FinMin looks at RBI for final view on forex reserve SPV

After failing to convince the Reserve Bank of India (RBI) to invest part of its forex reserves in the proposed overseas subsidiary of India Infrastructure Finance Company Ltd (IIFCL), the finance ministry is planning to put the issue before the RBI Board of Directors for a final view.

"We may soon write to the RBI to take up the issue in its Board of Directors meeting," an official said.

The central bank's affairs are governed by a central Board of Directors. The board is appointed by the government according to the guidelines set by the RBI Act.

While the official directors include the RBI governor and four deputy governors, the non-official directors are selected from various fields of society, and a government representative.

At present the 15 non-official directors include economist Suresh Tendulkar, Wipro Chairman Azim Premji, Aditya Birla group Chairman Kumar Mangalam Birla and Finance Secretary D Subbarao, among others.

The overseas subsidiary of IIFCL, which is expected to be set up in London, is meant for financing overseas infrastructure expenditure of Indian companies using a part of the country's burgeoning forex reserves.

Finance Minister P Chidambaram had announced the proposal in his Budget speech in February this year according to the recommendation of the Deepak Parekh Committee on infrastructure financing.

While the finance ministry wants the RBI to take up an equity stake in the proposed subsidiary of IIFCL, the central bank is in favour of refinancing the loans of the subsidiary.

In an earlier meeting, the RBI had also given various options to the ministry such as buying forex reserves and trying out the refinance option for one year.

However, the ministry, which is not comfortable with such options, has held that the refinance option would not be feasible as it takes six to nine months for getting regulatory concurrence for providing financial guarantee to such entities.

On the other hand, the RBI fears that investing in such a special purpose vehicle will create a wrong precedence as it has to deal with many more such proposals.