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Banks not facing pressure from foreign operation
Sunday, Oct 12, 2008

Indian Banks are not facing any pressure from their foreign operation or to meet its overseas liability. In the last couple of weeks, growth in the deposits of non-resident Indians has increased. According to latest RBI data, the total NRI deposits during the fortnight ending on July 18, 2008 increased are over Rs 3,000 crore from Rs 59,000 crore to Rs 63,081 crore. A senior RBI official said there is no indication that growth has declined since then.

However, the foreign currency borrowing of banks had declined by Rs 2,500 crore from Rs 47,928 crore to Rs 45,427 crore. The bank official said because of the liquidity crunch in the international market, interest rates have gone up. Besides, as institutions are not participating in the fund market, raising funds or renewing the old paper has become difficult. So the foreign currency borrowing of the banks in the global market is declining. Against these funds, banks have lent only Rs 35,113 crore in the foreign currency. The foreign currency loan given by the banks has increased by Rs 822 crore during the fortnight ending July 18, 2008. However, there is apprehension that banks are feeling the liquidity pressure because of their global operation. As the deposits have evaporated and they are not able to roll over their market borrowing, many of banks are buying dollar in the domestic market and repatriate them overseas to meet their forex requirements. This is also putting pressure on rupee, which has depreciated by more than 20% in the last six months.

The market source maintained that as banks normally use their dollars came through foreign exchange deposits to meet their rupee requirements, they buy them back at the time of redemption of the money by the depositors. But normally as inflow from deposits is large, they meet the requirements of dollar from fresh deposits. The public sector bank source maintained that as their inflow under the NRI deposits have gone up, they are not facing any need to buy dollar in the market so far. But, the source said that some banks might be doing this because of their large exposure in the overseas market. However, RBI officer maintained that there was nothing alarming so far in the foreign exchange market.



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