Money & Banking
FCNR deposits maturity could make foreign exchange markets uneasy
Around $ 25 - $ 27 billion of foreign currency non-resident (FCNR (B)) deposits are expected to mature from September to November. There is a fear among many market participants that the rupee may become volatile by 2016-end due to the maturity of these deposits, especially if exports continue to decline. According to an SBI report, “Declining  export  performance could  be  already  adversely  affecting  the  exporters’  ability  to handle  the  currency  woes  and  hence  there  is  the  possibility  of forward  contracts  getting  rolled  over.” 
 
There is a possibility of poor export performance as the global macro-economic environment is weak. India's merchandise exports have been on a declining trend since December 2014. Goods exports from India have declined by around 6.7% to $20.56 billion in April 2016 as compared to the year ago period. The SBI report further states, “It  is  expected  that  the  expiry  of  these  FCNR  (B)  deposits  will  lead  to  outflow  of  dollar  liquidity  from  the  Indian markets  if  dollar  counter parties  (exporters)  renege  on  their  commitment.” In such a scenario, the RBI may intervene in the market to provide dollar liquidity from its reserves. This may lead to a liquidity squeeze in the rupee money market. Despite the fact that the RBI has hedged its swap positions, there may be maturity mismatch in these positions.  This may lead to disruptions in Indian forex and money markets. 
 
There are many ways to deal with this situation, says SBI. The first option is that the Reserve Bank of India (RBI) will accumulate dollar reserves up to September-November 2016 period. During the period of the maturity of these deposits, it could provide dollars to the market and allow the reserves to dip. The second option is that the Government may issue a Sovereign Dollar Bond to make up for the dollar shortage. It may do so directly or through institutions like India Infrastructure Finance Company Ltd (IIFCL) or Indian Railway Finance Corporation Ltd (IRFC). The third option is to provide relaxation in Cash Reserve Ratio (CRR) during the period of maturity of deposits. For instance, SBI estimates that a 1% reduction in CRR would infuse around Rs1,00,000 crore into the system. Another option is to relax Liquidity coverage ratio (LCR) restrictions during that point of time.  RBI may use combination of such measures to counter the problem. 
 
FCNR deposit is a kind of fixed deposit made by non-resident Indians with banks. At present, it is estimated that FCNR deposits account for around 1.7% of the deposits in the banking system. Earlier, in September 2013, during a currency crisis, the RBI had opened a window to banks to swap the fresh FCNR dollar funds in order to protect the falling rupee and build foreign exchange reserves. During the period when the window was open, banks mobilized a huge $34.3 billion and swapped them with the RBI. 
 

User

COMMENTS

Hemant Chitale

6 months ago

The problem is that those FCNR deposits were at much higher interest rates than what would be offered for renewals or new bonds -- unless the RBI were willing to take the risk of higher interest rates again !

REPLY

MG Warrier

In Reply to Hemant Chitale 6 months ago

Yes. Interest rates have gone down globally. No denying that the deposits were received at a rate 'above normal'. Now, India has option to repay the deposits when they mature and accept fresh deposits @ present market rates. It was in this context I referred to swelling forex reserves. The worries are overdone by vested interests (including bankers!)

Tikam Patni

6 months ago

With exports falling, corporate capacity utilisation remaining poor, banks facing crisis in stressed assets, and govt remaining engaged in vote politics. ..we are up for very bad days ahead. ..

MG Warrier

6 months ago

Dr Subramanian Swamy reportedly called these deposits due to mature in another six months or so ‘a time bomb’. Perhaps, now on, analysts, economists and media may spend precious time and energy suggesting ways and means to handle the situation. It is their job. Unlike many outside think, banks keep an account of their receipts and payments and there is an ongoing review for Asset-Liability-Management. No deposit matures without the prior knowledge of the individual/institution which has accepted it. RBI Governor has already mentioned that there is no reason for worry about the availability of resources, even if these forex funds flow out of the country, which may not happen. Our Forex reserves position has improved by about $100 billion during the last 3 years or so.

Auto industry sees sustained recovery in May 2016
The automobile industry produced a total of 4,312,859 vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycle in April-May 2016 as against 3,875,828 in April-May 2015, registering a growth of 11.28% over the same month last year, according to a release from Society of Indian Automobile Manufacturers (SIAM).
 
The sales of passenger vehicles grew by 8.65% in April-May 2016 over the same period last year. Within the passenger vehicles segment, passenger cars, utility vehicles and vans grew by 0.50%, 39.37% and 6.69% respectively during April-May 2016 over the same period last year.
 
The overall commercial vehicles segment registered a growth of 17.12% in April-May 2016 as compared to the same period last year. medium & heavy commercial vehicles (M&HCVs) registered a growth at 21.49% and light commercial vehicles grew by 13.93% during April-May 2016 over the same period last year. 
 
Three Wheelers sales grew by 31.75% in April-May 2016 over the same month last year. passenger and goods carrier sales grew by 36.93% and 11.96% respectively in April-May 2016 over April-May 2015.
 
Two-wheelers sales registered a growth at 15.29% during April-May 2016 over April–May 2015. Within the two-wheelers segment, scooters, motorcycles and mopeds grew by 30.27%, 9.54% and 14.77% respectively in April-May 2016 over April-May 2015. 
 
In April-May 2016, overall automobile exports declined by 9.64%. While passenger vehicles and commercial vehicles registered a growth of 3.51% and 1.65%, three-wheelers and two-wheelers declined by 54.27% and 3.95% respectively in April-May 2016 over April-May 2015.
 

User

SEBI orders Neesa Technologies to refund Rs5.96 crore of funds mobilised through issue of NCDs

Market regulator SEBI (Securities and Exchange Board of India) ordered Neesa Technologies and seven of its officials to refund the money which it had raised illegally from investors and also barred them from the securities market for four years. These entities had raised Rs5.96 crore through the issuance of non-convertible debentures (NCDs) in an illegal manner. They have been directed to refund the money along with interest of 15% per annum.

A SEBI probe found that the company had mobilised Rs5.96 crore from 341 investors during financial year 2013-14 under its offer of NCD and in doing so, failed to comply with the provisions of the Companies Act. The securities were issued by the firm to more than 50 people, which qualified it as a public issue that requires compulsory listing on recognised stock exchanges. The company and its directors were also required to file a prospectus, among other things, which they failed to do.

Market regulator SEBI, in exercise of the powers under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4), 11A and 11B thereof and regulation 28 of the SEBI (Issue and Listing of Debt Securities) Regulation, 2008 issued the following directions:

a.  Neesa Technologies Limited, and its directors, Arvind Gupta,  Yogesh  Ghisumal  Gemawat , Girishchandra Mukundram Baluni , Nimain  Charan  Biswal,  Sanjay Gupta , Kamlendra Joshi,  Manoj Singhal , jointly and severally,  shall forthwith refund the money collected by the Company through the issuance of Non-Convertible Debentures (which have been found to be issued in contravention of the public issue norms stipulated under the Companies Act, 1956 and the ILDS Regulations),  to the investors including the money collected from investors, till date, pending allotment of securities, if any, with an interest of 15% per annum compounded at half y early intervals, from the date when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment.

b. The repayments to investors shall be effected only in cash through Bank Demand Draft or Pay Order.

c. The Company/its present management are permitted to sell the assets of the Company only for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalised Bank.

d.  The Company and its directors shall issue public notice, in all editions of two National  Dailies  (one  English  and  one  Hindi)  and  in  one  local  daily  with  wide circulation, detailing the  modalities for refund, including details  of  contact persons including  names,  addresses  and  contact  details,  within  fifteen  days  of  this  Order coming into effect.

e.  After completing the repayments, the Company  shall file a  certificate of such completion with SEBI,  within a period of three months from the date of this Order, from two independent peer reviewed Chartered Accountants who are in the panel of any  public  authority  or  public  institution.  For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorised so by the Institute of Chartered Accountants of India.

f. Neesa Technologies Limited and its directors are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

g.  In case of  failure  of the company,  Neesa Technologies Limited and its directors in complying with the directions, SEBI, on the expiry of the three months period from the date of this order, -  shall recover such amounts in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws;  may initiate appropriate action against the Company, its promoters/ directors and the persons/ officers who are in default, including adjudication proceedings against them, in accordance with law ;  would make a reference to the State Government/ Local Police to register a civil/ criminal case against the Company, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and would also make a reference  to the Ministry of Corporate Affairs to initiate  appropriate action as deemed fit;  would also make a reference to the Ministry of Corporate Affairs to flag the names of noticee directors in its database so that information may be perused by RoC or any other regulatory authority.

h.  Neesa Technologies Limited  is directed not to, directly or indirectly, access the capital  market  by  issuing  prospectus,  offer  document  or  advertisement  soliciting money from the public and are further restrained and prohibited from buying, selling or  otherwise  dealing  in  the  securities  market,  directly  or  indirectly, from the date of this Order till the expiry of  four  years from  the date of completion of refunds to investors as directed above.

i. The directors are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, with immediate effect.  They are also restrained from issuing prospectus, offer document or advertisement soliciting money from the public and associating themselves with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI. 

The above directions shall come into force with immediate effect and shall continue to be in force from the date of this Order till the expiry of four years from the date of completion of refunds to investors, as directed above.  The above directions shall come into force with immediate effect.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)