Reserve Bank of India on Wednesday (reserve Bank of India) announced measures to contain the fall in the rupee, which fell by nearly 80 points to the dollar, a lifetime low for the unit. The measures announced include removal of interest rate cap on FCNR(B) (Foreign Currency Non-Resident Bank) and NRE deposits and exempting banks from incremental deposits in their non-interest bearing cash reserve ratio through these routes.CRR) Calculation. These rules will remain in force till October 31.
Bankers said the measures are pre-emptive, but may not attract lenders to immediately dollar deposit,
Ashish Vaidya, managing director (treasury), DBS Bank India, said, “The after-hedging cost of FCNR (B) deposits is 1 to 1.5 per cent higher than the current rupee deposit rate, which makes it unattractive for banks.
no interest rate subsidy
“But things could change in a few weeks as rates are only at higher levels, which could make these deposits more viable,” he said.
Currently, the cost of one year rupee fixed deposit is around 6%. Conversely, after considering foreign benchmark rates, cost of hedging and premium charged by banks, the cost of FCNR(b) deposits can range from 7% to 7.5%, which clearly shows a business case for local savings. gives suggestions.
Also, unlike last time when such a scheme was announced in 2013, this time there is no RBI support to banks in the form of subsidy to keep costs down. In FY14, banks raised a record $27 billion through the FCNR(B) route, when the RBI removed the interest rate cap and offered a 3.5% interest rate subsidy to banks to block the rupee route. Was.
Bankers said though the rupee is currently under pressure, the crisis is not as acute as it was in 2013, with the rupee depreciating by around 6% in 2022. India is also not among the worst performing emerging market currencies and so are its foreign currencies. The exchange reserves of $593 billion are more than double what it was in 2013.
Bankers said the RBI may modify its measures and provide some more support to banks to make the schemes more attractive.
“It is a step in the right direction and a positive step. Yes, as per current calculations, it may not be possible for banks to increase these deposits but RBI always has the option of adding more incentives and making it more attractive. treasury chief KK Taraniya said
, “So, it’s early days to assess success[of these measures].”
In a note published on Thursday, Kotak Institutional Equities said the RBI’s measures indicated a strong intent to address the current dollar shortfall.
“While we remain cautious on the volume of incremental inflows, we view these measures as pre-emptive to prevent any sharp depreciation bias and reduce volatility in INR,” Kotak said in the note. “We continue to see USD-INR in the range 78.5-80 in the near term. We note that fundamentals continue to weigh on the INR. However, RBI will try to ensure a systematic depreciation.”