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RBI Extends Concessional Swap Window for AD Banks' Foreign Borrowings

Current · Source: Reserve Bank of India · RBI/2013-14/377 · issued 22 Nov 2013 · ~2 min read
Quick answerRBI allows AD Category-I banks with firm loan commitments from international/multilateral institutions by Nov 30, 2013, to enter forward-forward swaps for delivery up to Dec 31, 2013, under the concessional swap scheme. Non-delivery incurs a penalty of 100 bps over market swap rate.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Indore, Mr. Kumar, is negotiating a loan with a multilateral institution. He receives a firm commitment on November 25, 2013, and decides to enter a forward-forward swap with RBI for delivery by December 31, 2013. If he fails to deliver the foreign currency on the contracted date, he will have to pay the difference between the concessional swap rate and the market swap rate plus 100 bps.

What changed

Earlier, the concessional swap facility for foreign currency borrowings from international/multilateral financial institutions was available only if the loan was drawn and delivered to RBI by November 30, 2013. Now, banks that receive a firm loan commitment on or before November 30, 2013, can enter a forward-forward swap to deliver the foreign currency up to December 31, 2013. If they fail to deliver on the contracted date, they must pay the difference between the concessional swap rate and the market swap rate plus 100 basis points.

What it means for you

This gives AD Category-I banks additional time to finalize and draw down loans from international/multilateral institutions while still accessing the concessional swap window. Banks must ensure they have firm commitments by the November 30 deadline to qualify. The penalty clause discourages defaults and protects RBI from exchange rate risk.

What you must do

Who it affects

AD Category-I banks negotiating foreign currency loans from international/multilateral financial institutions, Treasury and forex operations teams of AD Category-I banks, RBI's foreign exchange management division

❓ Common questions

What is the key deadline for banks to qualify for this extended swap facility?

Banks must receive a firm loan commitment from an international/multilateral financial institution on or before November 30, 2013. The swap contract must also be entered into by that date.

What happens if a bank cannot deliver the foreign currency on the contracted date under the forward-forward swap?

The bank must pay the difference between the concessional swap rate contracted and the market swap rate, plus an additional 100 basis points as penalty.

Is this relaxation available for loans committed after November 30, 2013?

No, the relaxation is strictly for contracts entered into up to November 30, 2013. No further extensions are provided.

📜 Read the original circular — full text as issued by RBI
RBI/2013-14/377 A.P. (DIR Series) Circular No. 77 November 22, 2013 To All Category - I Authorised Dealer Banks Madam / Sir Overseas Foreign Currency Borrowings by Authorised Dealer Banks Attention of AD category I banks is invited to AP (DIR Series) circulars no. 40 dated September 10, 2013 read with AP (DIR Series) Circular no. 61 dated October 10, 2013 in terms of which they were permitted to borrow from international/multilateral financial institutions up to 100 percent of their Tier-I capital subject to the conditions mentioned therein and also swap the borrowed amount with the Reserve Bank  at a concessional rate as mentioned therein. As per the said circulars both the permissions to borrow from the international/multilateral financial institutions as well as to swap it with Reserve Bank were valid till November 30, 2013. 2. It has been brought to the Bank’s notice that some banks may be in the process of negotiation of loans from international/multilateral financial institutions and may not be in a position to draw the loan and deliver the same to RBI as a part of the concessional swap within November 30, 2013. In this context, it has been decided that if any bank is being sanctioned any loan from any international/multilateral financial institutions and is receiving a firm commitment in this regard on or before November 30, 2013 , it will be allowed to enter into a forward-forward swap under the first leg of which the bank will sell forward the contracted amount of foreign currency corresponding to the loan amount for delivery up to December 31, 2013. However, if the bank is not in a position to deliver the contracted amount of foreign currency on the contracted date, it would have to pay the difference between concessional swap rate contracted and the market swap rate plus one hundred basis points. The other terms and conditions for the swap will remain unchanged as notified earlier. 3. It is reiterated that the above relaxation is available only for the contracts entered into up to November 30, 2013 and not thereafter. 4. The direction contained in this circular has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully (C.D.Srinivasan) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/377 · issued 22 Nov 2013. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks negotiating foreign currency loans from international/multilateral financial institutions, Treasury and forex operations teams of AD Category-I banks, RBI's foreign exchange management division), your first concrete step on “RBI Extends Concessional Swap Window for AD Banks' Foreign Borrowings” is: “Identify any pending loan negotiations with international/multilateral financial institutions and secure firm commitments by November 30, 2013.” (RBI issued this 22 Nov 2013).

  1. Circular: RBI/2013-14/377 -- RBI Extends Concessional Swap Window for AD Banks' Foreign Borrowings
  2. Issued: 22 Nov 2013
  3. Action required: Identify any pending loan negotiations with international/multilateral financial institutions and secure firm commitments by November 30, 2013.
  4. Action required: For eligible loans, enter into forward-forward swaps with RBI for delivery by December 31, 2013, under the concessional swap terms.
  5. Action required: Monitor delivery timelines closely to avoid the penalty of 100 bps over the market swap rate in case of non-delivery.
  6. Action required: Ensure all swap contracts are executed only for commitments made on or before November 30, 2013, as no further extensions are allowed.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8585&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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