The Reserve Bank has eased the requirement for the net open positions on rupee (NOP) for banks by allowing them to exclude positions arising from the hedged transactions related to foreign currency non-resident bank (FCNR-B) deposits, external commercial borrowings (ECBs) and overseas foreign currency borrowings to shore up the depleting forex reserves, which in turn will prop up rupee.
In a late Tuesday night statement, the central bank said the decision to ease the norms came after allowing banks to extend loans to non-residents or issue a standby letter of credit in favour of overseas lenders, against FCNR-B deposits mobilised.
The regulator further said banks are free to exclude positions arising from the hedged transactions related to FCNR-B deposits, ECBs and overseas foreign currency borrowings. These exclusions apply to banks while computing their NOP under the RBI's risk management framework and could enable the FCNR-B deposits and ECB swap facilities to become more attractive and easier to implement.
In late March when rupee came under intense pressure, the RBI had asked banks to cut down their NOP to $100 million by April 10 after the rupee continuously hit multiple record lows. Prior to this, banks together had nearly $40 billion in NOPs.
The RBI earlier this month introduced a slew of measures to shore up capital inflows by introducing hedging cost support for FCNR-B deposits, a concessional swap window on ECBs by public sector units, and the inclusion of ultra-long tenor bonds under the fully-accessible route (FAR). These measures could potentially bring at least $50 billion worth of inflows, according to various estimates with Japanese brokerage Nomura pegging the likely inflows at $55 billion with the bulk expected in August and September.
Although the central bank has partially rolled back some measures which officially curbed the non-deliverable forwards market, this $100 million cap has since remained.
Earlier in Tuesday the RBI allowed banks to extend loans to non-residents against foreign currency deposits, including via their offshore branches. The move is expected to boost the overall amount of forex deposits garnered via the route, which was announced earlier this month as part of a broader measures to bolster dollar inflows.
Lenders are also allowed to issue a standby letter of credit against such forex deposits apart from allowing them to extend loans to foreign currency deposit holders and place a lien on such accounts.
Banks will also be allowed to undertake swaps for tenors of less than three years for foreign currency deposits, provided they have mobilised eligible foreign-exchange deposits for a minimum period of three years.
