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The payout by RBI is expected to have little impact on the forex reserves of the country since it has already built up the sufficient amount in forward dollars purchased from the domestic forward market.

Mumbai, July 11

THE Reserve Bank of India (RBI) has worked out an arrangement with State Bank of India for redemption of the Resurgent India Bonds (RIBs), which are due on October 1, 2003. Total amount due, inclusive of interest, is pegged at $5.5 billion.

The foreign currency required by State Bank of India (SBI) for payment to the investors will be sold by the RBI to SBI at the prevailing market rates on the date of maturity in exchange for rupee resources, said RBI in a press release today.

However, this payout by RBI is expected to have little impact on the forex reserves of the country since the RBI has already built up the sufficient amount in forward dollars purchased from the domestic forward market.

"Since a large portion of the redemption requirements in foreign exchange will be met out of the RBI's forward foreign exchange assets, it will not have a sizeable impact on the current holdings of reserves. Further, the injection of rupee liquidity by the RBI on account of purchase of forward foreign currency assets at the time of maturity will balance the absorption of equivalent rupee resources from the SBI."

RIBs were floated by SBI on behalf of the Government of India in August 1998 to attract investments by non-resident Indians and overseas corporate bodies. RIBs were issued in US dollars, Pound sterling and euros (then Deutsche Mark) for a tenor of five years.

The RBI said it has built up adequate amount of forward foreign currency assets of about $4.2 billion — due around the date of redemption of the RIBs — will be sold to SBI. This transaction will have no impact on the reserves holding position.

Any balance requirements, which are likely to be relatively small, will be met out of the foreign exchange reserve holdings of the RBI, by way of outright sale to SBI, the release said.

SBI has also taken steps to build up an adequate amount of rupee resources to fund the foreign currency purchases from the RBI, said the release. In case of any additional rupee requirement, the RBI will extend the regular reverse-repurchase option available under the daily liquidity adjustment facility (LAF) to SBI, through which the central bank will give cash to SBI in exchange for government securities.

Said RBI in the release, "Arrangements have been put in place in order to ensure that redemption of these bonds is done smoothly, in time and without causing any impact on domestic liquidity, money market or on the foreign exchange market.''

The present balance in the Maintenance of Value (MoV) account will be used to cover the exchange loss on account of rupee depreciation till date from 1998 levels. The rupee has depreciated by 8.47 per cent as of today from September 1998.

On September 1, 1998 the dollar-rupee rate was at 42.50 after which it dipped to as low as 49.09 in May 2002. But from there on, the domestic currency has staged a steady appreciation to 46.10 levels today, which translates into a dip of 8.47 per cent from September 1998 levels.

The Maintenance of Value account is maintained in the RBI to fund periodic contributions received from SBI and the Government of India to cover any changes in the exchange rate of the rupee vis-à-vis dollar and other foreign currencies. Due to the appreciation of the rupee against the dollar in the recent past, it is likely that there will be a surplus in this account at the time of redemption, which will be returned to SBI/Government of India.

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