Several mid-sized and small Indian companies with overseas units are facing delays in securing regulatory approvals for investments into foreign subsidiaries or payments to offshore investors, people familiar with the matter told ET. The situation, however, isn't as alarming as it was during the so-called Taper Tantrum in 2013 when capital flight from the emerging markets had caused the rupee to dive precipitously.
Approvals from the Reserve Bank of India (RBI), several executives told ET, were hard to come by lately with the rupee declining about 7% against the US dollar since the start of the year amid the unidirectional global rush for assets denominated in the world's reserve currency.
"Our appeal to transfer money offshore has met with silence," one of the executives cited above told ET. "A delay is now common when local funds are going global, with no immediate return potential (for the money sent abroad)."
The affected units, largely mid- or small- sized, intend to send money offshore in anticipation that the rupee could weaken further. Some companies are also considering splitting payments while meeting their offshore liabilities.
The rupee climbed 0.15% Monday to close at 79.74 to the US dollar. The local unit hit a lifetime low of 80.06 on July 21, showed Bloomberg data compiled by ETIG. It has lost 6.77% to the greenback this year, ranking seventh among Asian currencies. But the rupee has fared much better against other major currencies. It has gained between 3% and 10% against the Euro, Pound and the Yen this calendar year.
A company can send dollars overseas after conversion from rupees for multiple purposes - overseas investments, offshore acquisitions, royalty payments to overseas promoters and dividend distribution.
Companies need to seek permission from the RBI unless such money transfer is made through an automated route or an authorised dealer (AD), mostly a foreign bank acting on behalf of its client company.
However, the situation is far more stable than it was in 2013, when the rupee plunged to the vicinity of 70 to a dollar in the aftermath of what became known globally as Taper Tantrum.
"We used to receive calls in 2013 from the RBI asking to cut any offshore position immediately," said a currency dealer. "It is quite composed this time, by contrast."
That is probably because the central bank is in favour of a gradual retreat of the currency against the dollar and doesn't want disruptive value changes.
"The rupee's slide will not be permitted relentlessly but probably gradually, depending on global factors," said Bhaskar Panda, executive vice president, HDFC Bank NSE -0.35 %. "The situation is not alarming now, unlike on such occasions in the past."
At present, the central bank is reportedly not in favour of immediate overseas capex that would come at the cost of rupee investments at home. Withdrawal of cash from Indian operations and investment overseas essentially means further selling pressure on the rupee.
"Capital outflow to a regular extent is happening but regulators are taking a closer look into the category of outflow and payment of taxes on heavy remittance for companies," said a Mauritius-based fund facilitator.
"This is expected to continue for six/nine months more by which (time) the government is expecting to stabilise the rupee," the person said.
"In fact, the regulator is not objecting to overseas expansion, but not at the cost of putting additional pressure on the rupee," said the head of equity capital markets at a large foreign bank.
This essentially means a company will have to find its own resources in its overseas operations for the moment, this person said. For its part, the central bank has said the value of the local unit will reflect the broader fundamentals. "We will continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals," RBI Governor Shaktikanta Das said last Friday.
Source Name:-Economic Times