Bank of America expects RBI to build $550-billion forex reserves

Bank of America (BofA) sees $550 billion as a comfortable foreign exchange (forex) reserve level for the Reserve Bank of India (RBI), and believes that the central bank will continue to accumulate dollars at every opportunity, even at the cost of a weaker rupee.

As of February 14, the RBI’s forex reserves stood at $476 billion. The central bank has bought $49 billion in this fiscal year so far, more than offsetting the $15.4 billion sale in 2018-19.

According to BofA, the ‘conservative’ level of forex reserves for the RBI works out to be $550 billion.

According to BofA’s economists Indranil Sen Gupta and Aastha Gudwani, there are three reasons why the RBI would want to accumulate more reserves — to maintain more import cover, fully covering foreign portfolio investors’ investments, and to maintain a healthy cover on short-term external debt of India.

The one-year forward import cover has slipped to 11.1 months from 14.4. “The reason it looks relatively high is that low growth has pulled imports to 16.4 per cent of gross domestic product (GDP) from the average 21.9 per cent since 2005-06.”

To maintain import cover at 20 per cent of GDP, India would need at least $535 billion of forex reserves, the duo said.

Second, to maintain 100 per cent cover for FPI investments would require at least $520 billion. Finally, to take care of the short-term external debt and FPI’s debt investments, India would need to maintain twice the exposure in foreign exchange. That works out to be $594 billion.

BofA sees rupee at 70.5 a dollar in March 2020.

Bank of America opens Global Business Services Center at GIFT-IFSC

In a development that makes it the first foreign bank to start operations within the International Financial Services Centre (IFSC), Bank of America Corp (BoA) on Friday inaugurated its Global Business Services Center at Gujarat International Finance Tec-City (GIFT City).

The new centre will allow BoA, which launched two Indian bond auctions at its platform in GIFT-IFSC, to raise debt in international currency.

"We have been encouraging Indian companies to consider this as a platform for bond auctions. Two of the bonds we have listed here are of IndusInd and Yes Bank. Other than Luxembourg and Singapore, they are listed on GIFT-IFSC," said Kaku Nakhate, President and Country Head, Bank of America India.

Nakhate added that the bank is looking to create an ecosystem around the financial technology (fintech) sector. "We are here to explore AI, robotics and fintech as we go across the world and GIFT city has shown it is open to such innovative thinking," she stated.

Inaugurating the Global Business Services Center along with Gujarat Chief Minister Vijay Rupani, Bank of America's Chief Operations and Technology Officer Catherine P Bessant said the location within the IFSC at GIFT City has hired 500 people, and can take that number up to 1,500 in future.

"BoA is a significant employer in India. We have 29,000 people in Gurugram, Hyderabad, Chennai, Mumbai and now at Gift City. About 30 per cent of our total workforce in technology and operations is here in India. Strategically, India is important for us," Bessant added.

On its part, the state government has offered support for building the fintech and Information Technology (IT) ecosystem within the IFSC at GIFT City.

"It would be a turning point for creating a large number of businesses and service sector jobs in Gujarat. The Gujarat government has already announced an IT park in GIFT City with a commitment of 600,000 sq ft for IT companies. Our government is keen to develop GIFT City as Fintech hub not just for India but for Asia as well," said Rupani.

BoA has leased around 100,000 sq ft of space, occupying six floors of a newly developed building within the special economic zone (SEZ) area, that is the IFSC at GIFT City.