Banks seek RBI relief on rupee-defence measures amid 1% rally

by@Reuters

Summary

Banks in India are seeking relief from the Reserve Bank of India's (RBI) new measures aimed at strengthening the rupee, which has depreciated over 6% year-to-date due to high oil prices and capital outflows. Following the RBI's announcement over the weekend, which mandated a 20% cash deposit for FX derivatives used by companies to hedge their current-account exposures, banks are advocating for the removal of this requirement and suggest replacing it with a flat fee. This change, they argue, would mitigate costs without locking up rupee liquidity. The RBI's recent measures have positively impacted the rupee, prompting a 1% rally; however, banks express concerns about the complexity of the new rules, particularly regarding a $2 million threshold that could lead to fragmented transactions.

Analysis

Nimesh Vora: Nimesh Vora is a Reuters journalist covering economic and regulatory developments in India. This individual contributed to reporting on lenders' proposals to the central bank regarding FX hedging rules and their impact on liquidity. Jaspreet Kalra: Jaspreet Kalra is a Reuters journalist based in Mumbai specializing in financial and banking sector coverage. This individual reported on Indian banks' requests for relief from the Reserve Bank of India's latest rupee support measures. Dharamraj Dhutia: Dharamraj Dhutia is a Reuters journalist focused on Indian financial markets and policy. This individual participated in reporting the details of banks seeking clarity and adjustments from the RBI on new derivative deposit mandates. Mrigank Dhaniwala: Mrigank Dhaniwala is a Reuters editor handling financial news content from India. This individual edited the report detailing the banking industry's feedback on the central bank's rupee-defence actions announced recently. Reserve Bank of India: The Reserve Bank of India serves as India's central bank, overseeing monetary policy, banking regulation, and currency management. It recently announced measures over the weekend aimed at supporting the rupee by addressing corporate hedging demands and redirecting certain dollar purchases. Banks have approached the RBI via industry channels seeking modifications to these rules, including changes to deposit requirements for FX derivatives. Industry Feedback: Indian banks have used industry associations to request that regulators replace a percentage-based deposit rule with a simpler flat fee structure for certain hedging activities. Regulatory Response: India's central bank introduced targeted measures over the weekend to ease pressure on the rupee by managing corporate demand for forward dollars and adjusting oil company dollar purchases.

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