Fcnr (A) Funds Conversion To Ease Pressure On Reserves

A major chunk of $4.6 billion FCNR (A) liabilities are being converted into FCNR (B), NRNR and NRE deposits. This will reduce pressure on the foreign exchange reserves of the country.

It was expected that the repatriation of FCNR (A) deposits -- the liabilities where the Reserve Bank bears the exchange risk -- would lead to a major a outflow from the country's forex reserves resulting in the depreciation of the rupee.

However, almost 70-95 per cent of the FCNR (A) deposits are being converted and kept in India. The FCNR (A) scheme was withdrawn by the RBI in a phased manner with effect from August 15, 1994. In its place, the FCNR (B) scheme was introduced wherein the bank, and not the RBI, has to bear the exchange rate risk. The last tranche of the deposits are to mature in phases by August 15, 1997. To prevent the repatriation of funds, the RBI and the SBI worked out a plan to encourage investors to reinvest the funds in other options, namely FCNR (B), NRNR, and NRE.

The banks have been encouraging their non-resident account holders to convert the funds which are maturing under FCNR (A) scheme into FCNR (B) scheme. General manager of Bank of Baroda's international division R Jayaraman reported a conversion rate of 98 to 99 per cent. He said the bank has only a few stray cases of repatriation. BoB is offering automatic renewal of the funds into FCNR (B) funds.

As per RBI books, the total volume of funds on March 1996 was $4,624 million in FCNR (A), $5,723 million in FCNR (B), $4,004 million in NRE, and $3,544 in NRNR.

P S Shenoy, general manager, Bank of India, says, "as much as 90 per cent of the FCNR (A) deposits are being converted into either FCNR (B) or NRNR deposits."