Businesses face delays in transferring money overseas

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Several Indian small and medium-sized companies with overseas units are facing delays in obtaining regulatory approvals for investments in foreign subsidiaries or payments to foreign investors, people familiar with the matter told ET. The situation, however, is not as alarming as it was during the so-called Taper Tantrum in 2013, when capital flight from emerging markets caused the rupiah to plunge precipitously.

Reserve Bank of India (RBI) approvals, several executives told ET, have been hard to come by lately, with the rupiah down around 7% against the US dollar year-to-date in mid-2019. the one-way global rush for globally denominated assets. reserve currency.

“Our call to move money overseas has been met with silence,” one of the executives quoted above told ET. “Delay is now common as local funds go global, with no immediate return potential (for money sent overseas).”

The RBI did not respond to ET’s questions on the matter.

The affected units, largely medium-sized or small, intend to send money abroad in anticipation of further weakening of the rupee. Some companies are also considering splitting payments while meeting their offshore obligations.

Re fared better against the euro, pound and yen

The rupee climbed 0.15% on Monday to close at 79.74 to the US dollar. The local unit hit a lifetime low of 80.06 on July 21, Bloomberg data compiled by ETIG showed. It has lost 6.77% against the greenback this year, ranking seventh among Asian currencies. But the rupee fared much better against other major currencies. It has gained between 3% and 10% against the euro, pound and yen this calendar year.

A company can send dollars overseas after conversion from rupees for multiple purposes – overseas investments, overseas acquisitions, royalty payments to overseas promoters, and distribution of dividends.

A nod to the central bank

Businesses must seek permission from the RBI unless such money transfer is done through an automated channel or through an Authorized Concessionaire (AD), primarily a foreign bank acting on behalf of its client company.

However, the situation is much more stable than it was in 2013, when the rupee plunged to around 70 to the dollar following what has become known globally as the Taper Tantrum.

“We used to get calls in 2013 from the RBI asking to cut off any offshore position immediately,” said one forex trader. “It’s quite composed this time, by contrast.”

This is likely because the central bank is in favor of a gradual decline of the currency against the dollar and does not want disruptive changes in value.

“Rupee decline will not be allowed unabated but likely gradual, depending on global factors,” said Bhaskar Panda, Executive Vice President,

. “The situation is not alarming now, unlike such occasions in the past.”

Overseas Capex financing

At present, the central bank would not favor immediate investments abroad which would come at the expense of investments in rupees in the country. The withdrawal of cash from Indian operations and overseas investments essentially means additional selling pressure on the rupee.

“Capital outflows are happening regularly, but regulators are looking more closely at the category of outflows and payment of taxes on large business remittances,” said a Mauritius-based fund facilitator.

“This is expected to continue for another six/nine months, by which time (time) the government expects the rupee to stabilize,” the person said.

“In fact, the regulator is not opposed to overseas expansion, but not at the cost of further pressure on the rupee,” said the head of equity capital markets at a major foreign bank.

This essentially means that a company will have to find its own resources in its overseas operations for now, this person said. For its part, the central bank said the value of the local unit will reflect broader fundamentals. “We will continue to engage in the foreign exchange market and ensure that the rupee finds its level in line with its fundamentals,” RBI Governor Shaktikanta Das said last Friday.

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