Economics
In News: To prevent the slide in the rupee and shore up foreign exchange reserves, the RBI announced a series of measures.
- This includes relaxation in foreign investment in debt, external commercial borrowings, and Non-Resident Indian (NRI) deposits.
Stats
- The rupee depreciated 4.1 per cent to 79.30 against the US dollar in the current financial year.
- Foreign portfolio investors pulled out 2.32 lakh crore in six months, and $50 billion being shaved off forex reserves over the last nine months.
Measures taken
- RBI has allowed banks temporarily to raise fresh Foreign Currency Non-Resident Bank i.e. FCNR(B) and Non-Resident External (NRE) deposits without reference to the current regulations on interest rates.
- Currently, interest rates on 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 1-3 years maturity and overnight ARR plus 350 basis points for deposits of 3-5 years maturity.
- In the case of NRE deposits, interest rates should not be higher than those offered by the banks on comparable domestic rupee term deposits.
- Investments by FPIs in government securities and corporate debt made till October 31, 2022, will be exempted from this short-term limit.
- These will not be reckoned for the short-term limit of one year till maturity or sale of such investments.
- Currently, not more than 30 per cent of investments each in government securities and corporate bonds can have a residual maturity of less than one year.
- FPIs will be provided with a limited window till October 31, 2022, during which they can invest in corporate money market instruments like commercial paper and non-convertible debentures with an original maturity of up to one year.
- FPIs can continue to stay invested in these instruments till their maturity or sale.
- Also the central bank decided to increase the limit under the automatic route for external commercial borrowing (ECB) from $750 million or its equivalent per financial year to $ 1.5 billion.
- The all-in cost ceiling under the ECB framework is also being raised by 100 basis points, subject to the borrower being of investment grade rating.
- Further incremental FCNR(B) and NRE deposits will be exempt from the maintenance of cash reserve ratio and statutory liquidity ratio (SLR).
- This relaxation, which will add to the returns of NRIs
External Commercial Borrowings
- ECBs is a loan availed by an Indian entity from a nonresident lender with a minimum average maturity.
- Most of these loans are provided by foreign commercial banks buyers’ credit, suppliers’ credit, securitized instruments such as Floating Rate Notes and Fixed Rate Bonds etc.
Advantages of ECBs:
- ECBs provide opportunity to borrow large volume of funds.
- The funds are available for relatively long term.
- Interest rate are also lower compared to domestic funds.
- ECBs are in the form of foreign currencies. Hence, they enable the corporate to have foreign currency to meet the import of machineries etc.
Foreign Currency Non-Resident (Bank) account
- FCNR(B) accounts can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an authorized dealer.
- Rate of interest applicable to these accounts are in accordance with the directives issued by RBI from time to time.
NRE accounts
- NRE accounts can be opened by NRIs and OCBs with authorized dealers and with banks authorized by RBI.
- These can be in the form of savings, current, recurring or fixed deposit accounts. Deposits are allowed in any permitted currency.
- Rate of interest applicable to these accounts are in accordance with the directives issued by RBI from time to time.
Source: Indian Express
