RBI may ask firms to bring overseas funds

Sources said that the apex bank is planning to direct these corporates to enter into swap deals in the forward markets. This will bring down the forward rates apart from stopping the rupee to appreciate beyond a certain level. State Bank of India (SBI) also might be directed to bring in a part of its GDR proceeds that it has parked abroad into the market. The country’s largest intermediary had raised $ 369 million in August 1996 and has been parking a majority of its holding abroad. Bajaj Auto which raised $ 110 million has not yet brought the back GDR proceeds to India.

This measure is likely to curb volatility in the forward and spot market. The central bank is already forcing public sector undertakings like VSNL, MMTC and the three oil companies like Indian Oil, HPCL and BPCL to bring in their export earnings. On Friday VSNL brought some of their export earnings while MTNL is expected to bring some of its GDR proceeds this week. "The apex bank may direct public sector undertakings which are buying dollars to meet their year end requirements to defer its needs for some time as it is leading to pressure on the rupee," a chief dealer in a private bank said.

Dealers said that the importers were covering for huge amounts and this is what was driving forwards to higher levels. One-month forwards on Friday closed at 13 per cent. Sources said that the petrochemical giant Reliance holds about $ 1 billion abroad the other three corporates L&T, Telco and Tisco together hold another $ 1 billion abroad. "If the apex bank can force these corporates to bring in part of their money the rupee might stabilise as there will be supply of dollars", a chief dealer in a foreign bank said.

Market sources said that the RBI does not want to intervene in the spot market as it has drained the forex reserves by more than $ 3 billion in four weeks of intervention. The measures that the RBI took on December 2 to curb forex volatility by hiking short term interest rates in the money market have not helped much as the rupee is weakening and the six-month forwards have crossed the crucial 10 per cent barrier.

"There is huge underlying demand for dollars and the supply currently in the market is not enough to take care of the needs. Importers are covering and exporters are not bringing in their money as they think that the RBI will allow the rupee to cross the 40 mark. It is then that they might bring in their money", V Ravikumar, chief dealer at ABN -Amro Bank said.