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RBI permits reciprocating rupee resources with foreign banks in India

The Reserve Bank of India has allowed Indian banks having branches abroad to reciprocate their rupee resources with foreign banks in India in exchange of foreign currency for transaction in the inter-bank call money market for a period of one year.

Call money is borrowing or lending for one day in the inter-bank market. Only scheduled commercial banks, primary dealers and satellite dealers, development financial institutions and mutual funds can enter into this market.

An RBI circular on Tuesday said that to provide greater flexibility in liquidity management by banks, it was decided that rupee resources drawn under the reciprocal line facility by a foreign bank in India is exempted for one year from the prudential limits specified for call and notice money transactions.

The position will be reviewed after one year, it said.

Under the reciprocal line facility, a foreign bank in India enters into a standing agreement with an Indian bank having branches abroad to draw a specified amount of rupee resources from the latter in India against the equivalent amount of foreign currency sanctioned to the Indian bank by the former abroad.

The prudential limit stipulated on the exposure of scheduled commercial banks to the call money market, benchmarked to owned funds or aggregate deposits whichever is higher, became effective from the fortnight beginning October 5.

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