RBI tightens norms to check outflow of forex

In a bid to check outflow of forex, the Reserve Bank on Wednesday tightened norms for utilisation of the foreign currency fixed deposit funds.

The fund could be used by banks for lending to only those entities with risk management policy for managing the exchange rate volatility.

"Accordingly, it has been decided that the FCNR(B) funds representing deposit liabilities may be utilised for making loans to resident constituents for meeting their foreign exchange requirements," RBI said in a notification.

It can be only used for the rupee working capital or capital expenditure needs of exporters or corporates who have a natural hedge or a risk management policy for managing the exchange risk, it said.

It is subject to the prudential and interest-rate norms, credit discipline and credit monitoring guidelines in force, it said.

The notification assumes significance as rupee touched an all-time low against dollar .

Rupee closed at all-time low of 53.84 losing a hefty 72 paise against dollar due to sustained demand for the US currency which rose sharply against major rivals after poll results in Greece and France fuelled fresh euro-zone worries.

Last week, the Reserve Bank had raised the interest rate ceiling on NRI deposits in foreign currencies by up to 3 per cent to attract inflows.

"Interest rate ceiling on Foreign Currency Non-Resident FCNR (B) deposits of banks has been raised from 125 basis points (bps) (1.25 per cent) above the corresponding LIBOR or Swap rates to 200 bps for maturity period of 1 year to less than 3 years, and to 300 bps for maturity period of 3 to 5 years," RBI had said.