Ready for FCNR (B) redemptions without disruption: RBI

Has covered 80% of requirements through forward contracts

Clearing concerns over adverse effect of outflows from foreign currency non-resident (bank), or FCNR (B), deposits upon maturity, Reserve Bank of India (RBI) Governor Raghuram Rajan said the central bank had signed forward contracts for 80 per cent of dollar requirements to meet obligations. RBI also has ample reserves to fight curb excess volatility in the market, he noted.

In the Third Bi-monthly Policy Statement for 2016-17, Rajan said the central bank has been front-loading liquidity provision through open-market operations and spot interventions and deliveries of forward purchases.

"The Reserve Bank will continue with both domestic liquidity operations and foreign exchange interventions that should also enable management of the FCNR(B) redemptions without market disruptions," he said.
 

In his post-policy media interaction, Rajan said: "We do not see FCNR(B) repayments as disruptive. With the preparation we have made and good management, redemptions should go smoothly."

Later in a call with analysts, the RBI governor ruled out any plans to have similar schemes for shoring up reserves after redemption.

For Rajan, one of the first challenges in September 2013 after taking charge as governor was to shore up foreign exchange reserves to defend the rupee.

A hint by US Federal Reserve chairman Ben Bernanke in May 2013 about gradual withdrawal of easy money policy created ripples in global markets. The Indian currency came under attack when the external profile of the country was weak and reserves were depleting.

Banks had raised nearly $34 billion between September and November 2013, out of which $27 billion was through FCNR (B) deposits, maturing mostly in three years. Banks, then, swapped those dollars with RBI. The central bank thereafter readied itself by buying forward currency contracts.

These foreign exchanges resources were raised in 2013 to bolster India's foreign exchange reserves and contain the volatility of the rupee. The swaps and forwards will take care of the dollar requirement and should be neutral for the reserves.