Why RBI should not lend US$1 billion to SBI?

The State Bank of India has raised   US$ 1 billion through overseas bond issue at an interest rate of 4.5%. This money is for providing its foreign operations and also for supporting Indian companies with external commercial borrowings.

Reserve Bank of India has foreign exchange reserves of about US$ 270 billion. RBI has deposited the same in foreign countries with foreign central banks etc at much less than 1% interest rate. For any country foreign exchange required for meeting imports for 3-6 months is sufficient. This means that   the country needs foreign exchange of about US$ 75-150 billion. Thus RBI has excess foreign exchange. Instead of allowing SBI to raise funds through overseas bond issue at 4.5% interest rate, if RBI had lent this amount, the country could have saved foreign exchange of $45 million dollars per year.

RBI should consider lending money in foreign exchange to Indian commercial banks from its foreign exchange reserves instead of allowing commercial banks to raise funds overseas.

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