New Delhi, June 23 -- The Reserve Bank of India (RBI) on Tuesday clarified that Indian banks and their overseas branches can extend loans to a non-resident, or issue a guarantee in favour of foreign lenders against deposits raised under the new window.

Several lenders had sought clarity from RBI on whether they can raise FCNR (B) deposits by extending loans to non-residents through their overseas branches, The Economic Times reported on Monday, citing people familiar with the matter.

On 5 June, RBI said it will absorb the foreign exchange hedging cost on fresh foreign currency non-resident (bank), or FCNR (B), deposits, creating an unusual opportunity for overseas Indians: the possibility of earning equity-like returns from what is esse...