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Bankers miffed as Reddy avoids pre-policy meet

BS Banking Bureau in Mumbai | November 03, 2003 08:24 IST

Bankers are peeved at the Reserve Bank of India governor Yaga Venugopal Reddy for not calling the conventional pre-credit policy review meeting of the chiefs of banks to seek their views prior to finalising the policy.

They have therefore decided to put forward their recommendations on the day of the Credit Policy review on Monday, during their meeting with the governor.

These include pushing for raising the limit for overseas borrowing by banks and increasing the ceiling on rates offered on the foreign currency non-resident (bank) -- or FCNR(B) -- deposits. Currently banks can raise overseas borrowing only up to 25 per cent of their Tier-I capital.

Further, the current interest rate on FCNR(B) deposits at Libor minus 25 basis points is too low to attract non-resident Indian funds for on-lending in dollars.

"We are planning to make these points forcefully during our meeting as dollar shortage for on-lending purposes is a real problem at a time when the RBI is finding it difficult to manage the forex reserves," said a banker.

He added that a proposal was put forward to the RBI for providing dollar refinancing from the reserves, which was rejected on technical grounds.

Further, repo in dollars was also submitted as a proposal but nothing has happened. Therefore, the ceiling on overseas borrowing by the banks should be freed so that banks could raise more funds abroad.

Exchange rate risk also will not be a problem as the borrowings will be duly hedged. On the other hand, the interest rate on the FCNR(B) rates could be raised so that non-resident Indian funds could flow into this kitty and lending in dollars could be done.

This deposit does not pose the risk of non-resident external deposits, which is rupee-denominated and creates addition to the rupee liquidity on being converted into dollars.


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