ARTICLE

FCNR Deposit Redemption: Much Ado about Nothing

Mr. Debjyoti Roy*

In June 2013, the global market, and particularly and the US Treasury yields spiked, exchange rates of
the emerging markets, went into a meltdown after a almost all emerging market currencies depreciated
testimonial by the then Federal reserve Chairman, sharply against the greenback. India was no
Dr Ben Bernanke to the Joint Economic exception, as the domestic currency bore a severe
Committee in the United States. Asked whether repercussion of the 'Taper Tantrum', as the event
there could be a gradual rollback of the Fed's bond came to be termed as later. In a span of two months
purchasing programme, also known as since the speech by Mr Bernanke, the Indian Rupee
Quantitative Easing (QE) in the near future, fell by nearly 21 per cent, reaching its lowest ever
Bernanke answered that it could be a possibility, (erstwhile) value of 68.3611 on the 28th of August
only to reassure later that the QE was to stay. 2013. From 5th August onwards, it had fallen by
However the damage was done; interpreting nearly 13 per cent.

Chart 1: Movement of the Indian Rupee against the UD Dollar after Bernanke's comments

Movement of the INR as a result of the 'Taper Tantrum'

69.00
67.00

65.00
63.00

61.00
59.00

57.00
55.00 Monthly Newsletter February 2017
13 13 13 13 13 13 13 13 13 13 13 3 3 13 3 13 13
u n- u n- un- u n- un- Jul- Jul- Jul- Jul- Jul- Jul- u g-1 ug-1 ug- u g-1 ug- e p-
-J -J -J -J -J - - - - - - -S
03 07 13 19 25 01 05 11 17 23 29 02 -A 08 -A 16 -A 22 -A 28 -A 03

Source: RBI

Bernanke's words as an official Fed position to In accordance with the volatility in the spot market,
wind down, investors panicked and started pulling the Reserve Bank of India (RBI) had to intervene in
out of emerging markets, sparking a widespread the foreign exchange market to control drastic fall
sell-off. As the flight towards US dollar took shape of the INR, quickly spiralling downwards. As is the
CCIL

Mr. Debjyoti Roy is Sr. Executive Officer, Economic Research and Surveillance Dept.
at Clearing Corporation of India Limited

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norm during such occasions, the Central Bank overseas to improve the current situation in the
resorted to selling dollars from the country's foreign exchange reserves, through a special scheme
foreign exchange reserves maintained by it, to stop known as the Foreign Currency Non Repatriable
the Rupee's depreciation against the US currency. (FCNR) account deposits.
Chart 2: Depletion in India's aggregate foreign exchange reserves in the aftermath of the Taper Tantrum

Total Forex Reserves (US$ Mn)

$284,000
282453
$282,000 281543

$280,000

277572 277234
$278,000
Series1
$276,000 275492

$274,000

$272,000
Jul-13

Aug-13

Oct-13
Jun-13

Sep-13

Source: RBI

This was evident by the sharp depletion in the FCNR Deposits: the origin, details and
foreign exchange reserves, as data published by the current utility in the present scenario: In its
RBI show. In August 2013, the value of the total earliest form, the deposits raised from overseas
foreign exchange reserves declined to its lowest investors by banks were termed as FCNR (A)
since July 2010, as the falling value of the INR as deposits - they were introduced in the 1980s to lure
well as the large scale selling of the dollars by the deposits denominated in US Dollar and the Pound
Monthly Newsletter February 2017

RBI resulted in the depletion of the aggregate value sterling at attractive rates. Banks were encouraged
of the reserves. to raise such deposits since the RBI was
guaranteeing to provide for any exchange rate
To stem the adverse events unfolding at a rapid
losses the deposits suffered during redemption.
pace, the Government as well as the RBI introduced
Since India was still a closed economy at that point
a slew of measures to arrest the rapid decline of the
of time, the scheme was the only source of foreign
INR, and to resurrect the overall market position,
funds other than bilateral borrowing from the IMF
which was feeling the heat generated by the external
or other countries. The guarantee from the Central
sector situation. One such measure was to allow the
Bank had made it a lucrative proposition for the
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banks and financial institutions to raise medium

foreign investors, especially from the Middle East.
duration dollar denominated deposits from

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However, after 1991 when the economy was finally the aforementioned deposits, before finally
liberalised from protectionist policies after going winding up the expensive scheme for good in 1997.
through a Balance of Payments crisis, the lure of the In turn the RBI would be increasing its annual
scheme gradually faded, as foreign investors had transfer, in the form of dividends or realized
the opportunity of directly investing in the Indian profits, to the Government progressively every year.
economy, rather than through intermediaries and In mid-1994, while the decision of winding up
deposit schemes. By 1994, India's foreign exchange FCNR (A) was formalised, a new scheme to replace
reserves had risen to US$13 billion, from $1 billion the former was introduced - the FCNR (B).
in 1991 due to the inflows of foreign direct
What is FCNR (B)?
investment, portfolio investments as well as equity
issuances. Although, by then, the total liability FCNR (B) is similar to the nature of FCNR (A) as a
under the FCNR (A) scheme had ballooned to over deposit raising instrument, apart from one notable
US$10 billion. The RBI was increasingly becoming difference - the foreign exchange risk is borne by the
wary of the scheme and its adverse impact on its banks that raise the deposits, and not by the
balance sheet - underwriting the losses on account Central Bank or the Government. Banks raise
of foreign exchange differentials would reflect on deposits from abroad through lucrative rates
its balance sheet and prudential reserves as losses. denominated in foreign currency - predominantly
The RBI then would have to provide for the losses, in dollars - for a specified time period. They then
which could have a broader impact. Since the swap those dollars/foreign currency with the RBI
Indian Rupee was devalued in 1991 to boost export for Indian Rupee (INR) at a fixed rate for a time
competitiveness, the losses would be significant. To period similar to the term of the deposit. At the
complicate things further, some of the public time of redemption, the banks return the amount
sector institutions were actually not in need of such of money swapped with the RBI and take back the
funds and had to comply to boost the demand of foreign currency. Since the foreign currency risk is
the scheme in its initial stages. borne by the banks, if there is an exchange rate
fluctuation to the downside, the banks bear the loss
After joint consultations between the RBI and the
while returning the deposited money to the
Government, in the budget of 1994-95 it was
offshore investors. Likewise, if there is a currency
announced that the Government, instead of the
appreciation, the banks stand to benefit. Monthly Newsletter February 2017
RBI, would be bearing the foreign exchange risk for
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Box 1: Features of FCNR (B) deposits

Key Features of FCNR (B) deposits o For maturity period between 1 - 3 years,
LIBOR/SWAP plus 200 basis points
• Tenor: One year to five years
o For maturity period between 3 - 5 years,
• Denomination: With effect from October 19,
LIBOR/SWAP plus 300 basis points
2011, banks are permitted to accept FCNR (B)
deposits in any foreign currency which is freely • The interest payable on the deposits should be
convertible as per FEMA regulations paid on the basis of 360 days to a year. Interest
should be calculated at intervals of 180 days and
• Interest Rate on Deposits: Banks are free to
thereafter for the remaining actual number of
determine the interest rates (free or floating, with
days. The depositor however, has the option to
an interest rate reset period of six months),
receive the interest on maturity with
subject to a prescribed ceiling. The present
compounding effect.
ceiling, with effect from March 1, 2014, is as
follows:

What happened in 2013? As aforementioned, the terminated prematurely in case of premature

taper tantrum resulted in the INR coming under withdrawal by the FCNR depositor, then the
tremendous pressure. Amidst foreign investors interest rate charged would be higher.
quickly selling off their holdings or investments in
As can be seen from the table below, the measure by
Indian assets, the Rupee had lost over 25 per cent of
the RBI saw a substantial influx of dollar deposits
its value since the beginning of the year, and
through the FCNR (B) route, from September 2013
consequently the value of foreign exchange reserves
to December 2013.
was dwindling rapidly, as RBI tried to stem the tide
by selling dollars in order to rescue the Rupee. It Table 1: Outstanding FCNR deposits and
was during this turbulent phase that the Central inflows/outflows at the end of every month
Bank, on the request of several banks, decided to FCNR (B) Outstanding FCNR (B) Inflows (+)/
Month
open a special concessional window for swapping (US$ Million) Outflows (-) (US$ Million)
May-2013 15,394.92 -203.26
Monthly Newsletter February 2017

of dollars raised through FCNR (B) deposits with

the banks. The swap window was made available Jun-2013 15,086.80 -308.12
th th
from the 10 of September till the 30 of November Jul-2013 15,408.36 321.56
2013. The RBI would accept dollars from the banks Aug-2013 15,119.48 -288.88
in exchange for rupee, at spot rate, for a minimum Sep-2013 19,223.60 4,104.12
tenor of three years and above, which was in line Oct-2013 24,737.47 5,513.87
with the tenors of most of the FCNR deposit raised. Nov-2013 39,633.23 14,895.77
In the second leg of the transaction, the banks
Dec-2013 40,419.01 785.77
would return the rupee funds along with the swap
premium at the end of the tenor of the swap and Source: RBI
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take back dollars. The swap rate was fixed at 3.5 per From the end of August 2013, deposits increased by
cent per annum. However, if the swap was to be 162 per cent to reach nearly US$ 40 billion by

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November end, when the swap window was closed sentiment was positive perceiving the incumbent
by the RBI. In absolute terms, there was an inflow government as business friendly. At the time, the
of US$ 40 billion between August and November. RBI purchased sufficient dollars and rolled it over
This was because of the swap window put in place in the swap market, marking them for forward
which incentivised the banks to raise fresh FCNR delivery as the redemption period arrived two years
deposits, as the swap rate lowered their cost of later. In other words, they sold dollars in the
hedging the forward contracts against the deposits forward market and intended to take delivery two
raised. For instance, generally, the banks would years later, while rolling the contracts over at the
have to pay the existing forward premium to hedge end of every month, in the intervening period.
their foreign exchange exposure attained through
Table 2: India's foreign exchange reserves
the FCNR deposits for a specified duration. The
through 2016
swap rate put in place now implied that the banks
would be able to hedge their exposures at a much Month Forex Reserves (US$ Bn)

lower rate, discounted by the magnitude of the Jan-16 349.61

swap rate. Hence, the RBI was incentivising the Feb-16 348.42
banks to raise foreign currency so that the Mar-16 360.18
impending crisis of foreign exchange reserves can Apr-16 363.05
be averted. May-16 361.61

For the NRIs too, it was beneficial as the deposits Jun-16 363.51

earned them more as compared to rates that a US Jul-16 366.50

deposit, for instance, would earn. The prevailing Aug-16 366.80
rate of interest for deposits at the time in the Sep-16 371.99
United States was close to 1 per cent, whereas the Oct-16 366.21
FCNR deposit rates were being offered at closer to 4 Nov-16 361.12
per cent. Not only was this tantamount to higher
Source: RBI
risk free earnings, the interest earned through the
deposits was also tax free in India. Therefore it From the data, it is evident that India had a
could be reinvested without paying any penalty. comfortable forex reserve position throughout the Monthly Newsletter February 2017
year even in the face of FCNR redemption of close
Moving on to the present, we need to observe how
to US$25 billion. This was due to India's
the RBI has been providing for the impending
diminishing current account deficit as well as low
demand for US Dollars, and consequently
global price of commodities, reducing India's
preventing a run on the forex reserves, during the
import bill. Even so, the RBI had been taking up
redemption period to follow. The following table
forward positions in the currency futures market to
denotes India's total foreign exchange reserves
compensate for any dollar shortfall that might
throughout 2016. According to experts who were
have come up during redemption. To validate this,
keenly watching RBI's move in the post FCNR
we look at the data released by the RBI regarding
issuance period, pointed out that soon after the
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sale/purchase of US dollars undertaken by it in

general elections in 2014, there was a lot of foreign
recent months. Ideally, to facilitate the redemption
currency inflow into the economy, as the investors

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process, the RBI would take up short or sell The above table clearly illustrates that RBI had been
positions in the forward market for US dollar in the taking up active short positions in the forward
previous months, and would reverse those market for US Dollars since February 2016. The
positions in the months of redemption, specifically reversal of the negative sign to positive sign from
between September and November of 2016. This August denotes that the RBI had reversed its stance
would be done to hedge or cover for any in the market to cover for the redemption impact.
unexpected large exchange rate fluctuations that
The following table denotes the residual maturity
might occur in the intermediate period.
patterns of the outstanding forward positions held
Table 3: RBI Sale/Purchase and Net by the RBI at the end of every month. Beginning
outstanding position of US Dollar in 2016 with May 2015 till October 2015, it can be observed
that the majority of the forward positions held by
Net Purchase/ Sale of Outstanding Net Forward Sales
Month Foreign Currency (-)/ Purchase (+) at the the RBI were in the maturity period of more than a
(US$ Million) end of month (US$ Million) year. Also, these were mostly short positions, which
Feb-16 -3341 -2410 would be reversed as the maturity period arrived
Mar-16 4686 -4253 tentatively during September - November 2016. As
Apr-16 1339 -4003 the redemption period arrived, the residual
May-16 554 -5748 maturity period held by the RBI also got shorter
Jun-16 1918 -7431 gradually, and moved into the term between 3
Jul-16 1400 -5066 months and 1 year.
Aug-16 850 94
Sep-16 4649 4890
Oct-16 -418 5632
Nov-16 -2718 2944
Source: RBI
Monthly Newsletter February 2017
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Table 4: Maturity pattern of outstanding forward positions held by the RBI (in US$ Million)
More than 1 month and More than 3 months
Upto 1 month More than 1 year
Month upto 3 months and upto 1 year
Long (+) Short (-) Long (+) Short (-) Long (+) Short (-) Long (+) Short (-)
May-15 3895 3335 8122 7552 19415 16944 0 -25969
Jun-15 3775 3665 9002 7902 18825 16994 0 -25969
Jul-15 4347 2972 9350 7854 19852 18877 865 -25104
Aug-15 4655 2595 7424 5573 17980 17660 3042 -22927
Sep-15 4695 3499 5044 4069 16135 14043 3977 -19900
Oct-15 2729 2000 5305 4985 16980 6772 4822 -11305
Nov-15 2415 1805 6202 5982 19745 -3479 665 -2821
Dec-15 3240 2550 6300 6220 20102 -4565 0 -2218
Jan-16 3212 2072 3888 3343 21152 -3515 0 -2218
Feb-16 3088 2443 3150 2770 19802 -5406 0 -2217
Mar-16 800 0 5295 4555 17972 -7046 455 -1762
Apr-16 2350 1800 3840 3650 17477 -7541 455 -1962
May-16 2945 2755 1395 1395 18257 -7781 150 -2117
Jun-16 895 895 2006 -86 18593 -6023 0 -2217
Jul-16 500 500 5850 -4748 17509 1399 0 -2217
Aug-16 2916 824 12932 -9510 13271 10997 0 -2217
Sep-16 7324 -1482 10882 -4547 13917 13131 0 -2212
Oct-16 11898 -5138 3829 1236 12582 11718 0 -2184
Source: RBI
One important question arises that even if the RBI leveraged deposits'. This implies that the FCNR
has made provisions for delivering US dollars deposits have been created through borrowed funds
without any hiccups during redemption period, from the market or financial institutions abroad
what if the redeeming banks do not have adequate where the borrowing costs were comparatively
liquidity at their disposal to actually claim those lower at the time of issuance, so that the depositors Monthly Newsletter February 2017
redemptions? From the net sale/purchase data of could earn on interest arbitrage. The individual
US dollars by the RBI in the previous table, it can be who created the initial deposit account, borrows
estimated that since February 2016, the RBI had money against that count from another bank or the
purchased US Dollars of net worth 11.7 billion. foreign intermediary of the same bank, and with
That still leaves the banks with a net value of over the borrowed money, opens another FCNR deposit
US$14 billion to cover, given the FCNR deposits account. This process continues for as long as the
during Sept - Nov 2013 were estimated to be close to investor's risk appetite as well as those of the banks
US$25 billion. which are lending money. The entire process is low
risk as there is low probability of the banks
A primary characteristic of the FCNR deposits
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accepting the deposits going bust within the life

raised in 2013, as has been cited by many, is that
period of the deposit. Other risks that could have
they are what is known in financial parlance as'
hindered the risk appetites of the investors would

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be a sudden and steep decline of the rupee from its as people queued up at the banks to deposit the old
erstwhile level (62 against the dollar) in 2013 to, say, notes previously held by them in the form of cash.
75 or so; or if the country in which the lending Consequently deposits at the banks spiked
institution is incorporated suddenly decided to significantly, and as we observe from the chart and
hike the base interest rates which would make the table below, 90 per cent of the deposits created by
arbitrage opportunity redundant. At a time when individuals at the banks are time or term deposits,
the global equity indices have been subject to and cannot be redeemed before certain due date or
widespread volatility, the former option appears to period.
have been a safer and more lucrative bet.

Chart 3: Deposits accepetd by all scheduled commercial banks (SCBs) in India since August 2016
Deposit accepted at SCBs since August 2016
105,000 12,000

100,000 10,000

95,000 8,000
` Billion

` Billion
90,000 6,000

85,000 4,000

80,000 2,000

75,000 0
29-Jul-16

02-Sep-16

14-Oct-16

11-Nov-16

25-Nov-16
05-Aug-16

19-Aug-16

26-Aug-16

16-Sep-16

30-Sep-16

28-Oct-16

Aggregate deposits Time Deposits to Others Demand Deposits to Others

Source: RBI
Note: (i) Aggregate Deposits, Time Deposits on the primary axis
(ii) November data is provisional
Monthly Newsletter February 2017

Additionally, the recent initiative of the Central The banks therefore had ample liquidity at their
Government to withdraw the legal tender status of disposal to effectively make the swap with the RBI.
some of the high value specified bank notes (SBN) As per latest data, NRIs have mobilised US$17
has also proved to be boon for the banks in India. billion of FCNR (B) deposits till the end of
One of the primary concerns regarding the FCNR November, and the Government expects another 2-
redemption had been whether the banks would 3 billion USD to have been redeemed in December,
have had enough liquidity at their disposal to swap for which data is still not available. Hence, in total,
the dollars from the RBI to initiate the redemption a sum of US$20 billion has already been redeemed
process. All those fears have been allayed by the by the NRIs, out of the US$25 billion raised
between September and November 2013.
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influx of deposits after the withdrawal of the SBNs,

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Table 5: All Scheduled Commercial Banks (Aggregate Deposits and its components)
(` Billion)
Fortnight Demand Deposits Time Deposits Aggregate Share of time deposits in
ended to Others to Others deposits Aggregate Deposits (%)
29-Jul-16 8990.08 87887.62 96877.70 90.72
05-Aug-16 8929.93 88143.67 97073.61 90.80
19-Aug-16 8905.54 87876.97 96782.51 90.80
26-Aug-16 9172.23 88097.52 97269.75 90.57
02-Sep-16 9233.45 88826.38 98059.83 90.58
16-Sep-16 9318.68 88064.06 97382.73 90.43
30-Sep-16 10427.84 90508.62 100936.47 89.67
14-Oct-16 9198.52 89908.80 99107.32 90.72
28-Oct-16 9436.40 87828.10 97264.50 90.30
11-Nov-16 9675.40 89163.70 98839.10 90.21
25-Nov-16 10811.90 92516.70 103328.60 89.54
Source: RBI

Chart 4: Movement in the US Dollar Exchange Rate against the INR during the redemption period
USD Exchange Rate (against INR)
69.00

68.50

68.00

67.50
INR

67.00

66.50

66.00 Monthly Newsletter February 2017

03-Nov-16
07-Nov-16

09-Nov-16
11-Nov-16

16-Nov-16
18-Nov-16
22-Nov-16

28-Nov-16

30-Nov-16

06-Dec-16
08-Dec-16

19-Dec-16

02-Jan-17
01-Nov-16

24-Nov-16

02-Dec-16

13-Dec-16
15-Dec-16

21-Dec-16
23-Dec-16

27-Dec-16
29-Dec-16

USD Exchange Rate (against INR)

Source: RBI
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Table: Movement in the exchange rate of INR against the US Dollar and the corresponding
forward premia (in per cent)
Exchange Rate Forward Premia (%) Exchange Rate Forward Premia (%)
Date Date
USD 1 Month 3 Month USD 1 Month 3 Month
01-Nov-16 66.7140 5.39 5.29 01-Dec-16 68.3734 3.4 3.74
02-Nov-16 66.8294 5.42 5.35 02-Dec-16 68.3689 3.14 3.57
03-Nov-16 66.6942 5.43 5.46 05-Dec-16 68.1703 3.57 3.75
04-Nov-16 66.7219 5.38 5.43 06-Dec-16 68.0322 3.44 3.74

07-Nov-16 66.7301 5.42 5.45 07-Dec-16 67.8707 3.47 3.73

08-Nov-16 66.7073 5.51 5.49 08-Dec-16 67.4325 4.37 4.28

09-Nov-16 66.7968 5.42 5.36 09-Dec-16 67.5840 4.05 4.11

13-Dec-16 67.4867 3.61 3.95
10-Nov-16 66.4273 5.22 5.26
14-Dec-16 67.5604 3.71 3.98
11-Nov-16 67.0292 5.17 5.15
15-Dec-16 67.7994 3.82 3.96
15-Nov-16 67.7173 4.67 4.58
16-Dec-16 67.7777 3.95 4.13
16-Nov-16 67.7791 4.52 4.46
19-Dec-16 67.7262 4.29 4.27
17-Nov-16 67.9106 4.84 4.67
20-Dec-16 67.8954 4.16 4.18
18-Nov-16 68.0937 4.73 4.60
21-Dec-16 67.8724 4.03 4.14
21-Nov-16 68.2575 3.79 4.08
22-Dec-16 67.9136 3.99 4.12
22-Nov-16 68.2317 3.64 4.00
23-Dec-16 67.9117 4.07 4.18
23-Nov-16 68.4772 3.46 3.86
26-Dec-16 67.8331 4.24 4.26
24-Nov-16 68.6560 3.01 3.29 27-Dec-16 67.9967 4.11 4.26
25-Nov-16 68.4626 1.87 2.62 28-Dec-16 68.2250 3.05 3.85
28-Nov-16 68.7235 3.23 3.67 29-Dec-16 68.1241 3.50 4.52
29-Nov-16 68.6535 2.94 3.34 30-Dec-16 67.9547 3.64 4.58
30-Nov-16 68.5260 3.2 3.58 02-Jan-17 68.0225 3.74 4.48
Source: RBI

As we can see from the chart in the previous page, future performance of the Indian economy; as
Monthly Newsletter February 2017

US Dollar exchange rate against the Indian Rupee experts feared that the withdrawal of the SBNs
th
remained stable till about the 9 of November might take a toll on the domestic economy at least
2016. After that, it spiked sharply, breaching the 68 in the short run, since a large segment of it is still
mark soon after, and has since remained in the 67 - cash dependent. Also, the event coincided with US
68 range thereafter. Curiously enough, the period presidential election results, which might result in
coincided with the withdrawal of the legal tender of the Fed rates being hiked, as perceived by the
SBNs. Hence it is difficult to tell whether the markets. Hence it was more a flight in search of
depreciation was due to the demand in the spot higher yields and away from jittery markets, and
market for dollars by the banks as well as the RBI, less a lack of confidence over the Indian banking
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or because of FIIs withdrawing funds from the system's ability to honour its commitments to
Indian markets due to overall concerns over the investors. However, there were some short term

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jitters over the redemption concerns, which before stabilising quickly by the end of November.
manifested themselves over the short term fall in It has remained in the range 3.05 - 4.79 ever since,
the domestic currency against the greenback. whereas for the 3 month forward premium, the
same has been 3.57% - 5.09%. Therefore, the
A second factor to keep an eye on, in case of FCNR
redemption process did manage to create some
redemption pressures, would be the movement in
ripples in the foreign exchange markets, but largely
the US Dollar forward premium especially in the
passed over peacefully, due to the proactiveness and
short term maturities of one and three months. As
foresight of the RBI.
the banks would start buying dollars in the spot
market, they would simultaneously enter a short FCNR (B) deposit has proved to be an important
position in the forward market to hedge their instrument in times of distress, like in 2013, when
exposures. Additionally, as we have seen earlier, the foreign events threaten to derail the domestic
RBI had been largely rolling over their forward economy. The cost benefit analysis of the
positionsin the forward dollar market. However, as procedure has also added up well for the central
redemption date arrives, it would take delivery bank, as against the cost of Rs 20, 000 crore being
instead. These two factors combined would exert a expended to raise those deposits, the Government
downward pressure on the near month premia in managed to save close to Rs 1.6 trillion per year in
the forward dollar market. the intervening period till now, through reduction

Chart 5: One and Three month US Dollar Forward Premia (in per cent)
Forward Premia
7.00
6.00
5.00
4.00
3.00
2.00
1.00 Monthly Newsletter February 2017
0.00
03-Oct-16

06-Oct-16
13-Oct-16
18-Oct-16

21-Oct-16

26-Oct-16
01-Nov-16
04-Nov-16
09-Nov-16

15-Nov-16

18-Nov-16
23-Nov-16

28-Nov-16
01-Dec-16

20-Dec-16
23-Dec-16
06-Dec-16
09-Dec-16

15-Dec-16

28-Dec-16

02-Jan-17

1 Month 3 Month
Source: RBI

As we see in the chart above, there indeed was a in import bill as rupee appreciated by close to Rs 6
downward pressure on the near month forward by the time the deposit window was closed by the
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premia, particularly from the second week of RBI, in November 2013. Now although the INR
November onwards. One month forward premia has been hovering close to that region once again,
sunk to below 2% in the last week of November, but due to the global rout of commodity demand in

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the last three years, the RBI has managed to 2014

significantly consolidate the foreign exchange
• The story of the entry and exit of the high-cost
reserves to face global headwinds. Rather than
FCNR scheme: Shaji Vikraman, the Indian
being jittery about the range, 67 - 68 is touted being
Express, May 06, 2016
a comfortable new normal for both the RBI as well
as the Government, as emerging countries around • As FCNR Redemptions Loom, Watch These
the world compete to depreciate their respective Three Indicators; Ira Dugal, September 06,
currencies to boost export competitiveness. 2016; Bloombergquint.com

References: • Business-Standard.com

• RBI Master Circular of Instructions Relating • Press Releases and Data Releases from the RBI
to Deposits held in FCNR(B) Accounts, July Database
Monthly Newsletter February 2017
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