RBI's Foreign Reserves With Overseas Banks Have More Than Tripled

Mumbai: The foreign exchange reserves that the Reserve Bank of India (RBI) keeps with overseas banks has more than tripled, signaling that it may be preparing to intervene more effectively in the currency market due to impending volatility because of global factors and the possible exodus of about $30 billion of non-resident Indian deposits.

Vijayan Subramani, managing director, DBS Bank said: “The rise in deposit component in reserves suggests RBI may be waiting for the right time to invest in overseas assets or parking it in high quality liquid assets for intervention to manage potential currency volatility.” “Our central bank looks for offshore (sovereign) investment at the right level with a prudent mix of diversification, be it US Treasury or European sovereign bonds,” he added. 

Total funds parked with the overseas branches of foreign banks for RBI rose to $13.9 billion in February from $3.5 billion in April 2015. The central bank issues the information as a signatory to the International Monetary Fund’s special data dissemination standard, a guide to member countries on putting economic data in the public domain. The country's foreign currency assets in the same period dipped from $351.9 billion to $348.4 billion.

Raghuram Rajan, RBI Governor, has long warned of volatility in global financial markets because of divergent monetary policies with some central banks poised to normalize interest rates while others have taken them into negative territory to free up liquidity and generate economic activity. Furthermore, more than $30 billion of FCNR (Foreign Currency Non-Resident) deposits that were attracted in 2013 to boost foreign exchange reserves, are due to mature this year.