Money & Banking

Squeeze on US dollars felt ahead of $20-b FCNR deposit redemption

M SOMASKEHAR G NAGA SRIDHAR Hyderabad | Updated on January 27, 2018 Published on August 01, 2016


Customers looking to buy US dollars for overseas travel from banks and foreign exchange dealers are experiencing a shortage of greenbacks, evidently triggered by an upcoming redemption of foreign currency deposits to the tune of $20 billion.

In Hyderabad and other cities, it appears that banks have adopted precautionary measures, including a mop-up of dollars, in anticipation of the redemption of Foreign Currency Non Resident (FCNR) deposits. These are like fixed deposits for non-resident Indians accepted by Indian banks in permitted currencies..

The squeeze is being felt by those who want to buy dollars for foreign trips and by parents sending their wards for studies abroad. Madhava Rao, who is scheduled to fly to the US on Tuesday, was given a runaround by a couple of banks and a forex dealer before he secured dollars.

A top executive of a public sector bank said banks were looking to mop up dollars ahead of the anticipated redemption. “This may have some effect in the currency market,” he said. Currency dealers too felt the squeeze.

RBI Governor Raghuram Rajan had in June pegged anticipated dollar outflows from these deposits at $20 billion. The RBI, he had said, was well-positioned to deal with the situation. Even so, experts say, a temporary shortage could be triggered by the upcoming redemption. “A good proportion of these term deposits came in from the Gulf region at a time when crude oil prices were over $100,” said the Executive Director of a Mumbai-based bank. Lower crude oil prices today may be causing liquidity constraints, to ease which these deposits may be redeemed. “We are therefore preparing for the dollar demand,” he added.

Most of these deposits were mobilised in 2013 to boost forex reserves when the rupee hit a low of 68.85 against the dollar. A big chunk of them will come up for redemption from August.

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Published on August 01, 2016
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