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Indian banks have mobilised nearly USD 32 billion under the Reserve Bank of India's dollar inflow schemes introduced in June, according to RBI Governor Sanjay Malhotra. The inflows are expected to strengthen India's balance of payments, with the bulk coming through the Foreign Currency Non-Resident (FCNR) deposit scheme. The RBI also noted that tax changes helped attract around USD 7 billion into debt markets through foreign portfolio investments. The central bank maintained its stance on the rupee, interest rates and inflation, while highlighting potential risks from food and fuel prices.
Indian banks have mobilised nearly USD 32 billion under the Reserve Bank of India's dollar inflow schemes introduced in June, RBI Governor Sanjay Malhotra said in an interview with The Hindu BusinessLine. He said the inflows are expected to strengthen India's balance of payments and improve the country's external position.
Malhotra said that most of the USD 32 billion mobilised so far has come through the Foreign Currency Non-Resident (FCNR) deposit scheme, which was introduced by the RBI to encourage foreign currency deposits from non-resident Indians. The scheme was announced as part of measures aimed at attracting overseas capital and strengthening foreign exchange reserves.
Apart from the FCNR deposits, the RBI Governor said tax changes had helped attract around USD 7 billion in foreign portfolio investment (FPI) into debt securities. The move is seen as supporting foreign investment in India's bond market while improving capital inflows.
Responding to concerns over the source of FCNR deposits, Malhotra said the RBI had not found any evidence to suggest that a large share of the inflows resulted from the rebooking of existing deposits. This indicates that the inflows have largely been fresh foreign currency deposits rather than funds being shifted from earlier accounts.
He also explained why the strong dollar inflows have not immediately translated into higher rupee liquidity. According to him, one of the reasons is the increase in government cash balances, which has partly absorbed the impact of these inflows on the domestic banking system.
On the currency front, Malhotra said there has been no change in the RBI's approach towards the rupee. He said the central bank continues to intervene in the foreign exchange market only to curb excessive volatility and not to target any specific exchange rate. He added that it would be reasonable to view the rupee as not being undervalued.
The RBI Governor also said that the current policy repo rate remains appropriate considering the prevailing balance between economic growth and inflation. The central bank has maintained that its monetary policy decisions continue to be guided by evolving macroeconomic conditions and inflation trends.
Speaking about price pressures, Malhotra said that overall inflation remains moderate at present. However, he cautioned that rising food and fuel prices could eventually spread across the economy and create broader inflationary pressures if they persist.
The RBI had introduced the dollar inflow measures in June to strengthen external finances at a time of global uncertainty and volatile capital flows. The initiatives were aimed at encouraging foreign currency deposits and increasing overseas investment into Indian financial markets while supporting the country's foreign exchange reserves and overall external stability.
Source Reuters
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