RBI says no financial support for firms FCCB redemptions

Written by fe Bureau | New Delhi | Updated: Jun 30 2012, 06:35am hrs
The Reserve Bank of India (RBI) is not in favour of providing any financial support to companies struggling to make repayments on their foreign currency convertible bonds (FCCBs), RBI deputy governor KC Chakrabarty said on Friday. FCCB redemptions are not a cause of concern for the country's financial system, he said.

(FCCBs) Redemption is not a problem of the Reserve Bank. It is actually a problem of whether the institutions have the resources to pay back or not. As of now, it is not a big issue. But there are implications (on the financial system), which are already taken care off, Chakrabarty said on the sidelines of a seminar on financial literacy.

Indian companies raised over R70,000 crore via FCCBs during the bull run between 2005-06 and 2007-08. As much as R43,000 crore worth of FCCBs will mature by March 2013.

The Reserve Bank of India and the finance ministry have highlighted the redemption risks relating to these bonds, especially since stock prices of most issuers have tumbled much below their conversion prices.

The sharp depreciation of the rupee, which has fallen 25% against the dollar over the past year, would increase the redemption amount of maturing FCCBs in rupee terms.