India’s banking system surplus fell to approximately ₹50,000 crore from a record ₹11 lakh crore the previous month, while the weekly average overnight call rate increased to 5.70% from 5.48%, according to Bloomberg. The developments came as the Reserve Bank of India (RBI) limited liquidity injections.
RBI Tightens Foreign Exchange Restrictions
The RBI reduced the limit for hedging unproven foreign exchange exposure to $5 million on October 10 and introduced an interest-free cash reserve requirement equal to 20%.
Several large banks subsequently withdrew from buy-sell foreign exchange swaps that had reportedly offered gross returns of nearly 9%, The Economic Times reported. Former Finance Secretary Subhash Chandra Garg warned that banks could pass additional hedging costs on to businesses.
Rajan Warns Against Defending a Fixed Rupee Level
Former RBI Governor Raghuram Rajan warned against exhausting foreign exchange reserves to defend a particular rupee exchange rate. India’s reserves declined to $721.02 billion in the week ended October 16, according to RBI data.
Rajan said some rupee depreciation could support exports. RBI Deputy Governor Punam Gupta separately urged India to strengthen domestic financing and reduce dependence on volatile foreign capital.
Meanwhile, India’s 10-year government bond yield fell 5 basis points to 7.43%.
Q1. How much did India’s banking surplus fall to?
It fell to approximately ₹50,000 crore from ₹11 lakh crore the previous month.
Q2. What was the overnight call rate?
The weekly average overnight call rate increased to 5.70% from 5.48%.
Q3. What did Raghuram Rajan say about the rupee?
He warned against exhausting foreign exchange reserves to defend a fixed exchange rate.
Q4. What is the RBI’s new forex hedging limit?
The limit for hedging unproven foreign exchange exposure was reduced to $5 million.
