RBI Says No To OCB Inflows

Mumbai, September 16: | Updated: Sep 17 2003, 05:30am hrs
The Reserve Bank of India (RBI) has decided to derecognise overseas corporate bodies (OCBs) as an eligible class of investor in India under various routes available under extant foreign exchange regulations. This will be implemented with immediate effect.

This means that OCBs will not be permitted to make fresh investment under foreign direct investment scheme (including automatic route) and in other investments, deposits, loans under the various routes available to the non-residents. Besides OCBs, unincorporated entities have also been barred from making fresh investment under FDI scheme (including automatic route).

The decision also means that OCBs cannot open and maintain fresh non-resident (external) accounts (NRE) (savings, current, recurring or fixed), foreign currency (non-resident) accounts (banks) (FCNR-B) and non-resident ordinary (NRO) accounts with banks.

The decision has been taken in consultation with the Centre, the RBI said on Tuesday in a release. It is also a follow-up of the review of investment activities of OCBs in India, carried out by the central bank on the basis of the recommendations of the joint parliamentary committee on security market scam, the RBI added.

It may be recalled that RBI had already prohibited OCBs from undertaking fresh purchases under the portfolio investment scheme, since November 2001.

With this move, along with Mondays decision to cap the interest rate on non-resident external deposits to 100 basis points over Libor, the rupee is now expected to see a reversal in trend in the near term. The rupee on Tuesday slipped against the dollar to 45.89/90, five paise weaker than Mondays close of 45.79/80. The rupee was seen at its intra-day low of 45.93 in early trades.

Now, experts in the forex market feel that the rupee would touch the 46-mark again. Said Basix Forex director KN Dey: The rupee might breach the 46-mark in September. But it will be wiser for importers and borrowers of external commercial borrowings to hedge their near term payables.