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RBI issues norms to use dollar-rupee swap window

Source : BUSINESS_STANDARD
Last Updated: Fri, Sep 06, 2013 21:06 hrs
A man pulls a hand-drawn cart in front of the Reserve Bank of India building in Mumbai

The Reserve Bank of India (RBI) on Friday said the most banks could swap for fresh foreign currency non-resident bank, or FCNR-B, deposits in a week would be equal to the deposits raised in equivalent dollar terms in the preceding week.

The swap facility is available for fresh FCNR (B) deposits raised in any permitted currency. However, the swap would be available in dollars alone. The dollar-rupee swap facility for fresh FCNR-B deposits would be operated on a daily basis. However, a bank can use this facility only once a week.


The swap window would be operational from September 10 to November 30.

A bank can sell dollars in multiples of a million to RBI. At the end of the swap period, the bank would have to buy the same amount of dollars. The tenure of the swap would be three years or in line with the tenure of the underlying FCNR-B deposits.

The swap would be carried out at a fixed rate of 3.5 per cent a year. In the first leg of the deal, a bank would sell dollars to RBI at the central bank's reference rate or any other rate, as mutually agreed.

The settlement of the first leg would take place on a spot basis from the date of the transaction. In the reverse leg, banks have to return rupee funds to RBI, along with the swap premium, to get back the dollars.

Underlying deposits would have a lock-in period of at least a year. However, premature withdrawal of these deposits would be permitted after a year. Therefore, swaps with RBI cannot be cancelled before a year.

For pre-termination of a swap, the swap cost would be re-fixed at 400 basis points above the contracted rate (3.5 per cent) and the prevailing dollar/rupee swap rate in the market for the residual tenure of the original swap.

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