bank shall extend need based working capital facilities as well as term loans to NBFCs registered with the RBI and engaged in infrastructure financing, equipment leasing, hire-purchase, l...
Post a Comment
Read more

Regulations for Authorised Persons

Reserve Bank of India (RBI) has issued a revised framework for authorisation of any person as an Authorised Person under the Foreign Exchange Management Act (FEMA), 1999. Who can act as an Authorised Person? No person shall act as an authorised person without obtaining an authorisation from the RBI. A person seeking authorisation as an authorised person may apply to the RBI through the PRAVAAH portal (https://pravaah.rbi.org.in) to the regional office concerned of the RBI under whose jurisdiction the registered office of the applicant is established. RBI shall consider applications for fresh authorisation under 3 categories, namely, Authorised Dealer (AD) Category-I, AD Category-II and AD Category-III. Which entities are eligible to act as an Authorised Person? Category Eligible entities AD Category-I A bank licensed by the RBI. AD Category-II A bank licensed by the RBI or a Non-Banking Financial Company (NBFC) registered with the RB...
Post a Comment
Read more