1. Raghuram Rajan: FCNR(B) rollovers likely to be fairly low this year

Raghuram Rajan: FCNR(B) rollovers likely to be fairly low this year

Raghuram Rajan expects little disruption in either liquidity or the forex markets.

By: | Mumbai | Published: April 6, 2016 12:34 AM

Banks who were offered a swap facility from the RBI to attract foreign currency non-resident (FCNR-B) scheme in September 2013 will not get a similar facility if they decide to rollover the deposits when these mature later this year, RBI governor Raghuram Rajan clarified on Tuesday.

The country had attracted around $32 billion of deposits with two maturities over a period of about two months.

The governor expects little disruption in either liquidity or the forex markets.

“We expect that banks have matching assets for these liabilities and therefore should be able to redeem the deposits without too much of an impact on liquidity or the forex market,” the governor explained.

To the extent flows go out they could be compensated by either higher flows or new flows, the central bank believes. “Banks may retain the deposits by raising rates in some maturities,”

Rajan asserted, adding that there could be some impact on the forex market or liquidity but the central bank is prepared.

“There is no new scheme that is intended. So if they want to roll it over, they will. Our estimate is that that scheme came with a lot of leverage that banks were offering loans to people who invested in that scheme,” Rajan said at the credit policy review.

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