RBI takes steps to shore up rupee

Forex earning cos allowed to raise credit abroad to repay rupee loans

To check the free fall of the rupee against the US dollar, the RBI has given a green signal to Indian firms engaged in manufacturing and infrastructure sector and having foreign exchange earnings to avail external commercial borrowing (ECB) for repaying outstanding rupee loans towards capital expenditure. 

Indian companies can now use such fund for fresh rupee capital expenditure under the approval route. The overall ceiling for such ECBs will be $10 billion, RBI said in a statement on Monday.  These companies will enjoy a natural hedge for ECB borrowing because of their export earnings in forex.

The RBI also enhanced the existing limit for investment by the Security Exchange Board of India(Sebi)-registered foreign institutional investors (FIIs) in Government Securities (G-Secs) by a further amount of $5 billion. It would up the overall limit for FII investment in G-Secs from $15 billion to $20 billion.

FICCI chief R V Kanoria said: “The steps announced so far are probably minimal at this time, but could lead to some inward capital flows if supported by stronger fundamentals. We were, however, hoping for a broad-based set of strong action as well.”

In order to broad base the non-resident investor base for G-Secs, the RBI has now allowed long-term investors like Sovereign Wealth Funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to also invest in G-Secs for the entire limit of $20 billion.

The RBI said the sub-limit of $10 billion (existing $5 billion with residual maturity of five years and additional limit of $5 billion) would have the residual maturity of three years.

The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.

The RBI further said Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 per cent of their assets (either in debt or in equity or both) in the infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure.

Analysts aver that these measures come in handy for the manufacturing sector which finds the rupee loans more expensive, while foreign currency loans are cheaper.  

Meanwhile, the rupee, which was holding firm on Monday morning on hopes of the government taking big corrective measures, fell to 57.01 at the close of the day.