Dollar Swaps Can Lower Top 500 Firms’ Interest Burden By Rs 7,000 Crore
Indian rupee and U.S. dollar banknotes are arranged (Photographer: Dhiraj Singh/Bloomberg)

Dollar Swaps Can Lower Top 500 Firms’ Interest Burden By Rs 7,000 Crore


The forex swap window opened by the Reserve Bank of India can potentially ease interest costs for the industry and can help top 500 borrowers of foreign funds save up to Rs 7,000 crore as the issuances increase, a report said.

“The recent softening of the rupee-U.S. 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,” India Ratings said in a report Tuesday.

The RBI, on March 26, had conducted the first of forex swap auctions raising $5 billion promising to pay back in rupees in return. It has announced another similar issue on April 23.

Also read: India to Repeat $5 Billion Forex Swap After Successful Auction

India Ratings said the first round of the three-year swap auction along with a change in the global monetary policy conditions, has moderated the three-year cross-currency swap rates by 0.30 percent on April 15 from the Jan. 2 levels.

In the same period, the rupee-dollar forward premia moderated by 0.71 percent, driven by a marked improvement in the dollar liquidity conditions in the domestic market, the report said.

The agency estimates the interest outgo of the top-500 debt-heavy corporates can cumulatively come down by Rs 4,000-7,000 crore, assuming a 0.50-0.75 percent reduction in the cost of forex borrowings and a 0.5-2 percent rise in the share of forex borrowings in their outstanding debt.

The RBI swap windows will make available additional deposits of about Rs 69,000 crore to the banking sector, it said, adding however, the swap is unlikely to materially change the aggregate banking system liquidity shortfall.

On the lack of transmission of RBI’s policy moves into lending rates for borrowers, it said a weak accretion of deposits has hurt and it is imperative to create substantial quantum of fresh deposits in the system.

For a meaningful traction in deposit growth, both endogenous and exogenous factors such as flow of foreign capital should continue to contribute in a sustainable manner over the near to medium term, India Ratings said said.

The report pegs non-food credit growth will clock Rs 11.68 lakh crore in FY20 and the deposit shortfall will be Rs 2.79 lakh crore even after proceeds from the swap window and an increase in credit-deposit ratio.

Also read: BQ Explains: RBI’s Forex Swap And Its Likely Impact

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