RBI allows non-resident foreign banks to lend in Indian rupees
1. The lender should mobilise Indian Rupees through swaps undertaken with an Authorised Dealer Category-I bank in India.
2. The ECB contract should comply with all other conditions applicable to the automatic and approval routes as the case may be.
3. The all-in-cost of such ECBs should be commensurate with prevailing market conditions.
4. For the purpose of executing swaps for ECBs denominated in Indian Rupees, the recognised ECB lender, if it desires, may set up a representative office in India following the prescribed laid down process.
This will be a competition for the domestic banks as the foreign banks will not be bound by the reserve requirements of cash reserve ratio (CRR) and Statutory Liquidity Requirement (SLR). So they may be able to lend at better rates & terms.
The fact that foreign banks can now set up representative offices in India for the purpose of lending to Indian companies will encourage new foreign banks to set up base in India in future.
SPECIAL SECTION ON EXTERNAL COMMERCIAL BORROWINGS (ECB)- Guidelines since 1999 Click Here