Sbi To Keep Forex Cell In Calcutta After Treasury Arm Merger

State Bank of India plans to merge its foreign exchange and treasury divisions without shifting the forex cell out of Calcutta.

The earlier proposal to move the forex cell to Mumbai and merge it with the treasury had evoked objection from the unions.

Under the new scheme, which is to be cleared by the SBI top brass soon, new reporting systems will be put in place whereby there is greater flow of information between the forex and treasury cells. In order to facilitate this, both the units will report to one deputy managing director, unlike two currently.

Now, the treasury reports to the deputy managing director in-charge of treasury and investments, and the foreign exchange cell reports to the deputy managing director in charge of the international division. Under the new system, there will be regular reporting between the two departments on line.

 

Once the two departments of SBI work in tandem, there will be immense arbitrage opportunities for the largest player in the money and forex markets.

Sources point out that there will be hourly reporting on the funds position in both the markets. When the departments work separately most of arbitrage opportunity is lost. Now SBI will be able to hit foreign banks who are very active in the arbitrage market.

SBI has the information advantage of its own funds position which is huge. The traders at SBI can act just before the bank enters the market to take favourable positions.

One of the areas where SBI can arbitrage is the cash spot market. In case SBI plans to lend huge amounts in the call market, SBI can sell foreign exchange forward contracts ahead to that it good rates. Generally, when the call rates fall so do the forward premia. Another area is if there is huge demand for the dollar say from oil companies. These oil companies withdraw rupees from their loan and cash credit accounts to buy the dollars.

This might lead to a drying up of rupees forcing banks to borrow in the call market. Anticipating the demand, SBI can suspend lending at low rates till the demand comes in and rates move up.

Many other banks have also planned to merge their money and forex divisions. These include Bank of India, Bank of Baroda, Union bank of India and central bank of India. Says an SBI official, we have taken up the issue of the merger on a war footing.