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This is in marked contrast to a rising trend witnessed during the last five years. The forex assets had recorded a rise of Rs 49,206 crore (Rs 492.06 billion) during the same period last year.
On a year-on-year basis, the sector's net forex assets rose by Rs 58,868 crore (Rs 588.68 billion) during the 12-month period till June 24, 2005. This is well below the Rs 1,58,201 crore (Rs 1582.01 billion) increase posted during the previous 12 months.
Bankers point out that the decline this fiscal is predominantly due to the fall in the foreign exchange assets of the Reserve Bank of India.
The central bank's net foreign exchange assets saw a decline of Rs 21,333 crore (Rs 213.33 billion) during April 1 to July 1 this year, compared with a rise of Rs 61,467 crore (Rs 614.67 billion) in the corresponding period last year.
At Rs 5,91,457 crore (Rs 5914.57 billion), a lion's share of the foreign exchange assets is held by the RBI. Bankers cite valuation losses as one of the reasons for the fall in the foreign exchange assets of the banking system.
"The RBI has diversified its holdings of foreign currencies. With currencies such as the euro plummeting in recent months, the apex bank's holdings would have incurred valuation losses," points out an executive with a foreign bank.
"A larger current account deficit is also a reason," said Abheek Barua, chief economist, ABN Amro Bank. Others say that the RBI is now mopping up fewer dollars from the market since a strong dollar in the international markets has eased the upward pressure on the rupee.
Barua points out that the impact of the net foreign exchange reserves fall is tightening of liquidity. "This could be one reason for the lack of liquidity witnessed in the money markets at present," he said.
