InvestorQ : What are the major measures announced by the RBI to boost its forex flows?
Aashna Tripathi made post

What are the major measures announced by the RBI to boost its forex flows?

Aditi Sharma answered.
11 months ago

Broadly, the RBI has announced four key measures to ensure that the flow of forex flows into India is sustained. Here is a quick rundown.

· The central bank has allowed banks to temporarily to raise fresh Foreign Currency Non-Resident Bank FCNR(B) and Non-Resident External (NRE) deposits, even beyond existing limits. Also, the restrictions on interest rates that exist on FCNR deposits will be temporarily frozen.

· In addition, an investment made by foreign portfolio investors (FPIs) in government securities or even in corporate debt till October 31, 2022, will not be counted for applying the 1-year maturity limit applicable to such investments. Currently, only up to 30% of such investments can have maturity of under 1 year.

· RBI has also effectively enhanced the limit under the automatic route for external commercial borrowing (ECB) with the limit enhanced from $ 750 million to $ 1.50 billion. The all-in cost outer limit ceiling under the ECB framework is being raised by 100 basis points, subject to the borrower belonging to the investment grade rating.

· RBI has also stipulated that any incremental FCNR(B) and NRE deposits, will be exempt from the maintenance of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). This will encourage the NRIs to park additional funds in the Indian banks, as their effective returns would stand enhanced.

These measures announced by the RBI may not solve the flow problem, but it will surely give comfort to the markets and an assurance of its long term robustness.