Borrowing/ Lending in Foreign Currencies by Banks
Lending :
For day-to-day working, deposits are accepted as per the availability of surpluses or requirement for funding of Nostro accounts, subject to counter party exposure limits approved for each bank.
Each bank maintain a borrowing limit, which is utilized for arranging funds for disbursement under PCFC/ EBR.
Borrowing:
Banks may raise funds up to 50 % of their unimpaired Tier I capital as at the end of previous quarter or USD 10 Mio which is higher, for purpose other than lending in foreign currency to its constituents with reference to RBI.
These Foreign Currency limit are subject to overall AGL of Bank. Here, arbitrage opportunity exists.
As regards, Reverse Arbitrage for borrowing in local money market and depositing in Foreign Currency, RBI prescribe no limit.