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JC - Legal Updates - Liberalisation of Forex Flows

Legal Updates

08 Jul 2022

Liberalisation of Forex Flows

In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, RBI has taken certain measures as recorded in its recent press release.

Key Measures-

1)       ECB

(a)      The maximum cap on ECB borrowing has been temporarily increased to US$ 1.5 billion per financial year for an eligible borrower.

(b)      The all-in cost ceiling is raised by 100 basis points, subject to the borrower being of investment grade rating.

The above dispensations are available up to 31st December, 2022.

2)       Borrowing by AD Bank-

Overseas foreign currency borrowings availed by Authorised Dealer Category – I Banks may now be utilised for lending in foreign currency to entities for a wider set of end-use purposes (subject to the negative list set out for external commercial borrowings) and not only for the purpose of export finance. The dispensation for raising such borrowings is available till 31st October, 2022. In this regard RBI has issued notification dated 7th July 2022.

3)       Interest Rates on FCNR(B) and NRE Deposits

It has been decided to temporarily permit banks to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates, with effect from 7th July, 2022. This relaxation will be available for the period up to 31st October, 2022. In this regard RBI has issued notification dated 6th July 2022.

4)       FPI Investment in Debt

Currently the FPIs are permitted to invest in (i) Government securities with no restriction to the residual maturity; and (ii) Corporate bonds with residual maturity of above one year. These investment are subject to the condition that FPIs investment in each of the respective categories shall not exceed 30% of its total investment.

In light of the relaxation issued by RBI vide its notification dated 07th July 2022, FPIs are now permitted to invest as follows between the period from 08th July 2022 to 31st October 2022 without being subject to the above-mentioned restrictions:

(a)      FPIs can invest in government bonds and corporate bonds during the above specified period even beyond 30% of its total investment; and

(b)      FPIs can during the above-mentioned period invest in (i) commercial papers; and (ii) non-convertible debentures with maturity of up to 1 year.

The FPIs can continue to hold such investments made during the relaxed period until maturity or sale of such investment.

Press Release - https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53979

Borrowing by AD Bank - https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12356&Mode=0

Interest Rates on FCNR(B) and NRE Deposits - https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12350&Mode=0

FPI Investment in Debt - https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12355&Mode=0

For any further information, please contact Mr. Ankit Sinha (ankit.sinha@jclex.com), Mr. Saurabh Sharma (saurabh.sharma@jclex.com), Ms. Apurva Kanvinde (apurva.kanvinde@jclex.com), Ms. Rupul Jhanjee (rupul.jhanjee@jclex.com) or Ms. Teza Jose (teza.jose@jclex.com).