Bonds, Currencies & Commodities
‘Unwarranted panic in the rupee market in the recent past’

India can fund the current year’s CAD without substantially drawing upon the country’s forex reserves, said Dr Raghuram Rajan, governor, Reserve Bank of India in his press meet

Dr Raghuram Rajan, governor, Reserve Bank of India declared that there was unwarranted panic in the rupee market in the recent past, when the US dollar was valued at close to Rs70. There is no need to panic today, as the oil prices are not going to shoot up in US dollar terms, while the Syrian crisis seems to be under control.


While the current account deficit (CAD) of India is a cause for concern, India can fund the current year’s CAD without substantially drawing upon the country’s forex reserves, pointed out Dr Rajan in his press meet. He felt that the inflationary pressures were mostly due to higher oil prices and rupee depreciation, and the fear of the high fiscal deficit was being tackled by the Finance Minister.


The country has breathing room to put its economy in order, as the Federal Reserve has postponed its plans to taper down the asset purchases. The emerging markets will still be flush with dollars to buy on the part of foreign institutional investors. The Reserve Bank will be ready with the economy in better shape, argued Dr Rajan, when the Fed does decide to taper down asset purchases in a phased manner.


In order to encourage market players, the Dr Rajan said that there was no intent to impose additional capital controls in the forex market. Even the OMC (oil marketing companies) forex window will not be permanent and will be tapered down once the economy improves. RBI will be happy to liberalise once the inflows resume, assured Dr Rajan.


Dr Rajan also observed that the market was still in a wait-mode as it anticipates some harsh measures from the government on fuel subsidies, especially diesel. This will be known shortly.


On the common man’s concerns, Dr Rajan said that the kharif crop harvest was expected to be good and that once the rural sentiment improved, the demand-side concerns in the economy would recede. Inflationary pressures would improve over a 6-month horizon.


Dr Rajan hastened to point out that the repo rate hike by 25 bps was not only to control inflation. “This is the course that we have to take to stabilise the economy. We must balance the state of the economy against the fight against inflation,” he insisted. The cut in marginal standing facility (MSF) to 9.5% was there to promote growth.


Dr Rajan pointed out that there were talks to ensure India has a place in the global bond market map. Also, he said that the FII (foreign institutional investors) gilt investments limits were yet to be breached. After a knee-jerk reaction to the repo rate, the stock market recovered substantially.


NSEL crisis: Who are IBMA’s clients, apart from Sahara Q Shop?

Indian Bullion Markets Association-IBMA, indirectly owned by Financial Technologies, is the biggest member-creditor in the NSEL system. Who were IBMA’s clients? The biggest was Sahara Q Shop (19%) followed by a large number of commodity brokers like KR Choksey Commodity, Almondz Commodities and Capital First Commodities etc. 


The Indian Bullion Markets Association (IBMA), promoted by Jignesh Shah-led Financial Technologies (India) Ltd, is supposed to receive a whopping Rs1,170 crore in settlement from National Spot Exchange Ltd (NSEL).  While we wrote about the complete list of NSEL members, nothing much was known about IBMA clients. The members of IBMA are some of the top names in commodities market and include Sahara Q Shop Unique Products Range Ltd, KR Choksey Commodity Brokers and Almondz Commodities to name a few. 


The top 20 members to whom IBMA owes money to are…


TM/ Client Name

Amount (Rs Cr )

Sahara Q Shop Unique Products Range Ltd


K R Choksey Commodity Brokers Pvt Ltd


Capital First Commodities Ltd


Javerilal Oswal Commodities Pvt Ltd


J.G.A. Shah Commodities


Mount Shikhar Commodities Pvt Ltd


Kunal Comtrade Private Limited


Natsons Securities


Lecmec Commodities Broking Pvt Ltd


AKC Financial Consultants (P) Ltd


Padmakshi Commodities Pvt Ltd


Classone Exports Pvt Ltd


Ray Trading Pvt Ltd


Prudent Comder Pvt Ltd


Sujash Enterprises Pvt Ltd


Almondz Commodities Pvt Ltd


Jade Commodities Pvt Ltd


Twenty20 Commodities Pvt Ltd


Vibrant Commodities Trading Pvt Ltd


IBMA, owes a total of Rs1,170 crore to as many as 108 members, some of whom are trading members and some are clients. It is surprising to see Sahara Q Shop right on top of the list, with a whopping Rs226 crore owed by NSEL. KR Choksey, a well known brokerage, is supposed to receive Rs97.25 crore. The full list of IBMA’s clients and monies outstanding in late August is given at the end of the piece. A small amount of money has been released to these clients proportionately, over the last three weeks.


Earlier, Moneylife had published a list of members with highest exposure in NSEL. Customers of some of the biggest names in the Indian broking fraternity who aggressively sold NSEL’s borrowing-lending racket are staring at large outstanding in NSEL. Clients of Anand Rathi Commodities stand exposed to over Rs600 crore while those of India Infoline stand to lose over Rs300 crore. So far, NSEL has hardly kept up with its payment schedule. This means there is a big risk that NSEL may not pay back its entire dues, including IBMA and its members. The piece can be accessed here: NSEL brokers with the highest exposures


Commodities market regulator Forward Markets Commission (FMC), which is charged with supervising the handling of payment crisis at NSEL, had found that IBMA reportedly invested Rs1,200 crore in the NSEL ready-forward product.


IBMA was set up to act as de facto association of bullion traders, mainly for price discovery on the lines of London Bullion Market Association (LBMA), according to NSEL. “Besides providing AM/PM price fixing, thus removing dependence on LBMA’s benchmark prices, IBMA would also try to remove inefficiencies in the Indian bullion market in a steady manner,” Anjani Sinha, the erstwhile managing director and chief executive, NSEL had said at the launch of IMBA.


Moneylife had sought clarity about the role of IBMA in an interview with the top brass of NSEL some time ago. We had asked how IBMA was called an association, a term used by trade and industry lobbies, usually conceived as societies or non-profit companies. NSEL had replied that IBMA was called an 'Association' because it was promoted by NSEL “in a cooperative structure along with various stakeholders such as small jewellers and bullion traders, with an aim to work as an aggregator.”


NSEL had argued that IBMA, a member of NSEL, “has around 130 bullion dealers and jewellers from across the country as its shareholders. In addition to making representations on behalf of physical market participants, policy makers and market linkages services, IBMA also offers various services to its members such as sourcing of material, clearing and forwarding (C&F)."


According to the top management, IMBA was setup to represent matters relating to bullion trade and industry on the physical side, before various authorities and ministries, who are involved in policy formulation. This role has now been extended to agriculture-based commodities. The futures market’s views regarding policy formulation are being represented by several national and regional level commodity exchanges. It, however, lacked adequate representation by physical market participants (to which futures market is an adjunct). Due to this gap, physical market participants did not have enough say in policies formed by state governments, warehousing regulators and ministries related to commodities.


Shreekant Javalgekar, managing director and chief executive of Multi-Commodity Exchange Ltd (MCX) was also on IBMA board until recently. NSEL holds a 74% stake in IBMA, while the remaining shares are held by bullion traders.


To understand more about how NSEL functions, and the role of IBMA in the commodities markets, Moneylife question and answer piece will be helpful


Since the middle of July 2013, trading in NSEL has been suspended. NSEL has failed to make payouts to investors and failed to recover money from those who were supposed to make pay-ins. It now appears that there is not enough stock of commodities in the warehouses of NSEL against which warehouse receipts were issues. In August 2013, trading in e-series was also suspended. This was of concern for large number of investors who had purchased e-series products like e-gold.




Amit Anam

4 years ago

Why Jignesh Shah is still out, why is he not arrested for one of the biggest fraud, who is backing him and why no action is being initiated against him????



In Reply to Amit Anam 4 years ago

might be he has bribed the regulators and investigative agencies that still after 1.5 month down the line no action....

Intrinsic value of Indian rupee is probably Rs57 against the US dollar

There appears to be no other suitable alternative but accept or introduce a dual exchange rate to be kept operational for a year at least

In the last six months, the rupee has lost 13.83% of its value and after touching a low of Rs68.85 against the US dollar, is slowly recovering. Its movement is still very uncertain though experts predict its return to anything between Rs55 to Rs60 range. The intrinsic value of the rupee is probably Rs57 to a dollar, which remains to be seen.


In the interim, exports in certain areas are picking up while major dollar expenses like oil, gas and coal have remained practically unchanged.


Both importers and exporters who took the defensive hedging mechanism have much less worry than the rest who did not foresee the possibility of this great fall.


Media reports indicate huge stock pipe of coal at the ports with importers unwilling to take delivery due to higher rupee element, as it has become costlier by 14% or so. Non-clearance will additionally impact them with demurrage that is being incurred.


Already, the ports are overburdened with more than 3.5 million tonnes of coal. Domestic production, which has increased, also has resulted in stockpiles at pitheads and elsewhere leading to a deteriorating situation. The international price of coal which was around

$85 a year ago has come down to $77, almost a 19% drop, due to lower Chinese offtake, but fall in rupee value has effectively balanced the advantage.


What should the government do to ensure the removal of coal at port and move them to the stockyards of power generators? If the power generators have to pay higher price, because of the increased rupee burden, surely, they will pass it on to the consumer. This is a vicious circle.


To resolve this issue speedily, all privately imported coal, of high grade thermal variety, be directly consigned to power generators with a specially fixed rate of exchange, to be determined by the Finance Ministry/ Reserve Bank of India, to nullify the devaluation effect. Perhaps, the rate of exchange, as was applicable (or available) at the time of opening of letter of credit for purchase, could be used a guideline. Effectively, we are thinking in terms of having a dual exchange rate to overcome the current impasse and manage the CAD (current account deficit) also.


In a likewise manner, all imports of oil, gas and fertilisers, whose import contracts are valid, be given this special rupee exchange rate, so that the government does not have to go through the usual process of subsidising the costs later. For the fertiliser industry alone, the total amount of subsidy runs to a staggering Rs30,000 crore.


Agriculture, which thanks to the monsoon, can expect a better kharif production has millions of farmers using diesel pumps in their fields and increase in fuel supply costs which is bound to happen due to rupee decline, will impact their livelihood and, ultimately, their production.


This rupee fall effect leads to a vicious circle that can be only slowed down by greater exports and reduced imports, supported by increased production and export of foodgrains and industrial products. Revival of export of iron ore would also help, apart from expeditious clearances relating to increase in production of oil and gas from indigenous sources.


At the moment, there appears to be no other suitable alternative but accept or introduce a dual exchange rate to be kept operational, for a year at least.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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