In a set of frequently asked questions (FAQs) issued on the FCNR(B) deposit, external commercial borrowing (ECB) and overseas foreign currency borrowing swap facilities, the central bank said Indian banks, including their overseas branches, are permitted to extend loans to non-residents or issue SBLCs in favour of overseas lenders against FCNR(B) deposits mobilised under the June 8 scheme.
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The RBI also clarified that banks are permitted to lend directly to FCNR(B) account holders and mark a lien on such deposits.
The clarification comes days after several lenders sought guidance from the RBI on leveraged FCNR(B) deposit structures. People familiar with the matter had told ET that banks wanted explicit regulatory comfort on whether an overseas branch of an Indian bank could lend to a non-resident customer who would subsequently place the borrowed funds as an FCNR(B) deposit with the bank’s Indian entity.
According to bankers cited by ET, some lenders believed existing deposit mobilisation rules could be interpreted as restricting banks from creating deposits through loans extended to the same customer, prompting them to seek clarity before marketing such products more widely.
The issue gained prominence after some lenders, including State Bank of India, began offering structured products overseas that allow customers to raise foreign currency loans backed by FCNR(B) deposits. Under such arrangements, the deposit is pledged to the lender through an irrevocable lien and serves as collateral for the loan.Bankers had said broader adoption of such structures depended on regulatory clarity, especially as lenders seek to maximise inflows under the RBI’s special FCNR(B) swap window, which is open for deposits mobilised until September 30.
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The central bank said banks may continue offering regular FCNR(B) deposits without availing the swap facility, although records for such deposits must be maintained separately. It also clarified that the RBI’s swap facility covers only the principal amount of deposits and not the interest component.
The RBI’s latest clarification is expected to provide comfort to banks exploring such products, although lending decisions will continue to be subject to normal credit appraisal, underwriting and regulatory requirements.
The June 8 scheme was introduced to encourage foreign currency inflows by allowing banks to swap FCNR(B) deposits, eligible ECBs and overseas foreign currency borrowings with the RBI at a concessional rate. Under the facility, ECBs with an average maturity of three years and above are eligible, while the corresponding RBI swap can run for up to five years and remains co-terminus with the repayment schedule of the borrowing.