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April 30, 2002 | 1215 IST
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Banks can crystallise ECBs into Re loans

BS Banking Bureau

Banks have been given the freedom to crystallise external commercial borrowings of corporates into rupee loans.

The Reserve Bank of India, feeling comfortable with India's foreign exchange position at over $55 billion, has left the decision to the banks.

It is customary for the overseas branches of the authorised dealers in foreign exchange which are mostly banks to extend ECBs to Indian corporates against guarantees/letters of comfort issued by their branches in India.

The banking community had suggested that banks ought to be given the freedom to crystallise the foreign exchange liability in rupees in select cases where circumstances warrant.

This would be keeping with the status of account of the corporates and their impact on liabilities of overseas branches, stated RBI in its policy document.

Freedom to crystallise ECBs would mean that if a bank feels comfortable in allowing a corporate client to pre-pay its ECB in rupee terms, it will have to freedom to do so.

"The return on ECBs has been low and with the RBI granting our request, we can now find alternative avenues to deploy funds, which will give us better returns," said a senior official at a leading public sector bank.

The RBI credit policy pointed out that this measure would give flexibility to banks in their fund management.

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