RBI eases FPI, NRI deposit norms to stem rupee slide

Wednesday 13th July 2022 06:54 EDT

The Reserve Bank of India (RBI) has announced a series of measures, including relaxation in foreign investment in debt, external commercial borrowings, and Non-Resident Indian (NRI) deposits - to prevent the slide in the rupee and shore up India's foreign exchange reserves.

With the rupee depreciating 4. per cent to 79.30 against the US dollar in the current financial year till July 5, FPIs (foreign portfolio investors) pulling out £ 23.2 billion in six months and $50 billion being shaved off forex reserves over the last nine months, the measures are expected to further diversify and expand the sources of forex funding, mitigate volatility, and dampen global spillovers.

In a significant move, RBI has allowed banks to temporarily raise fresh Foreign Currency Non-Resident Bank i.e., FCNR (B) and Non-Resident External (NRE) deposits without reference to the current regulations on interest rates, with effect from July 7. This relaxation too will be available till October 31, 2022.

The central bank said investments by FPIs in government securities and corporate debt made till October 31, 2022, will be exempted from this short-term limit. These will not be reckoned for the short-term limit of one year till maturity or sale of such investments. Currently, not more than 30 per cent of investments each in government securities and corporate bonds can have a residual maturity of less than one year.

In another measure, the RBI has decided that category one banks can utilise overseas foreign currency borrowing (OFCBs) for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings (ECBs). The measure is expected to facilitate foreign currency borrowing by a larger set of borrowers who may find it difficult to directly access overseas markets. This dispensation for raising such borrowings is available till October 31, 2022, it said.

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