The article “Greece in India” by Sanjaya Baru (June 20) is a fairly accurate account of the foreign exchange crisis that India faced two decades ago. I can testify to this having worked in the Reserve Bank of India (RBI) as adviser (International Finance) and coordinator with the International Monetary Fund (IMF) during that period. The low point reached in foreign currency assets ($1.12 billion) did not tell the whole story. At the time, State Bank of India (SBI) was the banker in New York for raising funds for Indian Oil Corporation, the central agency for crude oil imports. It faced problems getting funds in the money market. So the RBI had to deposit $600 million with SBI as a standby, a fact that was not revealed to the IMF mission. But the mission got the information from SBI. So, thereafter we had to show the deposit as a deduction from foreign exchange reserves in our statements to the IMF. We also had some foreign exchange reserves with Indian Overseas Bank (IOB), which the IMF did not discover since the small commercial bank did not merit a visit from the mission. Later, when SBI returned the forex to the RBI, we continued to show it as outstanding from that bank. It was a fallback position for the RBI in case the IMF discovered the transaction with IOB. We could rationalise it since the net position was more or less the same. I had to undertake the embarrassing assignment of orally advising SBI authorities not to talk about the return of the forex loan to the RBI during their meetings with the IMF.
A Seshan, Mumbai
Readers should write to:
The Editor, Business Standard,
Nehru House,
4, Bahadur Shah Zafar Marg,
New Delhi 110 002,
Fax: (011) 23720201;
letters@bsmail.in