What changed
Previously, AD banks could deploy foreign currency funds for loans to resident constituents for foreign exchange requirements or for rupee working capital/capital expenditure needs. Now, FCNR(B) funds specifically may be used for rupee working capital/capital expenditure needs of exporters/corporates who have a natural hedge or a risk management policy for managing exchange risk.
What it means for you
Banks can now deploy FCNR(B) deposits more flexibly, supporting rupee lending to eligible exporters and corporates. This may improve asset-liability management and offer competitive rupee loan products. However, strict adherence to prudential norms and credit discipline remains mandatory.
What you must do
- Ensure that FCNR(B) funds are utilized for rupee working capital/capital expenditure needs only for exporters/corporates with a natural hedge or risk management policy.
- Verify the borrower's natural hedge or risk management policy before sanctioning such rupee loans.
- Ensure compliance with all prudential, interest-rate, credit discipline, and monitoring guidelines.
- Bring the contents of this circular to the notice of constituents concerned.
Who it affects
AD Category-I banks, Exporters and corporates with natural hedge or risk management policy, Treasury and credit departments of banks
Can FCNR(B) funds now be used for any rupee loan?
No, only for rupee working capital or capital expenditure needs of exporters or corporates that have a natural hedge or a risk management policy for managing exchange risk.
What are the key conditions for using FCNR(B) funds for rupee loans?
The borrower must be an exporter or corporate with a natural hedge or risk management policy. All prudential, interest-rate, credit discipline, and monitoring norms must be followed.
Does this circular replace earlier guidelines on FCNR(B) lending?
This circular modifies the earlier circular (A.P. DIR Series Circular No. 92 dated April 4, 2003) by specifying that FCNR(B) funds may be used for rupee working capital/capital expenditure needs of exporters/corporates with a natural hedge or risk management policy, subject to existing norms.