Fedai Readying Blueprint For Banks' Transition To Euro

The Foreign Exchange Dealers' Association of India (Fedai) is formulating operational guidelines for Indian banks' transition to the euro, the new currency of the European Monetary Union (EMU), top Fedai officials said. A Fedai committee will shortly present its report to the Reserve Bank of India (RBI) which has set up a task force to examine the modalities of the transition.

"Fedai is looking into all operational details of the transition. It is outlining possible guidelines which banks could implement," an official said. The committee is comprehensively examining various operational aspects as well as possible regulatory changes to be effected by the RBI, the official said. He said it was examining the changes to be made in banks' various accounts, exposure limits, reconciliation, and the daily work flow, among other matters. During the transition phase - between 1999 and 2002 _ Indian banks and corporates will have to invoice in euro and in existing European currencies.

 

The parity between these currencies and the Euro will be fixed on January 1, 1998. The various European currencies will cease to function as legal tender by 2003. Among regulatory issues, the committee has pointed out areas where the central bank will have to effect changes in the exchange control policy.

This includes permit to banks for transacting in the Euro as well as accepting euro deposits from banks overseas and from non-residents. "The RBI will have to clarify whether Euro-denominated FCNR(B) and NRE deposits can be expected," an official said.

The finance ministry will also have to issue notifications about euro-denominated borrowings, he said. About 30 percent of India's total foreign exchange exposure is in non-dollar currencies, bankers said. This, however, includes the British pound which will not be part of the euro in January 1998, and the Japanese yen.Fedai officials said banks will have to commence preparations immediately in order to be prepared for the first phase of the transition on January 1, 1999.

A good part of the preparations will be technological in nature as banks will have to gear up their systems for invoicing euro-denominated deals.