Banks can borrow $8 billion more

MONETARY POLICY MID-TERM REVIEW 2006-07/ CONVERTIBILITY ROADMAP

Indian banks may get to borrow around $16 billion (Rs 72,331 crore) from the overseas market to boost their capital.

As on today's exchange rate of around Rs 45 a dollar, this amounts to additional funds of around $8 billion or Rs 36,165 crore after the Reserve Bank of India has decided to increase the limit for Indian banks to borrow funds from their overseas branches, correspondent banks and overdrafts from their head office or nostro account.

The revision has been made as part of the foreign exchange liberalisation towards fuller capital account convertibility in the mid-term monetary review on October 31.

As per the revised limit, the banks could borrow up to 50 per cent of their unimpaired tier I capital or $10 million, whichever is higher against the overall limit of 25 per cent prescribed earlier.

Short-term borrowings up to a year or less should not exceed 20 per cent of unimpaired tier I capital within the overall limit of 50 per cent.

It has been clarified that this limit excludes all borrowings in the form of subordinated debt placed by headoffices of foreign banks with their branches in India as tier-II capital , capital funds raised / augmented by issue of innovative perpetual debt instruments and other overseas borrowing.

Similarly, banks are now allowed to issue guarantees / letters of credit for import of services up to $100,000, but only in of such case where the guarantee is intended to secure a direct contractual liability arising out of a contract between a resident and a non-resident.