Ready money

New Delhi, Dec. 28: Finance minister P. Chidambaram today allayed fears about any liquidity problem in the wake of redemption of India Millennium Deposits (IMD) by non-resident Indians (NRIs). The deposits are due for redemption tomorrow and the outgo is estimated to be around $7.3 billion.

“We have enough liquidity. So there is no problem (when these deposits are redeemed),” Chidambaram told reports here on the sidelines of the roadshow of a single-window tax payment facility for large taxpayers, called Large Taxpayers Unit Scheme.

The Reserve Bank of India has already sold foreign exchange aggregating $5107.44 million to the State Bank of India for the redemption of the India Millennium Deposits.

The finance minister, however, dismissed fears that the redemption would exert pressure on short-term interest rates. In fact, the overnight call money rate has already increased to 7 per cent ? above the RBI’s repo rate of 5.25 per cent.

Chidambaram also said that the government would go ahead with its scheduled market borrowings. The government is expected to borrow Rs 58,000 crore in the second half of the current fiscal year, of which Rs 10,000 crore would be raised in January alone.

Apart from SBI, several other banks including ICICI Bank, IDBI Bank, Union Bank of India and Bank of Baroda will also share a significant portion of the redemption.

Meanwhile SBI chairman A.K. Purwar on Tuesday said the bank would benefit from the redemption of India Millenium Deposits in the medium and long term.

“The bank would gain positively from the IMD redemption as the cost of funds was higher that time than at present,” he said, adding that the bank would pay the amount on time.

Purwar also said that SBI would “aggressively” target to tap the money that NRIs would get from the redemption of IMD through its existing reinvestment schemes.

“We expect to tap almost 15 per cent of the money,” he said.

SBI came out with the bonds to raise $5.5 million in 2000. The 5-year bonds carry interest rates of 8.5 per cent, 7.85 per cent and 6.85 per cent per annum in dollars, pound sterling and euro, respectively.

Ashok Kini, managing director of the country’s largest public sector bank also allayed today any liquidity fears regarding the redemption.

“Inspite of apparent tightness in liquidity, there is nothing much to worry about the impact of India Millenium Deposit redemption slated for tomorrow,” Kini said.

“The redemption has not come as a surprise for the banks. The system is ready for it. Hence, we don’t find anything to worry about,” he said.