Approval from Reserve Bank of India (reserve Bank of India), several executives told ET, the recent depreciation of nearly 7% against the US dollar in the rupee was hard to come by, amid a unidirectional global rush for assets in the world’s reserve currency at the start of the year.
“Our request for offshore money transfer has been kept silent,” an executive cited above told ET. “Delays are common now that local funds are going global, with no possibility of immediate withdrawal (for funds remitted abroad).
RBI did not respond to ET’s queries on the subject.
Affected entities, largely medium or small in size, intend to send money in the hope that the rupee may weaken further. Some companies are also looking to split the payment while meeting their offshore liabilities.
Outperformed against Euro pound, yen
The rupee on Monday climbed 0.15% to close at 79.74 against the US dollar. Bloomberg data compiled by ETIG showed the local unit hit a lifetime low of 80.06 on July 21. The greenback has lost 6.77% this year, ranking seventh among Asian currencies. But the rupee has outperformed other major currencies. It has risen between 3% and 10% against the euro, pound and yen in this calendar year.
A company can remit dollars abroad after conversion from rupee for a number of purposes – foreign investments, offshore acquisitions, royalty payments to foreign promoters and dividend distributions.
central bank node
Companies are required to seek permission from the RBI unless such funds transfer is done through an automatic route or through an authorized dealer (AD), mostly a foreign bank acting on behalf of its client company.
However, the situation is far more stable than in 2013, when the rupee fell around 70 to a dollar after what was known as a taper tantrum globally.
“We used to get calls from RBI in 2013 to close any offshore positions immediately,” said a currency dealer. “On the contrary this time, it’s quite composed.”
This is probably because the central bank favors a gradual withdrawal of the currency against the dollar and does not want disruptive price changes.
“The rupee depreciation will not be permitted continuously, but maybe gradually, depending on global factors,” said executive vice president Bhaskar Panda.
, “Unlike such occasions in the past, the situation is no longer worrisome.”
foreign capital funding
At present, the central bank is reportedly not in favor of immediate foreign capital expenditure which will come at the cost of investment of Rs. Withdrawal of cash from Indian operations and investments abroad inevitably mean further selling pressure on the rupee.
A Mauritius-based fund facilitator said, “Capital outflows are happening to a large extent, but regulators are closely monitoring the category of outflows and payment of tax on heavy remittances to companies.”
“This is expected to continue for another six/nine months, by which (time) the government expects to stabilize the rupee,” the person said.
“In fact, the regulator is not objecting to overseas expansion, but not at the cost of putting additional pressure on the rupee,” said the head of equity capital markets at a large foreign bank.
This essentially means that a company will have to find its resources in its overseas operations for the time being, this person said. For its part, the central bank has said that the value of the local unit will reflect broader fundamentals. “We will continue to engage with foreign currency Market and ensure that the rupee finds its level in line with its fundamentals,” RBI Governor Shaktikanta Das said last Friday.