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
- Identify any pending loan negotiations with international/multilateral financial institutions and secure firm commitments by November 30, 2013.
- For eligible loans, enter into forward-forward swaps with RBI for delivery by December 31, 2013, under the concessional swap terms.
- Monitor delivery timelines closely to avoid the penalty of 100 bps over the market swap rate in case of non-delivery.
- Ensure all swap contracts are executed only for commitments made on or before November 30, 2013, as no further extensions are allowed.
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
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.