RBI allows standalone primary dealers to borrow in foreign currency

New Delhi: The Reserve Bank of India (RBI) on Friday announced that standalone primary dealers (SPDs) may borrow in foreign currency from their parent companies and other authorised entities.

Standalone primary dealers will also be allowed to access overdraft facilities in nostro accounts solely for operational use. Nostro is a bank account held in another country by a domestic bank, but in the currency of the foreign country.  

The RBI on Friday issued a circular in this regard. The RBI’s move will help companies in managing funding for their foreign exchange business.

The circular titled ‘Master Direction – Risk Management and Inter-Bank Dealings: Amendments’ further noted that “such borrowings shall be within the limit for foreign currency borrowings” prescribed in the RBI.

As per the central bank’s direction, excess withdrawals not adjusted within five days must be reported to the RBI. Such reporting should occur within 15 days from the end of the month in which the limits are exceeded. Reporting is not required if arrangements are in place for value dating, the RBI said.

Standalone primary dealers are either subsidiaries of scheduled commercial banks or entities incorporated abroad or those incorporated under the Companies Act and registered as non-banking financial companies. A master direction on the functioning of the standalone primary dealers was issued by the RBI in 2016.

In the amended direction the RBI has also announced changes in net overnight open position limit (NOOPL) for calculation of capital charge on forex risk. Under the old system, NOOPL was allowed to be fixed by the boards of the respective banks. However, now the boards of the respective authorised dealers can also take the decision on fixing the net overnight open position limit.

The decision on NOOPL needs to be communicated to the RBI “immediately through Centralised Information Management System (CIMS) or email. “However, such limits should not exceed 25 per cent of the total capital (Tier-I and Tier-II capital) of the authorised dealer,” the circular noted.