Rupee to be volatile as 2013 NRI dollar deposits mature: Kotak

Moneycontrol BureauBrokerage house Kotak Securities has warned of volatility in the rupee as the Foreign Currency Non Resident (FCNR) deposits raised during the rupee crisis in August 2013 mature between September and November this year.“We see limited scope for rollovers as around 85 percent of FCNR deposits were from leveraged funds,” says the Kotak note to clients.Among the measures taken by the RBI in 2013 to stabilize the rupee was to attract deposits from non-resident Indians with assured protection against any depreciation. That netted around USD 26 billion.Kotak Securities expects the banking system to face bouts of USD shortage during when these deposits mature, as exporters generally deliver only a part of their contracts and roll over the rest. “This could further be amplified if global uncertainties worsen. This is expected to weigh on the balance of payments and hence INR, thereby warranting drawdown of RBI’s FX reserves,” says the Kotak note.Also, the brokerage expects, banks are likely to face some asset-liability mismatches when the FNCR deposits come up for redemption.“In case of maturity mismatches, banks may have to replace equivalent amount of FCNR deposits with domestic deposits. This will prompt domestic money market rates to harden given the increasing scramble by banks to raise deposits to bridge the gap,” says the Kotak note.