00:00Deraj, good to have you with us. I mean, what triggered the change of mind at the RBI, you think?
00:06Happy to be with you. Good morning. I think on hindsight, if we look at it, Reserve Bank was expecting
00:1450 to 60 billion dollars through the schemes and they could able to garner almost 73 billion dollars already and
00:2365 billion dollars through the FCNR route.
00:25So response from the diaspora have been more than expected. That's probably triggered the RBI to brought forward the closing
00:35of the scheme from September 30th to August 31st.
00:39I think it's also got to do with the liquidity management at the domestic level, because this is this deposits
00:47get exchanged to the equivalent Indian rupee.
00:51And that brings a lot of liquidity in the Indian market. And also, along with the liquidity, there are concerns
00:58on the inflation.
00:59So they want to keep the inflation on track. And hence, they brought forward the deadline to August 31st.
01:08How do you rate the success, especially when compared to 2013?
01:17Yeah, so in 2013, we could be able to collect about 34 billion dollars. It's already more than double of
01:24the same.
01:25So to that extent, it's been an unprecedented success. The diaspora love India and they have always responded to such
01:33opportunities.
01:34And we've seen good momentum, good flows. In fact, the last week alone, when on August 14th, RBI announced we
01:42brought forward by one month, you know, we collected almost 30 billion dollars in the last week itself.
01:49So with one more week to go, I think we should be able to garner another 10 to 12 billion
01:55dollars more.
01:56So to that extent, the response have been phenomenal. The situations are a bit different if we compare it with
02:02the 2013 versus now.
02:062013 was more reactive. We've already seen rupee depreciating by 15 to 20 percent in from June to September.
02:14And that triggered three month scheme. That window was September to November three month window.
02:20And that time we could be able to get about 34 billion dollars. This is less than three months.
02:24We are already at 65 billion dollars in FCNR deposits.
02:28So to that extent, I think this has been a great response from the diaspora.
02:34Dharaj, apart from the impact on the rupee, do you see it perhaps impacting other aspects of banking in India?
02:46See, even on the rupee, the impact would be only transitory and tactical, not going to be a sustained impact
02:54on the rupee as well.
02:55We see a range of 94.5 to 97 PNR USD. So that's where it is.
03:03It will it may because we got the liquidity, it may it will impact to stabilize a little bit rupee
03:09here.
03:09But I think the rupee will largely be dependent on the West Asia crisis and crude prices.
03:16And it would be elastic to the different variables rather than just the flows.
03:20We got greater comfort now with the 680 billion USD as reserves for currency reserves.
03:29But my take is that the long term impact on the rupee would not be measured to just about the
03:35flows from the FCNR deposits.
03:37If we look at the impact on the NIM, I think it will be just about a NIM compression for
03:43the banks about 13, 3 to 12 basis point.
03:47That too, only for the short term period.
03:50And also, my take is that the 10-year yield would not have significant impact.
03:56It's already hardened by 10 basis point.
03:59So beyond that, I don't see a major impact on the 10-year yield and on the rupee, INR relationship.
04:08You've got to wonder whether the Indian banking system is getting too reliant on the SCNR for liquidity, I guess,
04:19support.
04:22I don't think so. That's the right interpretation.
04:25I think domestic liquidity have been pretty comfortable in India.
04:31This has added to the liquidity for sure, and that would actually put a pressure on a little bit on
04:36the inflation side.
04:37The scheme have been well crafted by the central bank.
04:41No CRR and SLR requirement, which means that 100% of the money can be deployed for lending.
04:48And also, it excludes from a priority sector lending.
04:51So to that extent, banks can lend it to the higher yield assets immediately.
04:56So I don't think so. Indian banking system relying on the FCNR deposits for the domestic liquidity.
05:04It's more got to do with the stabilizing rupee and beefing up the forex reserves so that we can deal
05:13with or navigate the unprecedented increase in the crude prices.
05:17And also, if there are negative impacts of the West Asia crisis.
05:23But, Deraj, you said earlier that the rupee is pretty contingent on the Iran war, development of the Iran war.
05:33Given that there's so much uncertainty still, what's your own projection of where the rupee is headed?
05:41You're right.
05:43You know, the rupee is contingent to what will happen and what's happening in the West Asia.
05:49If we have a sustained pressure coming on the crude prices and higher inflation across the world and imported inflation
05:57because we import large part of our oil requirements.
06:02And if that can bring in more inflation, that will have an impact, negative impact on the rupee as well.
06:09That's where the scheme was brought in so that we can beef up our forex reserves and can deal with
06:14the short term volatility if needed to be.
06:18So, rupee range, as I just mentioned, we look at 94.5 to 97 INR USD range.
06:27I think that's something which is where we have a comfort.
06:33Deraj, I want to talk about the closing auction system.
06:36Why so many issues, you think?
06:42See, in India, we were earlier having weighted average volume based method for closing price.
06:49A lot of foreign portfolio investors were looking at, you know, closing auction in line with the rest of the
06:56exchanges in the world.
06:58That's where India, Indian regulators responded to the requirement of foreign portfolio investors and it is largely done to arrive
07:06at a closing price which resonates with the markets and reduce the tracking error for the passive funds.
07:15So, it's an early days of implementation.
07:19It's taking some time for people and stakeholders to understand in detail.
07:25So, now we've introduced a closing action between 315 to 340.
07:30Yeah.
07:31So, that's where the price discovery is.
07:34You know, people are used to the older version.
07:36I'm sure they'll get used to the new version and whatever teething issues and noises we are hearing about, cash
07:44will fade away soon.
07:48Deraj, very quickly, are there other challenges that need to be ironed out?
07:55In the cash, I don't see significant challenge.
07:58I think there were concerns on whether one can accept aftermarket orders between 315 to 320.
08:04That's something that have been absolutely made it clear.
08:07So, we are all accepting now even aftermarket orders and the price discovery is done between 320 to 330 and
08:15markets are getting closed randomly anytime after 328.
08:20That's perfectly all right.
08:21It's in line with what's happening in the rest of the world.
08:25And it's actually, yeah, people are, for the foreign portfolios, they're happy to be the same.
08:31There are Jorali, HDS Securities, MD, and CE.
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