What changed
Previously, AD Category-I banks could only borrow from their Head Office, overseas branches, and correspondents. The new amendment expands the eligible lenders to include any entity permitted by RBI, while keeping the borrowing limit unchanged at 100% of unimpaired Tier I capital or USD 10 million (whichever is higher). Additionally, a temporary permission allows borrowing from international/multilateral financial institutions until November 30, 2013, for general banking business, with access to RBI's concessional swap facility.
What it means for you
Indian banks now have greater flexibility to tap overseas funds from a wider set of sources, potentially lowering funding costs and improving liquidity management. The temporary window for borrowing from multilateral institutions, coupled with the swap facility, offers a short-term opportunity to raise foreign currency at favorable terms. However, banks must ensure these borrowings are used for general banking business and not for capital augmentation.
What you must do
- Update internal policies to reflect the expanded list of eligible overseas lenders for borrowing under the revised FEMA regulation.
- Evaluate the temporary opportunity to borrow from international/multilateral financial institutions before the November 30, 2013 deadline.
- Ensure compliance with conditions stipulated in A.P. (DIR Series) Circular No. 40 dated September 10, 2013, for such borrowings.
- Consider utilizing RBI's concessional swap facility for eligible borrowings to optimize costs.
- Monitor Tier I capital levels to ensure borrowings do not exceed the prescribed limit of 100% of unimpaired Tier I capital or USD 10 million.
Who it affects
AD Category-I banks, Treasury departments of banks, Compliance teams handling FEMA regulations
What is the new borrowing limit for AD Category-I banks under this circular?
The limit remains unchanged: up to 100% of unimpaired Tier I capital as at the close of the previous quarter, or USD 10 million (or equivalent), whichever is higher. This excludes borrowings for export credit financing and capital instruments.
Can banks borrow from any overseas entity now?
Yes, the amendment allows borrowing from Head Office, overseas branches, correspondents outside India, or any other entity as permitted by RBI, subject to conditions. Earlier, only Head Office, branches, and correspondents were allowed.
Is there a temporary facility for borrowing from multilateral institutions?
Yes, AD Category-I banks are permitted to borrow from international/multilateral financial institutions for a limited period up to November 30, 2013, for general banking business. Such borrowings are eligible for RBI's concessional swap facility.