India Forex - Forex Trading in India

India Tuesday 2 February 2010: The Lead District Bank, Indian Bank on Monday introduced Foreign Exchange Business in its Krishnagiri town branch. G. Muthappan, Assistant General Manager, Dharmapuri Circle, inaugurated the service.

Mr. Muthappan handed over the first Letter Credit to a leading importer of the town K. Murugan in the presence of D. Udaya Kumar, Chairman, Deveraj Group of Companies.

After inaugurating the Forex Biz section, Mr. Muthappan told reporters that the facility had been introduced to ease the tension of the business people in and around Krishnagiri and Dharmapuri districts.

It served the growing demand of the exporters and importers dealing in granite, mango pulp and other industries in Hosur in Krishnagiri district.

Till now these services were routed through banks in Salem, Coimbatore and Bangalore.

With the introduction of the Forex Biz services, export-import customers can do their forex settlements and transactions routed through this branch.

It will save cost and the precious time of the customers as the export-import papers will be processed in quick pace and export process will be given credit at the earliest. The service has been introduced for the first time in these two districts.

Besides servicing the businessmen and traders, normal customers can exchange their foreign currency, he added.

India Tuesday 26 January 2010: Despite having one of the largest current account deficits in the region, the Reserve Bank of India has been one of the few central banks in
the region to refrain from piling up its reserves by not purchasing dollars through intervention in the currency market.

Analysis of the trend in foreign exchange reserves pile-up across major Asian economies, post-Lehman collapse, indicates that while reserves pile-up in China, Hong Kong, Korea and the Philippines has been growing steadily, there have been some blips with respect to reserves pile-up in Indonesia, Thailand and Malaysia. Vietnam is among the few in the region to witness a perceptible slowdown in reserves growth. India’s reserve pile-up is one of the slowest.

The data on reserves pile-up by central banks is seen as a proxy for central bank intervention in the currency markets by many. RBI has built its foreign exchange reserves of $280 billion by buying dollars that foreign investors have been bringing in. However, reserves have gone up in dollar terms also because of the other currencies strengthening against the dollar.

According to Taimur Baig, Deutsche Bank’s chief economist for India, “Across Asia, central banks are pursuing varying strategies, depending on their concerns about inflation and growth. While Indonesia is intervening only occasionally and allowing the rupiah to appreciate as growth strengthens, the Philippines (which is largely export-dependent) is intervening aggressively to prevent its currency from steep appreciation, which could undermine its fledgling recovery.”

At a time when the central bank is faced with the challenge of surge in inflows and rising prices at the same time, it is considered prudent for the central bank not to absorb inflows and let its currency appreciate. This is because, on one hand a strong currency makes import of price inelastic commodities such as oil cheaper on one hand and reduces the demand side pressure on prices.

By not absorbing inflows, the central banks indirectly end up controlling the growth in money supply, pointed out an economist with a foreign bank requesting anonymity.

The Singapore economy is expected to act more like the Indian central bank. “We continue to believe the risk of a change to a gradual trend appreciation stance in April is rising, as inflation expectations start to pick up. In particular, we are likely to see a clearer shift in the Monetary Authority of Singapore’s focus towards food prices in the coming months,” said Rahul Bajoria of Barclay’s emerging market research, in a report released on Monday.

Another report by Moody’s released on the same day points out that “large capital flows in key Asian economies are putting upward pressure on exchange rates.’’ However, the central banks in many of these economies have also absorbed substantial inflows resulted largely due to rebound of exports and revival of the equity markets in these markets. This is reflected in the foreign exchange reserves pile-up in these economies.

India Tuesday 19 January 2010: A two-judge bench of the Orissa High Court has ordered a full fledged enquiry by Central Bureau of Investigation (CBI) into foreign exchange derivatives contracts sold by some Indian banks between 2007 and 2008. In the order the HC judges have indicated that the CBI could expose ‘a large financial scam affecting the economy’.

Earlier, through an interim enquiry report the CBI had told the court in Cuttack that banking regulator Reserve Bank of India (RBI) had already initiated an enquiry against a number of banks in the same matter. The interim report had also mentioned that there were several instances of violation of Foreign Exchange Management Act (FEMA) by these banks in India when they sold those exotic contracts to companies, importers and exporters, resulting in huge losses.

In its interim investigation report, done under court orders, the CBI had pointed out at least eight different types of FEMA violations by some of the banks in India, although it did not name any of the banks. These included selling contracts structured in a way that violated FEMA and led to increase in risks, and net inflow of premium to the company buying the contract. This the CBI contended were in violation of forex rules which permit use of forex derivatives for mitigation of forex loss and no inflow of premium to the buyer of the contract. The CBI also pointed out that there were instances of false declarations, made to enter into forex derivatives contracts.

During investigation, CBI had sought information relating to banks’ forex derivatives business and on some of the points raised in the petition, from eight banks: SBI, HDFC Bank, HSBC, Standard Chartered Bank, Citi Bank, ICICI Bank, ABN Amro Bank and Axis Bank. Speaking to TOI, a top banker at one of the banks said that all the eight banks, along with a bankers’ trade body, had replied to CBI’s queries. However, most banks that TOI spoke to, declined to comment on the matter at this stage.

The court order noted that a number of criminal offences related to forex derivatives contracts can not be ruled out. This included making false declarations deliberately by users/customers in making hedge transactions in excess of their exposures, IDG (Inter-departmental group of RBI) had identified violations which are serious in nature and appear to be intentional and deliberate, booking of contracts under past performance basis beyond 50% of eligible limit without obtaining chartered accountant’s certificate and misuse of transactions by using photocopies of the same underlying to enter into different contracts with different banks.

India Monday 21 December 2009: The Reserve Bank of India (RBI) is managing inflation expectations by minimising intervention in the foreign exchange market and thereby
controlling liquidity in the system. Even as foreign investors have brought in huge amounts, the funds have barely found their way to the central bank’s foreign exchange kitty.

Between August and October this year, foreign institutional investors have bought close to $8 bn into the country, according to the latest RBI data, but the central bank has absorbed only $336 million in the spot currency market and sold around the same amount in the forwards market.

Apart from FII inflows other major sources of dollars include FDI, ECBs, export earnings and remittances. However, there is huge dollar demand from importers and from investors to repatriate profits.

This is also helping the central bank contain inflation expectations as buying fewer dollars from the market results in less rupee funds being pumped into the system, while at the same time letting the rupee appreciate against the dollar in the process. RBI is already grappling with excess liquidity as banks are not lending much of the deposits they have mobilised. The system has excess liquidity of over Rs 50,000 crore these days.

According to Shubhada Rao, chief economist, Yes Bank, “The Reserve Bank has already indicated that it is comfortable with the current pace of capital inflows and has therefore not intervened much in the foreign currency markets. This also serves not to exacerbate inflation expectations.”

Spiralling food inflation in recent months has added to the central bank’s concerns as a section of the market feels that the easy monetary policy adopted to contain the impact of the global financial crisis is also in some way contributing to inflation, even though much of it is because of supply-side factors.

“India’s monetary exit will likely focus on first shrinking excess liquidity via multiple tools before normalising policy rates, probably from March/April 2010,” said Rajeev Malik of Macquarie Economic Research in a recent report.

Even though the country’s foreign exchange reserves have risen by around $13bn during Aug-Oct, much of this is believed to be due to revaluation of non-dollar assets in reserves such as euro, pound and the yuan. While some feel that the central bank could have also intervened by buying non-dollar currencies, these amounts are not reckoned to be significant.

The central bank’s policy of minimal intervention also helps it bring down the cost of managing foreign exchange, for if RBI continuously buys dollars from the market, it has to simultaneously infuse rupee liquidity into the system and later suck it out by selling bonds.

Money Supply (M3): India’s Money Supply (M3) is at Rs 4,938,278 Crores ($1.02 Trillion) while the M1 Money Supply is Rs 1,268,537 Crores ($262 billion) as of May 2009 growth of 20.57% from previous year.

Bank of India Forex - India to Use Rupee to Tackle Inflation ‘Problem,’ ABN Amro Says
India Friday 18 December 2009– India may allow the rupee to gain in 2010 to slow inflation that accelerated to a 10-month high because rising prices pose a “more serious problem,” according to ABN Amro Bank NV.

Letting the rupee appreciate is a better option for policy makers than slowing growth by raising interest rates, said Irene Cheung, the Singapore-based director of emerging-markets trading at the Dutch lender.

The rupee has declined 0.9 percent to 46.6656 per dollar in the past month, the second-worst performer among 10 Asian currencies tracked by Bloomberg, paring its gain for the year to 4.6 percent. Wholesale-price inflation accelerated to 4.78 percent in November from a year earlier, after a 1.34 percent gain in October, drawing protests from opposition parties.

“It makes sense for the central bank to allow the rupee to rise because it would help them in terms of containing inflation,” Cheung said in an interview yesterday. “If you tighten the monetary policy, particularly raising interest rates, it might have a negative impact on the broader economy.”

Jong-Wha Lee, the Asian Development Bank’s chief economist, said on Dec. 15 that the region should keep interest rates low to support the recovery. Reserve Bank of India Governor Duvvuri Subbarao earlier this month said the nation may need to use monetary policy to steady inflationary expectations should food price increases persist.

Prime Minister Manmohan Singh won a second five-year term in May vowing to alleviate poverty in a country where the World Bank estimates 800 million live on less than $2 a day.

India is taking measures to boost food stocks after the weakest monsoon since 1972 hurt farm output in the world’s second biggest producer of sugar, rice and wheat. Wholesale-food prices rose the most in 11 years in the last week of November.

“If food price inflation persists for a long time it can fuel inflationary expectations, and monetary policy will have to take a nuanced view on that,” Subbarao said.

Share of Exports

In the longer-term, improvements in the balance of payments will help the currency rise, Cheung said. “If the balance of payment is supportive of a gain, I don’t think the central bank will stand in the way,” Cheung said.

India’s balance of payments showed a surplus of $415 million in the first half of 2009 compared with a deficit of $22.6 billion in the previous six months.

Stock purchases by global investors totaled $16.6 billion this year, approaching the record $17.2 billion of net inflow in 2007.

NEW DELHI : India’s central bank–the Reserve Bank of India (RBI) may wait for an appropriate time to buy more gold as it seeks to increase its gold reserves.

According to a report, the Prime Minister’s Economic Advisory Committee has recommended that the RBI should wait before making further gold purchases.

The RBI had bought 200 tonnes of the International Monetary Fund (IMF) gold in October and this had caused major upheaval in the global bullion market.

The PM’s panel said having bought 200 tonnes of gold, the RBI might wait. There is no particular hurry to buy more. At the moment, RBI has made a substantial increase to the total quantity of gold it has.

RBI had readjusted in some way the proportion of gold in its total reserves because the quantity of gold had remained constant, while forex reserves had increased.

The 200-tonnes gold buy by RBI constituted only 2.35 per cent of its total forex reserves at $284.3 billion at that point of time and raised the gold reserves with RBI to 557 tonnes.

There is speculation that RBI may buy more gold, after purchasing 200 tonnes in the month of November. RBI officials remained tight-lipped about the purchase.

India had to pledge around 68 tonnes of gold with the Bank of England and Union Bank of Switzerland in the early 1990s to tide over a balance of payments crisis.

Bank of India Forex - Bank strike hits cash, Forex deals
Trading volumes in the bond, foreign exchange and money markets and normal branch operations were adversely affected On Thursday as bank employees began their two-day strike On Thursday demanding higher wages and pension. However, the government’s Rs 12,000-crore bond auction is expected to go through smoothly.
The volume of cheques presented for clearing dwindled On Thursday. A Reserve Bank of India (RBI) official said that as against the daily average of 6,00,000, only 1,35,000 cheques were presented for clearing at its main centre in Mumbai.

A senior public sector bank official said branch operations were impacted by the strike, causing inconvenience to customers.

However, the automated teller machines (ATMs) and offline channels provided some relief as customers could continue to withdraw cash.

Banks have made arrangements to ensure adequate supply of currency notes to ATMs during the two days, said the head of retail banking with a large public sector bank.

Meanwhile, the open market operations (OM0) auction by RBI sailed through smoothly despite the low level of activity at treasuries. “RBI made enquiries in the morning about the impact and arrangements for operations,” said the head of treasury with a large government lender.

Trading in the government bond market was thin. The turnover on Negotiated Dealing Platform Order Matching system was noted at Rs 2,915 crore as against Rs 4,350 crore yesterday. The RBI official added that the government was scheduled to raise Rs 12,000 crore by auctioning three dated securities tomorrow.

“The auction is online. So, we not expect any hitch in operations for government bond auction,” dealers said.

The government is auctioning 6.49 per cent 2015 paper (Rs 4,000 crore), , 6.90 per cent 2019 paper (Rs 6,000 crore) and 7.40 per cent 2035 bond (Rs 2,000 crore).

India domestic gold trading remained thin as most of the banks, the primary sellers of gold, were shut due to a strike, dealers said. “Volumes are affected as our branches are shut,” said a dealer with a state-run bank in Mumbai.

“We are on strike from today as Indian Banks’ Association (IBA) did not concede to the bank unions demand for the wage hike,” said United Forum of Bank Unions (UFBU) convener C H Venkatachalam.

Besides not agreeing to a wage hike as demanded by the unions, Venkatchalam said the IBA has also retracted from its earlier stand that the existing pension scheme will be extended to the remaining employees who are now in provident fund scheme.

The UFBU is an umbrella body of nine bank employees’ unions of the country and claims to have members from public, private and foreign banks.

The UFBU claimed that as many as 10 lakh employees, including officers, are participating in the strike and services in about 60,000 bank branches in the country have been affected.

India Thursday 3 December 2009: The ghost of exotic foreign exchange derivatives could soon come to haunt India. This time, however, banks could be at the receiving end.
RBI is investigating Foreign Exchange Management Act (FEMA) violations by several banks in India, which in 2007-08, sold those exotic contracts to gullible companies, importers and exporters, resulting in huge losses.

An interdepartmental group (IDG) of RBI has found several FEMA violations by some of the banks in India and the banking regulator is now considering action against those banks, a CBI probe has pointed this out in its preliminary report to the Orissa high court.

‘‘The IDG (of RBI) has identified (FEMA) violations which are serious in nature and they are being examined for further action against the banks concerned,” the report by Mahipal Yadav, an officer of SP rank with the CBI, said.

The CBI conducted its investigations on directions from the HC which was hearing a petition by one Pravanjan Patra, alleging FEMA violations in selling forex derivatives products to companies, importers and exporters. The petition had alleged massive fraud on part of several banks and pegged the amount involved in the scam at Rs 25 lakh crore. CBI report did not name the banks being investigated, neither the number of banks under RBI scanner. It said that there were at least eight different types of FEMA violations by these banks.

India Monday 23 November 2009 - Aggregate profits of scheduled banks in the country rose 23.5 per cent to Rs52,777 crore in 2008-09 from Rs 42,731 crore in 2007-08.

On the group level, however, only the State Bank of India and other nationalised banks showed an increase in profitability rate. Profitability rate of foreign banks and private banks showed a declining trend, RBI data on scheduled banks’ business showed.

“At bank group level, while return on assets of `SBI and its associates’ and `nationalised banks’ improved, for `other scheduled commercial banks’ and `foreign banks’ it declined in 2008-09,” RBI analysis showed.

SBI and its associates cornered the bulk of it with Rs11,896 crore profit as of March 2009, up 32 per cent from Rs9,005 crore as of March 2008.

Nationalised banks’ profits totalled Rs22,496 crore as of March 2009, up almost 28 per cent from Rs17,587 in March 2008.

Foreign banks reported profits of Rs7,508 crore as of March 2009, up 13 per cent from Rs6,613 crore in March 2008.

Profits of other scheduled banks stood at Rs10,865 crore at the end of March 2009, up 14 per cent from Rs9,521 crore at end-March 2008.

Net non-performing assets (NPA) ratio of nationalised banks at bank group level declined in 2008-09, RBI said in a release.

The number of employees in the banking sector also increased during 2008-09 from the level in 2007-08. At bank group level, the number of employees of SBI and its associates and other scheduled commercial banks increased, while the number of employees of nationalised banks and foreign banks declined in 2008-09.