WHAT IS NRI BOND ? CAN INDIA STOP THE FALL OF THE RUPEE BY NRI BONDS
WHAT IS NRI BOND AND WHY THESE ARE IN NEWS ?
BOND
Let's suppose Amitabh Bachchan has Rs 100 Crore (Indian Currency) and he want to invest to grow this money.
So, what he will do, He will invest in any of the below option.
Stock Market
Mutual Fund
Bank/FD etc and many more.
Let's suppose Bachchan ji choose FD option, so Bank will provide max 7 % interest rate so on 100 Crore. He will get 7 Crore.
But - There is some alternative also to invest the money i.e. BOND. (Almost every country in the world issued the bond). BOND is basically investment tool and return is better than Bank Deposits.
In India, BOND issued by RBI.
Let's suppose in BOND, RBI offered Yield (Yield is term used in BOND same as of Interest in FD) 9% so on 100 Crore - Bachchan ji will get 9 crore.
But, There is a catch here - BOND is basically for long period.
Here, we quote example of Amitabh ji (with Indian currency)
NRI BOND
Now, Suppose India Government wants to attract Dollar, as Rupee is continuous sliding.
So, India Government via RBI can issued the NRI BOND ( These are for NRI People - same policy Like we quoted for Amitabh ji, But for NRI People and They can invest in Dollars). A kind of Investment opportunity.
and In BOND Government has full assurance of security, whereas Stock Market and Mutual Funds can crash.
So, In this way, RBI can attract Dollars.
So, BONDS can be issued for Non Residents(NRI BOND) and Residents(BOND).
Currently, NRI BOND not issued.
WHY ARE THEY IN THE NEWS?
As we now, value of Rupee is continuous falling. The sharp slide in the value of the Rupee has led to speculation that the RBI might opt to issue NRI bonds in order to attract dollar investment into the country.
The Rupee's fall of 13.7% since the beginning of the year has been caused by two factors:-
As of Now, RBI thinks NRI Bonds stabilize the value of Rupees against the dollar. Their target is of $30-$35 Billion [As of now only thinking, not implemented].
Many countries applied this system whenever their currency falls.
NRI bonds were also issued in 1998 and 2000 to help curb the slide of the rupee.
These kind of bonds can provide temporary assistance to the rupee by encouraging capital inflows into the economy. They may not address the fundamental economic issues that are causing the fall of the rupee.
Now, Why RBI is thinking, why they can't apply and stabilize the Rupee, It's because there are many Drawbacks of BOND
DRAWBACKS OF BONDS
These deposits have to be repaid in the future as is case any kind of debt instrument. As we need to give return to the investors with high yield.
WHETHER, NRI BONDS NEEDS TO BE ISSUED OR NOT - CURRENTLY GOVT IS THINKING AND DOING RESEARCH ON IT.
We will see ,whether they will eventually issued or not.
For more information, you can access below links:
https://www.financialexpress.com/opinion/stabilising-rupee-nri-bonds-over-tariff-hikes/1319609/
https://indianexpress.com/article/business/economy/government-rules-out-cuts-in-fuel-taxes-looks-at-nri-bonds-for-rupee-5349605/
https://timesofindia.indiatimes.com/business/india-business/rbi-likely-to-issue-35bn-nri-bonds-to-support-rupee/articleshow/64548712.cms
BOND
Let's suppose Amitabh Bachchan has Rs 100 Crore (Indian Currency) and he want to invest to grow this money.
So, what he will do, He will invest in any of the below option.
Stock Market
Mutual Fund
Bank/FD etc and many more.
Let's suppose Bachchan ji choose FD option, so Bank will provide max 7 % interest rate so on 100 Crore. He will get 7 Crore.
But - There is some alternative also to invest the money i.e. BOND. (Almost every country in the world issued the bond). BOND is basically investment tool and return is better than Bank Deposits.
In India, BOND issued by RBI.
Let's suppose in BOND, RBI offered Yield (Yield is term used in BOND same as of Interest in FD) 9% so on 100 Crore - Bachchan ji will get 9 crore.
But, There is a catch here - BOND is basically for long period.
Here, we quote example of Amitabh ji (with Indian currency)
NRI BOND
Now, Suppose India Government wants to attract Dollar, as Rupee is continuous sliding.
So, India Government via RBI can issued the NRI BOND ( These are for NRI People - same policy Like we quoted for Amitabh ji, But for NRI People and They can invest in Dollars). A kind of Investment opportunity.
and In BOND Government has full assurance of security, whereas Stock Market and Mutual Funds can crash.
So, In this way, RBI can attract Dollars.
So, BONDS can be issued for Non Residents(NRI BOND) and Residents(BOND).
Currently, NRI BOND not issued.
WHY ARE THEY IN THE NEWS?
As we now, value of Rupee is continuous falling. The sharp slide in the value of the Rupee has led to speculation that the RBI might opt to issue NRI bonds in order to attract dollar investment into the country.
The Rupee's fall of 13.7% since the beginning of the year has been caused by two factors:-
- Foreign Portfolio investors pulled out Rs 47,836 Crore in the first half of the year, a 10 year high. [ Their money was in Dollar, as they pulled out the dollar , hence number of dollars decreases with India (Foreign Reserve).]
- On the other hand, Indian exports have been losing demand, while imports of commodities like crude oil have risen significantly.
As of Now, RBI thinks NRI Bonds stabilize the value of Rupees against the dollar. Their target is of $30-$35 Billion [As of now only thinking, not implemented].
Many countries applied this system whenever their currency falls.
NRI bonds were also issued in 1998 and 2000 to help curb the slide of the rupee.
These kind of bonds can provide temporary assistance to the rupee by encouraging capital inflows into the economy. They may not address the fundamental economic issues that are causing the fall of the rupee.
Now, Why RBI is thinking, why they can't apply and stabilize the Rupee, It's because there are many Drawbacks of BOND
DRAWBACKS OF BONDS
These deposits have to be repaid in the future as is case any kind of debt instrument. As we need to give return to the investors with high yield.
WHETHER, NRI BONDS NEEDS TO BE ISSUED OR NOT - CURRENTLY GOVT IS THINKING AND DOING RESEARCH ON IT.
We will see ,whether they will eventually issued or not.
For more information, you can access below links:
https://www.financialexpress.com/opinion/stabilising-rupee-nri-bonds-over-tariff-hikes/1319609/
https://indianexpress.com/article/business/economy/government-rules-out-cuts-in-fuel-taxes-looks-at-nri-bonds-for-rupee-5349605/
https://timesofindia.indiatimes.com/business/india-business/rbi-likely-to-issue-35bn-nri-bonds-to-support-rupee/articleshow/64548712.cms
Above Information is as per data available in news till the date when I am posting this.
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