What changed
The RBI had proposed in October 2006 to raise the overseas borrowing limit for AD Category-I banks from 25% to 50% of unimpaired Tier I capital (or $10 million, whichever higher), with a sub-limit of 20% for short-term borrowings. However, citing prevailing market conditions and likely liquidity impact, the central bank has now decided to keep this liberalisation in abeyance, meaning it will not be implemented for now.
What it means for you
Banks cannot yet access the higher overseas borrowing limits that were announced. This maintains the status quo, limiting their ability to raise foreign currency funds easily. For lenders, this means continued reliance on domestic sources or existing overseas borrowing caps, potentially affecting liquidity management and export credit financing flexibility.
What you must do
- Continue to adhere to the existing overseas borrowing limit of 25% of unimpaired Tier I capital (excluding export credit borrowings).
- Do not factor in the proposed 50% limit for any funding plans until further notice.
- Monitor RBI announcements for any future operationalisation of the policy.
- If your bank's overseas borrowings currently exceed the old limit, prepare a roadmap for compliance as earlier advised.
Who it affects
All Category-I Authorised Dealer Banks, Treasury and ALM desks of banks, Banks relying on overseas borrowings for export credit or liquidity
Why did RBI put the overseas borrowing liberalisation on hold?
RBI cited prevailing market conditions and the likely impact on domestic liquidity as reasons for keeping the policy announcement in abeyance.
What was the proposed new limit for overseas borrowings?
The proposed limit was 50% of unimpaired Tier I capital or US $10 million, whichever is higher, with short-term borrowings (up to one year) capped at 20% of Tier I capital within that overall limit.
Does this circular affect existing overseas borrowing limits?
No, the existing limit of 25% of unimpaired Tier I capital (excluding export credit borrowings) remains in force. The circular only defers the proposed enhancement.