Finance News :  RBI Bans Import-Finance Tool

Finance News : RBI Bans Import-Finance Tool

 Traders can add one more reason to sell the Indian rupee. Stung by a $2 billion bank fraud, the Reserve Bank of India banned a key import finance tool, a move that may push up short-term dollar demand.

The central bank barred lenders from issuing guarantees in the form of letters of undertaking to overseas banks on Tuesday as it clamped down on the import-financing avenue used by two jewelers to perpetrate the nation’s biggest bank scam.

The rupee fell 0.2 per cent to 65 to a dollar on a day other Asian currencies rallied amid the political turmoil in Washington. The premia on buying one-year forward dollars dropped for a third day as traders unwound positions to meet their immediate needs. The rupee has been buffeted this year by the nation’s worsening trade deficit and the bank scandal that’s dented foreign investor confidence.
efore yesterday, banks were allowed to issue such guarantees to overseas suppliers and banks up to $20 million per transaction for a maximum of one year for imports of non-capital goods, and up to three years for purchases of capital goods.

The restriction “will prevent importers from rolling over dollar-payment liabilities,” said AbhishekBSE -4.89 % Goenka, chief executive at India Forex Advisors Pvt. “It will lead to a near-term rush for dollars as well as push up the near-term dollar premium.

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