Overview
- The Reserve Bank of India said on Tuesday that Indian banks, including their overseas branches, may extend loans to non‑resident account holders and issue standby letters of credit (SBLCs) against FCNR(B) deposits mobilised under its special swap facility.
- The RBI confirmed the swap is a plain buy/sell forex swap that covers only the principal of eligible deposits and not the interest paid to depositors.
- The FAQ set tenor and operational rules: eligible FCNR(B) and ECB mobilisation requires original tenors of three to five years, swaps run co‑terminus with repayment up to a five‑year maximum, and banks may cancel and rebook deposits under specified conditions.
- Lending against these deposits remains subject to normal credit appraisal and underwriting, banks must keep separate records for non‑swap deposits, and interest rate offers must comply with existing deposit‑rate directions.
- Market participants say the clarifications reduce credit and currency risk for overseas lenders, enable leveraged structures that could materially boost foreign inflows (some estimates up to $50 billion), and therefore warrant active risk management and supervisory attention.