##isation, but that is a step which belongs to the final stages of rupee internationalisation, and not a priority at this stage. 14. why do i think internationalisation of the rupee is a desirable objective of public policy? some of the advantage are fairly obvious, as explained below : i. use of rupee in cross - border transactions mitigates currency risk for indian business. protection from currency volatility not only reduces cost of doing business, it also enables better growth of business, improving the chances for indian business to grow globally. ii. it reduces the need for holding foreign exchange reserves. while reserves help manage exchange rate volatility and project external stability, they impose a cost on the economy. for example, there is a general agreement that india ’ s reserves are borrowed funds. banks and corporate incur external debt at market rates which are then invested in government securities issued by advanced economies ( aes ). the rate at which external debt is incurred is substantially higher than the return on reserves,. assuming an interest differential of 2 %, on a reserve base of say usd 600 billion, the cost of reserves would work out to usd 12 billion, annually. this cost represents a transfer of income from india to aes. reducing the requirement of reserves would save some of this this loss of income. iii. reducing dependence on foreign currency makes india less vulnerable to external shocks. for example, during phases of monetary tightening in us and strengthening dollar, excessive foreign currency liabilities of domestic business results in a de facto domestic tightening. the ‘ taper tantrum ’ episode in 2013 and the currency volatility experienced by most emerging market economies ( emes ) in recent months exemplify such risks. reduced exposure to currency risk would substantially mitigate the pain of reversal of capital flows. iv. as the use of rupee becomes significant, the bargaining power of indian business would improve adding weight to the indian economy, enhancing india ’ s global stature and respect. 15. how do we go about the process of internationalisation of the rupee? we have, in fact, taken the initial steps. enabling external commercial borrowings in rupees ( especially masala bonds ) was one step. though invoicing export and import in rupees was long permitted, it was being resorted to for limited uses. the july 2022 scheme of rbi permitting rupee settlement of external trade created a more comprehensive framework, including the flexibility of investing surplus rupees in

in the system. it may get further help from easing commodity prices and growth returning in some parts of the globe. our concern on restructuring is more around the fairness of the process. it should address the problem, not merely postpone it. hence, rbi has set out clear guidelines that a second round of restructuring would lead to automatic classification of the asset as non - performing and call for a higher provisioning requirement. ii ) capital adequacy of banks 15. there have been numerous discussions on the need and ability of the indian banks to raise additional capital to support their business, going forward. i would not say that the concerns raised in this regard are entirely misplaced, especially for the public sector banks. the need to shore up capital adequacy would arise on account of pulls from several directions. these include need for higher provisioning requirements due to deterioration in asset quality, phased implementation of basel iii capital norms, capital required to cover additional risk areas under the risk based supervision framework as also the need to expand the business and meet the likelihood of higher credit demand going forward. let me tell you that at present, the capital position of indian banks is comfortable with all of them meeting the extant regulatory requirement comfortably. the capital to risk weighted assets ratio ( crar ) for indian banks under basel iii as at end march 2014 stood at a comfortable level of bis central bankers ’ speeches 12. 9 per cent. while the ratio for the psbs was lower at around 11. 38 per cent, the ratio in case of private sector and the foreign banks was in excess of 16 per cent. going ahead, the capital position of the banks, especially the psbs, is likely to come under some strain, both in terms of quantity and quality. to meet minimum capital requirements, capital buffers, domestically systemically important banks ( dsibs ) surcharge and impact of increased stressed assets, the government ’ s contribution to the equity up to march 31, 2019, would have to be to the tune of two lakh forty thousand crore rupees at the existing level of its shareholding in respective public sector banks. this requirement is independent of the risk based capital requirements which the banks might need under the rbs process. it is, however, important to note that this requirement may come down if, going forward, the asset quality improves on account of higher growth and consequently, higher internal retention. notwithstanding the room available to the banks to meet the basel iii timeline, the banks have