MUMBAI, July 8: Reserve Bank of India has relaxed the forward exchange contract norms. It has allowed banks which do not form a part of a consortium to book forward exchange covers for corporates.

In effect, the apex bank has revoked a measure taken on September 1992 which stated that corporates could book their forward exchange contracts only through those banks which form part of the consortium that lends to them. According to sources in the exchange control department of the Reserve Bank, the relaxation has been given as the concept of consortium lending is likely to be replaced by syndicated deals in the near future. "The banks outside the consortium have been allowed to do business with corporates like booking forward contracts for them as we believe that the concept of bank consortium is coming to an end," a senior executive of the central bank said.

The banks who do not form part of the consortium have been allowed to carry on fund and non-fund business of the corporates, sources in Reserve Bank's exchange control department said.

This relaxation will benefit primarily the private and some of the foreign banks which have recently opened shops in India.

Most of the new generation private banks still do not form part of the consortium that lend to the bigger corporates. "This step will harm the smaller nationalised bank in a big way as their treasury operations are generally not as good as the foreign banks or some of the newly set private banks," a banker said. Lately, smaller nationalised banks have started to feel the heat as they are in the process of being dropped out of consortiums that have been traditionally lending to large corporates. The RBI had also taken a measure which stated that if the corporates wanted to do any business with banks outside the consortium, the corporate had to take no objection certificate from the consortium. "The latest circular effectively takes care of this also", a RBI source said. In the monetary and credit policy for the first half of fiscal 1997-98, announced on April 1997, the Reserve Bank introduced flexibility in the credit delivery systems.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.