Govt mulls NRI bonds: What are these and how will they support rupee?

Another tool at its disposal is to raise capital through NRI bonds, a measure implemented by the RBI during 2013 when rupee fell to 67.85. It has become a go-to in times of currency stress.

The NRI bonds are issued exclusively to Indians who stay overseas, giving them incentives to invest in an instrument with limited availability. These bonds pay back in domestic denominated currency (in this case rupee) rather than a hard currency such as the US dollars.

These bonds offer discounts to NRIs but offer low yields and have a maturity period of three years. As of 2017, a reported $69 billion inflow of money entered India, according to website Investopedia.

In 2013, when the rupee fell to Rs 67.85 against the greenback due to US Federal Reserve’s ‘taper tantrums’, the central bank came up with NRI bonds moved $26 billion through Foreign Currency Non-Resident Bank Account (FCNR-B) deposits, PTI reported.

Raising forex through NRI bonds is not a preferred option as large outflow at the time of redemption could create problem for external sector, multiple experts told PTI.

An inflow of foreign exchange through NRI bonds may also see a significant outflow at the time of redemption which could create a problem for external sector.