Special forex drive raised $32 billion so far, SBI predicts $80-85 billion, Pg13

Key Highlights:

• Indian banks and companies have attracted $32 billion through the Reserve Bank of India's (RBI) special forex drive.
• State Bank of India (SBI) projects total inflows from this initiative could reach $80-85 billion.
• The drive primarily utilizes Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, External Commercial Borrowings (ECBs), and Overseas Foreign Currency Borrowings (OFCBs).
• The RBI is covering the full exchange rate hedging cost for new 3-5 year FCNR(B) deposits until September 30.
• The swap facility for ECBs and OFCBs is available until December 31.
• Additionally, over $7 billion has flowed into government securities since June 5 due to related policy announcements.

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Detailed Insights:

• The RBI's special forex drive aims to bolster India's foreign exchange reserves and stabilize the Indian Rupee amidst global economic pressures.
• This initiative includes concessional swap windows designed to make foreign currency borrowings more attractive for Indian entities.
• A similar RBI swap facility in 2013 raised approximately $34 billion, primarily from FCNR(B) deposits, to counter capital outflows.
• The current drive has already surpassed the FCNR(B) component of the 2013 inflows, indicating strong participation.
• The government supported the RBI's efforts by exempting foreign investors from withholding tax on government bond investments and removing capital gains tax.
• These combined measures have helped to strengthen the rupee, which had been under pressure due to global events like the West Asia war.
• RBI Governor Sanjay Malhotra has expressed confidence that the total inflows from these measures will be robust.

Key Concepts Involved:

• Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits: Term deposits held by Non-Resident Indians (NRIs) in foreign currency with Indian banks.
• External Commercial Borrowings (ECBs): Loans raised by eligible resident entities from recognized non-resident entities in foreign currency.
• Overseas Foreign Currency Borrowings (OFCBs): Borrowings by Indian entities from overseas markets in foreign currency.
• Forex Swap: An agreement to exchange one currency for another at a specified date and then reverse the exchange at a later date.
• Withholding Tax: A tax deducted at source from income paid to non-residents.
• Capital Gains Tax: A tax on the profit realized on the sale of a non-inventory asset.
• Government Securities (G-Secs): Debt instruments issued by the government to borrow money from the market.