What changed
The cap on overseas foreign currency borrowings (including loans, overdrafts from head office/overseas branches, and nostro overdrafts not adjusted within five days) has been doubled from 25% to 50% of unimpaired Tier I capital, or USD 10 million (whichever is higher). The previous limit was set in March 2004. Borrowings for export credit in foreign currency and capital instruments remain outside this limit.
What it means for you
Banks can now tap overseas markets more aggressively for funding, improving liquidity management and potentially lowering costs. This liberalization supports banks in expanding foreign currency lending and managing balance sheet mismatches. However, banks must ensure compliance with FEMA regulations and monitor their Tier I capital ratios closely.
What you must do
- Update internal policies to reflect the new 50% limit on overseas borrowings.
- Review current overseas borrowing levels against unimpaired Tier I capital to ensure compliance.
- Inform treasury and risk management teams about the enhanced limit for planning.
- Communicate the change to relevant constituents and customers as advised by RBI.
Who it affects
AD Category-I Banks, Treasury departments of banks, Risk management teams, Banks' foreign branches and correspondents
What is the effective date of this change?
The circular was issued on October 15, 2008, and the change is effective from that date (henceforth).