HYDERABAD: The Reserve Bank of India’s recently announced rupee-dollar swaps can ease interest costs and potentially help the top 500 foreign fund borrowers save up to Rs 7,000 crore if issuances increase, according to India Ratings (Ind-Ra).
Last month, RBI conducted its first forex swap auction, raising $5 billion, and is following it up with round two on April 23. The move allows RBI to receive dollars from banks, with the former promising to pay back in rupees fixed at 76.62 per dollar three years later, irrespective of the prevailing exchange rate. “The recent softening of the rupee-dollar forward rates, if sustained at least in the foreseeable future, is likely to provide a fillip to borrowers that plan to raise foreign currency-denominated capital,” Ind-Ra said in a report.
The first round of the three-year swap auction, along with a change in the global monetary policy conditions, moderated the three-year cross-currency swap rates by 0.30 per cent on April 15 from the January 2 levels. In the same period, the rupee-dollar forward premia moderated by 0.71 per cent, driven by a marked improvement in the dollar liquidity conditions in the domestic market, the ratings agency noted.
It added that the interest outgo of the top-500 debt-heavy corporates can cumulatively reduce by Rs 4,000-7,000 crore, assuming 0.50-0.75 per cent reduction in the cost of forex borrowings and 0.5-2 per cent rise in the share of forex borrowings in their outstanding debt.
The swap windows will make available additional deposits of about Rs 69,000 crore to the banking sector, though it’s unlikely to materially change the aggregate liquidity shortfall in the banking system. When the swap was announced, it was considered to be easing the liquidity situation, giving RBI breather from an overdose of open market operations — where RBI buys bonds from the secondary market to infuse liquidity. In FY19, RBI’s open market operations were in excess of Rs 2.8 lakh crore.
Better liquidity aids efficient transmission of RBI’s policy rates, but for that to happen, deposits need to be bumped up. For a meaningful traction in deposit growth, both endogenous and exogenous factors like flow of foreign capital should continue to contribute in a sustainable manner over near-to-medium term, it said.
Meanwhile, Ind-Ra pegs non-food credit growth to touch Rs 11.68 lakh crore in FY20 and the deposit shortfall at Rs 2.79 lakh crore even after proceeds from the swap window and a rise in credit-deposit ratio.
India Ratings also pegs non-food credit growth to touch I11.68 lakh crore in FY20 and the deposit shortfall at I2.79 lakh crore even after proceeds from the swap window and an increase in credit-deposit ratio.