The Hindu Business Line : Exporters keep more earnings abroad — Liabilities of US banks rise to $10.638 billion

LIABILITIES of US banks to Indian entities, such as exporters, corporates and banking institutions etc., went up in June for the first time since December last year.

According to the US treasury data released for June this year, the outstanding liabilities were $10.638 billion. This was about $300 million more than the previous month. In December, it was $14.522 billion and has consistently fallen since then, until the latest reversal of trend.

Banking sources said rise in liabilities in June was mostly due to increaseinbanking deposits by Indian entities/export houses. Only a part of such deposits was in the form of `nostro' balances or correspondent accounts maintained by Indian banks.

Bankers said that retention abroad, of earnings by Indian exporters contributed to a major portion of accretions in liabilities. In fact, early this year, the RBI itself had permitted exporters to retain a portion of their earnings in foreign currency as part of a move to contain expansion of domestic liquidity and costs of intervention.

This was evident from the difference between the domestic repurchase rate and the short-term yields on US treasuries. The RBI's repurchase rate is 4.5 per cent. On the other hand, the maximum realisable yield on short-term US treasuries is just 3 per cent.

Exporters, the sources said, continued to retain their earnings abroad in anticipation of a further depreciation of the rupee, which was expected to increase their effective earnings. The rupee-dollar exchange rate is around 46.35, about 7 per cent below the level on March 31 this year when it was 43.35.

Mr Mohandas Pai, Chief Financial Officer and board member of Infosys, said, "A weaker rupee will increase margins for the software industry. Overall a stable rupee is best for the software industry at this point of time in view of the inflation impact." He said that the invisibles, which included software, would continue with the strong performance.

Despite this, the forward premia was inverted. The one-year forward premium was at 2.4 per cent whereas the one-month and three-month forward premia were upwards of 3 per cent. Bankers said that this was partly due to the delayed inflows and rise in short-term demand by oil companies.

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