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Borrowings, investments abroad made easier

BS Banking Bureau

CREDIT POLICY

The Reserve Bank of India has relaxed norms on bank borrowings from and investments in the overseas market.

The central bank has increased the ceiling on bank overseas borrowings to 25 per cent of its unimpaired Tier-I capital. The existing limit was 15 per cent of the unimpaired capital or $10 million, whichever was higher.

For investments as well, the existing limit of 15 per cent of unimpaired Tier-I capital for investment in overseas market has been raised to 25 per cent.

The central bank, however, said borrowings and investments should be within the bank's open position limit and maturity mismatch limits (Gap limits).

The apex bank will issue guidelines on these limits shortly. According to the central bank, the move will enable banks to have greater operational flexibility and will also help in aligning the domestic rates with overseas rates.

Ajit Ranade, chief economist, ABN Amro Bank, said the relaxation is along the theme of greater capital account convertibility.

"Moreover, banks which will be affected by the cap on the call market borrowing will be compensated by this move to some extent," he said.

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