India offers $2.0b fund for regional swap arrangement

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Siddique Islam
The Reserve Bank of India (RBI) has offered a US$2.0 billion swap arrangement facility for all SAARC member countries aiming to strengthen regional financial and economic cooperation, officials said Sunday.
Bangladesh may get maximum $400 million from the SAARC swap facility to meet the growing demand for the foreign currency.
"We expect that the swap facility will further boost economic cooperation in the SAARC region and pave the way for increased intra-regional trade, and contribute to enhancing our collective welfare," Bangladesh Bank Governor Atiur Rahman told the FE.
He also said: "I want to thank the Indian government including the RBI chief for launching the SAARC swap arrangement at a time when their own currency is under pressure."
"We may get maximum $400 million from the facility, which will help keep the country's overall balance of payments (BoP) stable through increasing supply of the foreign currency from the overseas source," the central bank chief said, adding that such facility will be able to bring about a positive impact on the country's overall foreign exchange market.
RBI Governor D. Subbarao announced the SAARC swap arrangement facility at a SAARCFINANCE Governors' meeting held in Pokhara, Nepal on May 16 last.
"The swap will be offered in US dollar, Euro or Indian Rupee against the domestic currency or domestic currency denominated government securities of the intending country," the central bank of India said in an announcement.
The swap amount available to member central banks will cover two months' import bills from US$ 100 million to a maximum of US$ 400 million per country.
Under the facility, the intending member countries can draw US dollar, Euro or Indian Rupee in multiple tranches.
"Each drawal is of three months tenor and can be rolled over twice," it said, adding that the first rollover will be at the normal rate of interest, while the second one attracts 50 basis points interest more than the normal interest rate.
"For this purpose, the normal interest rate agreed upon is the LIBOR (for three months) plus 200 basis points. The normal interest rate for the Indian Rupee (INR) swap is RBI Repo rate minus 200 basis points," according to the announcement.
For availing of the facility, the central banks of intending countries will need to enter bilateral swap agreements, which need final approval from the Indian government.
The Reserve Bank's proposal to offer swap facility to SAARC member countries had earlier been approved by the Union Cabinet.
"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 or if there is a need for short-term liquidity due to market turbulence," the RBI said.
The SAARC swap facility is being offered by the RBI pursuant to the decision of SAARC Finance Ministers at the SAARC Ministerial Meeting on Global Financial Crisis, held on February 28, 2009.
The SAARCFINANCE was formed in October 1998 as a network of central bank governors and finance secretaries of the SAARC region that groups Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.
Later Afghanistan joined the SAARC in April 2007.