RBI allows standalone primary dealers to borrow in foreign currency
Mumbai, May 3, 2024
SPDs will open nostro account, a bank account with a foreign bank in the currency of the foreign country
The Reserve Bank of India (RBI) on Friday announced that standalone primary dealers (SPDs) may borrow in foreign currency from their parent companies and entities it has authorised. They may access overdraft facilities in nostro accounts solely for operational use.
Nostro is a bank account held in another country by a domestic bank, but in the currency of the foreign country. An SPD dealing in euros would open an account with a bank in the European Union for transaction settlements.
A senior executive with an SPD said the regulator’s announcement would aid in managing funding for the foreign exchange business.
The RBI has also included SPDs within the scope of norms for risk management and inter-bank dealings, enabling them to engage in foreign exchange products. SPDs were in 2018 authorised to offer forex products to clients, including foreign portfolio investors. SPDs have been classified as Authorised Dealer Category-III. Their work in forex products will constitute part of their non-core activities.
Borrowings must adhere to the prescribed limits for foreign currency. Excess withdrawals not adjusted within five days must be reported to the RBI. Such reporting should occur within 15 days from the end of the month in which the limits are exceeded. Reporting is not required if arrangements are in place for value dating, said the Reserve Bank.
A board of authorised dealers may set the Net Overnight Open Position Limit (NOOPL) for calculating the capital charge on forex risk. However, such limits should not exceed 25 per cent of the dealer's total capital (Tier-I and Tier-II capital).
Additionally, the RBI has updated directions on reporting foreign exchange derivative contracts conducted over the counter and foreign currency interest rate derivative contracts to the Trade Repository of the Clearing Corporation of India.
[The Business Standard]
