India’s banking regulator Reserve Bank of India (RBI) on Thursday announced a series of measures aimed at providing greater support to banks as well as the industry on forex loans. Among others, the measures include extending the forex swap facility to Indian public and private sector banks having overseas operations to March 31, 2010 from current deadline June 30, 2009.
RBI further raised the ceiling on export credit in foreign currency to Libor (London inter-bank offer rate) plus 350 basis points. However, banks will not levy any other charges, like management fee, service charge, etc. While the move on face looks to be making forex credit to exporters dearer, over time it will increase the flow of credit to exporters. This is because of the fact that interest rates in international markets have been ruling high since September last year when fall of US investment bank Lehman Brothers caused eroded the confidence in the inter-bank market and nearly froze financial lines.
By increasing the ceiling over Libor that banks can charge from exporters, RBI has ensured that banks do not reject forex credit applications of exporters simply due to the fact that such loans could be economically unviable due to high cost of financing of foreign currency funds. As a result, while exporters will have to pay higher interest, they will also be able to get higher amount of credit.
In yet another move to help the banks, the apex bank extended the timeline of restructuring loans to March 31, 2009 from earlier deadline of January 31, 2009. To help banks check non-performing assets (NPAs), the RBI had earlier allowed them to restructure loans without the need of classifying them as NPA till January 31.