What changed
The overseas foreign currency borrowing limit for AD Category-I banks has been doubled from 50% to 100% of unimpaired Tier I capital (or USD 10 million, whichever higher). Additionally, a temporary concessional swap facility with RBI is available for fresh borrowings of 1-3 year tenor at 100 bps below market rate, with annual resets, until November 30, 2013.
What it means for you
Banks now have greater flexibility to raise cheaper overseas funds, which can improve liquidity and reduce funding costs. However, borrowings beyond the old 50% threshold require board-approved risk policies, a minimum 12% CRAR, and a minimum 3-year maturity, adding compliance and risk management responsibilities.
What you must do
- Update internal policies to reflect the new 100% Tier I capital borrowing limit.
- Ensure board-approved overseas borrowing policy includes risk management practices.
- Maintain CRAR of at least 12% if borrowing beyond 50% of Tier I capital.
- Consider using the concessional swap window for fresh borrowings of 1-3 year tenor before November 30, 2013.
- Continue adhering to all existing FEMA and NOPL norms.
Who it affects
AD Category-I banks, Treasury departments of banks, Risk management teams, Compliance officers
What is the new borrowing limit for AD Category-I banks?
The limit is raised to 100% of unimpaired Tier I capital as at the close of the previous quarter or USD 10 million, whichever is higher, up from 50%.
What are the conditions for borrowing beyond the old 50% limit?
Banks must have a board-approved overseas borrowing policy, maintain a CRAR of at least 12%, ensure a minimum maturity of 3 years for such borrowings, and comply with all existing FEMA and NOPL norms.
How does the concessional swap facility work?
Banks can swap USD-equivalent borrowings into rupees at 100 bps below the market rate for tenors of 1-3 years. The rate resets annually at 100 bps below the prevailing market rate. The facility is available until November 30, 2013.