With the Foreign Currency Non Resident (Bank) Account deposits and related swaps undertaken under the Special Scheme in 2013 maturing from September this year, the Reserve Bank on Wednesday said it is actively monitoring ongoing market developments.

The central bank said it is ready to contain the associated market volatility (if any), in relation to completion of swap transactions as well as concomitant changes in rupee liquidity.

Further, the RBI said it will take all measures to even out the resultant rupee liquidity gaps through use of appropriate instruments.

The RBI statement comes in the context of the rupee depreciating by 21 paise on Wednesday to close at 66.64 to the dollar, against the previous close of 66.4275.

To help banks bring in safe money to fund the current account deficit, the RBI had in September 2013 opened a window to the banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum for the tenor of the deposit. The RBI had shut the swap window for FCNR deposits in November 2013.

During the period the window was open, banks mobilised $34.3 billion and swapped with the Reserve Bank. This helped in bolstering foreign exchange reserves.

“These swaps are adequately covered by the Reserve Bank’s forward purchases. It is also pertinent to mention that the forward purchases and the FCNR (B) swaps are not exactly synchronous in terms of maturity bands. “Since the forward purchases are largely front-running the FCNR (B) swaps with regard to maturity, the foreign exchange reserves will – in all likelihood – witness significant accretions initially to be followed by depletions of more or less similar magnitude, around the time these deposits mature,” the RBI said.

FCNR (B) deposits are term deposits (of 1 to 5 years) that can be opened and maintained by non-resident Indians with banks in India. The account can be held in any freely convertible currency. Loans can be extended against security of funds held in FCNR (B) deposit, either to the depositors or third parties, without any ceiling subject to usual margin requirements.

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