deposits and swap them at a fixed cost of 3.5% with the RBI — a measure that could draw in up to $10 billion.
Banks were also allowed to raise 100% of Tier-1 capital through overseas borrowings and swap those at a 100 basis point discount with the RBI.
“The swaps are positive in the short-term to attract capital. I think one needs to see the operational details that would come out, and that would define how much capital would come in. The move to take out the oil demand from the market has been the big positive,” said Brijen Puri, head of trading at JP Morgan.
The measures to bring in dollars and establish emergency swap lines will help ease fears about India's dwindling forex assets, which fell by another $3 billion during the week ended August 30, 2013. According to RBI data, foreign currency assets fell to $247 billion and overall foreign currency reserves fell to $275 billion at the end of August.
Forex reserves have fallen a massive $16 billion since April and are barely adequate to cover seven months of imports.
The RBI's special swap window for oil companies, which virtually removed a daily demand of $300-$400 million from oil companies from the forex market, may have a further short-term impact on reserves. However, since the oil companies will sell back the dollars to the RBI at a later date, reserve levels will eventually not be impacted.
Further, some economists said that the swap offered to banks' on FCNR(B) deposits would replenish the dollar reserves.
“This buy-dollar, sell-rupees swap move may be seen against the current sell-dollar, buy-rupee swap measures initiated by the RBI for oil marketing companies,” said a research note from State Bank of India.
The swap facility for oil companies announced on August 28 boosted the currency by 3.3% in a single day from its all-time low.