New Delhi, May 20: The Centre may ask the State Bank of India to issue five-year foreign currency denominated bonds targeting NRIs as a huge forex payment obligation of companies lurks round the corner.
India’s forex reserves, which have fallen to $293 billion from $308 billion in December last year, are expected to come down drastically this year as domestic companies that have borrowed or raised deposits abroad have to settle overseas claims of around $137 billion this year.
The government is unwilling to raise sovereign bonds itself but will prefer the SBI to raise dollars through long-term bonds. The SBI had raised forex earlier, too, through the Resurgent India bonds in 1998 and the India Millennium Bonds in 2000. The government holds a 61.58 per cent stake in the SBI.
The bonds will be denominated in dollars, pound sterling and the euro. Once approved, the scheme can be launched in all the countries where the bank will be allowed to float such a bond. When the India Millennium bonds were launched, the US regulations were a hurdle, and the SBI had to depend mostly on NRIs and overseas corporate bodies from the Gulf and Europe to raise about $8.5 billion.
With stock markets slipping all over the world and interest rates being low in most western economies, NRIs can be attracted to invest in SBI bonds.
If India is unable to attract hard currency, the steep depreciation in the value of the rupee can continue unabated. The rupee has fallen nearly 25 per cent in one year. The SBI bonds and changes in FDI policy are seen as ways to attract foreign exchange.
The Indian currency has been falling because of US and European foreign institutional investors selling stocks in developing markets to make good their losses in their domestic markets and the increasing demand for dollars from Indian oil marketing firms. In the last one year, crude oil prices have moved in the range of $77 a barrel to $116 a barrel. Indian oil retailers import 80 per cent of the country’s crude requirements.
The North Block had proposed a dollar bond issue in March when the budget was being presented. However, the government does not want to issue the bonds itself.
Indian banks hold around $55 billion in NRI deposits under various schemes. In 2011-12, NRIs deposited around $11 billion in Indian banks compared with $3 billion annually on an average in the previous five years. According to analysts, the NRIs’ appetite for Indian deposits has increased with the financial turmoil in the West.
PROP UP FOREX RESERVES
● Indian firms will have to settle overseas claims of around $137bn this year that may put huge strain on forex reserves
● SBI to raise dollars through long-term bonds targeted at NRIs
● Weak stock markets and low interest rates in other countries may prompt NRIs to invest in SBI bonds
● SBI had issued Resurgent India bonds in 1998 and India Millennium bonds in 2000