Floor Likely For New Foreign Currency Loans

``The banks are likely to fix a floor of $1 million, which will approximate Rs 3.5 crore, below which they will not lend to banks or corporates under the loans in foreign currency scheme,'' said a senior banker.

This is because transactions of small amounts is likely to prove problematic for the banks. Moreover, the FCNR (B) deposits which will be backing these funds are mostly huge deposits, for which undertaking small transactions will not prove beneficial, said one banker. This is likely to lead to a mismatch as the deposit will mature in one shot, while the loans will mature in phases.

In the detailed guidelines on lending under the FCNR (B) backed loans, the RBI has stated that the banks may sanction these loans for meeting working capital/ capital expenditure needs of the clients subject to the prudential norms, credit discipline and credit monitoring guidelines in force.

Bankers said the introduction of this new scheme is unlikely to have a drastic impact on lending rates. This is because the total quantum of FCNR (B) deposits is much lesser than the total outstanding bank credit. It is expected that all AAA corporates will weigh the pros and cons of borrowing under foreign currency and borrowing rupee loans.

However, the total quantum of FCNR (B) funds is approximately Rs 11,000 crore. This is very small when compared to the outstanding bank credit of Rs 2,50,000 crore. ``Hence, even if a large number of corporates access funds through the new scheme, it is unlikely to impact on the prime lending rates (PLR) of banks.