The Union Cabinet on Wednesday gave ex-post facto approval for incorporating a $400-million ‘Standby Swap’ facility within the existing approved overall $2 billion currency swap arrangement for SAARC member-countries.

This incorporation of ‘Standby Swap’ would provide the necessary flexibility to the current ‘framework on currency swap arrangement’ and enable India to provide a prompt response to the request from SAARC member- countries for availing themselves of the swap amount exceeding the present limit prescribed under the SAARC Swap Framework.

Given the heightened financial risk and volatility in the global economy, short-term swap requirements of SAARC countries could be higher than the agreed lines.

It may be recalled that the Union Cabinet had, on March 1, 2012, approved the framework on currency swap arrangement for SAARC member-countries with the intention to provide a line of funding for short-term foreign exchange requirements or to meet balance of payments crises till longer term arrangements are made or the issue is resolved in the short-term itself.

Under this swap facility, the RBI offers swaps of varying sizes in USD, Euro or INR to each SAARC member-country depending on its two-month import requirement and not exceeding $2 billion in total. The swap amount for each country has been defined in the facility, subject to a floor of $ 100 million and a maximum of $400 million. Each drawal will be for a three-month tenor and up to a maximum of two rollovers. The RBI will negotiate the operational details bilaterally with the central banks of the SAARC countries availing the Standby Swap.

The latest Cabinet move comes on the heels of approval for the $75-billion currency swap arrangement between India and Japan.