Veteran banker Uday Kotak has warned that the worsening global instability due to the ongoing US-Iran war could put more pressure on the rupee. In a social media post, Kotak suggested that policymakers must be ready to take unconventional steps to protect the currency.
“The Middle East situation is now in uncharted territory. That leads to unconventional policy actions. A move on sharp reduction of Indian bank's open fx positions in a short period seems to be in that category,” he posted on X.
His comments referred to the Reserve Bank of India (RBI)'s move to direct banks to limit their net open positions on the rupee in the foreign exchange market to $100 million at the end of each business day. Authorised dealers are required to comply by April 10 as the central bank looks to manage exchange rate volatility, Reuters reported.
In his post, Kotak drew a parallel with the 1998 Asian financial crisis, when then RBI Governor Bimal Jalan took strict measures to stabilise the rupee. He suggested that a similar action may be needed again.
“Reminds me of Bimal Jalan's play book as RBI Governor in 1998 when the ₹ was depreciating sharply post Asian crisis (sic),” the founder and director at Kotak Mahindra Bank said.
Kotak hinted that due to these concerns, the policymakers may look at the schemes such as FCNR (B) to support the rupee. His comments followed amid concerns over the depreciating Indian rupee, which has fallen over 11% this financial year, hit by factors such as high oil prices, a strong dollar and foreign investor outflows.
"If things get worse geo politically, is there an opportunity for a new version of FCNR( B) scheme?," he added.
What Is FCNR (B) Scheme?
According to the Reserve Bank of India, the FCNR (B) scheme allows Non-Resident Indians (NRI) to open fixed deposits in foreign currencies with Indian banks. Introduced in 1993, it replaced the older FCNR (A) scheme of 1975. Under this, NRIs can deposit money in currencies like the US Dollar, Pound, Euro and Yen. This helps bring foreign funds into India, boost forex reserves and support the rupee.
ALSO READ: Rupee Hits Record Low, Breaches 95 A Dollar For The First Time
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.