In a communique, the central bank said: Most of the forex required for redemption will be met by RBI directly (out of forward purchases already in place) and the balance requirements of SBI (State Bank of India) will be provided by RBI from out of its own resources. Thus no cognisable impact is anticipated on the forex market. Further the arrangements put in place by RBI-SBI are expected to ensure smooth conduct of operations in the money and forex markets though large value/volume transactions may be condensed in a few days.
On the impact of the RIB redemption, it was pointed out that the RBI will be infusing rupee liquidity into the market on account of purchase of forward foreign currency assets. This will, to a great extent, neutralise the rupee outgo from SBI to RBI for purchasing the forex required for redemption. The balance lying in the Maintenance-of-Value account built up during the last five years would be used to meet the exchange loss. SBI would, therefore, be paying to RBI only the balance amount which would depend on the market exchange rate prevailing on the date of redemption. Going by the present liquidity conditions in the market, it is felt that the system should be in a position to take care of the redemption requirements.
Further, the eligible market participants can take recourse to the LAF of RBI for short-term requirements of rupee funds.
SBI had collected $4.23 billion and the entire RIB corpus was sold to RBI at the prevailing market exchange rate. As consideration, SBI was paid Rs 18,123 crore. About 94.25 per cent of the corpus was in dollars and the remaining in pounds and euro (then deutsche mark). The RIBs are due for redemption on October 1, 2003, and are expected to be in the vicinity of equivalent $5.5 billion.