Rajan soothes worry on oil swap liability

RBI understands gold import curb is a distortion for the economy but needed at this point

The three state-run oil marketing companies (OMCs) have combined net repayment liabilities of less than $7 billion for their foreign exchange swap arrangements with the Reserve Bank of India (RBI).

“That is approximately what will have to be repaid over time. As and when the times comes, we will take a view on how the repayment will happen and how it can be settled by way of exchange of two-three funds, based on the settlement amount. The swaps could be rolled over, if necessary. If market conditions permit, it can also be repaid,” said RBI governor Raghuram Rajan, at a post-monetary policy review conference call on Wednesday.

RBI had opened a special swap window for the OMCs in September, to meet their dollar demands in the wake of the rupee’s sharp depreciation. The window has since been withdrawn and the companies sources their dollar requirement from the market.

Beside this, said Rajan, the total amount of oil swap agreements RBI entered into with refiners to provide them with dollars was a little under $12 bn since the introduction on August 28.

RBI also assured that the government's Rs 50,000 crore debt switch to increase the maturity profile of its bonds would not disrupt the markets. “The debt switch will be in a calibrated manner and non-disruptive. The point to be noted is the large number of long-tenure bonds are held by insurance companies and not so much with banks. There will not be worries about bond yields’ spike due to the bond switch,” said deputy governor H R Khan.

Gold import curbs
In the recent past, RBI had put a number of restrictions on gold import. It is to gradually remove these. “I do not think it is right to say RBI is in favour of removing gold restrictions at this point. The point which I shall make is that gold restrictions are a distortion and there is a necessary distortion at this point, to restore  balance to the current account deficit (CAD). Going forward, we would not like this distortion to persist and we would like to remove it,” said Rajan.

Adding: “When we do (this) in conversation with the government and what or how we unwind these restrictions is something we will have to deliberate over time. At this time, it would be premature to withdraw the restrictions for a variety of reasons. Once we see the CAD stabilise, once we see that the threat of tapering (of the US Federal Reserve’s bond buying programme) is behind us, we will certainly consider unwinding some of these distortionary actions.”

Liquidity
RBI believes there is ample liquidity for banks. “The Liquidity Adjustment Facility is 0.5 per cent of Net Demand and Time Liabilities (NDTL). Export credit refinance, which is also at the repo rate, is almost 6.6 per cent of NDTL. So, we are providing more than one per cent of NDTL in terms of liquidity. On top of that, we have a term repo window and that is another 0.5 per cent of NDTL,” said Urjit Patel, deputy governor.