Govt weighs NRI bond option to stem rupee slide: report

The government is reported to have dropped plans to issue sovereign bonds to attract dollars and instead is looking to tap foreign currency deposits of non-resident Indians (NRIs) in India to support the rupee.

The government may issue NRI bonds to tap the growing interest among global Indian diaspora to transfer funds to India and make the most of the weakness of the rupee.

The idea is to get NRIs to convert their foreign currency holdings to Indian rupees so that they derive the gains of a weak rupee and the government gets the necessary dollars.

With rupee continuing to fall against the dollar, an NRI bond issue could help stem the free-fall that has hit the Indian economy the worst, PTI reports quoting HSBC country head and FICCI president Naina Lal Kidwai said.

"I think it's a weapon and tool which government must keep it in its hand ... we are at a stage that where it could be required. We stemmed the rupee falling for the moment. All emerging market currencies have been depreciating because the dollar strengthening and we have to be ready for it," PTI quoted Kidwai as saying in an interview.

With its rising current account deficit problem, the issue of sovereign bonds does not seem a better option as it could only increase the vulnerability of external debt.

India had earlier also dipped into NRI deposits to stem the rupee's decline on three occasions  - in 1991, in 1998 and in 2001.

India raised $1.6 billion through India Development Bonds in 1991, $4.8 billion through Resurgent India Bonds in 1998 and $5.5 billion through India Millennium Deposits in 2001, in order to deal with the external sector problems.

"Government has used it in past and knows what works and what does not," the report quoted Kidwai as saying.

Estimates put the amount of NRI funds that the government might get to convert to bonds at around $20 billion, which could give enough cushion for the RBI's rupee defence.

Alternatively, the government may also let state-run India Infrastructure Finance Co Ltd or IDFC Ltd to raise up to $4 billion in overseas debt.

The Indian currency hit a lifetime low of Rs61.21 a dollar on 8 July and has depreciated by over 12 per cent against the dollar since the beginning of the current fiscal.

The yield on the 10-year 7.16 per cent 2023 bond jumped eight basis points to 8.08 per cent in the morning after the news.