MUMBAI, December 9: Bank of India (BoI) is all set to offer "dual-currency limit" to high net worth corporates. Christened as "swing limit", blue-chip corporates, under this scheme, will have the freedom to "swing" from rupee to dollar loans at any given point of time. The scheme will, in effect, enable domestic corporates to take a view on the rupee.

This is for the first time a bank in the country will be offering the dual- currency option to corporates. Confirming this, a senior BoI executive said: "We are in the process of fine-tuning the scheme. It will be effective before the end of the current fiscal".

Industry watchers have interpreted the move as a step towards the capital account convertibility. Incidentally, Bank of India chairman MG Bhide is one of the prominent members of the Tarapore panel on capital account convertibility.

Banks have been offering foreign-currency loans to corporates, through the FCNR(B) window. However, FNCR(B) loans are primarily accessed by net-export earners. BoI plans to offer dollar loans to all triple-A (AAA) rated corporates, which have the financial muscle to hedge currency risks. "For openers, we will offer these corporates the option to switch over to dollar loans up to $3 million," sources said.

Under this scheme, a corporate, having a working capital limit with BoI, can replace his rupee loan with a dollar-denominated loan and vice versa.

"To give them the right flexibility, the interest on the dollar loan will be linked to one-month Libor rate. The corporates will, in other words, not end up locking themselves in longer-term dollar loans. They will be able to switch to rupee loans fast if their views on the Indian currency change," BoI sources said.

The bank will also prescribe a sort of `stop loss' limit, against currency devaluation for each dual-currency option sold to corporates. If the currency in which the corporate has converted its loan depreciate beyond a certain limit during the tenor of the option, then the bank will forcibly terminate the option and convert it back to the original currency. "This limit will define the maximum risk that a corporate can take, while buying the option," said sources.

The benefit to the bank will be a fee charged for providing the option and also in booking forward cover for its clients.

Dual-currency options are widely used by corporates abroad to protect their loan portfolio against exchange-rate risks. "This is a new concept -- very different from FCNR(B) loan schemes. We have felt the pulse of domestic corporates. They are very keen," sources said. However, the bank may not be able to launch the scheme very soon as the Reserve Bank has recently clamped some restrictions on the re-booking of forward contracts. "This is a temporary phenomenon. There is no legal or regulatory barrier on the dual- currency limit. We are confident that it will be available to corporates in the last quarter of the current fiscal," BoI sources said.

Once the scheme is implemented, corporates will be able to swap their rupee-denominated loans with dollar-denominated ones for different tenors, ranging from a month to a year. During the swap-period, corporates will have to compulsorily take forward cover for their exposure.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.