The Reserve Bank of India has allowed banks to dip into the forex reserve to to meet short term funding requirements of their overseas branches.

The banks can borrow from the repo window (liquidity adjustment facility) pledging government securities using the RBI reference rate for USD-INR exchange rate.

Public sector banks with overseas branches have been putting in request with the RBI for dollar lines of credit for meeting their asset-liability mismatches in their overseas branches.

RBI in a release has stated, " In the context of the global developments and in order to provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices, the Reserve Bank of India will provide forex liquidity to Indian public and private sector banks having foreign branches or subsidiaries, through forex swaps of tenors upto three months. This facility will be available on request until further notice. The pricing of swaps will be based on the interest rates in the domestic as well as the overseas markets using the Reserve Bank reference rate for the USD-INR exchange rate."

Further, for funding the swaps, banks can also borrow under the Liquidity Adjustment Facility (LAF) for the corresponding tenor at the prevailing repo rate. The Reserve Bank of India will be prepared to consider any specific relaxation of Statutory Liquidity Ratio (SLR) requirements for this purpose.

In response to the unfolding events relating to the global turmoil and its impact on international money markets, central banks across the world have taken action to ease the liquidity situation through measures such as inter-central bank swap lines, collateralised lending and forex swaps.