Adequate reserve to deal with FCNR redemption

After touching a record high last week, the country's foreign exchange reserves declined by $231 mn to $363.23 bn in the week ended June 10

Amid concerns over the possible impact on markets of $20-billion outflows due to imminent maturity of a non-resident deposit scheme, government sources said on Monday there were adequate reserves to deal with these redemptions.

The government has the option of rollover if investors want, highly-placed sources said.

When the rupee had a freefall to a life-time low of 67.85 due to the US Federal Reserve “taper tantrums” in the summer of 2013, India had mobilised $26 billion through foreign currency non-resident bank account (FCNR-B) deposits by offering a special swap window for banks. The three-year deposits are maturing starting September.

Concerns have mounted on the impact of these redemptions on rupee and bond markets with Reserve Bank of India (RBI) Governor Raghuram Rajan, who is credited to have contained rupee volatility soon after joining the central bank about three years ago, saying no to a second term after his current tenure ends on September 3.

Seeking to allay concerns, the sources said that government is ready to redeem $20 billion FCNR-B deposits as there is adequate forex reserves.

After touching a record high last week, the country’s foreign exchange reserves declined by $231 million to $363.23 billion in the week ended June 10.

In the previous week, the reserves had increased by $3.27 billion to hit an all-time high of $363.46 billion.

In his message to the RBI staff this weekend, Rajan had said: “There could be outflows of $20 billion or so (due to the FCNR-B deposit redemptions). We have covered these outflows in the forward markets and before the maturity of the deposits we will take some advance deliveries leading up to the maturity.”