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Reserve Bank of India (RBI) has raised overseas borrowing limits for companies, and liberalised norms for foreign investment in government bonds, in a bid to increase foreign exchange inflows into the country and ensure overall macroeconomic and financial stability. These measures have been taken in the wake of the rupee depreciating by 4.1% and a burgeoning current account deficit. Forex reserves have also fallen by more than $40 billion over the last nine months.

In a statement, RBI said that it has been closely monitoring liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning.

Other measures include:

• Exemption from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on Incremental FCNR(B) and NRE Term Deposits: Beginning July 30, 2022 incremental FCNR(B) and NRE deposits with reference base date of July 1, 2022 will be exempt from the maintenance of CRR and SLR. This relaxation will be available for deposits mobilised up to November 4, 2022.

• Interest Rates on FCNR(B) and NRE Deposits: Banks will be temporarily allowed to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates, with effect from July 7, 2022 till October 31, 2022.

• FPI Investment in Debt: Foreign Portfolio Investors (FPIs) can invest in government securities and corporate bonds through three channels: (a) the Medium-Term Framework (MTF) introduced in October 2015; (b) the Voluntary Retention Route (VRR) introduced in March 2019; and (c) the Fully Accessible Route (FAR) introduced in April 2020. In order to encourage foreign portfolio investment, the following changes to the regulatory regime relating to FPI investment in debt flows are being put in place

• Foreign Currency Lending by Authorised Dealer Category I (AD Cat-I) Banks: AD Cat-I banks can utilise OFCBs for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings (ECBs). The measure is expected to facilitate foreign currency borrowing by a larger set of borrowers who may find it difficult to directly access overseas markets. This dispensation for raising such borrowings is available till October 31, 2022.

• External Commercial Borrowings: The limit under the automatic ECB route has been temporarily increased from US$ 750 million or its equivalent per financial year to US$ 1.5 billion. The all-in cost ceiling under the ECB framework is also being raised by 100 basis points, subject to the borrower being of investment grade rating. This is available till December 31, 2022.