RBI tries to increase forex reserves by easing NRI deposit standards

The Reserve Bank of India †RBI) announced a series of measures on Wednesday to boost foreign exchange inflows.



The central bank said it has taken steps to further diversify and expand the sources of forex financing to reduce volatility and mitigate global spillovers.

India’s foreign exchange reserves totaled $593.3 billion as of June 24, 2022, supplemented by a significant inventory of net futures assets, it said.

The RBI has exempted incremental foreign exchange non-resident bank (FCNR-B) and non-resident (external) rupee (NRE) deposits debts for calculating net demand and time obligations (NDTL) for maintaining the cash reserve ratio (CRR) and legal liquidity ratio (SLR camera) by the banks.

This will take effect from the reporting period of 30 July 2022, with reference date 1 July.

“This easing is available for deposits mobilized until November 4, 2022. Transfers from non-resident (ordinary) (NRO) accounts to NRE accounts are not eligible for the easing,” the RBI said.

It has also been decided to temporarily allow banks to collect new FCNR(B) and NRE deposits without reference to existing interest rate regulations, with effect from July 7, 2022. This easing will apply until October 31, 2022 .

The RBI also relaxed rules on foreign portfolio investment in debt by allowing all new issuances of 7-year, 14-year government bonds (G-Secs), including the current 7.10 percent GS 2029 and 7 issuances. .54 percent GS 2036, under the fully accessible route (FAR).

It has also decided that investments are exempt from the short-term macroprudential limit by FPIs in government securities and corporate debt made up to October 31, 2022 – no more than 30 percent of investments in government securities and corporate bonds may have a residual maturity of less than one year.

These investments are not included in the short term limit until maturity or sale of such investments.

As part of the macroprudential framework under the medium-term framework (MTF), foreign portfolio investors (FPI) can only invest in corporate debt instruments with a residual maturity of at least one year.

The central bank has decided that until October 31, 2022, FPIs will be given a limited period of time to invest in corporate money market instruments, namely commercial paper and non-convertible bonds with an original maturity of up to one year.

The FPIs can remain invested in these instruments until their maturity/sale. These investments are not included in the calculation of the short-term investment limit for corporate securities.

According to the RBI, Authorized Dealer Category-1 (AD Cat-I) banks can use foreign currency loans (OFCB) for foreign currency loans to entities for a broader range of end-use purposes, subject to the negative list set forth for external commercial loans (ECBs).

The measure is expected to facilitate foreign currency borrowing by a wider range of borrowers who may find it difficult to access foreign markets directly. This dispensation for raising such loans is available until October 31, 2022.

With regard to external commercial lending (ECB), the RBI has temporarily increased the limit under the automatic route from $750 million or its equivalent per fiscal year to $1.5 billion.

The all-in cost cap under the ECB framework will also be increased by 100 basis points, provided the borrower has an investment grade rating. The above exemptions apply until 31 December 2022.

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