What changed
Earlier, AD Category-I banks borrowing beyond 50% of unimpaired Tier I capital had to maintain a minimum maturity of three years. Now, for borrowings made on or before November 30, 2013, the minimum maturity is reduced to one year if the bank intends to use the RBI swap facility. Post-November 30, the three-year minimum maturity requirement will apply again.
What it means for you
This gives banks a short window to raise short-term foreign currency funds and swap them with RBI, easing immediate liquidity pressures. However, the temporary relaxation is time-bound, so banks must plan their funding strategies accordingly. After November 30, the stricter three-year maturity norm will be reinstated, limiting flexibility for short-term FC borrowing beyond the Tier I threshold.
What you must do
- Identify any planned foreign currency borrowings beyond 50% of Tier I capital that could benefit from the one-year maturity window before November 30, 2013.
- Ensure all such borrowings intended for RBI swap are executed and documented on or before the deadline to avail the relaxed maturity.
- Review your bank's Tier I capital position and foreign currency funding needs to decide whether to use this temporary window.
- Prepare for the reversion to three-year minimum maturity for any such borrowings after November 30, 2013.
Who it affects
AD Category-I banks, Treasury and ALM desks of banks, Banks planning overseas foreign currency borrowings
Does this circular apply to all foreign currency borrowings by AD-I banks?
No, it only applies to borrowings that exceed 50% of the bank's unimpaired Tier I capital. Borrowings within that limit are not affected by this circular.
What happens if we borrow after November 30, 2013?
After November 30, 2013, any foreign currency borrowing beyond 50% of Tier I capital must have a minimum maturity of three years, as per the earlier circular.
Is the one-year maturity only for borrowings swapped with RBI?
Yes, the circular specifically lowers the minimum maturity to one year for borrowings made on or before November 30, 2013, for the purpose of availing the swap facility from RBI.