The Reserve Bank of India ("RBI") issued a circular
which now permits Indian residents to hedge exchange rate and/or
interest rate risk exposures on long term foreign currency
borrowings by undertaking a foreign currency- Indian Rupee swap
with Multilateral or International Financial Institutions
("MFI/IFI"), in which Government of India is a
shareholding member. The circular enabling a resident to move from
a foreign currency liability to a rupee liability, through an
Authorised Dealer Category-I bank ("AD - Bank") was
issued on November 5, 2015, ("RBI Circular"), which set
out the following terms and conditions:
1. Such swap transactions will be have to be undertaken by the
MFI/IFI on a back-to-back basis with an AD - Bank in India;
2. The minimum tenor for such swaps will be 3 (three) years;
3. The concerned MFI/IFI will have to bring in foreign currency
funds to meet its corresponding liabilities to the counterparty AD
- Bank in India, in the event the Indian resident borrower defaults
on its swap obligations;
4. AD – Banks will have to report such swap transaction,
including details of the borrower on the Clearing Corporation of
India Limited's reporting platform. All other operational
guidelines, terms and conditions relating to foreign
currency-Indian Rupee swaps as laid down in earlier circular(s)
will mutatis mutandis apply.
The Circular is a welcomed change brought in for Indian
residents desirous of looking for long term foreign borrowings by
giving them the additional option to swap their liabilities with
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