Foreign currency term loans

Purpose

QUANTUM/ CURRENCY
(Minimum amount of the loan)

Maximum

PROCEDURE
Tenure:

Interest Ratre
FCNR (B) Loans: Foreign Currency Non-Resident Borrowings

The foreign currency denominated loans in India are granted out of the pool of
foreign currency funds of the Bank in FCNR(B) Deposit etc. accounts as permitted
by Reserve Bank of India. These loans are commonly known as FCNR (B) Loans.

A bank with a broad base of NRI customers/depositors is in a position to offer the

Foreign Currency Loans in India to their customers as an alternative to loans in
Rupees.

FCNR (B) loans may be sanctioned for meeting working capital and term loan
requirements of existing borrowers (manufacturing and trading units) of the bank.
This facility for working capital is given by way of FCNRB (Demand Loan) and for
term loan by way of FCNR B (Term Loan).
It has to be disbursed in one lump sum and repaid in one lump sum on the due
date.

Repayment of existing ECB with prior permission of RBI ,Govt. of India.

Repayment of existing Rupee Term Loan

Purchase of indigenous machinery or/and import of capital goods , raw materials.

For Pre-shipment credit in Foreign Currency (PCFC) or Post-Shipment Credit in
Foreign Currency (PSFC)
For meeting working capital requirement in Indian Rupees.
Foreign Currency loans are given to Indian corporates as well as
multinationalsoutside Indiaalso as per ECB policy guidelines.

On transaction to transaction basis within the existing credit facilities

Minimum USD 0.50 mn. (Rs. 2.00 Crores) equivalent.
Normally in US$, FC Loans can also be availed in Pound Sterling or in Euros
subject to availability of funds

Japanese Yen: 10 million.

Maximum: Depend on sanctioned WCDL amount/TL amount

Roll-over at the sole discretion of the Bank

In case of loans on floating rate basis the rates will be reset once in every six
months
Interest charged on reducing balance method.
Forward cover for appropriate maturity to be booked.
Forward cover can be waived for customers having natural hedge.
Prepayment generally not permitted
In exceptional cases prepayment permitted. However, as an exception,
prepayment is permitted in certain cases, with levy of penalty.

Minimum period -- 6 months

For import of capital goods--the period should not exceed 3 years including
moratorium period. Normal period is 180 days Usance. In case of substitution of
Rupee Term loan, the period is unexpired portion of term loan or 3 years
whichever is less.
For import of raw materials or for working capital requirement--The FCNR-B loan
is linked to the MPBF limit and the portion of the loan with equivalent Indian
Rupees is earmarked

The Rate linked to LIBOR (LondonInter-bank Offered Rate) Plus Mark-up (Risk
Premium) decided by Banks own Management from time to time, renewed/rolled
over on half- yearly basis. The rates are quoted based on External and Internal
Credit Rating of the borrower.
The base rate for FCNRB (DL) in USD, GBP and YEN is LIBOR.
The base rate for FCNRB (DL) in EURO is EURIBOR.
The base rate for FCNRB (TL) is 6 month LIBOR/EURIBOR.

The differential over the base rate will be as per the credit rating of the borrower.
The existing separate rates for Demand Loans and Term Loans are dispensed with
and uniform rates are quoted based on External Credit Rating, subject to reset
every 6 months @ 6 months LIBOR.
External Credit Rating

AAA

AA+, AA, AA-

A+, A, A-

BBB+, BBB, BBB-

BB+ and below (Only Roll Overs)
Interest Rates

Libor + 3.50%

Libor + 3.50%

Libor + 4.00%

Libor + 4.50%
Libor + 5.00%
Advantages

1 cover exposure against the exchange rate movements

2 Normally these are long-term loans with a reset clause every three to six months, linked to Libor.
Firms have the choice of converting such borrowings into rupee loans after each reset.
only extend such loans for less than a year because the foreign currency has to be
3
returned to depositors at the end of that period.
4 used to hedge currency exposure risk
Not necessary for borrowers to approach international money markets to raise
5
foreign currency funds as the same is available in India.
conversion of Foreign Currency Loan in to Rupee Loan

Disadvantages
the rupee depreciates against the dollar, costs will go up substantially as it would need to buy
1
dollars from the market for repaying the loan.

2 long-term loans based on this strategy, this is very risky. Since it is dependent on external factors
such as Libor and foreign currency rates, any volatility in these makes the loan risky for long-term
strategy making.
Good for those have
regular forex
earnings.
Japanese banks are emerging as lenders of
first choice for Indian firms looking for
foreign currency loans.
Negative rates have pushed yields on
Japanese government bonds to record lows.
The near absence of returns in the domestic
market could spur lenders to look abroad.

An FCNRB (TL) will be crystalised when

(a)The interest is not paid for 3 months

(b)Principal installments are not paid for 3
months

(c)The loan becomes NPA on account of any

other loan of the borrower becoming an
NPA.