Central bank allows banks to invest 40 per cent of forex reserve abroad

Central bank allows banks to invest 40 per cent of forex reserve abroad

Central bank relaxed the banks' limit in investment in foreign currencies. Issuing a directive today the central bank allowed commercial and development banks to invest up to 40 per cent of the deposit overseas in call deposit, certificate of deposit and other secure instruments floated by international banks and foreign governments for a period of up to two years. Earlier, they were allowed to invest only 30 per cent of their deposit parked at the overseas banks in such instruments. The move is expected to help class A and B financial institutions to invest larger portion of foreign exchange reserve abroad. It will also help them in the management of excess liquidity. The central bank has, however, did not change its earlier provision that allows commercial and development banks to invest all of deposit parked overseas in secure investment tools for up to a year. Likewise, the central bank also let commercial and development banks maintain an account of $1 million in foreign banks, if they do not issue letters of credit, do not maintain dollar – convertible currency – accounts and are not engaged in forward trading. "The money can also be invested in secure instruments floated by international banks and foreign governments," said central bank that expects capacity increment of commercial and development banks to hold convertible currency. The class A and B financial institutions were earlier allowed to maintain a deposit of up to $200,000. The central bank also permitted commercial and development banks to park up to 35 per cent of foreign exchange liabilities created by issuance of letters of credit in foreign bank accounts. Earlier, the ceiling was fixed at 25 per cent.
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