External Commercial Borrowings denominated in Indian Rupees were allowed by RBI vide its circular dated September 3, 2014. But in that circular the external lenders were required to enter into rupee swap transactions with the Authorised Dealer Category I banks in India. Now they have given some flexibility to recognised lenders abroad to enter into swap transactions with their overseas banks who in turn will enter into a back to back swap transaction with an Authorised Dealer Category 1 bank in India. The detailed instruction are now given in their latest circular dated 21st May, 2015, which is reproduced below:
To facilitate ECB lending denominated in INR by overseas lenders, it has now been decided that such lenders may enter into swap transactions with their overseas bank which shall, in turn, enter into a back-to-back swap transaction with any AD Cat-I bank in India as per the procedure given below:
(i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower.
(ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable).
(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank.
(iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis.
(v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times.
(vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India.
(vii) All other Operational Guidelines, Terms and Conditions as contained in the annex to A.P. (DIR Series) Circular No.63 dated December 29, 2011 governing hedging of ECBs denominated in INR shall apply, mutatis mutandis.
(viii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank.
The RBI circular can be found here i.e. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9731&Mode=0