RBI suspects corporates of borrowing bank funds to speculate in the forex market

NetScribes/Janaki Krishnan

The Reserve Bank of India (RBI) continues to be visibly anxious about the rupee-dollar exchange rate. It's latest focus area is the end use of funds advanced by banks. The central bank suspects that some of the larger corporates might be using their sanctioned credit limits to finance dollar purchases.

The rapid depreciation of the rupee coupled with the fact that industrial production has not really benefited from the advances has led to speculation among banking circles that corporates might be utilising their limits to buy dollars or for speculation in the forex market.

The RBI has set up a committee with the mandate of tracing where the funds lent out by the banking sector are ending up and whether there is any diversion of these funds.. Incidentally the committee was set up just a short while after the Bank announced its measures to contain excessive liquidity in the market on July 21.

Banking circles said that many exporters were still holding a large part of their money abroad. A senior official in Dena Bank said that the foreign bills realisation cycle was growing longer. "From 90 days it has gone up to 120 days and beyond," he said, pointing out that this would also need to be looked into by the RBI. This would be especially true of large corporates, he added.

Banking officials pointed out that personal and consumer loans had increased with almost all the banks now targeting retail customers. "A substantial part of credit is now channeled into financing consumer purchases," said a Bank of India official, adding that RBI would have to explore this angle too.

Interestingly, though the figures show an increase, bank officials are quick to deny any pick-up in credit so far as their banks are concerned. According to a senior official in the credit wing of Bank of India - "so far as our bank is concerned, we have not seen any pick-up in credit."

The Dena Bank official said that at his bank, demand had gone down and of the funds sanctioned, only 75 per cent was being drawn down by corporates.

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