What changed
Previously, AD Cat-I banks could raise overseas foreign currency borrowings but were restricted in using those funds for on-lending in foreign currency within India. This circular temporarily permits such on-lending for borrowings raised during the specified window, aligning end-use with ECB guidelines.
What it means for you
Banks can now deploy overseas borrowings to meet foreign currency credit demand from Indian borrowers, potentially improving forex liquidity and offering competitive FCY loan rates. However, strict adherence to ECB end-use restrictions is mandatory, limiting permissible purposes like import of capital goods, infrastructure, or working capital for exporters.
What you must do
- Ensure overseas borrowings raised between July 8 and October 31, 2022, are separately tracked for on-lending eligibility.
- Verify that all on-lending in foreign currency complies with ECB end-use conditions under Master Direction on ECBs.
- Maintain documentation to demonstrate end-use compliance for each on-lent amount until maturity or repayment.
- Review internal risk management policies to align with the temporary relaxation and avoid regulatory breaches.
Who it affects
Authorised Dealer Category-I banks, Indian constituents seeking foreign currency loans, Treasury and forex operations teams at AD Cat-I banks
What is the validity period for raising overseas borrowings under this circular?
The borrowings must be raised between July 8, 2022, and October 31, 2022, both dates inclusive.
Can we lend these funds in rupees instead of foreign currency?
No, the circular specifically permits lending in foreign currency only to constituents in India.
What happens after the overseas borrowing matures?
The facility to on-lend is available only until the maturity or repayment of the overseas foreign currency borrowing, after which no new on-lending is allowed under this window.