Mumbai: In the wake of the current liquidity crunch being faced by banks for their overseas operations, the Reserve Bank on Friday said it would provide forex liquidity to banks with foreign branches or subsidiaries to meet their short-term fund requirements.
“RBI will provide forex liquidity to public and private sector banks having foreign branches or subsidiaries through forex swaps of tenor up to three months,” the RBI said in a release.
The move comes after the meeting of Finance Minister P. Chidambaram and Finance Secretary Arun Ramanathan with banks earlier this week.
In the meeting, the banks took up various issues concerning credit to industry and financial intermediaries and specific problems relating to private and foreign banks.
The forex swaps would help banks in getting dollar funds from the central bank, against which rupee funds in equal amounts need to be deposited with the RBI. This helps banks in meeting their overseas requirements in dollar terms.
The pricing would be based on the interest rates in the domestic as well as the overseas markets using the RBI reference rate for the dollar-rupee exchange rate.
The RBI said that for funding the swaps, banks will also be allowed to borrow under the liquidity adjustment facility for the same period at the existing repo rate, which is 7.5%.
Hinting at further relaxation for banks regarding this, the RBI said it might relax the Statutory Liquidity Ratio (SLR), the amount of deposits which banks have to mandatorily invest in government securities.