P0015 Purpose Code (with Examples)

According to the RBI, it is for transactions related to “Loans & overdrafts taken by ADs on their account. (Any amount of loan credited to the NOSTRO account which may not be swapped into Rupees should also be reported).”

This code is used to report loans and overdrafts taken by Authorised Dealers (ADs) on their accounts. It refers to borrowings that Indian banks or financial institutions obtain from foreign banks for their operational or treasury purposes, rather than on behalf of their customers.

For Example, an Indian bank borrows money in US dollars to manage its operations or meet short-term needs. Even if the borrowed money is kept in a foreign account (called a NOSTRO account) and not converted into Indian Rupees, it still needs to be reported to the RBI under this code. This helps the RBI keep track of all foreign borrowings made by Indian banks.

Types of Banks That Can Provide a Loan to an Indian AD Bank

• Overseas Branches of the Same Bank – AD banks in India that have overseas branches or subsidiaries can raise loans directly from these foreign offices. Although it is within the same banking group, the transaction is treated as an external liability and must be reported to the RBI.

• Foreign Commercial Banks – Indian AD banks can raise funds from reputed international banks or financial institutions in the form of interbank loans or credit lines. These borrowings are typically used to manage liquidity, meet foreign currency obligations, or support trade finance operations.

• Correspondent Banks – Many AD banks maintain relationships with foreign correspondent banks (e.g., via nostro/vostro accounts), from whom they can take overdrafts or short-term loans.

• International Financial Institutions – Loans from institutions like the International Finance Corporation (IFC), Asian Development Bank (ADB), or similar recognised multilateral bodies may be permitted.

• Foreign Central Banks (Rare Cases) – Under P0015, in rare situations, Indian banks may receive loans or currency swaps from foreign central banks, like as part of a special agreement between the Reserve Bank of India (RBI) and another country’s central bank. These are not regular transactions and usually happen during financial cooperation between countries.

• Foreign Bank Branches in India (in Foreign Currency) – Indian Authorised Dealer (AD) banks are allowed, under RBI guidelines, to borrow foreign currency from foreign bank branches that operate within India. The transactions are typically used for short-term liquidity or trade financing needs and are subject to conditions such as purpose, maturity, and reporting requirements.

• Not Permitted as Lenders – Under P0015, loans cannot be taken from certain entities that are not permitted as lenders. These include foreign or Indian private companies, foreign or Indian individuals, non-banking financial companies (NBFCs), and retail or institutional investors who are not classified as banks or RBI-approved lenders.

Reasons for Which an AD Bank Can Take Loans

An Indian bank (Authorised Dealer) can take a loan or overdraft under P0015 for several legitimate business and operational reasons. Here are some common ones, explained simply:

• Managing Foreign Currency Liquidity – Managing foreign currency liquidity means ensuring that a bank or financial institution has enough foreign currency, such as USD or EUR, to meet its payment obligations abroad. This includes settling import bills for clients, processing outward remittances, or handling interbank transfers and commitments. Maintaining adequate foreign currency reserves helps avoid payment delays and ensures smooth international transactions.

• Short-term Funding Needs – An Indian bank may raise short-term foreign currency loans to meet temporary cash flow mismatches in its operations. This is especially useful for managing liquidity in its overseas branches or for fulfilling short-term treasury needs. Such funding helps the bank maintain smooth operations without disrupting core activities.

• Maintaining NOSTRO Balances – It means keeping enough funds in an Indian bank’s overseas accounts to ensure smooth processing of international transactions. These accounts, held in foreign currencies with correspondent banks abroad, help the bank settle cross-border payments without delays. By maintaining adequate balances, the bank can handle outward remittances, trade payments, and other foreign exchange transactions efficiently, avoiding payment failures or processing delays.

• Hedging and Investment Activities – Indian banks may borrow from non-residents to fund activities such as proprietary trading, hedging, or investment in foreign assets and markets as part of their overall treasury operations. These loans are typically used to manage financial risks, diversify investments, or take positions in global markets. These are often subject to specific conditions related to end-use, maturity, and cost ceilings to ensure proper use and risk management.

• Supporting Offshore Branch Operations – An Indian bank can send money as a loan to support the operations of its foreign branch or subsidiary, especially if that branch is facing a shortage of funds. This helps the overseas branch continue its day-to-day work without disruption.

• Arbitrage Opportunities – Under purpose code P0015, Indian banks or authorised dealers can borrow money from foreign markets. Sometimes, interest rates abroad are lower than in India. To save on costs, banks take loans from these countries at cheaper rates and use the money for allowed purposes, like managing foreign currency needs. This strategy is called arbitrage, where banks make use of the difference in interest rates between countries to reduce their expenses and improve profits.

Can an Indian Bank Invest Loan Money Received from Abroad?

Generally, the RBI restricts an Indian AD Bank from forwarding the money borrowed as a loan from abroad for investment purposes; however, the RBI does allow investment, but with prior approval. For example, investing in high-quality liquid foreign securities or short-term treasury operations may be allowed as part of the bank’s treasury management.

Rules for Indian Banks Taking Loans from Foreign Banks

• Investment Must Be Lawful – This means that the investor must follow the guidelines outlined under the Foreign Exchange Management Act (FEMA), as laid down by the RBI.

• Use of Proper Banking Channels – Banks must transfer funds through proper channels. The remittance must go through an Authorised Dealer (AD) bank in India to ensure transparency and compliance with RBI and FEMA rules.

• Applicable for Inward Remittances Only – This code is used only when money is being sent from outside India to be deposited into an AD Bank account. It means the foreign currency being sent is meant to be added to the bank account in India, and not for any other purpose, like giving a gift.

• Applicable Limits and Conditions – There are no fixed universal monetary limits specified by the RBI for borrowings under Purpose Code P0015, but such borrowings are regulated under the RBI and FEMA guidelines. Borrowing should be cautious, allowed for specific purposes, and compliant with regulations.

• Short-Term Borrowing Rules – Typically, such borrowings are required to have a maturity of not more than one year unless special approval is granted by the RBI. These conditions ensure that short-term external debt remains within manageable limits and is used primarily for liquidity management or specific permitted purposes.

• Monitoring by Internal ALM & Treasury – Under P0015, banks that borrow in foreign currency for their use must carefully follow their internal rules for managing money and risk. These rules, known as Asset-Liability Management (ALM) policies, are approved by the bank’s board and help limit how much risk the bank can take. The bank’s treasury team monitors these borrowings to ensure that the bank stays financially stable, has enough money to meet its needs, and is protected from changes in interest rates or foreign exchange rates.

• NOSTRO Credit Usage Must Be Justified – If the loan amount is credited to the bank’s NOSTRO account (a foreign currency account held overseas) and not converted into INR, the bank must still justify the end-use of those funds. Even without swapping the amount into rupees, the transaction must be reported under P0015, and the usage must align with RBI-approved purposes such as short-term liquidity management or trade financing.

• Reporting Loans Deposited in NOSTRO Accounts – Under purpose code P0015, when an Indian bank takes a short-term loan or overdraft from a foreign bank, the transaction is usually done through NOSTRO accounts. In return, the foreign bank may also hold a VOSTRO account with the Indian bank. If the loan or overdraft amount is credited to the Indian bank’s NOSTRO account and not immediately converted into rupees, it must be reported under P0015.

• Tenor and Interest Rate – The Reserve Bank of India (RBI) may prescribe specific rules regarding the tenor (loan duration) and interest rate ceilings to ensure the borrowing is not used for arbitrage or at excessive cost. For instance, the RBI may set a minimum tenor of 1 year or restrict short-term borrowings to less than a year only for certain permitted uses. Similarly, the interest rate on such loans must remain within the RBI’s prescribed all-in-cost ceilings to maintain financial stability and avoid misuse of foreign borrowing routes.

• End-Use Restrictions – Under P0015, when banks in India borrow money from abroad for their use, there are strict rules on how they can use that money. They are not allowed to use it for lending to restricted sectors, investing in real estate, buying company shares (equity), or doing any kind of speculative trading. These rules help make sure the borrowed money is used safely and for proper banking activities.

• Currency Allowed for Operations – According to FEMA regulations, the RBI permits a foreign bank to deposit only foreign currency into an Indian AD Bank. It prohibits transactions in Indian Rupees.

• Due Diligence & Documentation – This includes having clear and legally valid loan agreements outlining interest terms and repayment schedules. Also, banks must perform full KYC (Know Your Customer) and AML (Anti-Money Laundering) checks on the foreign lenders or counterparties involved. These measures ensure transparency, regulatory compliance, and help prevent financial misuse in cross-border borrowing by banks.

How to Report the Purpose of The Transaction to The RBI by Giving the Purpose Code:

The AD Bank is required to submit several forms before initiating the process of receiving loan funds from a foreign bank. Typically, these transactions occur through bank transfers, and the bank will provide a purpose code along with a form that needs to be completed. If you have any questions or concerns, please don’t hesitate to reach out to us via email at support@bankerpanda.com, and we will do our best to assist you.

Tax or No Tax?

Under P0015, the Reserve Bank of India (RBI) does not impose tax on funds sent to India as loans deposited in the Authorised Dealer (AD) Bank from abroad. However, tax may be levied on the interest being sent by the AD Bank to the foreign bank.

P0015 Purpose Code Use Case Examples:

Here are some real-life examples where the RBI’s Purpose Code P0015 would be used to report transactions in India:-

• USD Loan from a Foreign Correspondent Bank:-
  An Indian private sector bank, such as ICICI Bank, faces a temporary shortage of US dollars to handle cross-border payments and trade remittances. To manage this, it borrows USD 50 million from its correspondent bank in New York. The funds are credited to ICICI’s NOSTRO account and used to settle international payments over the next few days. Since the borrowing is for the bank’s operational liquidity and not for lending to customers, it is reported under Purpose Code P0015.

• Overdraft Facility from a Foreign Branch:-
  State Bank of India (SBI), which has a branch in London, maintains a NOSTRO account in GBP. When there is a sudden spike in remittances, SBI’s London branch extends an overdraft facility of GBP 10 million to support payments. Even though this is an internal transaction within the bank’s global structure, the overdraft is for SBI’s own operational needs. Therefore, it must be reported under P0015 as a foreign currency borrowing.

• Funding an Overseas Subsidiary:-
  Axis Bank wants to provide working capital to its wholly-owned subsidiary in Singapore, which handles trade finance and international banking operations. To do this, Axis borrows USD 20 million from a U.S.-based international bank and transfers the amount to its subsidiary. Since this borrowing is used within the bank’s group entities and not for third-party lending, the transaction is classified and reported under P0015, following RBI’s cross-border borrowing rules.

• Investment in Foreign Treasury Instruments:-
  HDFC Bank borrows USD 30 million from a foreign commercial bank to manage its treasury portfolio. The borrowed funds are invested in 3-month U.S. Treasury bills as part of HDFC’s yield management strategy. Because the borrowing and investment are carried out as part of the bank’s treasury operations and not for customer purposes, it is reported under Purpose Code P0015, in line with RBI and FEMA guidelines.

• Short-Term Loan to Manage Forex Volatility:-
  Bank of Baroda anticipates high volatility in the foreign exchange market due to global economic uncertainty. To ensure it has sufficient foreign currency to meet demand and manage forex positions, it borrows USD 25 million from a German commercial bank for 30 days. The loan is kept in the bank’s NOSTRO account and is used to handle forex transactions during the volatility period. As this is a loan taken for the bank’s operational risk management, it is reported under P0015.

• Credit Line from a Foreign Central Bank:-
  During a liquidity crunch in global markets, the Reserve Bank of India facilitates a bilateral arrangement where Indian banks can access foreign currency liquidity. Punjab National Bank avails a USD 40 million short-term line of credit from the Bank of Japan under this arrangement to meet its dollar funding needs. Since this is a loan taken directly for managing the bank’s foreign currency liquidity, it is reported under P0015.

• Interbank Loan for International Payment Settlement:-
  IndusInd Bank has to settle a large international import bill on behalf of its corporate clients, but is facing a temporary dollar shortage. To manage the shortfall, it borrows USD 12 million from another Indian bank’s overseas branch under an interbank agreement. Since the loan is for the bank’s payment obligations and not customer lending, it is reported under P0015.

• Loan from a Foreign Bank Branch Operating in India:-
  A foreign bank’s Indian branch offers a foreign currency loan to Kotak Mahindra Bank for operational funding needs. Kotak borrows EUR 10 million under agreed terms and uses the funds for internal liquidity support. Although both entities operate in India, the loan is in foreign currency and falls under the RBI’s guidelines. Hence, the transaction is reported under P0015.

• Borrowing for Nostro Account Top-Up:-
  Yes Bank notices that its NOSTRO account in Singapore is running low, and it has several pending remittances to process. To top up the account quickly, it borrows USD 15 million from a Singapore-based bank. The amount is not converted to INR but is directly used to fund outward payments. This transaction qualifies for reporting under Purpose Code P0015, as it is a short-term foreign borrowing for the bank’s use.

Rohan Nautiyal

A content writer, editor, and proofreader with over three years of experience in producing well-researched, user-friendly content that simplifies complex information for readers, helping brands to enhance their online presence.