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  • How is RBI’s digital rupee different from cryptocurrency?

    How is RBI’s digital rupee different from cryptocurrency?

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    The Reserve Bank of India (RBI) made the announcement to launch the first pilot for the digital rupee today on December 1. With the launch, India has joined a handful of nations to launch its own blockchain currency that can underscore India’s pre-eminence in digitalised finance. To give some perspective, not even the United States has launched their Central Bank Digital Currency (CBDC) yet. 

    One of the most common questions asked is how digital rupee going to be similar to cryptocurrency. Well, the similarity between CBDC and cryptocurrency ends at the fact that they both have blockchain as the underlying technology. Therefore, with blockchain as a base, all transactions can be tracked on the ledger with no ability to modify the past – leading to transparency and easy bookkeeping. Hence, CBDC will be a technology-led currency of the RBI with control on the supply as well as usage side. It won’t be decentralized the way cryptocurrencies are. 

    The one stark difference between the two is while there is no regulator for cryptocurrency, digital rupee is a legal tender with RBI as the regulator. Here transactions may be a little more anonymous than other digital transactions, as money moves from wallet to wallet after a one-time deduction from the bank account, but still they can be tracked with RBI as the regulator. 

    “Since CBDC will be issued by the Central Bank like a digital form of currency notes and distributed by banks( distribution nodes) underline technology ( blockchain like tech stack) will record and maintain a transaction trail like the way it is done in banks core system. In case of CBDC transaction trail right from the issuance will be available within CBDC nodes, since the distribution of the CBDC will be by REs only, it would be offered to Kyced users in some cases may be non-Kyced users,” says Vishwas Patel, Director, Infibeam Avenues Ltd and Chairman, Payments Council Of India.

    Patel adds, “It’s currency in digital token form on a blockchain. With a retail CBDC, you should be able to transact without any bank involved (like physical cash). It will have the same denominations like physical cash. It’s quite different from UPI which is an actual debit from your bank account. CBDC is a currency, a legal tender guaranteed by RBI.”

    Moreover, unlike cryptocurrency, you will be able to make payments and transact with digital rupee through a digital wallet offered by the participating banks and stored on mobile phones. “A successful pilot and by extension, a full rollout of the digital rupee is expected to boost the reach of payment and financial needs of a wider category of users while ensuring transparency and low operational cost, and in this regard, it is encouraging to witness RBI’s support for innovation in creating a world-class, future-ready digital ecosystem,” says  Jaya Vaidhyanathan, CEO, BCT Digital.

    Finally, digital rupee is the electronic form of cash, which will be used for buying and selling goods and services. Unlike cryptos you cannot treat it as an asset class and invest in it. 

    Also Read: Digital Rupee pilot today: Features, where and how it will be rolled out; all you need to know

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  • Digital Rupee coming on Dec 1: How will it work and what does it mean for you?

    Digital Rupee coming on Dec 1: How will it work and what does it mean for you?

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    After months of anticipation, the Reserve Bank of India (RBI) on Tuesday said that it would launch its first pilot for retail digital Rupee, or e₹-R, on December 1. The central bank-backed Central Bank Digital Currency (CBDC), which is similar to cryptocurrency to some extent, will be for retail users.  

    There has been a lot of buzz around the concept of cryptocurrencies, CBDC, and digital currencies. A central bank digital currency can be described as the digital form of a country’s fiat currency, whereas a cryptocurrency is also a digital currency, which is an alternative form of payment with unique encryption algorithms. In layman’s terms, a CBDC is simply digital fiat, whereas cryptocurrencies are digital assets on a decentralised network.   

    What is Digital Rupee or e₹-R? 

    The Reserve Bank of India has defined the e-Rupee as a form of digital token that represents legal tender. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency, and unlike cryptocurrencies, the digital Rupee is issued in the same denominations as paper currency and coins. 

    How will it work? 

    The e₹-R, which will be released on December 1, will be a digital token that represents legal tender. It will be issued in the same denominations as paper currency and coins and will be distributed through intermediaries, here it is banks. 

    2. As per the central bank, users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones and devices. 

    3. The transactions in digital Rupee can take place between Person to Person (P2P) and Person to Merchant (P2M), as per RBI’s statement. 

    4. Payments to merchants can be made using QR codes displayed at merchant locations, just like customers do for Paytm or Google Pay. “The e₹-R would offer features of physical cash like trust, safety, and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,” the RBI said. 

    5. The pilot will kickstart in four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank – in four cities, including Mumbai, New Delhi, Bengaluru and Bhubaneswar.  

    6. Four other banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will join this pilot eventually and it would also be extended to other cities such as Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. 

    “The Reserve Bank of India’s (RBI) Central Bank Digital Currency (CBDC) aims to fulfill the promise of affordable, safer, and easier payments for all. Since it provides a regulated alternative to cryptocurrencies in the market, the CBDC would lead to more robust and reliable payments, lowering the dependency on cash. The underpinning technology would make transaction costs low. Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem,” said Jaya Vaidhyanathan, CEO, BCT Digital.  

    What’s expected? 

    As per sector experts, India’s CBDC initiative is very much in line with its recent digitalisation efforts worldwide. India is one of the few countries that have launched its own CBDC. Globally, many nations, such as China, Ghana, Jamaica, and some European countries are exploring their CBDC products. Some have even launched their digital currencies. There are nine countries that have fully launched their CBDCs. Eight of the nine countries are located in the Caribbean. The Sand Dollar of the Bahamas was the first CBDC of the world, which was launched in 2019. 

    “The digital rupee (e₹-R) will provide better security, traceability, and accountability for the movement of money through the world’s 5th largest economy. Instead of a distributed ledger, the e ₹-R will get regulated by the RBI, providing legal cover and stability to the digital currency. Since the digital asset is backed by a sovereign institution and can get tracked, it should reduce the excessive fraud inflicted upon UPI users because these funds become untraceable once they are taken out of the banking system,” said Anirudh A. Damani, Founder of Artha Group. 

    The retail digital currency, which will be launched on December 1, will be distributed through a two-tier model. The central bank will first issue to it the chosen banks. The banks will further distribute currency into the hands of consumers. “The introduction of the Digital Rupee in India is anticipated to improve our currency management system’s efficiency, transparency, systemic resilience, and governance. One of the main advantages of the change is that transactions can be completed without even opening a bank account. The government would be able to quickly view all transactions occurring within authorized networks, facilitate real-time account settlements, and maintain ledgers once the digital rupee is released,” said Rajeev Yadav, MD & CEO, Fincare Small Finance Bank. 

    “CBDC-backed currencies are a logical next step in the journey of digital currencies. It eliminates several of the inefficiencies which mar cryptocurrencies by providing stability and comfort with the backing of the central bank (RBI). CBDC will further be a positive step towards the adoption of blockchain for financial services, and will align India with the world that is rapidly progressing towards adoption of digital currencies,” said Deepak Kothari, Co-founder and COO, ftcash. 

    Also read: RBI Guv Shaktikanta Das lauds the launch of digital Rupee, calls it is ‘landmark’

     

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  • GDP growth Q2 FY23: How Indian economy is likely to perform; what to expect

    GDP growth Q2 FY23: How Indian economy is likely to perform; what to expect

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    GDP data for Q2: India’s gross domestic product (GDP) data for Q2 (July-September) 2022-23 is scheduled to be out on Wednesday. Analysts and economists have predicted that the GDP growth would be in the range of 5.8 per cent to 7.2 per cent in the second quarter, which will be lower than Q1 numbers. The GDP growth was 13.5 per cent in Q1 (April-June period) of the current fiscal (2022-23).  

    Analysts and experts have revised the GDP Q2 expectations due to global economic headwinds, geopolitical tensions, a stronger dollar, and tough financial conditions in many countries.  

    Let’s take a look at what experts predicted for Q2 FY23:  

    SBI Research 

    SBI Research said that India’s GDP growth for the second quarter would be at 5.8 per cent, down 30 basis points from average estimates, mainly due to the weak manufacturing sector with the steep margin compression. 

    In a report released on Monday, Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, said that corporate results, operating profit of companies, excluding the banking and financial sector, slipped by 14 per cent in Q2 FY23 as against 35 per cent growth in last year same quarter (Q2 FY22). The top line reported a healthy growth. Net sales grew by 28 per cent, while bottom-line (profit) was down by around 23 per cent from the year-ago period. 

    He noted that there are several indicators that point out that the economy has been making resilient progress since Q2 despite global economic challenges, high inflation, recession fears, and weakening world trade. 

    Reserve Bank of India 

    The Reserve Bank of India has predicted that India’s GDP would grow 6.3 per cent in the April-September 2022 quarter. While hiking the repo rate in September, Governor Shaktikanta Das pointed that the economy is facing headwinds due to geopolitical tensions, tightening global financial conditions and decline in demand and global trade which can lead to degrowth. 

    Watch: India’s GDP Q2 data to be out today: What to expect?

    S&P Global Ratings  

    S&P Global Ratings has cut India’s GDP Q2 growth forecast to 7 per cent. But it noted that India’s economy and domestic demand will be less impacted by the global slowdown or recession fears in the western countries. 

    S&P had in September projected the Indian economy to grow 7.3 per cent in 2022-23 and 6.5 per cent in next fiscal year (2023-24). 

    Crisil 

    Rating agency CRISIL revised down its forecast for GDP growth to 7 per cent for FY2023 from 7.3 per cent, after taking into account the global slowdown, which has started to impact exports and industrial activity. This will test the resilience of domestic demand. 

    The rating agency expects India’s GDP to grow at 7 per cent in the Q2 FY23. Chief economist D K Joshi noted that the domestic demand is still supportive, mostly due to government capex, relatively accommodative financial conditions, and overall normal monsoons for the fourth time in a row. 

    ICRA  

    In its report, ICRA has said GDP growth will be around 8 per cent in Q2 as compared to 3.8 per cent seen in the previous quarter. The agency estimates the sectoral growth in Q2 to be driven by the services sector (9.4 per cent), with a subdued trend foreseen for the industry (2 per cent), and agriculture, forestry, and fishing (2.5 per cent). 

    ICRA’s Chief Economist Aditi Nayar said that a 6.5 per cent growth in Q2 of the current fiscal is expected, which is nearly half of the year-ago quarter when the economy had clipped at 12.7 per cent. 

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  • Balances under SDF to be included in Liquidity Coverage Ratio: RBI to Banks

    Balances under SDF to be included in Liquidity Coverage Ratio: RBI to Banks

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    The Reserve Bank of India (RBI) has told banks that overnight balances held by them under the standing deposit facility (SDF) will be eligible as ‘Level 1 High Quality Liquid Assets (HQLA)’ for computation of the Liquidity Coverage Ratio (LCR).

    This will enhance the ability of banks to achieve LCR. This ratio promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient HQLAs to survive an acute stress scenario lasting for 30 days.

    SDF allows RBI to absorb liquidity without any collateral. RBI currently pays banks 5.65 per cent interest for deploying surplus liquidity.

    Banks are required maintaining a minimum LCR of 100 per cent (that is the stock of HQLA should at least equal total net cash outflows) on an ongoing basis because the stock of unencumbered HQLA is intended to serve as a defence against the potential onset of liquidity stress.

    As per the Basel III Framework on Liquidity Standards, banks should strive to achieve a higher ratio than the minimum prescribed as an effort towards better liquidity risk management.

    HQLAs include cash, including cash reserves in excess of required cash reserve ratio; Government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement; within the mandatory SLR requirement, Government securities to the extent allowed by RBI under Marginal Standing Facility (MSF); and marketable securities issued or guaranteed by foreign sovereigns satisfying certain conditions, among others.

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    BL Mumbai Bureau

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  • Economy resilient, but still sensitive to global headwinds, says RBI in latest bulletin

    Economy resilient, but still sensitive to global headwinds, says RBI in latest bulletin

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    The Reserve Bank of India (RBI) on Friday released the November 2022 issue of its monthly bulletin on state of the economy and said headline inflation is beginning to show signs of easing.

    With headline inflation beginning to show signs of easing, the domestic macroeconomic outlook appears to be resilient though it is still sensitive to global headwinds, the bulletin said on Friday.

    The article published in the latest RBI bulletin also said the outlook for the global economy remains clouded with downside risks. Global financial conditions have been tightening and deteriorating market liquidity is amplifying financial price movements.

    Markets are now pricing in moderate increases in policy rates and risk-on appetite has returned. In India, supply responses in the economy are gaining strength, it noted.

    “With headline inflation beginning to show signs of easing, the domestic macroeconomic outlook can best be characterised as resilient but sensitive to formidable global headwinds,” the article said.

    Urban demand appears robust, while rural demand is muted but more recently picking up traction, it added.

    The article has been prepared by a team led by RBI Deputy Governor Michael Debabrata Patra.

    The RBI, however, said the opinions expressed in the article are those of the authors and do not represent the views of the central bank.

    ALSO READ: RBI Governor tells PSU, private banks MD and CEOs to be watchful amid fears of global slowdown

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  • Deposits outpace credit growth after months

    Deposits outpace credit growth after months

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    Incremental deposit growth outstripped credit growth for the first time in the last few months in the fortnight ended November 4 as banks aggressively raised deposit rates to garner resources in the wake of robust credit growth.

    Incremental deposits of all scheduled banks grew by ₹1,68,386.7 crore in the fortnight ended November 4, according to RBI data. During the same period, incremetal credit rose by ₹44,119.16 crore.

    In the preceding fortnight ended October 21, incremetal credit was up by ₹26,610.67 crore while deposits de-grew by ₹64,098.13 crore.

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    As per RBI data, as on November 4, interest rate on term deposits of over one year duration was higher in the 5.50/7.25 per cent band against 5.50/6.50 per cent as on October 21, 2022.

    That deposit growth is lagging credit growth is underscored by the fact that as on November 4, year-on-year (y-o-y) deposit growth and credit growth stood at about 8 per cent and 16.81 per cent, respectively.

    It may be pertinent to mention here that Issues relating to lagging growth in deposits vis-à-vis credit growth and asset quality, among others, were discussed at RBI Governor Shaktikanta Das’ meeting with top bankers on Wednesday.

    S&P Global Ratings, in its Global Bank Outlook report, said loan growth for banks in India is expected to stay somewhat in line with the trajectory of nominal GDP, and loan growth to the retail sector will continue to exceed that of the corporate sector.

    Corporate borrowing up

    “Corporate borrowing is also picking up momentum, but the uncertain environment may delay capital expenditure-related growth. A shift to bank funding from capital market funding is also driving a pickup in corporate loan growth.

    “Deposits may find it hard to keep pace, leading to a weakening in the credit-to-deposit ratio. But the ratio has improved in the past few years. Banks’ funding profiles to remain sound, supported by strong deposit franchise,” said Deepali V Seth Chhabria, Primary Credit Analyst, S&P Global.

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    BL Mumbai Bureau

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  • ‘Be watchful’: RBI Governor Shaktikanta Das to PSU, private banks MD and CEOs amid fears of global slowdown

    ‘Be watchful’: RBI Governor Shaktikanta Das to PSU, private banks MD and CEOs amid fears of global slowdown

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    Amid fears of recession and global economic slowdown, Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday held a meeting with the MD and CEOs of public sector banks and certain private sector banks and told them to be watchful of the evolving macroeconomic situation, including global spillovers.

    The Governor acknowledged the crucial role played by the commercial banks in supporting economic growth throughout the turbulent times since the outbreak of the pandemic and the ongoing financial market turmoil. He said despite challenges, the Indian banking sector has remained resilient and continued to improve in various performance parameters.

    Das, however, advised the banks to remain watchful of the evolving macroeconomic situation, including global spillovers, and take mitigating measures proactively so that the potential impact on their balance sheets is minimised and financial stability risks are contained, the RBI said in a statement.

    The RBI Governor’s advice comes at a time when the advanced countries are facing economic headwinds with decades-high inflation and fears of recession hitting them in the next 12 months. Global financial institutions like World Bank and IMF have already predicted economic slowdown in countries like the US, UK, China, and others due to a combination of factors.  

    India too has been facing high inflation for the last 10 months and this has forced the central bank to increase rates. While India is comparatively better placed, the impact of recession in the advanced countries may have some impact on certain sectors like Information Technology.

    Last month, SBI Chairman Dinesh Khara said that majorly, India is an inward-looking economy in terms of demand because a significant component of the GDP is essentially addressed to the domestic economy. So, from that point of view, he said the global recession will have an impact but it won’t be as pronounced. 
     

    Also read: RBI imposes monetary penalties on nine cooperative banks

    Also read: India’s retail inflation cools to 6.77% in October, but still above RBI’s comfort limit

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  • RBI’s big focus to remain on combating inflation in upcoming MPC meet on Nov 3: SBI Ecowrap

    RBI’s big focus to remain on combating inflation in upcoming MPC meet on Nov 3: SBI Ecowrap

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    The Reserve Bank of India (RBI) is likely to focus on bringing inflation within target levels and lowering it to around the midpoint. The upcoming Monetary Policy Committee (MPC) meeting will take place under Section 45ZN of the RBI Act. 

    Under Section 45ZN of the RBI Act, the central bank has to send a detailed report to the central government if it fails to meet the inflation targets for three consecutive quarters. RBI defines failure to meet inflation targets as either overshooting or undershooting the upper and lower tolerance bands for four consecutive quarters instead of the present three quarters. 

    This report focuses on reasons behind failure to achieve inflation target, remedial actions proposed by the bank and an estimate of the time-period within which the inflation target will be achieved. Since the inflation data for September 2022 was revealed on October 12, the RBI will have to submit this report to the centre before November 12, as per the latest SBI Ecowrap. 

    The RBI also said in its recent bulletin that the fight against inflation will be “dogged and prolonged” given the geopolitical and epidemiological uncertainties and variable lags with which monetary policy operates. 

    As per the SBI report, the central bank is also likely to hike the repo rate to 6.5 per cent in its upcoming MPC meeting on November 3. The MPC will take place a day after the US Federal Reserve meets on November 2. This MPC is purely focused on addressing the shortfall in meeting inflation targets for three successive quarters. 

    “Currently the September food inflation is at 8.4 per cent and a similar trend like the one seen in 2019 can put headline inflation towards 7.5 per cent in December. This could put a spanner to the inflation projections of RBI and market consensus. This could also mean that the terminal repo rate could still be difficult to comprehend at this time, though consensus puts it at 6.5 per cent,” the Ecowrap report read. 

    The frequent rise in repo rates has led to banks raising their external benchmark lending rates or EBLRs by 190 basis points (bps) whereas marginal cost of funds-based lending rate (MCLR) and base rates have risen by 50-70 bps only. 

    The Ecowrap mentions, “We believe RBI is pushing banks to increase their deposit rates to garner more deposits or secured funds to finance their credit growth and this could be one of the reasons to keep the liquidity in deficit mode for an extended period.” 

    Also read: RBI to hold additional Monetary Policy Committee meeting on November 3

    Also read: RBI’s explanation to govt on inflation likely to cover these three broad areas

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  • Forex reserves drop $3.847 billion to $524.52 billion

    Forex reserves drop $3.847 billion to $524.52 billion

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     India’s forex reserves dropped by $3.847 billion to $524.52 billion for the week ended October 21, the RBI said on Friday.

    The overall reserves had dropped by $4.50 billion to $528.37 billion in the previous reporting week, and have been declining for many months now.

    In October 2021, the country’s forex kitty had reached an all-time high of $645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments.

    Foreign currency assets (FCA), a major component of the overall reserves, saw a drop of $3.593 billion to $465.075 billion during the week to October 21, according to the Weekly Statistical Supplement released by the RBI on Friday.

    Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

    Gold reserves saw a decline of $247 million in value to $37.206 billion, it said.

    The Special Drawing Rights (SDRs) were up by $7 million to $17.44 billion, the apex bank said.

    The country’s reserve position with the IMF was down by $14 million to $4.799 billion in the reporting week, the central bank data showed.
     

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  • RBI’s 2013 playbook to rebuild FX reserves unlikely to work, say experts

    RBI’s 2013 playbook to rebuild FX reserves unlikely to work, say experts

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    The Reserve Bank of India’s 2013 playbook to buffer the domestic currency against steep declines and rebuild foreign exchange reserves is unlikely to prove fruitful in the current crisis as economic fundamentals are vastly different, analysts said.

    India’s forex reserves have tumbled about $110 billion from a peak of $642 billion in September last year, and though that is largely due to the fall in the value of holdings in dollars and other currencies, another significant reason is the central bank’s intervention in the currency market to protect the rupee.

    The local unit fell about 11% against the U.S. dollar in 2013, a slide it has already matched so far this year, with most market participants expecting further declines by the end of 2022.

    To defend the rupee, the Reserve Bank of India has dipped into its forex reserves. It has sold a net $43.15 billion worth of dollars since the start of 2022, including $4.25 billion this August, the latest available data released on Monday showed.

    “It would be important to rebuild FX reserves for sure. There will be urgency as fundamentals are also adverse,” said Madan Sabnavis, chief economist at Bank of Baroda.

    The RBI, in July, announced some measures to liberalise foreign exchange inflows, including giving foreign investors access to a larger portion of government debt and banks wider room to raise more deposits from non-residents. But these measures are unlikely to prove as effective right now as they had in 2013.

    Unprofitable Spreads

    Back in 2013, the RBI had offered to swap the U.S. dollars banks had raised via foreign currency non-resident (FCNR) deposits or foreign currency funding for rupees at concessional rates.

    It swapped FCNR deposits, with a maturity of three years or more, at a fixed rate of 3.5% per year, which was about 3 percentage points less than market rates at the time, while it swapped foreign currency funding at 1 percentage point below market rates. 

    These two swap windows had brought in around $34 billion at a crucial time, with $26 billion via the FCNR route alone.

    But these methods are unlikely to be as fruitful now.

    “The FCNR deposits route might not be as effective this time around, including for reasons like a narrower US-IN rate spread and less aggressive rate hikes in this cycle versus back in 2013,” said Radhika Rao, senior economist at DBS Bank.

    This time around, with India’s 3-year bond yields at 7.5% and U.S. yields at 4.5%, the 3% spread is unlikely to help investors make any profits on a fully hedged basis given the current hedging cost is about 6.5%-7%. Profits are unlikely even if the RBI offered a discount window, which it hasn’t so far.

    “On fully hedged basis, a similar level of subsidy will not be good enough. Either domestic rates have to go up tremendously or the RBI will have to increase the subsidy to make things work,” said Vivek Kumar, senior economist at QuantEco Research.

    Import Cover

    To add to the problems, India’s economic fundamentals too have weakened. The current account deficit has been widening and is expected to stay above 3% of gross domestic product for the current fiscal year, ending March 2023.

    With capital flows also volatile, economists expect the balance of payments to be negative, depleting reserves further.

    And while reserves at current levels are adequate to cover more than eight months of imports, analysts say a sustained depletion could cause some concern.

    “A fall below eight months of import cover (about $500 billion) could start catching the market’s attention if the current account deficit stays above 3% of GDP,” said QuantEco’s Kumar.

    “A panic situation prompting a forceful policy response could emerge if reserves touch six months of import cover, i.e., around $380 billion.”

    Possible Measures

    Analysts said while short-term fixes could provide intermittent relief, policymakers would need to continue focussing on strengthening structural macro buffers.

    Bank of Baroda’s Sabnavis suggested floating sovereign bonds, like the Resurgent India bonds (RIBs) India Millennium Deposit bonds (IMDs) in the past, to help boost forex reserves.

    “Such measures can directly bring in dollars,” he said.

    Sabnavis said the rupee could weaken further towards 82-83 levels in the near-term and fall to 84 if the dollar continues to strengthen. The local unit is currently at 82.28 per dollar.

    “Hard to really gauge the level, and expectations tend to be adaptive based on how RBI reacts.”

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  • RBI imposes monetary penalty on three cooperative banks of Gujarat

    RBI imposes monetary penalty on three cooperative banks of Gujarat

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    The Reserve Bank of India (RBI) on Monday imposed a monetary penalty on three cooperative banks of Gujarat. Among the banks that have been fined for deficiencies in regulatory compliance are Co-operative Bank of Rajkot Ltd, Gandhidham Mercantile Co-operative Bank Ltd, and Meghraj Nagarik Sahakari Bank Ltd.
     
    The highest fine of Rs 2 lakh has been imposed on the Co-operative Bank of Rajkot, while the rest two have been fined Rs 25000 (Meghraj Nagarik) and Rs 50000 (Gandhidham Mercantile).  
     
    For the Co-operative Bank of Rajkot, the RBI said that the bank had not transferred balances lying in certain accounts remaining unclaimed for more than ten years to the Depositor Education and Awareness Fund, resulting in contravention of some provisions of the Banking Regulation Act, 1949.
     
    Based on the same, a notice was issued to the bank advising it to show cause as to why a penalty should not be imposed for non-compliance with the directions issued by the RBI. After considering the bank’s reply, the bank regulator came to the conclusion that the charge was substantiated and warranted the imposition of a monetary penalty.
     
    In the case of Kutch-based Gandhidham Mercantile Co-operative Bank, the RBI found that the bank had sanctioned a loan wherein a relative of its director had interest and the director’s relative stood as guarantor.
     
    Similar violations were found in the case of the third bank, Meghraj Nagarik. “…the bank had sanctioned six loans, wherein directors’ relatives stood as surety/guarantors, resulting in contravention of the direction issued by RBI,” the bank regulator said.  
     

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  • RBI cancels certificate of registration of four NFBCs; list here  

    RBI cancels certificate of registration of four NFBCs; list here  

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    The Reserve Bank of India (RBI) on Wednesday said that it has cancelled the certificate of registration of four NBFCs (Non-Banking Financial Companies). While the bank regulator did not disclose the reasons, it has put out the names of the companies.
     
    The companies whose certification has been cancelled are SRM Properties And Finance Company (Rajasthan), North East Region Finservices Limited (Manipur), Sowjenvee Finance Limited (Karnataka) and Opel Finance Limited (Patna).
     
    These companies will not transact the business of a non-banking financial institution, the RBI said.
     
    This comes just two days after the RBI cancelled the licence of Pune-based Seva Vikas Co-operative Bank and imposed a monetary penalty of Rs 48 lakh on Kerala State Co-operative Bank Ltd, Thiruvananthapuram.
     
    The RBI said Seva Vikas Co-operative Bank did not have adequate capital and earning prospects and that it would be unable to pay its present depositors in full. The public interest would be adversely affected if the bank is allowed to carry on its banking business any further, the central bank said.
     
    For the penalty on Kerala State Co-operative Bank, the RBI said it did not comply with its directions specifying the extent and the conditions subject to which co-operative banks were permitted to hold shares in any other co-operative society. The bank also failed to comply with the RBI directions limiting the quantum of gold loans that could be granted under the bullet repayment option.

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