Reporting On Peak Intra-Day, End-Day May Hit Speculators

The Reserve Bank of India's directive asking banks to report end-day and peak intra-day positions is expected to put pressure on the banks and stop them from excessive speculation.

As part of its rupee-rescue package, the RBI has directed banks to report their positions at the close of daily business, their open position at 10 a.m. and also their peak intra-day position. The knowledge that the apex bank is monitoring the market closely will deter banks from speculating in the market.

Banks are allowed to hold long or short positions within limits specified by their respective boards and approved by the central bank. These limits allow banks to hold excess or deficit dollars with a view to take advantage of movements in the exchange rate. As per RBI regulations, these positions are reported to the apex bank daily.

Banks also have intra-day limits which are fixed by their managements and are unregulated by the central bank. Hence, excessive intra-day positions will clearly indicate which banks are speculating during the day, dealers said.

"A small position of a few millions dollars may be considered normal. But if the position held is in a ratio of around 1:3 to total turnover, it indicates a fairly high degree of speculation," one treasury chief said. Besides, even if all banks in the system take small positions, on an aggregate level, it would result in a fairly large limit, bankers said.

Bankers, however, said the central bank could not take legal action against a bank so long as it kept itself within limits. However, it would induce banks to limit their positions.

"It is more in the nature of a verbal intervention to discourage inter-bank speculation," a foreign bank treasury head said. The move was more in the nature of a call for help from the RBI to help contain speculation and the uncertain sentiment, he added.