India extends Saarc currency swap agreement by 2 years

The union cabinet chaired by the Prime Minister Narendra Modi has given approval for the proposal to provide a two-year extension by amending the 'Framework on Currency Swap Arrangement for Saarc Member Countries' so as to make it run up to 14 November 2017, with extension thereafter, if necessary, by the finance minister.

Under the facility, RBI offers swaps of varying sizes to Saarc member countries, including Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka, depending on their two months import requirement and not exceeding $2 billion in total, in dollar, euro or Indian rupee.

At the 27th Saarc Finance Group meeting held in Washington DC on 9 October 2013, central bank governors of the Saarc member nations had approved certain amendments made to the framework, based on the experience gained from operationalising the framework and with the intention to bring more clarity on the clauses of the framework.

After approval of the cabinet, RBI will negotiate the operational details bilaterally with central banks of the respective Saarc countries. These bilateral agreements would be signed by RBI after obtaining prior government approval. Any amendment to the framework will require prior approval of the finance minister.

The Framework on Currency Swap Arrangement for Saarc Member Countries has enabled India to strengthen its ties with the Saarc countries. The arrangement will further financial stability in the region, besides improving the standing and credibility of India among the Saarc countries.

The extension of currency swap facility to Saarc countries will strengthen regional integration and inter-dependence and also enhance India's economic influence in the region.

While a mere extension of the validity of the framework arrangement will have no financial implications, in case any bilateral swap arrangement signed and there is a draw down by either party/parties, the foreign exchange reserves with RBI would be temporarily depleted up to a maximum amount of $2 billion.

Interest would be paid by the receiving party on the dollar/euro/rupee amount although no interest will be received on the domestic currency given in exchange thereof to the providing party.

Government of India approved the `Framework on Currency Swap Arrangement for SAARC Member Countries' on 1 March 2012. The framework was formulated with the intention of providing a line of funding for short term foreign exchange requirements or to meet balance of payments crises till longer term arrangements are made or the issue is resolved in the short-term itself.