RBI FAQs: Loans, SBLCs allowed for NRIs against FCNR(B) deposits under swap facility

The Reserve Bank of India (RBI) on June 23 released frequently asked questions (FAQs) on the swap facility for FCNR(B) deposits, External Commercial Borrowings (ECBs), and Overseas Foreign Currency Borrowings. The FAQs primarily pertain to the operational aspects of the swap facility for FCNR(B) deposits announced earlier this month.

Broadly, the FAQs clarify that banks can extend loans and even issue standby letters of credit against FCNR(B) deposits mobilised under the swap facility. Also, it mentions that the RBI’s swap will include only the principal component and not the interest part.

Here are the 4 FAQs:

1. Can an Indian bank extend loans or issue an SBLC against an FCNR(B) deposit placed with that particular Indian bank?

Yes. Indian banks (including their overseas branches) are permitted to extend loans to a non-resident or issue a standby letter of credit (SBLC) in favour of overseas lenders against FCNR(B) deposits mobilised under the 'Swap Facility for FCNR(B) Deposits'.

2. Can a bank offer a loan overseas to the account holder, and can the lending institution mark a lien on such deposits?

Banks are permitted to extend loans to FCNR(B) account holders and mark a lien on such deposits.

3. Does the RBI’s FCNR(B) swap facility also cover the interest component?

Under the swap facility, the RBI offers cover only for the deposited principal amount, and not on the interest that accrues on it.

6. Whether a bank may continue to offer regular FCNR(B) deposits, without availing of the swap facility? Yes, but the records shall be maintained separately.

Earlier this month, the RBI announced the facility to attract foreign currency inflows and support the country’s external financing position, allowing banks to swap fresh FCNR(B) deposits with the central bank.