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| Although the amount is due on October 1, 2003, SBI has shot off formal letters to banks as reminders to return around Rs 6,000 crore. Most of these are foreign banks, which had borrowed rupee resources for day-to-day operations.
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| These banks had earlier tried to return the money, raised at a higher cost, as rupee resources at present are cheap and liquidity in the system is abundant.
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| Banking sources added that the Reserve Bank of India had also verbally asked these banks to pay back the rupee resources in time so as to avoid any volatility in the system on redemption of the RIBs.
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| SBI had raised around $5 billion (Rs 20,000 crore) in 1998 through the RIBs. In the letter, the RBI has explained in detail the steps adopted to meet the demand for dollars arising out of maturing RIBs.
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| SBI has entered into a reverse repo with RBI and invested in 91- day treasury bills to mop up the required liquidity. This rupee liquidity in turn will be swapped with the RBI to generate dollars.
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| Of the total amount, SBI will return the principal, while the interest portion will be met by the RBI.
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| The central bank, on the other hand, has booked forward dollars due for delivery around the redemption time.
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| Meanwhile, both the forex and money market have their own share of apprehensions as to from where the dollar liquidity will be generated at a time when cash dollars are in shortage.
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| Fearing a rise in forward premia following a weakening of dollar-rupee exchange rate, most of the banks were seen covering short positions, mostly in the near term along with importers who were busy hedging their open positions.
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| This has sent the one-month premium to close at 2.8 per cent (annualised) while one year premium rules at 1.25 per cent.
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| The fear of a gradual rupee depreciation arises from the global dollar appreciation and slowdown in the momentum of forex inflows. Dealers are of the view that inflows are slowing down as most of the FIIs are presumed to have reached their country expsoure to India.
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| However they feel that inflows will continue till such time as the equity returns in India are lucrative and economic fundamentals are good.
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| There was selling even in the bond market as players preferred to book profits as they feel that fall in gilt yields will not be sustainable after the RIB redemptions.
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This is because the liquidity overhang which used to be one of the prime factors driving the price rally will cease to exist after the rupee resources go into the RBI
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