Tuesday, October 15, 2013

RBI issues norms to use dollar-rupee swaps


  • The swap window would be operational from September 10 to November 30.
  • A bank can sell dollars in multiples of a million to RBI. At the end of the swap period, the bank would have to buy the same amount of dollars. The tenure of the swap would be three years or in line with the tenure of the underlying FCNR-B deposits.
  • The swap would be carried out at a fixed rate of 3.5 per cent a year. In the first leg of the deal, a bank would sell dollars to RBI at the central bank's reference rate or any other rate, as mutually agreed.
  • The settlement of the first leg would take place on a spot basis from the date of the transaction. In the reverse leg, banks have to return rupee funds to RBI, along with the swap premium, to get back the dollars.
  • Underlying deposits would have a lock-in period of at least a year. However, premature withdrawal of these deposits would be permitted after a year. Therefore, swaps with RBI cannot be cancelled before a year.
  • For pre-termination of a swap, the swap cost would be re-fixed at 400 basis points above the contracted rate (3.5%) and the prevailing dollar/rupee swap rate in the market for the residual tenure of the original swap.

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