"Starting January 1, no interbank deal would be done in legacy currencies, including the deutsche mark. All day and overnight positions will be kept in the euro," said Bank of India deputy general manager, treasury operations, AC Mahajan.

This would mean that treasury activity involving the deutsche mark, one of the prime foreign currencies in which trade takes place in India, will come to an end for all practical purposes in Bank of India. BoI will not maintain any position in DM, the primary legacy currency in which the bank currently has positions.

Bank of India is the first Indian bank to decide on maintaining all legacy currency positions in the euro. Other Indian banks are still to decide on their trading position vis-a-vis the euro.

At present, Bank of India maintains nostro positions in abouteight to nine currencies out of the 11 legacy currencies representing the euro. BoI is also likely to stop taking DM-denominated foreign currency non-resident Indian (bank) -- FCNR(B) -- deposits starting January. The suggestion is pending approval of the bank board, which will be meeting soon.

However, all existing legacy currency contracts with the bank will continue till its maturity, unless the customer demands payment back in the euro. Among the legacy currencies, it is primarily in DM that BoI has exposure and all of these are getting due before December 30, 2001, the last day before legacy currencies lose the status of valid currencies.

BoI is one the few Indian banks that have prepared themselves well in advance for the euro. The bank had set up an internal committee in May 1998 to prepare itself ahead of the introduction of the new currency.

The committee recommended that taking advantage of the single currency status, the bank should cut down the number of European nostro accounts that itholds with foreign correspondent banks from over 20 to five-six. The bank is implementing the recommendations immediately and an internal technical committee is working on the changes that have to be brought into the bank's computer system to handle the new currency. Trial runs of the new euro compliant computer system will take place on December 15.

At present, Bank of India has about eight-nine nostro accounts for DM, two-three in French franc among other currencies. "By changing into a single currency nostro accounts and fewer one at that, we are going to get huge cost advantages," Mahajan said.

The bank will need to keep less balance in nostro accounts once the number of such accounts are reduced. This will give higher liquidity and flexibility for the bank while managing its float money. Unified nostro account also strengthens the bank's bargaining position in getting better pricing for the correspondent banking services. Also it leads to better reconciliation, helping the bank to earn betterinterest compensation, he said.