MUMBAI, June 14: A few public sector undertakings and Indian corporates have brought in close to $1 billion of external commercial borrowings (ECB) and global depository receipts (GDR) proceeds in the aftermath of the nuclear tests. This has been done at the promptings of the finance ministry to defend the Indian currency.The State Bank of India has sold dollars on behalf of its public sector and corporate clients in the forex market to check the rupee's slide. It has so far sold about $800 million over the last four weeks.
The ministry has informally "advised" PSUs like Hudco and others to bring in the forex resources, which were then sold in the market. "It is wrong to say that the State Bank was intervening on behalf of the RBI. The SBI was selling dollars on behalf of its public sector and corporate clients as there was demand for greenbacks in the market," a forex market dealer said.
The rupee, which closed at 39.76 on May 15 -- two days after the series of five nuclear tests were conducted atPokharan -- dipped to an all-time low of 42.44/45 on June 10 before recovering to 41.94 on Friday.
"We had been advised by the finance ministry to bring in the ECB proceeds immediately after the nuke tests," the chief of one public sector undertaking told The Financial Express. A major chunk of the GDR and ECB proceeds had been parked with the State Bank of India's New York branch.
According to sources, the finance ministry had drawn up an elaborate rupee-support plan in the wake of the US economic sanctions. "In January, the forex market was in turmoil as speculators tried to take over the market. This time, it is a different scenario. The necessary correction in the value of the rupee has already taken place and it should not fall further. Sanctions have had no impact on the external front," sources close to the finance ministry said.
The sudden fall of the rupee last week was triggered by the absence of the State Bank in the forex market. According to sources, the SBI is unlikely to continue sellingdollars as PSUs and corporates have almost exhausted their forex kitty. The Reserve Bank may opt for direct intervention in case speculators try to take over the market, sources said.
The State Bank is also likely to refrain from buying dollars from the market this month as it has already made purchases on behalf of its oil sector clients. The fall in crude prices will have an impact on oil sector PSUs' dollar demand in future, sources pointed out.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
