 "RBI widens ambit for bank guarantees to NRIs")
To attract more foreign flows into the country the Reserve Bank of India (RBI) took another measure on Thursday to boost the rupee. It allowed banks to issue, without its approval, guarantees on behalf of non-residents acquiring shares or convertible debentures of a company in India through open offers or delistings or exit offers.
RBI said such transactions should comply with the Sebi Substantial Acquisition of Shares and Takeover Regulations. Besides, the guarantee by a bank should be covered by a counter-guarantee from a lender of international repute. S N Ananthasubramanian, president of the Institute of Company Secretaries of India said this would help restore confidence and be a building block in attracting investments.
Karthik Srinivasan, senior vice-president of Icra, said the move had the potential to attract investments (foreign currency-denominated). That could help stablise the markets.
To provide exporters and importers greater flexibility in risk management, RBI had on Wednesday enhanced the limit available to exporters to 50 per cent. The limit for importers was raised to 25 per cent. RBI also offered a window for banks to swap fresh foreign currency non-resident (bank) deposits or FCNR (B) dollar funds.
These are mobilised for at least three years, at a fixed rate of 3.5 per cent a year. Besides, RBI enhanced the current foreign borrowing limit of bank's core capital to 100 per cent from the earlier 50 per cent. It said borrowings mobilised under this provision could be swapped with RBI at the option of the bank, at a concessional rate of 100 basis points below the swap rate in the market.
The rupee ended stronger against the dollar on Thursday due to these measures and dollar sales by state-run banks acting on behalf of RBI. The rupee ended at 66.12 to the dollar, compared with Wednesday’s close at 67.09. It had opened at 66.04 and during intra-day trade, touched a high of 65.53 and a low of 66.51.
Currency dealers expect the rupee to appreciate further on Friday, due to the positive sentiment in the market.
RBI said such transactions should comply with the Sebi Substantial Acquisition of Shares and Takeover Regulations. Besides, the guarantee by a bank should be covered by a counter-guarantee from a lender of international repute. S N Ananthasubramanian, president of the Institute of Company Secretaries of India said this would help restore confidence and be a building block in attracting investments.
Karthik Srinivasan, senior vice-president of Icra, said the move had the potential to attract investments (foreign currency-denominated). That could help stablise the markets.
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RBI also said the guarantee shall be valid for a tenure coterminous with the offer period as required under the Sebi (SAST) Regulations.
To provide exporters and importers greater flexibility in risk management, RBI had on Wednesday enhanced the limit available to exporters to 50 per cent. The limit for importers was raised to 25 per cent. RBI also offered a window for banks to swap fresh foreign currency non-resident (bank) deposits or FCNR (B) dollar funds.
These are mobilised for at least three years, at a fixed rate of 3.5 per cent a year. Besides, RBI enhanced the current foreign borrowing limit of bank's core capital to 100 per cent from the earlier 50 per cent. It said borrowings mobilised under this provision could be swapped with RBI at the option of the bank, at a concessional rate of 100 basis points below the swap rate in the market.
The rupee ended stronger against the dollar on Thursday due to these measures and dollar sales by state-run banks acting on behalf of RBI. The rupee ended at 66.12 to the dollar, compared with Wednesday’s close at 67.09. It had opened at 66.04 and during intra-day trade, touched a high of 65.53 and a low of 66.51.
Currency dealers expect the rupee to appreciate further on Friday, due to the positive sentiment in the market.