JOIN USRBI to subsidise hedging costs of bank NRI deposits from Sept 10
Aimed to subsidise the hedging cost of foreign currency swaps, the Reserve Bank of India (RBI) has decided to introduce the dollar-rupee swap window to scheduled commercial banks for fresh FCNR (B) dollar deposits with a minimum tenor of three years and above.
However, the swap facility with RBI will be available in US dollars only. The tenor of the swap will be for three years or more in line with the tenor of the underlying FCNR deposits, RBI said in a notification on its website. The new swap window comes into effect on September 10, 2013 and will remain open up to November 30, 2013. However, RBI will reserve the right to close the scheme earlier with prior notice.
Even as the window will be operated on a daily basis on all working days in Mumbai, except Saturdays and holidays, a particular bank can avail of this facility only once in a week. The maximum amount of dollars that banks would be eligible to swap with RBI in any particular week would be equal to the fresh FCNR (B) deposits for minimum tenor of three years mobilised in equivalent US dollar terms during the preceding week(s). Under this arrangement, a bank can sell US dollars in multiples of $1 million to RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap
period. The swap will be undertaken at a fixed rate of 3.5 per cent per annum.
In the first leg of the transaction, the bank will sell US dollars to RBI at RBI Reference Rate or any other rate as may be mutually agreed upon. The settlement of the first leg of the swap will take place on spot basis from the date of transaction.
In the reverse leg of the swap transaction, rupee funds will have to be returned to RBI along with the swap premium to get the US dollars back.
At the same time, banks desirous of availing the swap facility will have to furnish a declaration duly signed by their authorised signatories that they have mobilised the fresh FCNR (B) deposits for minimum tenor of three years during the preceding week(s). It will be operationalised by the Financial Markets Department of RBI at Mumbai.
Also, RBI would exercise the right to decide on the day of operation and the number of banks that can avail of the facility on any particular day keeping in view the market conditions and other relevant factors. The underlying deposits will have a minimum lock-in period of one year and it cannot be cancelled before that period.
In case of premature withdrawals, the swap rate offered by the central bank would be refixed at 400 basis points above the fixed 3.5 per cent rate. Banks desirous of terminating a swap will have to furnish a declaration duly signed by their authorised signatories that they have allowed premature withdrawal of FCNR (B) deposits.
Also, RBI’s decision regarding the repricing of the swap at the time of termination shall be final and no request for any modification or revision to the same would be entertained.