scorecardresearch
Follow Us:
Monday, June 21, 2021

Foreign currency asset exposure to overseas lenders, central banks rises

Deposits with other central banks rose from $124.15 billion to $153.39 billion and deposits with overseas commercial banks went up from $7.43 billion to $23.42 billion, i.e. 4.36% of total foreign currency assets (FCA).

Written by George Mathew
Mumbai | May 13, 2021 3:02:19 am
Of the total FCA of $536.69 billion, its investment in overseas securities fell from $370.56 billion last September to $359.87 billion as of March 2021, the RBI said in its half-yearly report on foreign exchange reserves.

The Reserve Bank of India (RBI) which manages the country’s foreign exchange reserves, has increased its investments in other central banks and overseas commercial banks.

During the six-month period ended March, deposits with other central banks rose from $124.15 billion to $153.39 billion and deposits with overseas commercial banks went up from $7.43 billion to $23.42 billion which works out to 4.36 per cent of total foreign currency assets (FCA).

However, the RBI reduced its investments by $10 billion in overseas securities. Of the total FCA of $536.69 billion, its investment in overseas securities fell from $370.56 billion last September to $359.87 billion as of March 2021, the RBI said in its half-yearly report on foreign exchange reserves.

However, the value of its investment in gold came down by $2.54 billion during the six-month period ended March following the decline in gold prices. As at end-March, the Reserve Bank held 695.31 metric tonnes of gold.

While 403.01 metric tonnes of gold is held overseas in safe custody with the Bank of England and the Bank of International Settlements (BIS), 292.30 tonnes of gold is held domestically.

“In value terms (USD), the share of gold in the total foreign exchange reserves decreased from about 6.69 per cent as at end-September 2020 to about 5.87 per cent as at end-March 2021,” the central bank said.

According to the RBI, while safety and liquidity constitute the twin objectives of reserve management in India, return optimisation is kept in view within this framework. While the Reserve Bank of India Act, 1934 provides the overarching legal framework for deployment of reserves in different FCAs and gold within the broad parameters of currencies, instruments, issuers and counterparties, the return on FCA deployment is negligible as interest rates abroad are very low. The banking regulator did not disclose the return on its FCA investment abroad.

The RBI said liquidity risk involves the risk of not being able to sell an instrument or close a position when required without facing significant costs. “The reserves need to have a high level of liquidity at all times in order to be able to meet any unforeseen and emergency needs. Any adverse development on the external front would pose a demand on our forex reserves and, hence, the investment strategy needs a highly liquid portfolio. The choice of instruments determines the liquidity of the portfolio,” it added.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
Advertisement
Advertisement
Advertisement
Advertisement