The Hindu : Business : RBI gears up for smooth redemption of IMDs

Online edition of India's National Newspaper
Wednesday, Dec 14, 2005

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Business

RBI gears up for smooth redemption of IMDs

Special Correspondent

Exchange loss, if any, will be shared between SBI and RBI; Redemption will entail an outgo of $7.3 billion

MUMBAI: The Reserve Bank of India on Tuesday stated that the redemption of India Millennium Deposits (IMDs), which are due for repayment on December 29, would entail foreign exchange outgo of about $7.3 billion.

The RBI stated that it has put in place arrangements for redemption of IMDs, in close co-ordination with State Bank of India (SBI). "Appropriate preparations and arrangements have been made to ensure that the redemption is done smoothly, in time and without causing any impact on the money, government securities and foreign exchange markets.''

The IMDs for $5.5 billion were raised in the year 2000 from non-resident Indians by SBI in U.S. dollars, pound sterling and Euro, with the approval of the Central Government and the RBI. "It is estimated that the redemption would entail foreign exchange outgo of about $7.3 billion (principal plus interest), which will be met entirely by the RBI by way of direct sale out of its foreign exchange reserves to SBI at the prevailing market rate. The rupee consideration for this sale, which is likely to be around Rs. 33,000 crore, will be paid by SBI." SBI has taken adequate steps to mobilise rupee resources to purchase foreign exchange from the RBI.

It also stated that the exchange loss, if any, on account of depreciation of the rupee would be shared between SBI and the Government and accordingly, both parties have contributed their respective share in the exchange loss that has accrued during certain years after the launch of IMDs. The contributions received are held with the RBI in the Maintenance of Value (MoV) account. "Going by the present liquidity conditions in the market, the system should be in a position to take care of the redemption requirements. The eligible market participants can take recourse to the liquidity adjustment facility and second liquidity adjustment facility of the RBI for short-term residual mismatches in the rupee funds position,'' the RBI added.

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