MUMBAI: The Reserve Bank of India (RBI) on Wednesday reduced the requirement of minimum maturity of overseas bank borrowing to one year from three years to encourage banks to raise money from overseas and attract dollar flows. Nearly 20 days after RBI governor Raghuram Rajaneased overseas fund-raising , no bank has moved to take advantage of the opportunity.
"On a review, it has been decided to lower the requirement of minimum maturity to one year from three years for the aforesaid borrowings made on or before November 30, 2013 for the purpose of availing of the swap facility from the RBI," said the central bank in a notification.
"It may be noted that after the said date, foreign currency borrowing by AD Category I banks beyond 50% of their Tier I Capital shall have to be of a minimum maturity of three years," it said.
The RBI allowed banks to borrow overseas up to 100% of their capital overseas and swap it at a subsidised rate. Banks can now borrow up to a limit of 100% of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher.
The previous limit was 50% and excluded borrowings for financing of export credit in foreign currency and capital instruments. Bankers are worried about the reaction of regulators overseas and the use of funds at a time when demand for funds is low. "If you raise money overseas and ship the money home that is taken very badly by the regulators there," Pratip Chaudhuri, chairman at SBI, had told ET in an interview. "It's not as simple as it is made out to be," he said.
Chaudhuri said SBI has raised external funds through mediumterm notes (MTN) issue, which are being deployed for financing exporters. Banks such as ICICI BankBSE -2.35 %, Axis BankBSE 0.24 % and IndusInd BankBSE 0.07 % are still working out the cost of raising money overseas, industry officials said.