The Reserve Bank of India (RBI) on Thursday threatened exporters and banks with penal action if they were found violating its instructions on converting dollar funds into the domestic currency in a fortnight.
The central bank’s move came on a day the rupee saw sharp swings — it appreciated 73 paise from the day’s low to close at 55.66 a dollar. The currency went up 0.6 per cent as compared to the previous close. The currency ended up 0.6 per cent as compared to the previous close. However, during early trade, it registered a new intra-day low of 56.39 against the greenback.
The RBI had on May 10 cracked down on exporters hoarding dollars and asked them to sell half the foreign currency in their accounts. It also directed all exchange earners to surrender 50 per cent of their future earnings for conversion into rupees.
“Fifty per cent of the balances in the Exchange Earner’s Foreign Currency accounts should be converted forthwith into rupee balances and credited to the rupee accounts as per the directions of the account holder,” the RBI had said.
It had said the process must be completed within a fortnight.
In a strongly worded letter on Thursday, the RBI wrote to the Foreign Exchange Dealers’ Association of India (FEDAI) and banks, “Today is the last day for conversion of 50 per cent of EEFC account balances. In case you find that the customers (exporters) are not forthcoming in the matter, you may advise them that the RBI may be constrained to take severe penal actions against such recalcitrant corporates as well as penalties on you.”
The central bank added, “Even after doing the same if they do not cooperate, if necessary you may convert 50 per cent of the balances (on spot basis) and credit the rupee proceeds to the customers’ accounts today.”
Banks received the circular on Thursday afternoon. Dollar inflows in the last couple of hours of the day helped the rupee bounce back, dealers said.
Bankers had sought operational clarity from the central bank on the May 10 circular as they were facing resistance from customers over the conversion of their dollars. However, following on Thursday’s RBI circular, banks were able to comply with the requirement even without customers’ consent. Banks were also asked to report full compliance with the RBI’s instructions by late Thursday evening or Friday morning.
A treasury official of a private sector bank said they had two more options.
“We earmarked funds against forward contracts and also made immediate payment for imports though a majority of the amount had to be converted into rupees,” the official said.
Also, in a clarification dated May 16, RBI said that the norm will only be applicable to available balances in the EEFC account which may be arrived by netting off earmarked amounts on account of outstanding forward or option contracts booked before May 10. As a result, the inflows from these accounts were much less than earlier estimation of $2.5 billion, the treasury official said.
The rupee appreciated for the first time this week, as the RBI stepped up its spot foreign exchange intervention, too. According to dealers, the central bank sold $500-600 million on Thursday.