Tags: #read #rbi #new Main Note = [Bilateral, Multilateral Swaps, LoC, Liquidity Arrangements](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md) >[!normal] >**The SAARC Currency Swap Arrangement** >In the wake of 2008 financial crisis, the SAARC nations felt the need for an arrangement whereby short-term foreign exchange could be availed. To fulfill this, on May 16, 2012, Governor Dr. D. Subbarao, announced in the 24th SAARCFINANCE Governors’ Meeting, in Pokhara, Nepal, that the RBI will offer for period of 3 years a [**swap arrangement of US$ 2 billion in both foreign currency and Indian rupee**](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=26475). The scheme since, has been extended thrice. 2. The SAARC Currency Swap Framework came into operation on November 15, 2012. 3. <span style="background-color: #f1ffae">Here the aim is to only provide a backstop line of funding for short-term foreign exchange liquidity requirements or short-term balance of payments stress till longer-term arrangements are put in place.</span> 4. Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka are part of the SAARC grouping. 5. The Currency Swap Facility is available to all SAARC member countries, subject to their signing the bilateral swap agreements. 6. Under the framework, the Reserve Bank has agreed to offer an amount which is withdraw-able in US dollar, Euro or Indian Rupee, with certain concessions for swap drawls in Indian Rupee. ## Mechanism 1. In the first-leg of the swap, RBI would provide US dollar, Euro or Indian Rupee and the borrowing country would provide an equivalent amount of funds or [government securities](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=26475#:~:text=The%20swap%20will%20be%20offered%20in%20US%20dollar%2C%20Euro%20or%20Indian%20Rupee%20against%20the%20domestic%20currency%20or%20domestic%20currency%20denominated%20government%20securities%20of%20the%20requesting%20country.) denominated in their currency, like BTN, MVR, SLR, as a collateral. 1. The borrowing country can use these funds for lending to their banks or for any balance of payments and liquidity crises. 2. The amount can be in range of US\$100-400 million with an additional of US\$ 400 million subject to an overall cap of US$2 billion in US Dollar and Euro and ₹250 billion in Indian Rupee (as on Sept-24). 3. The swap period is 3 months but can be rolled over several times, at the rate of LIBOR (for three months) plus 200 basis points for US Dollar and Euro. 4. For borrowings in INR, rate is RBI repo rate minus 200 basis points with more concessions like waiting period and rollover. 2. In the second leg, borrowing nation would settle the swap with repayment of borrowed amount and the interest and receive the collateral amount. **Thus the swap is just like a loan with collateral.** 3. Only 3 countries—Bhutan, Sri Lanka, and the Maldives—have availed funds under this scheme till September 2024, with Bhutan being the first nation to borrow funds (US$100 million) on March 8, 2013. 4. No nation has defaulted yet. 5. Thus India is the only providing party, other willing SAARC countries are requesting parties. ## RBI's Balance Sheet 1. If a foreign currency like USD is lent under SAARC swap arrangement, it decreases the holdings of [[WSS - Weekly Forex Reserves#^6945d9|(FCA)]]. Hence it is specified that amount lend under SAARC Swap is not included. 2. This reduction is offset by a corresponding swap receivable, a claim on the counterparty central bank) and it becomes a part of *Other Assets/Banking Department* as section 33 of the Reserve Bank of India Act, 1934 does not allow issuance of notes to be backed by such investments. So the foreign currency received as collateral under swap is also not added to the the FCA. 3. Interest income is added to Income/Earnings from Foreign Sources/Earnings from FCA. Any surplus income is transferred to the govt. of India. 4. By providing liquidity during financial crunch, the scheme also helps **RBI to internationalise Rupee.** 5. Like RBI, the Federal Reserve also provides dollar liquidity through its [US dollar liquidity swap lines](https://www.federalreserve.gov/monetarypolicy/central-bank-liquidity-swaps.htm) to few central banks and the Foreign and International Monetary Authorities \([FIMA](https://www.federalreserve.gov/monetarypolicy/fima-repo-facility.htm)\) repo facility. 6. India’s forex reserves were around $300 billion in 2012 and is more than twice as on October-205. This has provided India comfort and leverage to extend more swap support to the countries ## Timeline 1. On March 8, 2013 [Bhutan](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28277]) was the first nation to borrow funds (US$100 million) under this scheme. 2. On February 13, 2016, the RBI extended the framework until [November 14, 2017](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=36310). 3. On December 20, 2018, the RBI incorporated a [Standby Swap Arrangement (SSA](https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0RBIAR201920DA64F97C6E7B48848E6DEA06D531BADF.PDF) into the original swap framework. This allowed borrowing country to draw an additional USD 400 million with the total draws not exceeding the total of USD 2 billion. 4. On November 26, 2019, the framework was again [extended](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=48725) for 3 years to November 13, 2022 but new swap agreements were made in November and [December 2022](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=54828). 5. On June 2024, the [framework](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58170) was extended to 2027 for the 3rd time, with a new separate INR Swap window of total corpus of ₹250 billion and various concessions for swap support in Indian Rupee. The swaps in US$ and Euro under a separate US Dollar/ Euro Swap Window with an overall corpus of US$ 2 billion remain unchanged. 6. [Jun 27, 2024](RBI_Press%20Release_20240627_RBI%20announces%20the%20SAARC%20Currency%20Swap%20Framework%20for%20the%20period%202024%20to%202027.pdf) - RBI announced the SAARC Currency Swap Framework for the **period 2024 to 2027.** 7. [October 7, 2024](RBI_Press%20Release_20241007_RBI%20enters%20into%20Currency%20Swap%20Agreement%20with%20Maldives%20Monetary%20Authority.pdf) - RBI issued a [press release](https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58839) about a Currency Swap Agreement with the Maldives Monetary Authority (MMA) under the SAARC Currency Swap Framework 2024-27. > [Box SAARCFINANCE and RBI Initiatives](RBI_Annual%20Report_2021.pdf#page=233&selection=5,0,6,32) in RBI's Annual Report-2021 > ==Framework on Currency Swap Arrangement for SAARC Countries, 2024-27 in the [[RBI_Annual Report_2025.pdf#page=210&selection=228,0,228,67|Annual Report 2025]]== ## Related Notes 1. [[Bilateral, Multilateral Swaps, LoC, Liquidity Arrangements]] 2. [[Bilateral Swap Arrangement with Japan]] # References 1. [Box SAARCFINANCE and RBI Initiatives](RBI_Annual%20Report_2021.pdf#page=233&selection=5,0,6,32) in RBI's Annual Report_2021 2. Ajesh Palayi. (2024, May 21). *Currency Swaps of the Reserve Bank of India: Role in the GFSN and Fostering International Financial Cooperation.* *RBI's Monthly Bulletin-May 2024*. [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=22589) | [[Currency Swaps of the Reserve Bank of India_RBI_2024.pdf|pdf]] 3. Joshi, S., & Vidyasagar, P. S. S. (2025, March). _Role of Regional Financing Arrangements (RFAs)_ [Section in _Market access and IMF arrangements: Evidence from across the globe_]. _RBI Bulletin_, March 2025. 4. RBI. *Communication, International Relations, Research and Statistics* \[Section in the Annual Report of the RBI-May 30, 2024]