Mumbai: The Reserve Bank of India will offer a swap arrangement of USD 2 billion to all SAARC (South Asian Association for Regional Cooperation) member countries to strengthen regional financial and economic ties.

"With a view to strengthening regional financial and economic cooperation, Governor D  Subbarao today announced in the 24th SAARCFINANCE Governors' Meeting, in Pokhara, Nepal, that the Reserve Bank of India will offer Swap Arrangement of USD 2 billion both in foreign currency and Indian rupee," RBI said in a statement on Wednesday.

RBI said the swap arrangement will be entirely funded by India and it will be offered in US dollar, euro and Indian rupee against the domestic currency or domestic currency denominated government securities of the requesting country.

The facility will be extended to all SAARC member countries - Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka, it said.

The swap arrangement is intended to provide a back stop line of funding for the SAARC member countries to meet any balance of payments and liquidity crises, till longer term arrangements are made, RBI said.

It would also help if there is a need for short-term liquidity due to market turbulence, the central bank added.

With the launch of this facility, member countries can now approach Reserve Bank of India for availing of the facility.

The swap amount available to various member central banks has been arrived based on two months import cover subject to a floor of USD 100 million and a maximum of USD 400 million per country, RBI said.

The requesting member countries will be able to make drawals of US dollar, euro or Indian rupee in multiple tranches. Each drawal of three months tenor and can be rolled over twice.
The first rollover will attract normal interest rate which is equal to LIBOR (for three months) plus 200 basis points. However, the second rollover will attract 50 basis points more than the normal interest rate.

SAARC countries will have to enter a bilateral swap agreement with India which will need final approval from the Indian government to avail to the facility.

This arrangement is an outcome of the decision of SAARC ministerial meeting on Global Financial Crisis in 2009, it said.

"A major cause of current concern in the region is the drying up of credit and the contraction of financial markets.

"Mechanisms must, therefore, be developed aimed at creating bilateral arrangements in the region to address short-term liquidity difficulties and to supplement international financing arrangements."


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