RBI allows banks to offer guarantees on NRI stock acquisitions

The Reserve Bank of India (RBI) has permitted authorised dealer banks to issue bank guarantees on behalf of non-residents without its prior approval, in a bid to attract more foreign exchange and bolster the rupee.

Accordingly, authorised dealer banks can issue bank guarantee on behalf of a non-resident acquiring shares or convertible debentures of an Indian company through open offers/ delisting/exit offers, without RBI's prior approval.

The guarantee would be valid for a period coterminous with the offer period as required under Substantial Acquisition of Shares and Takeover Regulations of the Securities and Exchange Board of India (SEBI).

The measure is also intended to provide operational flexibility and ease procedures, RBI said.

The RBI had, on Wednesday, enhanced the limit available to exporters to 50 per cent in order provide greater flexibility in risk management. For importers, RBI raised the limit to 25 per cent.

RBI also offered a window for banks to swap fresh foreign currency non-resident (bank) deposits or FCNR (B) dollar funds, provided these are mobilised for at least three years, at a fixed rate of 3.5 per cent a year.

Besides, RBI enhanced the current foreign borrowing limit of bank's core capital to 100 per cent from the earlier 50 per cent.

It said borrowings mobilised under this provision could be swapped with RBI at the option of the bank, at a concessional rate of 100 basis points below the swap rate in the market.

The rupee ended stronger at 66.12 against the dollar on Thursday and currency traders expect the rupee to appreciate further on Friday, due to the positive sentiment in the market.

Meanwhile, in a coordinated move, the Central Board of Excise and Customs (CBEC) announced the rate of exchange of conversion of specified foreign currency into Indian currency or vice versa, with effect from 6 September 2013 for the purpose of import and export of goods.