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Friday, Mar 26, 2004

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RBI to monitor banks' overseas borrowings

Our Bureau

Mumbai , March 25

THE Reserve Bank of India has decided to rationalise the existing facilities for commercial banks to borrow overseas. It will also introduce a monitoring and reporting system for the same, starting this fiscal.

The central bank now prescribes that banks can borrow up to 25 per cent of their unimpaired tier-I capital as at the close of the previous quarter, or $10 million (or its equivalent), whichever is higher. Any fresh borrowing above this limit shall only be with the prior approval of RBI.

This limit will include all categories of overseas foreign currency borrowings, including existing ECBs and overdrafts in nostro accounts not adjusted within five days, said a notification from RBI.

However, the following transactions would continue to be outside the limit of 25 per cent of unimpaired tier-I capital or $10 million (or its equivalent), whichever is higher: overseas borrowings by banks for the purposes of financing export credit subject to certain conditions; and subordinated debt placed by head offices of foreign banks with their branches in India as tier-II capital.

Hitherto, banks were allowed to breach this limit of 25 per cent for replenishing their rupee resources in India.

This extra headroom, which was being availed by foreign banks, has now been done away with. About three to four banks now would be crossing the permissible limit due to this new guideline, said market sources.

"All banks are advised to report their total outstanding overseas foreign currency borrowings under all categories as on March 20, 2004, to RBI by March 31, 2004,. Necessary amendments to the Foreign Exchange Management Regulations 2000 would be issued separately.

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