RBI Allows Foreign Currency Borrowing for SPDs On a recent date, the Reserve Bank of India (RBI) issued a circular under Section 45W of the RBI Act, 1934, granting Standalone Primary Dealers (SPDs) the ability to borrow in foreign currency from their parent companies or other authorized entities. These facilities are primarily for operational needs and must be managed within the limits set by the “Master Direction Standalone Primary Dealers (Reserve Bank) Directions 2016.”
Key Updates for SPDs:
- Borrowing Limits: SPDs must adhere to the prescribed foreign currency borrowing limits.
- Reporting Requirements: Any excess withdrawal from foreign accounts not adjusted within five days must be reported to the RBI within 15 days after month-end.
- Classification and Oversight: SPDs are classified under Authorised Dealer Category-III as per FEMA, 1999. Additionally, the respective boards of authorized dealers can now set the Net Overnight Open Position Limit (NOOPL) up to 25% of the dealer’s total capital.
- Risk Management: Amendments in the “Master Direction-Risk Management and InterBank Dealings” now include SPDs within the norms for risk management and allow them to engage in foreign exchange products.
- Reporting Enhancements: Updated directions for reporting OTC foreign exchange and foreign currency interest rate derivatives to the CCIL’s Trade Repository.
Statistics and Trends:
- As of March 31, 2023, seven SPDs are registered with the RBI as NBFCs, showing a significant 44.4% year-on-year increase in funds raised primarily through borrowings, which accounted for 90.3% of their total funding sources.
RBI’s Stricter Measures for Infrastructure Loans In addition to the updates for SPDs, the RBI has proposed new, stricter norms for loans provided to infrastructure projects like roads, ports, and power plants. These measures are aimed at increasing the financial safeguards within the sector.
New Loan Provisioning Norms:
- General Provisions: Lenders will now need to set aside 5% of the lent amounts as general provisions for all existing and new loans, a substantial increase from the current 0.4% for non-default exposures.
- Post-Completion Provisions: Even after project completion, a 1% provision is required, more than double the current requirement.
- Impact on Banks: These new provisions are expected to significantly impact the profitability of banks heavily invested in infrastructure projects, posing new financial challenges.
These regulatory updates and proposals by the RBI reflect its ongoing efforts to ensure stability and prudent management in the financial and banking sectors, particularly in managing foreign currency risks and increasing the robustness of funding for large-scale infrastructure projects.
Login with Google