RBI steps help forex reserves recover from three-year lows.

Foreign exchange reserves of the country staged a smart recovery after the Reserve Bank of India (RBI) relaxed the norms for non-resident Indian (NRI) deposits and overseas borrowings by banks.

As on September 20, India’s forex reserves were at $277 billion, $2 billion higher than the previous week.

This is second consecutive weekly gain for forex reserves, which had fallen to an over-three-year low of $274 billion earlier this month.

India’s foreign currency assets were up $1.9 billion in the week ended September 20, according to data from the RBI.

The forex reserves had suffered due to heavy interventions by RBI in the exchange rate market to stop rupee’s downward spiral.

The trend has reversed with the help of relaxations in norms on NRI deposits such as Foreign Currency Non-resident (FCNR (B)) accounts.

RBI had opened a special concessional swap window for Indian banks to mobilize their FCNR (B) dollar funds and overseas borrowings on September 4, the day Raghuram Rajan took over as the central bank governor.

To make the offer sweeter, RBI had reduced the minimum maturity of the eligible deposits to one year from three years.

However, the offer is limited to funds raised before November 30, when other relaxations on NRI deposits expire.

“The scheme is a win-win for all,” said Param Sarma, director and CEO of NSP Treasury Risk Management Services.

Under the scheme, the NRIs get attractive returns on their deposits and banks can swap them for rupee funds to lend at higher spreads.

Sarma said the scheme could attract as much as $10 billion and possibly avoid the need for an immediate sovereign bond issue.

Gyan Harlalka, managing director and head of markets at Royal Bank of Scotland, India, said, “India’s forex reserves position would also improve as the money comes in.”

In the mid-quarter monetary policy review last week, Rajan had said that the measures had brought in $466 million through the FCNR (B) and $917 million through the swap facility to a total of nearly $1.4 billion in the initial days.

Source : dnaindia.com