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RBI group moots major changes in external debt management, goes soft on NRI deposits

The technical group on external debt of the Reserve Bank of India has made a series of recommendations on definitions, accounting practices, reconciliation and monitoring aspects of the country's external debt, incorporating features such as currency composition and maturity profile.

The seven-member group headed by M R Nair said that a broader measure of debt service ratio may be developed to include the principal repayments including roll-overs of short-term debt and non-resident Indian deposits.

This is essential in view of the fact that the debt service ratio, as conventionally defined, has a downward bias and the current external debt figures of about $ 92 billion can go up substantially.

The group recommended that institutional arragements may be made for collecting external debt profiles of public sector enterprises, particularly the large ones, so that the same could be used as one of the inputs for the monitoring group on external debt.

It also suggested that the RBI may institute a system of reporting and collection of information on cross-border bank liabilities such as nostro account overdrafts, vostro account credits, lines of credits, credit balances of private exchange houses held in India and other borrowings.

Emphasising the need for the RBI to make efforts of providing information on trade credits approved by it in terms of original currencies, the technical group recommended that data on trade credits of maturity less than three years approved by the RBI may be given in two distinct categories -- maturity upto one year and maturity above one year.

For the specific purposes of monitoring the impact of maturing debt on the foreign exchange market and short-term monitoring of balance of payments, debt service profiles of various categories of debt which are valid for one month, three months, six months and one year may be prepared and updated regularly, the report said.

It suggested that the data on external debt statistics may be published on a quarterly basis within a quarter of the reference date. External debt may be recorded on a cash basis, the exception being non-resident deposits, in contrast to the accruals method underlying the balance of payments compilation.

The group recommended that channels of consultation with the Bank for International Settlement and the Organisation for Economic Co-operation and Development may be established so that reconciliation of debt statistics, or at least the identification and quantification of differences, occurs on a continuous basis.

For this purpose, besides the presentation of debt on a residual maturity basis, there may be simultaneous generation of both creditor-based and debtor-based presentation. Dialogue may also be instituted with the Institute of International Finance to encourage their use of the data provided by the government and the RBI in their estimates.

The RBI may obtain information from the Securities and Exchange Board of India on stocks and flows relating to FII investment in debt instruments on current market valuation basis. Furthermore, such data may be shown separately in the debt statistics under a new head and foreign investment in debt securities further disaggregated into government and non-government.

The Union finance ministry may institute a mechanism to monitor the conversions of foreign currency convertible bonds to equities and to report the timing and magnitude of appropriate adjustments of the debt stock to the RBI.

Noting that derivative transactions in respect of foreign currency debt may alter the currency composition as also the maturity profile, the group suggested that appropriate institutional arrangements may be made for capturing information in this regard on an on-going basis.

Efforts may be made to collect and analyse data on debt and capital flows in the balance of payments in terms of original currencies. The group recommended that revaluation of pooled loans from the World Bank and pre-1971 IDA credits may be conducted and made available on a quarterly basis by the office of Controller of Aid Accounts and Audit.

While the Commonwealth Secretariat Debt Recording and Management System continued to be the main database management system for India's external debt statistics, continuous efforts should be made to upgrade the package and to improve technical skills of users through close interaction with the Commonwealth Secretariat.

Concomitantly, efforts could be made by the principal users to develop in-house database management systems to suit their particular requirements with an emphasis on capability for interfacing, the group report added.

UNI