The Reserve Bank of India has issued a directive permitting commercial banks to extend credit using foreign currency deposits as collateral, introducing a new lending instrument aimed at expanding liquidity options for borrowers.
Under the framework, banks will be able to offer loans backed by foreign currency held in eligible deposit accounts. The measure gives depositors and borrowers an additional avenue to access financing without liquidating their holdings, while allowing banks to deploy a wider range of collateral.
Such regulatory adjustments are part of the central bank’s broader efforts to deepen credit markets and improve the flexibility of the financial system. By widening the set of acceptable collateral, the RBI aims to support credit availability while maintaining prudential safeguards.
The Reserve Bank periodically updates lending norms to balance growth objectives with financial stability, and directives of this kind typically come with conditions governing eligibility, valuation and risk management. Banks are expected to frame internal policies in line with the central bank’s guidance.
The development adds to a series of liquidity and credit measures introduced over the past year as policymakers seek to sustain economic momentum.
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Sources:
https://tradingeconomics.com/india/stock-market