Having more dollars cannot hurt.

In a surprising move the "RBI will buy $5 billion from banks for its reserves by giving them rupees, and reverse the trade in 2022," wrote A Mukherjee. This is different from the "Reserve Bank of India's (RBI's) traditional management of longer-term liquidity in the banking system: by buying and selling government bonds". The RBI wants to prevent the rupee from becoming too strong as foreign investors buy Indian assets with dollars. It wants to provide funds for non-bank financiers to prevent shadow lenders from turning off "the tap for builders amid a glut of unsold apartments" and to spur "demand for lacklustre government bonds". This may not be a one-off action but maybe part of a series. "In fact, analyst's estimate that there's room for at least $12 billion of flows if banks decide to raise capital." By this unconventional monetary policy the RBI is infusing liquidity into non-banking finance companies (NBFCs) without monetising government debt. Banks are unwilling to reduce lending rates despite a reduction in policy rates by the RBI. This is partly because banks are still struggling with bad loans although the worst maybe over, according to the RBI. Even so, the number of willful defaults are still rising in public sector banks. Despite a rise in real rates, due to fall in retail inflation, deposit growth in banks is falling, wrote A Iyer. "Average Indians don't sit and look for real returns. What they see is nominal deposit rates and this has fallen sharply." Banks are having to pay higher interest on term deposits to attract ordinary savers and so cannot reduce lending rates. Shadow lenders are refusing to accept shares as security for lending money. The amount of money promoters can borrow by pledging their shares is lower than the market value of the shares pledged and if the price falls then lenders sell off shares to protect their capital. In recent weeks certain companies have seen selling of pledged shares by lenders, which further lowered market capitalization of the companies. Mutual funds have also been exposed to severe falls in values of pledged shares, hitting retail investors. Buying dollars increases forex reserves of RBI which may come in handy if there is a sudden outflow because of a reduction in the weight of the Indian market in the MSCI Emerging Market Index. Another cause for concern is that the dollar-rupee trade has shot up in off-shore markets. Dollar-rupee non-deliverable forwards (NDFs) in London "soared to $23 billion in October 2018, while the market in New York is $4.5 billion daily. If foreigners are controlling the exchange rate of the rupee it makes sense to increase dollar reserves of the RBI. The RBI should reduce the Cash Reserve Ratio and the Statutory Liquidity Ratio to free up large sums of money for banks to lend, suggested an editorial in the Mint. If banks buy fewer government bonds yields, already at around 7.4, could rise even higher. Buying dollars is perhaps the safest bet.