RBI allows SPDs to borrow in foreign currency from their parent companies

The Reserve Bank of India (RBI) on Friday announced that standalone primary dealers (SPDs) can borrow in foreign currency from their parent companies and entities it has authorised.

According to the RBI directions, they can access overdraft facilities in nostro accounts solely for operational use.

The central bank said that the directions on reporting OTC foreign exchange derivative contracts and foreign currency interest rate derivative contracts to the Trade Repository of Clearing Corporation of India Ltd. have been updated and incorporated in Part E of the Master Direction.

Certain directions on reporting relating to format, mode, timelines, etc., have also been updated and amendments have been made to the Master Direction.

Notably, nostro is a bank account held in another country by a domestic bank, but in the foreign country’s currency. An SPD dealing in euros would open an account with a bank in the European Union for transaction settlements.

The RBI further said that the borrowings must adhere to the prescribed limits for foreign currency. 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, it said.