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 With effect from July 07, 2022, the interest rate ceiling applicable to FCNR (B) deposits is temporarily withdrawn for incremental FCNR (B) deposits mobilized by banks until October 31, 2022.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respect to interest rates offered on incremental NRE deposits mobilized by banks until October 31, 2022, is temporarily withdrawn.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

National Strategy for Financial Inclusion (NSFI) 2025-30

Reserve Bank of India (RBI) has published National Strategy for Financial Inclusion (NSFI) 2025-30. Financial Inclusion The Committee on Financial Inclusion (Chairman: Dr C Rangarajan, RBI, 2008) defined financial inclusion as “the process of ensuring access to financial services, timely and adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable cost”. The Committee on Medium-Term Path to Financial Inclusion (Chairman: Shri Deepak Mohanty, RBI, 2015) viewed financial inclusion as, “convenient access to a basket of basic formal financial products and services that should include savings, remittance, credit, government-supported insurance and pension products to small and marginal farmers and low income households at reasonable cost with adequate protection progressively supplemented by social cash transfers, besides increasing the access of small and marginal enterprises to formal finance with a greater reliance on technology to cut costs an...
Post a Comment
Read more

RBI’s Monetary Policy (December 05, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on December 05, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Reduced by 25 bps 5.25% Standing deposit facility (SDF) rate 5.00% Marginal standing facility (MSF) rate 5.50% Bank rate 5.50% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real Gross Domestic Product (GDP) growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates.  Real GDP growth for 2025-26 is projected at 7.3%. For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to an all-time low of 0.3% in October 2025. The underlying inflation pressu...
Post a Comment
Read more

Export / Import of Currency and Possession / Retention of Foreign Currency

Reserve Bank of India (RBI) has updated the guidelines on export and import of currency. What are the guidelines on export and import of Indian currency? Transferor Transfer from Transfer to Nature of currency Maximum limit Person resident in India India Countries other than Nepal and Bhutan Currency notes of Government of India (GoI) and RBI notes ₹25000 per person Commemorative coins 2 coins Person resident in India gone out of India on temporary visit, on his return Countries other than Nepal and Bhutan India Currency notes of GoI and RBI notes ₹25000 per person Person resident outside India (not citizen of Pakistan / Bangladesh) visiting India India Any country Currency notes of GoI and RBI notes ₹25000 per person Any country India Person (not citizen of Pakist...
Post a Comment
Read more

Rupee Interest Rate Derivatives

Reserve Bank of India (RBI) has issued directions on rupee interest rate derivatives. What is Interest Rate Derivative (IRD)? Interest Rate Derivative (IRD) means a financial derivative contract whose value is derived from one or more Rupee interest rates, prices of Rupee interest rate instruments, or Rupee interest rate indices. To which transactions shall the directions be applicable? The directions shall be applicable to Rupee IRD transactions undertaken in the over-the-counter (OTC) market and on recognised stock exchanges in India. Forward Contracts in Government Securities shall be undertaken in the OTC market in terms of the Reserve Bank of India (Forward Contracts in Government Securities) Directions, 2025, dated February 21, 2025. Who are eligible participants in IRD markets? Resident Non-resident, through its central treasury or its group entity, where applicable.  What are the directions on trading of IRDs on recognised stock exchanges? A recognised stock exchange is per...
Post a Comment
Read more

What are Government Securities (G-Secs)?

Governments raise / borrow funds by issuing government securities to finance a variety of projects and activities. What is Government Security (G-Sec)? Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments.  G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. What are the tenures of G-Secs? G-Secs can be short-term securities (with original maturities of less than 1 year) or long-term securities (with original maturity of 1 year or more).  In India, the Central Government issues both short-term and long-term securities while the State Governments issue only long-term securities. What are the types of G-Secs? Government security Term Issued by Treasury Bills (T-bills) Short-term Central Government Cash Management Bills (CMBs) Short-term Central Government Bonds or Dated G-Secs ...
Post a Comment
Read more