Banking Awareness 2013

More regulatory reforms for insurance sector to spur growth: IRDA chief
October 16th, 2013
As per Insurance Regulatory and Development Authority (IRDA) Chairman T. S. Vijayan, the insurance industry will undergo another round of regulatory reforms, particularly focused on distribution channel, to instill growth. As per him, IRDA is focusing on bank channels and sub-broker level distribution and citizen service centres (CSCs) for better growth prospects. The insurance penetration is expected to rise substantially in the years to come. The insurance industry was going to witness major changes in the coming days. Several insurance firms would be listed on stock exchanges and open up abundant opportunities in the segment. IRDA is concerned about the product design and miss-selling aims to make sure that products approved by IRDA should have least chances ofmiss-selling.
What is Misselling?
Misselling is an intentional and ethically questionable practice of selling of products or services in circumstances where the contract is either misrepresented, or the product/service is unsuitable for the customers needs. For example, selling life insurance to someone with no dependents is regarded as misselling. In this case, the investor would arguably have little need for whole life insurance and, therefore, an insurance salesperson describing the product as something the investor urgently needed to protect his or her assets in the event of death could be considered a case of misselling.
RBI cuts MSF rate by 50 bps to 9.0%

October 10th, 2013
The Reserve Bank of India has reduced one of the key short-term borrowing rate, the Marginal Standing Facility (MSF), by 50 basis points to 9.0%. The step has been taken as the rupee has recovered 11.4% after hitting an all-time low of 68.85 to the dollar on August 28, 2013. What is MSF? Marginal Standing Facility (MSF) was introduced by the Reserve Bank of India in 2011-12 as part of its monetary policy. Under this facility, banks can borrow funds from RBI at a fixed rate, which is, normally, 1% or 100 basis points above the Liquidity Adjustment Facility-repo rate, against pledging Government securities (G-Sec). Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure was introduced by RBI to regulate short-term asset liability mismatches more effectively.
CCEA takes steps for operationalisation of IDFs

September 29th, 2013
The Cabinet Committee on Economic Affairs (CCEA) has taken the following steps to promote the operationalisation of InfrastructureDebt Funds (IDFs).
The annual Guarantee Fee payable to the Concession Authority has been capped at 0.05% per annum, of outstanding debt financed by the IDF NBFCs (Non Banking Financial Companies) for the first 3 years of operation of the IDF NBFC. IDFs will be given the status of Public Financial Institutions (PFI). Infrastructure Debt Funds are allowed to file Shelf Prospectus under Section 60 A of the Companies Act, 1956 and access to provisions of the SARFAESI Act, including to the adjudicatory process through Debt Recovery Tribunals. Post-successful COD PPP (Commercial Operation Declaration) projects shall now be eligible for investment by Insurance Companies, Provident Funds (PFs), EPFO, Mutual Funds (MFs), etc.
What are Infrastructure Debt Funds (IDF)?
As per Reserve Bank of India, IDFs are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh space for banks to lend to fresh infrastructure projects. IDF-NBFCs would take over loans extended to infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed 1 year of commercial production. Such take-over of loans from banks would be covered by a Tripartite Agreement between the IDF, Concessionaire and the Project Authority for ensuring a compulsory buyout with termination payment in the event of default in repayment by the Concessionaire.
What legal forms can IDF be set up as and who will be the regulators?
Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A trust based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a company based IDF would normally be a NBFC regulated by the Reserve Bank.
Do the NBFCs/IFCs need prior permission from Reserve Bank for sponsoring IDFs?
Yes NBFCs and NBFC-IFCs need to take prior approval from the Reserve Bank for sponsoring IDFs.
How do IDF- NBFCs and IDF-MFs (Mutual Funds) raise resources?
IDF-NBFCs will raise resources through issue of either Rupee or Dollar denominated bonds of minimum 5 year maturity. IDF-MFs will raise resources through issue of units of MFs.
What does sponsorship mean?
Sponsorship means equity participation by the NBFC between 30 to 49% of the IDF.
Who can invest in the bonds of IDF-NBFCs and Units of IDF-MFs?
Domestic/offshore institutional investors, especially insurance and pension funds can invest through units and bonds issued by the IDFs.
IDBI Bank launches Own Your NPA campaign
In a bid to speedily recover Non-Performing Assets (NPA), the a campaign named Own Your NPA.
What is Own Your NPA campaign?
IDBI Bankhas launched
It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its managers at the zonal, regional and branch levels to focus their on making recoveries from the top 20 bad loan accounts in their jurisdiction. As part of the campaign, each zonal, regional and branch manager will personally go and meet the customers. The bank has identified 1522 cases, involving an aggregate principal outstanding of Rs 5,805 crore which is approximately 73% of its total NPAs of Rs 7,959 crore as on June-end 2013.
What is Non-Performing Assets (NPA)?
In simple words, the assets of the Banks which dont perform (means dont bring any return) are called Non Performing Assets. In more general sense they are bad Loans. Any asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. However, there is a prescribed definition by the RBI which defines the NPAs as: Terms Loans on which interest and / or installment of principal remain overdue for a particular quarter for a period of more than 90 days from the end of that particular quarter. The Bills those remain overdue for a period of More than 90 Days from the end of a quarter. Any amount to be received remains overdue for a period of more than 90 days. The Cash Credit account remains out of order for a period of more than 90 days. Out of order means over the sanctioned limit. Note: This period of 90 Days for the above categories was 180 days prior to 2004. So 90 Days is the thumb rule in the deciding the NPAs. However, there is an exception to this. Go through the following case: A farmer has taken a loan for a paddy crop in the beginning of the Rabi Season and has not made a repayment. In which of the following situations, if Installment or interest is not paid for this loan, it would become a NPA (Non Performing Asset)? 1. 2. 3. 4. 90 Days from the due date 90 Days from the end of the Rabi Season 1 crop season from the due date 2 crop seasons from the due date The answer of the above question is (4) i.e. 2 crop seasons from the due date. Please note the following:
For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is NOT paid for 2 crop seasons (means Kharif, and next Rabi in the above question), it would be termed as a NPA. For long duration crops, the above would be 1 Crop season from the due date.
Investment through P-Notes hits 3-month high of $26 billion

As per share market regulator SEBI, investments into Indian shares through participatory notes (P-Notes), hit a three-month high of Rs 1.65 lakh crore (about $26 billion) in August 2013.
What are Participatory Notes?
Participatory Notes or P-notes are derivative instruments, used by Foreign Institutional Investors (FIIs) who are NOT registered with SEBI. The major characteristics of P-notes are: 1. They are derivative instruments 2. They are used by Foreign Institutional Investors (FIIs) who are NOT registered with SEBI. 3. They are used on Indian shares, but at a location outside ofIndia. This means that the FIIs who are not registered with SEBI but wish to take exposure in the Indian securities markets can use P-notes. P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations. Brokers buy or sell securities on behalf of their clients on their proprietary account and issue such notes in favor of such foreign investors.
Moodys lowers SBIs debt and local currency rating to junk

Global rating firm, Moodys Investors Service, has downgraded State Bank of Indias senior unsecured debt and local currency deposit ratings to Baa3 or lowest investment grade rating from Baa2 and altered the outlook on SBIs financial strength rating to negative from stable as the economic slowdown impacts banks credit quality.
Why did Moodys downgrade SBIs rating?
As per rating agency, the combination of mounting pressure on credit fundamentals and the ongoing dependence on the fiscally constrained Indian government to maintain Capital Adequacy Ratio (CAR) are key players behind the rating downgrade at a level no higher than the sovereign.
Grameen Bank (Bangladesh) to be brought under Central Bank jurisdiction in Bangladesh

Grameen Bank, the Nobel Peace Prize winning microcredit organization of Bangladesh, will be brought under the control of countrys central bank to give the authorities more powers over the organization. The The decision by the government follows the recommendations of government-sponsored Grameen Bank Commission, which suggested bringing the bank under the regulatory control of either the Bangladesh Bank or the Microcredit Regulatory Authority to better monitor its activities. Currently, the Grameen bank is being run by Grameen Bank Ordinance 1983 and it does not directly fall under the jurisdiction of the BankingCompanies Act. In 2011, the central bank of Bangladesh, the Bangladesh Bank, removed Nobel Laureate Dr. Muhammad Yunus as the Managing Director of Grameen Bank citing age limit.
About Grameen Bank:
The Grameen Bank is a Nobel Peace Prize-winning microfinance organization and community development bank founded inBangladesh. It makes small loans (known as microcredit or grameencredit) to the impoverished without requiring collateral. Grameen Bank originated in 1976, in the work of Professor Muhammad Yunus, Professor at University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize.
Impasse over RBIs 80:20 gold import scheme ends

The government cleared the confusion that was going between the Customs Department and gold importers regarding the RBIs 80:20 scheme which was introduced in Ju ly 2013.
What is 80:20 scheme of RBI?
Under this scheme, the importers are directed to export back 20% of the total gold imports. It prohibits further imports if this 20% norm is not met by importers. The step was aimed at curbing rising gold import which led to high Current Account Deficit.
Why there was a deadlock over 80:20 scheme of RBI?
The RBI 80:20 norm left many confused, leading to imports being held up at customs. It was wrongly interpreted that an importer could not export more than 20%. Whereas, the case was otherwise as it means that at least 20% is give for exports and one can export more than 20% of total imports. Due to this confusion the customs officials had stopped stocks from entering the country. With this clarification, gold imports are likely to resume.
Fitch slashed Indias growth projection
September 23rd, 2013
Global rating agency Fitch has scaled down its projections on Indias growth to 4.8% for the current fiscal from the earlier estimate of 5.7% made in June, 2013.
Why did Fitch scaled down Indias growth prospects?
The following are the key reasons behind the cut in growth projections: Weak Indian currency against dollar Expanding Current Account Deficit (CAD) on account of rising crude prices and falling rupee Weak demand
RBI confident of financing CAD without drawing much from reserves

RBI Governor Raghuram Rajan evinced confidence that the country would be able to finance the Current Account Deficit (CAD) without drawing down much from the forex reserves. RBI is of the view that CAD could be brought down to $70 billion or even below that. In fiscal 2012-13, CAD stood at a historic high of 4.8%, or $88 billion, of the GDP. The government has set a target of 3.7% CAD, or $70 billion, this fiscal. The efforts of the RBI through FCNR-B and swap facility have yielded a total of nearly $1.4 billion. The market has also recuperated considerably after the US federal bank postponed the tapering of stimulus. Mr. Rajan stressed on improving countrys economic parameters regardless of the actions that the U.S. took.
RBI slashes MSF rate to 9.50%

The Reserve Bank of India slashed the Marginal Standing Facility rate (MSF) by 75 basis points from 10. 25% to 9.50%. The central bank also rolled back minimum daily maintenance of the Cash Reserve Ratio (CRR) from 99% to 95% keeping the CRR unchanged at 4%. RBI has assured that it will reduce the difference between the MSF and repo rate to 100 basis points. RBI raised the repo rate by 25 basis points to 7.50%.
What is MSF?
Marginal Standing Facility (MSF) was introduced by the Reserve Bank of India in 2011-12 as part of its monetary policy. Under this facility, banks can borrow funds from RBI at 8.25%, which is, generally, 1% or 100 basis points above the Liquidity Adjustment Facility-repo rate against pledging government securities. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure was introduced by RBI to regulate short-term asset liability mismatches more effectively.
What is the difference between Liquidity Adjustment Facility-repo rate (LAF) and Marginal Standing Facility (MSF) rate?
Banks can borrow from the RBI under LAF-repo rate, which stands at 7.50%, by pledging government securities over and above the Statutory Liquidity Requirement of 24% (SLR). Banks cannot sell government securities to RBI that is part of its SLR quota while availing LAF on the other hand they can do so while availing MSF. MSF is open to the banks that want to borrow from the RBI even if the credit is costlier by a percentage point or so. Through MSF banks can borrow funds up to 2% of their Net Demand and Time Liabilities (NDTL), at current 9.50%. However, it can be availed with securities above the SLR of 24% and even below.
RBI relaxes for opening new bank branches in Tier I cities

September 22nd, 2013
Now banks will have freedom to open branches in tier-I cities (those with population over 1 lakh) without seeking RBIs approval in each case. However, as per RBI guidelines, there are some conditions on opening branches, these are stipulated below: Banks should open 25% of their branches in a financial year in Un-banked tier-V and tier-VI centres as earlier. Total number of branches in tier I centres cant exceed the number of branches opened in tier-2 to tier-6 centres during a year. If the banks are unable to open all tier 1 branches during that year, they can carry it over for next 2 years. If the banks unable to open requisite branches in tier- II to tier- VI centres for some reason, it should necessary correct the shortfall in the next financial year.
Bharatiya Mahila Bank to recruit POs

Indias first all-women bank, Bharatiya Mahila Bank, which expected to be

operational from November 2013, has invited online applications from female candidates for the 115 Probationary Officer posts. The last date for online application is till September 30, 2013.
About Bharatiya Mahila Bank:
Bharatiya Mahila Bank is Indias first all-women public sector bank. The bank proposes to complete the first six branches at Mumbai, Delhi, Kolkata, Chennai, Indore and Guwahati by October 2013. The Government has already approved Rs 1,000-crore seed capital for the bank as announced by Finance Minister P. Chidambaram in Budget 201314. The bank was already given in-principal approval by the RBI and thebanking company is being set up. Headquarter of Bharatiya Mahila Bank will be in Delhi. Objective: One of the key objectives of Bhartiya Mahila Bank is to focus on the banking needs of the women and promote economic empowerment. It will also addresses the gender related issues and will be helpful in financial inclusion.
Draft norms on new Company Law make companies to disclose managements pay
As per norms stipulated in the second set draft rules for the new company law, listed firms have been mandated to disclose in the boards report the ratio of the remuneration of each director to the median remuneration of employees. The new company law seeks to improve the regulatory framework around disclosure of managerial remuneration. The new rules also prohibit companies from issuing shares with differentiated rights as to voting, dividend or otherwise unless certain conditions are fulfilled. A key condition is that shares with differential rights should not exceed 25% of the post issue paid up capital. It has also been stipulated that the company should have a 10% dividend payment track record for the last 3 financial years immediately preceding the financial year in which such shares are to be issued.
US puts Prudential Financial into too big to fail list

The US Financial Stability Oversight Councils (FSOC) designated insurance company

Prudential Financial to its list of too big to fail institutions. The company has become the third non-bank firm placed under a tighter regulatory regime to reduce risks to the financial system.
What are too big to fail institution?
This is a popular term used in the US for the firms which are so large and so interconnected that their failure would be disastrous to the economy. As per US Federal Bank Chief Ben Bernanke A too-big-to-fail firm is one whose size, complexity, interconnectedness, and critical functions are such that, should the firm go unexpectedly into liquidation, the rest of the financial system and the economy would face severe adverse consequences. The idea proposes that in a crisis situation th ese too-big-to-fail firms should be given government assistance not out of favoritism or particular concern for the management, owners, or creditors of the firm, but because they recognize that the consequences for the broader economy of allowing a disorderly failure greatly outweigh the costs of avoiding the failure in some way. Common means of avoiding failure include facilitating a merger, providing credit, or injecting government capital, all of which protect at least some creditors who otherwise would have suffered losses. As per FSOC naming financial institutions too big to fail companies is an important tool to mitigate risks posed by those companies, fill gaps in their overall supervision, tighter control, and provide enhanced capital standards under which they must operate.
Which are the three non-bank financial companies designated as too big to fail institutions?
The three companies designated as too big to fail are:
1. Prudential Financial 2. American International Group 3. General Electric Capital Corp.

What is Financial Stability Oversight Council (FSOC)?
The FSOC is a United States federal government organization, which operates under the US Treasury. It was established under the DoddFrank Wall Street Reform and Consumer Protection Act, which came up in response to 2008 financial crisis and was signed into law in 2010. FSOC has broad authorities to identify and monitor excessive risks to the U.S. financial system arising from the distress or failure of large, interconnected bank holding companies or non-bank financial companies, or from risks that could arise outside the financial system; to eliminate expectations that any American financial firm is too big to fail; and to respond to emerging threats to U.S. financial stability.
RBI hikes repo rate by 25 basis points to 7.5%

In a surprising move, the Reserve Bank of India Governor Raghuram Rajan, in his maiden mid-quarter monetary policy review, hiked theshort-term lending (repo) rate to 7.5%, seeking to control inflation. The Cash Reserve Ratio (CRR) was left untouched at 4%. To ease liquidity, the Marginal Standing Facility (MSF) rate, at which banks borrow from the RBI, was reduced to 9.5% from 10.25% and the minimum daily maintenance of the CRR was lowered to 95%. In reaction to RBIs decision the rupee slipped 46 paise to close at 62.23 against the dollar in line with a sharp decline in local stocks. However, RBI Governor Raghuram Rajan has made his stance clear that RBI wants lower inflation and aims to curb it to 5% mark.
China launches its first direct bank

China launched its first direct bank, a new mode of providing onlinebanking services
without any entity outlets. The direct bank has been launched by the Bank of Beijing in co-operation with the Netherlands-based ING Group.
What is a Direct Bank?
A direct bank is a bank without any branch network that offers its services remotely via online banking and telephone banking and may also provide access via ATMs (often through interbank network alliances), mail and mobile. By eliminating the costs associated with bank branches, direct banks can make substantial savings which they may pass on to clients via higher interest rates or lower service charges.
RBI tightens norms for companies lending against gold

September 21st, 2013
As per the notification by the RBI, the central bank has tightened rules for finance companies which lend against gold, in line with the suggestions of an internal panel. As per the new rules: The lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio. The ratio would remain at 60% for loans against jewellery. At present, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary. The process by which lenders auction gold when a borrower defaults has also been streamlined by the RBI. Lenders will now need to declare a reserve price for the pledged ornaments. Lenders would also need RBI clearance to open branches exceeding 1,000. New branches would not be allowed without sufficient storage facility for gold.
RBI invites bids to implement global Legal Entity Identifier system

In order to have a better control on financial transactions, such as equity and currency derivatives, the Reserve Bank of India has invited limited bids from about six entities, including depositories, depository participants and custodians, to issue unique identification codes to market participants. The RBI will select one or two entities to assign them the responsibility of implementing a global Legal Entity Identifier (LEI) system that will uniquely identify parties to financial transactions. What is Legal Entity Identifier (LEI) system? LEI is a unique global identifier for each legal entity operating in the financial markets. The need to have such a system was felt after the global financial crisis of 2008. The system will work under the supervision of the RBI. LEI will aid in identification of participants in different trading, clearing and settlement systems, thus enabling aggregation of exposures and identification of linkages across markets as well as institutions, both domestic as well as global. What are the objectives of LEI system? The key objectives of Legal Entity Identifier (LEI) system are: Improved risk management in firms Better assessment of micro- and macro-prudential risks Facilitation of orderly resolution Containing market abuse and curbing financial fraud Enabling higher quality and accuracy of financial data overall
How would the LEI system help?
As per Financial Stability Board, the LEI system would cut operational risks within firms by extenuating the need for tailored systems to reconcile the identification of
entities and support aggregation of risk positions and financial data, which inflict substantial burdensome costs across the economy. It would also facilitate easy processing.
What is Financial Stability Board (FSB)?
FSB is an international body which was established after the 2009 G-20 London summit in April 2009 as a successor to the Financial Stability Forum. FSB work is to coordinate at the international level the work of national financial authorities and international standard-setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. The Board includes all G-20 major economies, FSF members, and the European Commission. It is headquartered in Basel, Switzerland.
Who are the members of FSB form India?
The Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the Ministry of Finance are the members of FSB from India.
Definition of control in relation to FDI notified by RBI

The Reserve Bank of India notified the definition of term control in the context of Foreign Direct Investment (FDI) and revised the list of states where FDI is allowed in multi-brand retail.
What is Control as per RBI notification?
Control shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. The tighter definition is to ensure foreign investors do not acquire indirect control in sectors where FDI is prohibited or capped at 49%.
States ready to implement FDI in Multi-Brand Trading:
The list of states which have given consent to implement FDI in Multi-Brand trading has been modified with the addition of Himachal Pradeshand Karnataka. With this, the number of states and Union Territories which have given consent to implement the FDI policy on multi-brand retail has increased to 12.
Latest in FDI:
Norms for multi-brand retail trading have been relaxed and the mandatory 30% local sourcing norms for companies have also been eased. FDI in insurance stands at 26%. The cap in telecom enhanced to 100% with automatic route allowed for FDI of up to 49%.
Union Cabinets nod to RBI for buying $4.3 bn World Bank bonds
The Reserve Bank of India (RBI) was given nod by the Union Cabinet to invest $4.3 billion in special bonds of the World Bank as it would help in securing extra funding from the multilateral lending agency forinfrastructure development projects.
How would this move benefit?
With this decision, RBI will be able to sign a special private placement bond agreement with the International Bank for Reconstruction and Development, the World Banks lending arm, which will provide additional borrowing space.
ATMs, PoS machines to scan UID biometrics

The RBI is understood to be preparing a directive for banks to introduce additional facilities in all new credit card swipe (Point of Sales, or PoS) machines and Automated Teller Machines (ATMs) for providing a mechanism for Aadhaar authentication using biometrics. The central bank intends to have an Aadhaar-based authentication to provide additional security for card transactions. Although RBI seems to have accommodated to a combination of chip and PIN authentication for existing customers and biometric checks for hitherto unbanked cardholders, the challenge is in the acceptance devices. Banks are of the view that the additional facilities would significantly increase investment costs. The other challenge is that conventional phone lines may not work to transmit scanned fingerprint images for verification. As per banks, the new machines will require the equivalent of 3G data speeds to transmit biometric data.
RBI asks banks to consider using business correspondents to distribute currency

In the backdrop of growing currency demands, the RBI, in a notification, asked banks to explore the possibility of distributing banknotes and coins through business correspondents. Earlier, RBI, in its Monetary Policy Statement 2013-14, had acknowledged the need to identify alternative distribution possibilities to effectively meet the rising demand for banknotes and coins.
What role the business correspondents are currently playing?
Currently, business correspondents are in the activities which include identification of borrowers, collection and preliminary processing of loan applications, creating awareness about savings and other products and processing and submission of applications to banks.
What did the RBI suggest banks to enhance currency distribution?
RBI has said that services of business correspondents could be used for distributing banknotes and coins. Their services could also be used by banks for follow-up for recovery, disbursal of small value credit and collection of small value deposits. As per the
notification by RBI, NGOs, micro-finance institutions, section 25 companies and post offices, among others, could act as business correspondents.
RBI notifies norms for banks to swap overseas borrowings

The Reserve Bank of India, in a notification, said that banks can raise funds overseas above 50% of their Tier I capital with a minimum maturity of 3 years and swap these borrowings with the RBI at a concessional rate of a 100 basis point below the market rate with a minimum tenor for 1 to a maximum of 3 years. Bank can use this swap facility to sell dollars in multiples of a million to RBI. At the end of the swap period, the bank would have to buy the same amount of dollars.
As per the new norms by the RBI for banks to swap overseas borrowings:
The swaps should be available at a concessional rate of a 100 basis points below the market rate for all fresh borrowing with a minimum tenor of 1 year and a maximum tenor of 3 years, irrespective of whether such borrowings are in excess of 50% of their unimpaired Tier I capital or not. While the swaps would be for the entire tenor of the borrowing, the rate would be reset after every 1 year from the date of the swap at 100 basis points lower than the market rate prevailing on the date of reset. Although the banks are permitted to borrow in any freely convertible currency, the swap will be available only for conversion of US dollar equivalent into rupees and the American currency equivalent would be computed at the relevant cross rate prevailing on the date of the swap. Banks can now borrow funds from their Head Office, overseas branches and correspondents and overdrafts in nostro accounts up to a limit of 100% of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 50%. Issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the approval route for Overseas Direct Investment, provided the Indian Party indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.
OMCs seek compensation in case of loss through RBIs currency swap window
Oil Marketing Companies (OMCs) are not content with RBIs currency sw ap facility through which it sells and buys dollars from OMCs as part of its measures to control the rupee decline. Though the rupee has gained some stability but the OMCs are unhappy with the hedging mechanisms as they feel that with RBIs swap window, th ere is uncertainty of being compensated if they incur loss in the swap transactions.
Why OMCs are unhappy with RBIs currency swap window facility?
RBI has recently started a currency swap window to sell dollars to oil companies in exchange for rupees on condition that they reverse the transaction at a future date. The swap window is for fresh Foreign Currency Non-Resident (banks) (FCNRB) dollar funds, mobilised for a minimum tenor of three years and over. This is similar to RBI lending dollars to oil companies. Since OMCs are the biggest buyers of foreign currency which they use to buy petroleum/oil, RBI selling dollars directly to them will keep them
away from FOREX market thereby helping the rupee to recuperate. Under the swap arrangement, the RBI will sell dollars to OMCs on condition that OMCs will repay the same amount of dollars. However, the OMCs are unhappy over the facility as they feel insecure about the future adverse changes in the rates of dollar which could cause loss to them. There are apprehensions that if something bad- US strike on Syria impacting oil supply and further tightening of dollar (expensive dollar)- happens then there will be losses to OMCs who will have to pay the dollars they bought under swap arrangement. Although, in such a situation, RBI has the option to roll over the transactions until the rupee stabilizes, OMCs seek compensation for any future losses.
RBI notifies norms for currency swap window

September 9th, 2013
RBI has notified norms for currency swap window. As per the notification, the swap facility will be available to scheduled commercial banks for freshForeign Currency NonResident Bank FCNR(B) deposits mobilized for a minimum period of 3 years. It further says that the deposits raised may be in any permitted currency, but the swap would be available only in dollars. Although the swap window will be operated on a daily basis on all working days in Mumbai, a particular bank can avail of the swap facility only once in a week.
What is Currency Swap?
A currency swap is a foreign-exchange agreement between two institutions to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swaps are over-the-counter derivatives, and are closely related to interest rate swaps. However, unlike interest rate swaps, currency swaps can involve the exchange of the principal.
What are the main uses of Currency Swap?
Currency swaps have two main uses: To secure cheaper debt (by borrowing at the best available rate regardless of currency and then swapping for debt in desired currency using a back-to-back-loan). To hedge against (reduce exposure to) exchange rate fluctuations.
ECB keeps key rate unchanged at 0.5%

September 6th, 2013
The 23-member governing council of European Central Bank has left its benchmark interest rate unaltered at a record low of 0.5%. The council said that the slowly recuperating eurozone economy didnt need a further stimulus. The 17 European Union member countries that used the euro came out of recession in the second quarter when the economy posted 0.3% growth from the quarter before, discontinuing a series of 18 months of falling output.
About European Central Bank
Established in 1998 through Treaty of Amsterdam in 1998. It is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union(TEU). Headquarters: Frankfurt,
Germany.
Current President: Mario Draghi It is central bank for the euro and administers the monetary policy of the17 EU member states which constitute the Eurozone. However, capital stock of the bank is owned by the central banks of all 28 EU member states. Primary Objective: To maintain price stability within the Eurozone. It has this single illdefined primary objective, with other objectives subordinated to it.
Basic Tasks of ECB:
To define and implement the monetary policy for the Eurozone To conduct foreign exchange operations To take care of the foreign reserves of the European System of Central Banks To promote smooth operation of the financial market infrastructure under the TARGET2 payments system and the technical platform (currently being developed) for settlement of securities in Europe (TARGET2 Securities). Exclusive right to authorize the issuance of euro banknotes.
RBI allows companies to use ECB for general corporate purposes

September 5th, 2013
In a bid to attract capital flows, the RBI relaxed the External Commercial Borrowing (ECB) norms by permitting companies to use funds raised from their foreign equity holder company with minimum average maturity of 7 years for general corporate purposes. Till now borrowings in the form of ECB were not allowed to be used for general corporate purpose. Nevertheless, the RBI has put certain conditions. As per the conditions, the minimum paid-up equity of 25% should be held directly by the lender (overseas partner) and the repayment of the principal will commence only after completion of minimum average maturity of seven years and no prepayment will be allowed before maturity.
What is External Commercial Borrowing (ECB)?
Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.
The ECBs are defined as money borrowed from foreign resources including the following:
Commercial bank loans
Buyers credit and suppliers credit Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.
Objective of External Commercial Borrowing (ECB):
Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments. The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc. There is also emphasis on the need of capital for Small and Medium scale enterprises.
How ECB is different from FDI?
It must be noted that ECB means any kind of funding other than Equity . If the foreign money is used to finance the Equity Capital, it would be termed as Foreign Direct Investment. The ECB should satisfy the ECB regulations stipulated by the Government or its agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature are included in ECB.
The following are not included in the ECBs
Any Investment made towards core capital of an organization such as equity shares, convertible preference shares or convertible debentures. We should note here that those instruments which can be converted into equity are called convertible. The convertible instruments are covered under the FDI Policy. Any other direct capital is not allowed in ECB.
Lok Sabha passes PFRDA Bill 2011

September 5th, 2013
The Pension Fund Regulatory and Development Authority Bill (PFRDA), 2011 which aims to regulate the New Pension System (NPS)has been passed in the Lok Sabha with official amendments. The bill was introduced in the lower house in March 2011 to provide for a statutory regulatory body. Currently the PFRDA has a nonstatutory status. The legislation seeks to empower PFRDA to regulate the New Pension System (NPS).
Some highlights of PFRDA Bill 2011:
It provides subscribers a wide choice to invest their funds for assured returns by opting for government bonds as well as in other funds depending on their capacity for risk. It allows for withdrawals from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by the regulations. It makes the Pension Fund Regulatory and Development Authority a statutory authority. Presently, it has non-statutory status.
What is the main reason behind providing PFRDA a statutory status?
NPS which is compulsory for government employees (exceptdefence) has been launched for all citizens of the country including un-orgnised sector workers, on voluntary basis, with effect from May 1, 2009. Further, the Government has launched the co-contributory pension scheme titled Swavalamban Scheme in the Budget of 2010-11. Currently, the number of subscribers under NPS is 52.83 Lakh with a corpus of Rs. 34, 965 crore. In order to effectively invest and manage huge funds belonging to a large number of subscribers and to ensure the integrity of NPS, establishment of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers.
RBI asks banks to consider e-KYC a valid process

September 5th, 2013
In a notification issued by the Reserve Bank of India, banks have been asked to avail the electronic Know Your Customer, e-KYC service, launched by the Unique Identification Authority of India, UIDAI. The notification directed banks to revise their KYC policy by accepting the e-KYC as a valid process for KYC verification under the Prevention ofMoney Laundering (Maintenance of Records) Rules, 2005. As per the notification, the information containing demographic details and photographs made available from UIDAI as a result of e-KYC process may be treated as an Officially Valid Document under PML Rules. What is e-KYC? The e-KYC service was launched by the UIDAI to help people link their existing records, like ration cards, pension accounts, license and certificates, to their Aadhaar numbers in a safe and easy manner.
Current Affairs: Top Headlines for September 1, 2013

September 1st, 2013
Curiosity to take pictures of solar eclipse
Mars rover Curiosity took pictures of the planets moon, Phobos, eclipsing the sun. NASAs Curiosity rover landed on the red planet in August 2012 for a 2-year mission to study if the planet similar to Earth in the solar system ever had the chemical ingredients for supporting life.
RBI forbids overseas buying, plus point for Indian realty
In a bid to curb the outflow of capital from the country, the RBI has cut down the annual cap on automatic outflows from $2,00,000 to $75,000 per individual. In addition to this, the central bank has also imposed a ban on overseas real estate purchases with immediate effect. The move expected to benefit the domestic real estate as the capital which otherwise would have been diverted overseas will now remain in the country.
Indias foreign exchange reserves deplete by $1.08 billion
As per RBIs data, Indias foreign exchange (forex) reserves reduced by $1.08 billion to $277.72 billion for the week ended Aug 23, 2013. The Special Drawing Rights (SDRs) decreased by $4.5 million to $4.38 billion for the same period. Gold reserves remained at the same level at $20.74 billion.
Decline in Rupee may not impact agriculture sector: NABARD
According to National Bank for Agriculture and Rural Development (Nabard) head Prakash Bakshi the continuing depreciation of rupee against the dollar is unlikely to make any negative impact on the agriculture sector. In the event rupee decline impacts the prices of fertilizers or diesel it would be compensated either by the way of subsidy or by hiking the minimum support price.
Delhis tops in per capita income in India
As per Delhi Development Report 2013, Delhis average per capita income stands at more than Rs 2 lakh per year in 2012-13 which makes it the highest in India. It is around 3 times more than the national average per capita income.
India approaching IMF for foreign exchange not imminent: Planning Commission
Planning commission deputy chairman Montek Singh Ahluwalia has assured that
India has adequate forex reserves to manage the current situation and ruled out approaching the International Monetary Fund(IMF) for help, saying the economic situation has not reached a point where outside aid is warranted. Indias foreign exchange reserves were up at 278.602 billion $ as of August 9, 2013.
Pakistan unable to qualify for the Hockey World Cup for the first time
Pakistan is aggrieved as the country lost berth for the Hockey World Cup 2014
tournament. It is for the first time in Pakistans sporting history that it has been unable to qualify for the World Cup Hockey tournament as it lost to South Korea in the semifinal of the Asia Cup being held inMalaysia, a match they needed to win to qualify.
Pakistan not considering granting MFN status to India
Pakistans Finance Minister has communicated that, at present, it is not in talks to grant of Most Favoured Nation (MFN) status to India. The remarks came within days of World Bank suggesting in a report that Pakistan will benefit from granting the MFN status to India. Pakistan already enjoys the MFN status which India extended to it in 1996. The bilateral trade between the countries was at $2.35 billion in 2012-13, as against $1.93 billion in fiscal 2011-12.
RBI not considering to convert idle gold into bullion
Responding to the reports that Reserve Bank of India (RBI) is mulling over multiple measures, including using thousands of tone of idle gold jewellery in temples, to replace for import, the central bank said it did not have any proposal to convert idle gold from temples and individual trusts into bullion.
President confers Khel Ratna on Ronjan Sodhi, Arjuna Award on Virat Kohli
President Pranab Mukherjee conferred countrys highest sporting honor -Rajiv Gandhi Khel Ratna Award on the topnotch shooter Ronjon Sodhi. Cricketing star Virat Kohli was among the 15 sports persons honored with Arjuna Award. Among the other Arjuna Awardees wereKavita Chahal, for boxing, Gaganjit Bhullar for Golf, Saba Anjum, for hockey, Rajkumari Rathore, for shooting, PV Sindhu, for badmintonand Neha Rathi, for wrestling.
A total of 5 coaches were honoured with Dronacharya awards. KP Thomas was honoured with the Award for their life time contribution to coaching in Athletics and Raj Singh in Wrestling.
Current Affairs: Top Headlines for August 31, 2013

August 31st, 2013
Pakistan and Russia initiate Strategic Dialogue
Pakistan and the Russia held their first ever Foreign Secretary level interaction on the
Strategic Dialogue in Moscow. Foreign Secretary of Pakistan Jalil Abbas Jilani and First Deputy Minister Vladimir Gennadievich Titov of the Russia participated in the talks. The discussion focused on regional and international issues, besides expanding trade and investment relations and cooperation in the field of energy and power generation.
Nobel laureate Seamus Heaney passed away
Legendary Irish poet and winner of Nobel Prize in literature 1995, Seamus Heaney (74) passed away. Heaneys award winning work focused on themes including his rural nurturing, the problems in Northern Ireland and the sense of community in his native Ireland. His notable works includeDeath of a Naturalist, District and Circle, the Spirit Level, and Beowulf.
Government to bar its employees from using Gmail
The government plans to release a notification to nearly 5 lakh employees prohibiting them from using email services such as Gmail that have their servers in the US, and instead directing them to use the official email service provided by Indias National Informatics Centre. The step comes in the wake of revelation of widespread electronic surveillance programmes for spying being run by various countries including the US. Former NIA contractor and whistleblower Edward Snowden recently revealed that through the surveillance programme PRISM the US government had been directly accessing vast amounts of personal data on the Internet such as emails and chat messages from companies like Google, Facebook and Apple.
Indias fiscal deficit is around 63% of target
As per government data, Indias fiscal deficit during the April-July period was Rs 3.41 trillion ($50.91 billion), or 62.8% of the full-year target. Net tax receipts for the first 4 months of the current fiscal year to March 2014 touched Rs 1.45 trillion, while total expenditure was Rs 5.21 trillion. Indias fiscal deficit during the 2012-13 fiscal year ending March decreased to 4.9% of the countrys GDP, compared to 5.8% in 201112. The fiscal deficit target is 4.8% of GDP for the current fiscal year.
India registers 4.4% GDP growth in Q1 slowest in 4 years
The first quarter of the current fiscal has been slowest in over 4 years with GDP growth of 4.4%. The decline implies a deepening slowdown and aggravating the widespread negative sentiment brought on by the sharp depreciation of rupee depreciation and plunging stock markets.
Exclusive satellite for Indian Navy GSAT-7 launched
The European Ariane 5 rocket put it space Indias first military communication satellite GSAT-7 which was launched from the Kourou space port of French Guiana space in South America. The satellite will serve exclusively to Indian Navy. The satellite is expected to enhance the countrys maritime security and intelligence collection by covering a wide region on either coasts of the Indian Ocean region.
7000 tickets/min will be the booking speed of IRCTC website
The Centre for Railway Information System is developing next generation e -ticketing system for IRCTCs website which will have an efficiency to book 7200 tickets e -tickets per minute. It will render the website to perform faster and hassle free access even at peak time and have high availability and business continuity, scalability to meet the needs of future growth and security to prevent frauds and unauthorized access.
Mars One: 8,000 Indians register for one-way trip to the Red Planet
So far 8,107 Indians have registered for the one-way trip to Mars and to live on the red planet, as Mars One project is planning to set up a colony there in the next 10 years. A not-for-profit initiative, Mars One, intends to establish a permanent human settlement on Mars in 2023 and is signing up those inclined to fly there. India has fourth highest number of participants among other nations of the world. The top 10 nations to register are the USA (37,852), China (13,124),Brazil (8,686), India (8,107), Russia (7,138), Britain (6,999), Mexico(6,771), Canada (6,593), Spain (3,621) and Philippines (3,516).
RBI permits premature encashment of 8% Savings (Taxable) Bonds
As per a atetment released by the Reserve Bank of India, individual investors who are 60 years are allowed to avail premature encashment of 8% Savings (Taxable) Bonds. This facility is available after a minimum lock-in period of 3 years from the date of issue. Those desiring to avail of the facility will have to submit documentary evidence in support of his/her date of birth to satisfaction of the agency bank.
Saudi Arabia makes domestic violence a criminal offence
The cabinet of Saudi Arabia approved a new law that criminalizes domestic violence, usually targeting women and children. The Protection from Abuse law is meant for protecting people from all forms of abuse and providing them shelter as well as social, psychological, and medical help.
Current Affairs: Top Headlines for August 30, 2013

August 30th, 2013
Melbourne tops the list of liveable cities in world
According to a survey conducted by the Economist Intelligence Unit, theAustralian city of Melbourne is the most liveable city in the world while conflict battered Syrias capital Damascus is the least liveable city. The survey also lists Karachi and Dhaka among the least liveable cities.
HDFC Bank expands its rural business
HDFC Bank further expanded its rural presence by announcing the launch of 18 new rural branches in Haryana, taking its total network to 200 branches in the state. Of the 18 new branches 14 are in unbanked places which will bring formal banking services to
around 90,000 people in the state. At the national level, the bank has 53% of its branches in semi-urban and rural areas supporting the idea of inclusive growth.
Rupee could depreciate to 75, more measures needed: BofA-ML
According to a report by Bank of America Merrill Lynch (BofA-ML), if the current stance towards declining rupee is maintained then the scenario could be worse, rupee could touch 75 per US dollar by the end of 2014. It suggested the Reserve Bank of India (RBI) to take more pro-active measures to rebuild forex reserves. It also suggested the RBI to launch a scheme to attract significant forex inflows where the INR risk would be borne by the RBI to comfort investor confidence like issue of NRI or sovereign bonds or reviving FCNRA deposits.
National Sports Day celebrated across India
August 29 was celebrated as National Sports Day across the country to commemorate the birth anniversary of the Wizard of Hockey, Major Dhyan Chand. Various sporing events were organized across the nation to mark the day. It was 118th birth anniversary of Dhyan Chand, the legend who helped India win three Olympic gold medals in 1928, 1932, and 1936.
Scientists discover Suns twin
An 8.2-billion-year-old twin of the Sun has been discovered by the astronomers. Astronomers in Brazil used ESOs Very Large Telescope to locate the star HIP 102152 located 250 light-years away. It is very similar to the Sun- except that it is nearly four billion years older. Studying the ancient star allows researchers to predict what may happen to our own Sun when it reaches that age. Rupee registers biggest single-day gain in 15 years with RBIs intervention With the step taken by the Reserve Bank of India to open a special dollar facility for PSU oil firms, the rupee, which is under severe pressure, posted sharp 225 jump to end at 66.55 against the dollar and the sensex increased by over 400 points. The dollar facility will allow PSU oil companies to buy dollars directly to pay for the import of petroleum.
Right to Education anthem launched by Ministry of HRD
With a view to disseminate the message of Right to Education, the Human Resources Development Ministry launched an anthem on the same which ideates to make education for children interesting and friendly. The ministry hopes that children will now imbibe the RTE message from popular public figures in a musical form. The anthem will be dubbed in English and 15 regional languages.
Second quarter brings sharp growth for US GDP
The U.S. Gross Domestic Product (GDP) speeded up more quickly than expected in the second quarter owing to increase in its exports, strengthening the case for the Federal Reserve Bank to taper the quantitative easing programme started in 2008 global
financial crisis. As per revised estimates GDP rose at a 2.5% annual rate. The quarters growth rate was more than double the growth rate recorded in the previous 3 months.
Government approves RILs $3.18 bn gas field development project with BP
The Reliance Industries Ltd. and Bharat Petroleums plant invest $3.18 billion in the development of R-series gas field in the KG-D6 basin, which is expected to produce up to 13 million standard cubic meters gas, has been given governments approval. The government has asked the operator to fast track the development of R-series discoveries to reverse falling output from the block, which declined to around 14 mmscmd from 62 in March 2010. At present, gas is produced from D1, D3 and MA fields in the KG-D6 block.
LIC raises it shareholding in SBI to 13.26%
Insurance giant Life Insurance Corporation (LIC) has increased its equity stake by 2.86% in the countrys largest public sector bank State Bank of India from 10.4 % to 13.26% by buying 19.57 lakh shares from open market. The additional stake would have been acquired by paying Rs 49.15 crore at current market price. With this, the equity share capital of the LIC has increased to Rs 684.03 crore from Rs 634.88 crore.
Offshore markets affecting rupee fluctuations

August 27th, 2013
The RBI stated in its annual report that the Non-Deliverable Forwards (NDF) markets are exerting more pressure on the onshore currency market, especially when rupee is under stress. The rupee has nearly declined 21 % so far this fiscal. As per RBI, during the period of the rupee fall the shocks originating in the NDF market may carry more information which is mirrored in the onshore segments of the market through mean and volatility spill over. It further says that during the period of the rupee appreciation the NDF market and the rupee spot market exhibit a bi-directional relationship. However at times of rupee fall relationship turns unidirectional from the NDF to onshore market.
What is NDF (Non-Deliverable Forwards)?
Non-Deliverable Forwards (NDF) is a foreign exchange derivative instrument traded over the counter and is operated in currencies that are not freely convertible such as the rupee. The market enables hedging of exchange rate risks irrespective of any restrictions arising in the currency of origin.
No proposal to increase FDI ceiling in banks

August 24th, 2013
The government has clarified that there is no proposal to raise foreign investment limit in the banking sector.
What is the current status of foreign investment in banking sector?
Currently, the aggregate foreign investment (FDI, FII and NRI) cannot be more than 74% in private sector banks while the limit is at 20% for nationalized banks, State Bank of India and its associate banks.
What is the status of FDI in insurance sector?
The government intends to increase the FDI limit in insurance sector. For this it introduced the Insurance Laws Amendment Bill, 2008 in Parliament to increase it from current 26% to 49%. The coverage of life insurance in India has enhanced from 2.15% in 2001 to 3.17% which is above Brazil,Russia, Malaysia, Pakistan, China, Sri Lanka, Australia andGermany. However, the penetration is below France, Switzerland, the UK,the US, Japan, Singapore, South Korea, Taiwan and Hong Kong.
RBI eases portfolio investment scheme for NRIs

August 23rd, 2013
The Reserve Bank of India eased the rules governing portfolio investments such as equity and debt by Non-Resident Indians (NRIs) to pull in foreign currency. Under the Portfolio Investment Scheme (PIS) for NRIs, banks were given a unique code for each branch making it unwieldy for them to administer the scheme. Now, RBI has allowed banks to do away with the unique code for branches making banks free to administer the PIS scheme for NRI. As per the guidelines of the RBI: The designated branch of the bank will grant a one-time permission to the NRI applicant for the purchase and sale of shares or convertible debentures of an Indian company. Two distinct permission letters (for repatriation basis and non-repatriation basis) shall be issued as per the prescribed format. The designated branch will open a separate sub-account of NRE/NRO account (opened and maintained by an NRI in terms of the Foreign Exchange Management (Deposit) Regulations, 2000) for the exclusive purpose of routing the transactions under PIS on behalf of an NRI. If NRI is eligible to make investment in India his resident power of attorney holder can be permitted by AD bank to operate NRE (PIS)/NRO (PIS) account to facilitate investment under the scheme. Shares or debentures purchased will be held and registered in the name of the NRI and the shares or debentures acquired by the NRI under the scheme will not be pledged for giving loan to a third party without prior permission of the RBI. Banks must ensure that NRIs are not allowed to invest in any Indian company which is engaged or proposes to engage in thebusiness of chit fund, nidhi company, agricultural or plantation activities. NRIs investments cant be made in real estate business excluding development of townships, construction of residential or commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
RBI takes measures to ease liquidity

August 23rd, 2013
RBI took a few measures to ease liquidity including Rs 8,000 crore bond buyback, to ensure adequate credit flow to the productive sectors of theeconomy to counter the surge in interest rates following its steps to support falling rupee.
RBI has decided to take following measures to ease liquidity:
Conduct open market purchase of government bonds of Rs 8,000 crore to inject liquidity. More Open Market Operations (OMO)would be undertaken when required. Retain the Statutory Liquidity Ratio (SLR) which is the portion of total deposits banks are required to park in G-Secs at 24.5 % to help banks reduce Market-toMarket (MTM) losses resulting from abnormal market condition. Relax SLR requirement by allowing banks to retain SLR holdings in Held To Maturity (HTM) bonds category at 24.5 % until further instructions. Banks have the option of valuing these securities for the purpose of such transfer. As per RBI the hardening of long term yields has resulted in banks incurring large MTM losses in their investment portfolio and these MTM losses are partially resulting from abnormal market conditions and could be expected to be largely recouped going forward.
Indias sovereign outlook remains negative on S&P ratings

August 23rd, 2013
Global sovereign rating agency Standard & Poors said it will maintain negative outlook for the India as currency depreciation is adversely impacting investors confidence. They will maintain a negative outlook on Indias BBB sovereign credit ratings. S&Ps statement came when the rupee slid down to a record low of 64.11 to a dollar.
What is BBB?
BBB is the lowest investment grade and a downgrade would mean pushing the countrys sovereign rating to junk status making overseas borrowings by corporates costlier.
According to S&P:
Indias long term growth prospects could weaken on a sustained basis, with negative implications for the sovereign credit fundamentals. The capital outflows and depreciating rupee is an indication of weakening investor confidence in India. This is a result of the declining economic growth in the past two years and insufficient long term policy response that could reverse the decline and revive investments. Investments continue to be strangled by inadequateinfrastructure, rigidities in labour and product markets, and red tape, among other issues. Future credit rating action would depend upon the response of policy-makers to the latest economic developments.
RBI lowers remittance limit, discourage green card dreams

August 23rd, 2013
Taking further measures to reduce the burden on the already weakened rupee, RBI reduced the limit for remittances made by individuals to $75,000 from $200,000 per financial year and banned the purchase of property outside India. The rich Indians with a view to invest in abusiness or buy property in some foreign countries to gain permanent residency find their dreams crushed with this measure. Various countries and their conditions to afford a green card: Countries such as the US, UAE, Australia, Bahamas, Spain,Mauritius and parts of Canada offer permanent residency and fast track green card to those who invest in businesses or property there. The US EB 5 visa offers a fast track green card if one invests $500,000 in a business. Buying a property worth $500,000 one can get a permanent residency in the Bahamas. In Australia one has to invest $5 million to het the green card. In the UAE foreign property buyers are automatically given a three year residency permit. Canadas Quebec province runs an investor programme which gives permanent residency to immigrants who can invest $800,000 in the province in the form of a guaranteed, interest-free loan.
SEBI auctions Govt. debt securities worth $9.34 bn

August 22nd, 2013
With the aim to attract foreign investors towards Indian debt market, market regulator SEBI auctioned government debt securities worth $9.34 billion (Rs 58,264 core) and it received bids worth $10.4 billion (Rs 64,908 crore). The FIIs were in a trend of selling their holdings after the US announced that it would taper the the $85-billion-a-month bond purchase programme as early as next month and end it next year if the US economic recovery is up to its expectations. This is the biggest ever auction for such bonds and exceeds the previous record of Rs 42,022 crore, auctioned two months ago on June 20, and neutralizes the prevailing concerns in markets with regard to foreign investments. As per experts, the fall in the Indian currency has been instrumental in overseas investors exiting debt markets as the rising cost of hedging a volatile rupee hurt the yield differential the FIIs work with. With a view to attract foreign investments, the government recently raised the investment limits for FIIs in government debt to $30 billion, from $25 billion previously.
FDI limit in Asset Reconstruction Companies hiked to 74% RBI

August 20th, 2013
As per the RBI, the limit on Foreign Direct Investment (FDI) in Asset Reconstruction Companies (ARCs) has been increased to 74% from 49%, another measure to attract capital inflows to support a declining Rupee. The foreign investment limit of 74% in the company will include both FDI and Foreign Institutional Investment (FII) with a single portfolio investor not allowed to exceed 10% of paid-up capital in the ARC.
NBFCs must be under RBI watch: Subbarao

August 20th, 2013
As per Reserve Bank of India (RBI) Governor D. Subbarao, bankingas well as Non-Banking Financial Companies (NBFCs) must be under a unified regulation of the central bank to prevent 2008 like crisis. He said that there were strong inter-linkages between Banks and Non-Banking Financial Companies (NBFCs) and suggested that a unified regulation by the same regulator was essential for financial stability.
What is the need to include NBFCs under unified regulation?
The government has plans to take away the regulation of NBFCs from the central bank and put it under a unified financial authority. As per RBI, such a move would prove detrimental to financial stability. It said that for the Monetary Policy to be effective the credit creation (that is by banks and credit institutions such as NBFCs) should be regulated by the central bank. it pointed that the major reason behind the 2008 crisis wascredit intermediation activities conducted by non-banks which were mainly outside the regulatory purview so post crisis the trend has been to entrust more, not less, regulation by central banks.
Sharp rise in Internet related bank frauds: Banking Ombudsman

August 20th, 2013
There was a sharp increase in complaints relating to Internet related bank frauds. The total number of complaints increased marginally from 3,486 in 2011-12 to 3,494 in 2012-13. The complaints related tocredit card and Internet based transactions increased from 732 to 1,279 as per Banking Ombudsman for Karnataka M. Palanisamy. Reserve Bank of India (RBI) has adopted new guidelines that require banks to ensure that customers authenticate through an alternative network typically via a text message which make Card based transactions more secure. The online transactions through net banking channels or using credit cards remain a concern for not only the banks but for the regulator also.
How did fraudulent transactions happen?
The scamsters who were mainly based overseas skimmed the details on the debit or credit cards of ordinary people including drivers, housewives and mechanics. The uncertified websites such as lyca.uk, sports.com,entropay.uk and denguemail.ru were among those that pilfered their victims by drawing money in foreign currency. There were a few cases of Indians as in one of the case a gang in Bangalore masked IP addressesto make it appear to the user that the website was based overseas. In most cases the banks have re-credited the disputed amounts to the victims. The possible explanation for the banks readiness to settle disputes could be the burden of proof on them to establish that they had not been responsible for the user id or password being compromised.
Indias forex reserves dips by $2.99 billion

August 15th, 2013
As per the Reserve Bank of India, the countrys foreign exchange reserves lowered by an immense USD 2.995 billion to USD 277.167 billion. Foreign currency assets which are
a major component of the forex reserves, dropped USD 2.155 billion to USD 249.895 billion in the first weekend of August 2013. Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of the non-US currencies, such as euro, pound and yen, held in the reserves. The gold reserves dropped USD 808.5 million at USD 20.747 billion. The Special Drawing Rights (SDRs) were down by USD 21.4 million to USD 4.352 billion, while the countrys reserve position with the IMF also fell by USD 10.7 million to USD 2.1 71 billion.
IRDA relaxes investment norms

August 14th, 2013
Insurance Regulatory and Development Authority (IRDA) has relaxed the investment norms for the firms like Housing finance andinfrastructure finance companies to allow these companies to get higher funding from the insurance companies.
Steps taken by IRDA:
The investments in debt instruments issued by housing finance companies as specified in the investment regulations shall not be included under the exposure to financial and insurance activities. Currently, such exposure to housing finance companies and infrastructure finance companies is treated as exposure under financial and insurance activities but the industry exposure limits will continue to apply for such investments. The single investee debt exposure limits in housing finance companies have been enhanced to 20% of equity plus free reserves from existing 10% limit. The limit mentioned above can be further increased by an additional 5% with the prior approval of board of company. The group and promoter group exposure norms will continue to apply on the investments made in a housing finance company.
Rajya Sabha passes Companies Bill 2012

August 14th, 2013
Rajya Sabha has passed the Companies Bill 2012 in order to replace the outdated
Companies Act, 1956. Both the houses of Parliament have passed the Bill and before it becomes law it will go to President Pranab Mukherjee for his assent. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. The Companies Act of 1956 replaced the first Companies Act that was created in 1919 (the pre-independent India). The Act of 1956 has been amended 25 times in all these years since its formation.
Key features of Companies Bill 2012:
Spending of funds by companies for Corporate Social Responsibility (CSR) will be mandatory. Companies are required to spend at least 2 % of their net profit on CSR. The companies will also have to give preference to the local areas of their operation.
If the companies are unable to meet CSR norms, they will have to give explanations and may even face penalty. The amended legislation will help to control major source of corporate law-breaking for falsely inducing a person to enter into any agreement with bank or financial institution with a view to get credit facilities. With view of interests of employees, company will have to pay 2 years salary to employees in case it shuts operations. The appointment of auditors for five years shall be subject to ratification by members at every annual general meeting. The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20. The maximum number of directors in a private company has been increased from 12 to 15 and which can be increased further by special resolution. The financial year of any company can end only on March 31 and the only exception is for companies which are holding subsidiary of a foreign entity requiring consolidation outside India. It makes auditors subject to criminal liability if they consciously or carelessly omit certain information from their reports. It has a stipulation that keeps a check on very expensive remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as employees. The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors. The proposed legislation would ensure setting up of special courts for speedy trial and stronger steps for transparent corporate governance practices and curb corporate misdoings.
Cant opt for high inflation to promote growth: RBI

August 14th, 2013
RBI has clarified that it could not espouse a policy of tolerating higher inflation in order to promote growth because such a stance would not yield the desired results. RBI cited a study which, although, gave empirical evidence that lower real interest rates could stimulate growth and investment, it didnt recommend a policy of higher inflation tolerance as the means to lower real rates. The study was conducted in the backdrop of criticism that the RBI was adopting an anti-inflationary monetary policy stance to the impediment of growth. As per the study, the incremental capital output ratio has increased in recent quarters and correspondingly, the implicit marginal productivity of investment has also declined. As a result, lower levels of real interest rate would have also contributed to the slowdown in growth.
Why RBI cant adopt a policy which tolerates high inflation?
The negative impact of inflation on growth outweighs its positive impact if real rates are lowered beyond a threshold. Tolerating higher inflation with growth supportive monetary policy response is unlikely to stimulate growth to the desired extent since the adverse impact of higher inflation on growth would more than offset the favorable impact of growth supportive monetary policy.
The adverse growth impact of high inflation was seen to operate primarily through compression of consumption demand since investment demand is more sensitive to lower real rates than higher inflation.
What is real interest rate?
The real interest rate is the rate of interest an investor expects to receive after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflation rate. If, for example, an investor were able to lock in a 5% interest rate for the coming year and anticipated a 2% rise in prices, he would expect to earn a real interest rate of 3%.
RBI to auction Cash Management Bills (CMBs) to control liquidity

August 14th, 2013
Taking further measures to control the liquidity in order to boost the position of rupee which has been on a decline for past some time, the RBI has decided to auction short-term Cash Management Bills (CMBs) for an amount of Rs. 22,000 crore every Monday. RBI will be selling Rs.11,000 crore each in two CMBs maturing in 35 and 34 days on Monday and Tuesday, respectively. The bills will mature on 17 September, 2013, when banking system liquidity gets strained on account of advance tax outflow. The auctions will be conducted using Multiple Price Auction method and the Cash Management Bills will have the generic character of Treasury Bills.
What are Cash Management Bills?
CMBs are short-term paper with the flexibility of fixing tenure according to the requirement of the government. The basic difference between a treasury bill and a CMB is that the former has fixed tenure of 30, 91, 182 and 364 days, while a CMB can be anything between seven days and one year. CMBs can be structured in such a way that they are redeemed at that time to infuse liquidity but treasury bills do not offer that flexibility.
Why the RBI is auctioning CMBs (Cash Management Bills)?
Past few months have brought some serious depreciation in the value of rupee against the dollar with rupee crossing the 6o mark versus dollar. The country is also facing the problem of inflation. RBI has been taking liquidity tightening measures to curb the instability of the currency. As part of its liquidity tightening measures, on 15 July, RBI said banks can borrow up to Rs.75,000 crore of money from it at 7.25%. Any excess of it shall be borrowed at a special rate called Marginal Standing Facility (MSF), which it raised to 10.25% from 8.25%. However, the rupee continued to fall and RBI, on July 23, further restricted this liquidity to 0.5% of a banks own demand base. This effectively halved the money a bank can borrow from RBI to Rs.37,500 crore. It also directed banks to keep 99% of their cash reserve ratio, or the portion of deposit that banks need to keep with RBI on a daily basis. The central bank has clarified that it gives priority to contain rupee-volatility and it chooses to curb inflation over growth. The latest measure of auctioning CMBs is aimed at absorbing the excess liquidity from the economy even as demand for such short-term
bills is high. This is expected to bring some positive effect in terms of improving the position of Rupee as well as some impact on inflation.
RBIs cash-tightening measures to stay until Forex market stabilizes: Subbarao

August 4th, 2013
RBI Governor D Subbarao has defended the central banks stance on choosing inflation over growth, saying that when the inflation threshold limit is crossed, it becomes difficult to make a trade-off. He explained that there is a threshold level of inflation. If the inflation is below that level, then RBI can make that trade-off. But if it isnt, then it cant afford to do the same as inflation hurts the poor section of the country the most and for this reason some sacrifice of growth is inevitable to curb inflation. He said that this sacrifice in growth is only for the short-term. In the long-term, curbing inflation will be supportive of growth. He refused to give any time-frame of the current cash-tightening measures taken by the central bank and indicated that these measures will stay until volatility in the foreign exchange market is curbed.
RBI lowers GDP growth to 5.7%

August 3rd, 2013
The GDP growth for the current fiscal has been fixed lower by the Reserve Bank of Indias professional forecasters survey. From the earlier estimation o f 6% it has now been fixed as 5.7%. Forecast by RBI: The growth is expected to rise further to 6.5% in 2014-15. The bank credit growth forecast for 2013-14 has also been revised downward to 15 % from 16 %. For money supply has been revised downwards in 2013-14 to 13% from 14.6 %. Agricultural prospects for 2013-14 are encouraging given the good monsoon so far. Revival in mining and manufacturing will take some more time but some improvement can be seen. Inflation and Risk: RBI revised the inflation target to 5.3 % from the earlier target of 6.5 %. Average WPI inflation is expected to moderate to 5.3 % during 2013-14. The rupee depreciation of about 9 % in Q1 of 2013-14 is likely to put pressure on domestic inflation. Fuel under-recoveries have raised sharply due to the exchange rate depreciation and domestic price rigidities. Businesses have weakened but signs are there that the downturn can be contained.
Weakening rupee is biggest risk to inflation: Subbarao

August 3rd, 2013
Duvvuri Subbarao, Governor of the Reserve Bank of declining of the rupee is the biggest risk to inflation.
India, stated that the
RBI left interest rates unchanged as it supports a battered rupee but it would roll back recent liquidity tightening measures when stability returns to the currency market enabling it to resume supporting growth. RBI also has reservations on issuing sovereign bonds and as it feels that sovereign bond issue would compromise financial stability. As per RBI, the cost of a sovereign bond issue outweighs the benefits at current juncture.
RBI leaves key rates unchanged to curb the depreciation of Rupee

August 3rd, 2013
The Reserve Bank of India (RBI) kept the indicative policy (repo) rate unchanged at 7. 25 % and the Cash Reserve Ratio (CRR) at 4% in order to suppress the instability in the foreign exchange market. The RBI had brought down the repo rate from a peak of 8.50% by 125 basis points in 2012-13 and CRR from a high of 6 % in the last one-and-a-half years by 200 basis points. RBIs revised Growth Projection: The RBI revised its growth projection for the current financial year from 5.7 % to 5.5 %. The depressed global conditions were undermining export performance, even as the heightened instability in capital flows had raised external funding risks. In advanced economies, activity has weakened. Emerging and developing economies are slowing, and are also experiencing sell-offs in their financial markets.
Kumar Mangalam Birla steps down from RBI Board

July 30th, 2013
Kumar Mangalam Birla who was nominated as a member of the directors of the Central Board of the RBI in 2006 stepped down from RBI Board.
Why did K.M.Birla stepped down from the RBI Board?
To avoid any conflict of interest as few weeks back his group firm applied for a bank license. Among the 26 entities his group firm Aditya Birla Nuvo is one of the entities which have applied for a bank license. The RBI is expected to grant new licenses by March 2014 as the last date for applying for a bank license expired on July 1, 2013.
RBI decreases realization period for exporters from 12 to 9 months

July 30th, 2013
Responding further to the increasing pressure on Current Account Deficit (CAD) due reduced exports and depreciation of rupee against dollar, the Reserve Bank of India has brought down the period of realization and repatriation for exporters of goods and software from 12 to 9 months with a view to increase foreign exchangeinflows. The period of realization and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to warehouses established outside India remains unaltered. Indias exports reduced by 4.6% for the 2nd consecutive month to USD 23.79 billion in June 2013 compared to year ago interval. The rupee has depreciated by over 12% against the dollar since the beginning of the fiscal. Central bank and capital markets regulator SEBI had to take unconventional measures to control the market.
India emerges as the 2nd largest investor in London

July 25th, 2013
India has come up as the 2nd largest investor in the city of London with Indian companies led by software major Infosys with the investment eagerness generated by
the 2012 Olympic Games in the British capital. Infosys leads the inward Foreign Direct Investment (FDI) made by a total of 28 Indian companies, which generated 429 additional jobs for the British economy in 2012. Major sectors of growth: India has registered exceptional growth in the common areas of interest, such as transport and city planning. India brought in a large amount of additional 2.5 billion-pound foreign investment into the UK since the Games and Indian FDI projects in 2012-13 are estimated to generate 24 million pounds in gross value added for Londons economy over the next 3 years. Information and communications technology (ICT) was the key sector in terms of Indian FDI into London, followed by financial services and retail. In the financial services sector Axis Bank stood out for setting up its global operations in London as it has the right mix of potential wholesale and retail business to make it the ideal location for their first international subsidiary. The latest figures were released as part of an overall estimate of the economic impact of the Olympic Games on Londons economy. British government research indicated that the UK economy has seen a 9.9 billion-pound boost in trade and investment from hosting the Games.
China lifts control on Bank lending rates

July 24th, 2013
In a move toward creating a market oriented financial system to support economic growth, the Peoples Bank of China and its Central Bankpromulgated to lift the controls on bank lending rates.
Background for why China lifted the control on Bank lending rates:
Beijing has long used its banks to subsidize state industry with low-interest loans. Depositors who put their money were paid low rates on deposits in recent years. Families failed to keep up with inflation and lost money by leaving it in the bank. The household spending was suppressed which is among the lowest in the world as a percentage of the economy and efforts were made for domestic sustenance rather than Chinas growth from exports and investment to more self-sustained domestic consumption. Chinese families looking for a better return on their savings invested into stocks and real estate. They have also shifted money into wealth management products which are indeed too risky for household investors.
How Chinas lifting of control on bank lending rates will affect its economy?
A change in the Chinas interest rate policy will be one of the major changes required to keep its growth strong. Allowing banks to negotiate their own rates with borrowers could bring in more credit to private enterprise. Until now, banks were lending generally to state industry instead of entrepreneurs who create Chinas new jobs and wealth so this can bring a change. This will be a noteworthy development for Chinas financial sector in the direction of having interest rates determined by market forces rather than government. This reform is to further develop the basic role of market allocation of resources to promote financial support for the development of the real economy. It will allow banks to charge lower rates to more valuable borrowers, cutting down costs for healthy businesses and strong growth. Till now the lower limit on lending rates was set at 0.7 times the state-set interest rate. Private sector borrowers may get more access to credit by paying more and this could help to reduce their dependence on a vast, unregulated credit market.
Rs 25,000 crore window opened by RBI to help Mutual Fund industry

July 21st, 2013
A special borrowing window of Rs 25,000 crore was opened by the RBI to help mutual funds industry over liquidity problems. The crisis occurred due to different merger schemes in the industry and profit booking. This facility will be made available for a brief period only. A special 3-day REPO auction was decided to be conducted by RBI under which banks can raise funds upto to Rs 25,000 crore at 10.25 per cent for on lending to the mutual funds. In 2012-13 the mutual fund industry lost more than 36 lakh investors. During the last 3 financial years, the mutual fund industry had lost over 15 lakh new investor accounts. In April-June 2013-14 as per the latest SEBI data, Mutual Funds lost 10 lakh investors in terms of individual accounts or folios.
RBI calibrates MSF to ease rupee volatility

July 21st, 2013
In the wake of continuing depreciation of rupee disturbing the monetary and fiscal calculations, the Reserve Bank of India (RBI), fine-tuned the Marginal Standing Facility (MSF) rate to 10.5% from previous 8.25%. This will be 300 basis points above the policy repo rate under the Liquidity Adjustment Facility (LAF). The increase comes into effect with immediate effect. As a consequence of the increase in the MSF rate, the Bank Rate also stands adjusted to 10.25%. As per RBI, the overall allocation of funds under the LAF would be limited to 1% of the net demand and time liabilities of the banking system. This is estimated to be around Rs.75,000 crore.
What is MSF?
Marginal Standing Facility (MSF) allows banks to borrow funds from the RBI at a rate which is 100 basis points above the LAF (or the repo rate), against pledging the approved government securities.
How will RBIs caliberation of MST to ease Rupee volatility impact the market?
The increase in MSF is expected to make the loans costlier.
RBI penalizes 22 banks for violating KYC norms

July 21st, 2013
The Reserve Bank of India (RBI) has fined 22 banks by imposing penalty for violating Know-Your-Customer (KYC) norms and anti-money laundering guidelines. The banks who have been fined include SBI, Bank of Baroda, Canara Bank and some other banks all of whom have been fined Rs.3 crore each. The central bank also issued cautionary letters to seven other banks including Citibank, Standard Charte red and Barclays as no violation of serious nature by them was established. The violations by the public sector banks were revealed in a sting operation by online portal, Cobrapost. As per the RBI, the investigation against the fined banks did not reveal any prima facie evidence of money laundering. The banks who have been penalized for violating Know Your Customer (KYC)/Anti-Money Laundering norms includes the countrys largest bank, State Bank of India, and other public sector banks such as PunjabNational Bank, Bank of India and Canara Bank. Earlier, three new generation private banks were slapped with s tiff fines by the central bank whose investigations followed an expose by online portal Cobrapost. The latest list includes the relatively new Yes Bank as well as some old private banks such as Lakshmi Vilas Bank.
RBI directs oil firms to buy dollar from single PSU bank
July 17th, 2013
In the current scenario of continuous down slide of the rupee against the dollar, the Reserve Bank of India, in a bid to cub this volatility, has ordered state-owned oil companies to purchase their dollar requirement from a single public sector bank for
every daily transaction. State oil refiners, who are the biggest buyers of dollars, agreed to implement the RBI order with immediate effect. The RBI issued orders to Indian Oil Corporation, Hindustan Petroleum Corporation, Bharat Petroleum Corporation and Mangalore Refinery to stop seeking quotes from several banks for their $8-8.5 billion of monthly transactional requirement of U.S. dollar. Why RBI doesnt want oil firms to seek multiple quotes for their dollar requirements? As felt by the RBI, Oil firms seeking multiple quotes for their dollar requirement adds to speculation on demand for the dollar and volatility in the local unit. The RBI has, therefore, asked oil firms to buy dollars from a single bank at their published reference rate.
RBI allows asset financing NBFCs to access ECB market

July 10th, 2013
As per a notification by the Reserve Bank of India which reviewed theExternal Commercial Borrowing (ECB) policy, Non-Banking Finance Companies (NBFCs) categorized as Asset Financing Companies (AFCs) by the RBI have been allowed to access the ECB market. The access is subject to certain conditions, including availing of ECB under the automatic route with minimum average maturity of 5 years to finance import of infrastructure equipment for leasing to infrastructure projects. Besides, NBFC-AFCs availing of ECB through Foreign Currency Bonds (FCB) will be allowed to raise capital only from markets, subject to regulations by the host country complaint with Financial Action Task Force (FATF) guidelines. Such ECBs can be availed up to 75% of owned funds of NBFC-AFCs, subject to a maximum of $200 million or its equivalent per financial year. ECBs by AFCs above 75% of their owned funds will be considered under the approval route and currency risk of such ECBs is required to be fully hedged. NBFC-Infrastructure Finance Companies (IFCs) are allowed to access ECB for on-lending to infrastructure sector both under automatic and approval routes.
Supreme Court: If a cheque from joint a/c bounces, liability is on person signing cheque
July 3rd, 2013
The Supreme Court has held that in case of issuance of cheque from joint accounts, only the person who signs the cheque can be prosecuted in a cheque bouncing case under Section 138 of the Negotiable Instruments Act. The other joint account members cannot be held culpable unless the cheque has been signed by them also. As per the apex court, the proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant. The court clarified that the culpability attached to dishonour of a cheque can, in no case except in case of Section 141 of the N.I. Act (offences by companies), be extended to those on whose behalf the cheque is issued. This Court reiterates that it is only the
drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act. Distinguishing Individual and Company: The court distinguished b/w individuals and companies and held that Section 141 of the N.I. Act is an instance of specific provision that in case an offence under Section 138 is committed by a company, the criminal liability for dishonor of a cheque will extend to the officers of the company. In case of the company, the officers of the company, who are accountable for the acts done in the name of the company, can be made accused for the acts which result in criminal action being taken against the company.
Fact Box: White Label ATMs

June 29th, 2013
RBI gives nod to Muthoot Finance to set up White Label ATMs Indian gold loan company Muthoot Finance Ltd has obtained the RBIs in-principle approval to set up the white label ATMs,as the government seeks to take financial services to the remote regions of the country. What are White Label ATMs? ATMs set up and run by non-banking entities are called White Label ATMs (WLAs). Earlier, only banks were allowed to establish and operate ATMs. RBI had allowed the company under the guidelines it released in June 2012 which set certain minimum net worth and obligation for permitting independent non-banking firms to operate such ATMs, as per three different schemes. The Muthoot Finance has been given approval as per Scheme A under which Muthoot Finance will set up WLAs, a minimum of 1,000 WLAs have to be installed in the first year; a minimum of twice the number of WLAs installed in the first year have to be installed in the second year; and a minimum of three times the number of WLAs installed in the second year have to be installed in the third year. What is the purpose of this move? The fundamental objective of permitting non-banks to operate WLAs is to enhance the penetration of the machines in semi-urban and rural areas, where bank-run ATMs are a few or none. The move is in line to the governments objective of achieving financial inclusion.
India: Worlds 3rd most attractive FDI destination

June 29th, 2013
As per the World Investment Report 2013 by the United Nations Conference on Trade and Development (UNCTAD), India is worlds third most attractive destination for investment by Transnational Corporations (TNCs) during 2013-15. In the survey based on responses of 159 companies, India has been positioned after China and United States. Thus India has retained its previous ranking. As per UNCTAD the top five countries in attracting FDI are:
1. 2. 3. 4. 5.
China United States India Indonesia Brazil
As per the report, developing countries make up four of the top five host economies. Six of the top 10 prospective host countries also come from the developing world, with Mexico and Thailand appearing for the first time.
SEBI tightens buyback rules

June 27th, 2013
SEBI has released new buyback norms and a number of other market friendly measures. Under the new rules: It is mandatory for companies selling shares to purchase at least 50% of the offer size. If they fail to do so, the amount in the escrow account will be forfeited, subject to a maximum of 2.5% of the total amount earmarked. Companies will have to create an escrow account towards security for performance equivalent to at least 25% of the amount earmarked for buyback. Companies are prohibited to come out with another buyback offer within one year from the date of closure of the preceding offer, and the promoters of the company are not allowed to execute any transaction, either on-market or off-market, during the buyback period. Maximum buyback period has been reduced to 6 months from current 12 months. Start-ups and SMEs (Small and Medium Enterprises) can be listed in Institutional Trading Platform (ITP) without making an Initial Public Offering (IPO). However, these companies in ITP will be able to raise capital only from investors such as Angel Investors, VCFs (Venture Capital Funds) and PEs (Private Equities). They will not be permitted to raise capital. However, they can continue to make private placements. Incorporating the recommendations of the K. M. Chandrasekhar Committee on Rationalisation of investment routes and monitoring of foreign portfolio investments to simplify the norms for foreign institutional investors, SEBI has relaxed entry rules for offshore portfolio investors to attract more foreign capital into the country at a time of currency weakness and worries over a record high current account deficit. Foreign investors will now be permitted to trade in Indian stocks without any prior registration with SEBI. Foreign Portfolio Investors: Different categories of investors like Foreign Institutional Investors (FIIs), sub-accounts (or an investment vehicle) and Qualified Foreign Investors (QFIs) have been clubbed under a new category called Foreign Portfolio Investor (or FPI).
SEBI relaxes foreign investment norms; a new category Foreign Portfolio Investors (FPIs) approved
June 27th, 2013
In a bid to attract a larger number of foreign investors to Indian capital markets, SEBI approved a slew of changes. Among the major changes are simplification of registration and compliance requirements for foreign investors. As per new measures: A new category Foreign Portfolio Investors (FPIs) has been approved; it blends various classes of investors such as FIIs, their Sub Accounts and Qualified Foreign Investors (QFIs) to set up a simplified and uniform set of entry norms for them. Recommendations of K M Chandrasekhar Committeeon Rationalisation of Investment Routes and Monitoring of Foreign Portfolio Investments. Any portfolio investments would be defined as investment by any single investor or investor group, which shall not exceed 10% of the equity of an Indian company. Investments beyond this threshold of 10% will be considered as FDI. With the aim to make the entry norms easier, SEBI has also approved eliminating the current practice of FIIs and their sub-accounts requiring a prior direct registration of the regulator to operate in Indian markets. In addition, SEBI would adopt a risk-based KYC (Know Your Client) approach in dealing with the overseas investors. It includes FPIs to be divided into three categories which are: 1. Low-risk (for multi-lateral agencies, government and other sovereign entities): This category will have simplest KYC requirements, not required to submit personal identification documents. 2. Moderate risk (for banks, asset management companies, investment trusts, insurers, pension funds and university funds), not required to submit personal identification documents. 3. High-risk (all the FPIs not included in the first two categories): This category FPIs would not be allowed to issue Participatory Notes and will have most stringent KYC requirements Note: These measures have been introduced at a time when the rupee has depreciated considerably against the dollar reaching an all time low recently. Also, FIIs have been pulling out money from the Indian debt market, which has resulted in the hardening of yields on government bonds.
RBI auctions Inflation Indexed Bonds

June 26th, 2013
The government has announced the sale of 1.44% Inflation-Indexed government stock 2023 for a notified amount of Rs.1,000 crore through price-based auction on June 25, 2013. The results of the auction, to be conducted using the uniform price method by the Reserve Bank of India in Mumbai, will be announced on the same day. Up to 20% of the notified amount of bonds on sale will be allotted to eligible individuals and institutions as per the scheme for non-competitive bidding facility in auction of government securities. Both competitive and non-competitive bids for the auction are to be submitted in electronic format on RBIs Core Banking Solution (e-Kuber) system.
What are IIBs? Inflation-Indexed Bonds or IIBs are are bonds where the principal is indexed to inflation. They are thus designed to cut out the inflation risk of an investment. These bonds will be linked to the inflation index of the country (Wholesale Price Index or WPI) and serve as a better investment option as compared to physical assets like real estate and gold. Higher the inflation, higher the returns. Why this step? The step is being taken to de-motivate investments in gold as bulging imports of the yellow metal has been adversely affecting the countrys Current Account Deficit (CAD), which had surged to a historic high of 6.7% in the third quarter of 2012-13. Last month, imports of gold and silver soared by 138% on an annual basis to $ 7.5 billion. How would IIBs help? As per RBI, IIBs would help in: Boosting domestic savings and reversing the declining savings-to-GDP ratio. Providing households and other investors a competitive option against gold and real estate. In the wake of rising inflation last year, there was considerable flow of investments from financial savings to safe-haven assets like gold that resulted into higher imports of the metal. This led to current account deficit or CAD widening to 4.9% of GDP at the end of September 2012. Giving investors choice to use IIBs as good hedging instruments against inflation. How will the Index ratio be determined? The IR (index ratio) will be computed by dividing reference index for the settlement date by reference index for the issue date, and the final inflation data based on the Wholesale Price Index (WPI) will be used for providing inflation protection. Besides, in case of revision in the base year for WPI series, base splicing method would be used to construct a consistent series for indexation.
RBI extends deadline for banks to implement card security features

June 26th, 2013
The RBI has provided the banks more time for introduction of additional security features for payment through debit and credit cards as banks and related entities had yet to put in place the requisite infrastructure. The new deadline for banks to comply with all security features such as EVM chip on cards, real time fraud monitoring system, use of PIN, limit on transactions and the like is November 30, 2013. After this deadline, in the event of a customer complaining of misuse of the card, the issuer or the acquirer who has not adhered to the time lines should bear the loss. Why this additional features? The RBI had in 2011, issued the guidelines for additional security features with a view to protecting cardholders against cyber frauds and other misuse. It has been observed that
increased usage of credit and debit cards has led to surge in frauds, especially in the case of lost or stolen cards. Also, there have been reports of data on cards being compromised and cards skimmed /counterfeited.
RBI relaxed ECB norms for low cost housing projects

June 26th, 2013
The RBI has eased the External Commercial Borrowing (ECB) norms for affordable housing projects by withdrawing the minimum capital requirement, and lowering total experience to three years, while extending the scheme till next financial year. As per RBI notification: Developers or builders should have a minimum of 3 years experience in undertaking residential projects as against five years prescribed earlier. The condition of minimum paid-up capital requirement of not less than Rs.50 crore for Housing Finance Companies (HFCs) to avail themselves of ECBs has been withdrawn. Condition of the minimum net owned funds of Rs.300 crore (for the HFCs) for the past 3 financial years was unchanged. Aggregate limit for ECB under the low cost affordable housing scheme is extended for 2013-14 and 2014-15 with a ceiling of $1 billion in each of the two years, subject to review thereafter. ECB availed of by developers and builders shall be swapped into rupee for the entire maturity on a fully-hedged basis. Interest rate spread charged by the National Housing Bank (NHB) may be decided by the NHB, taking into account cost and other relevant factors. HFCs while making applications for ECB should submit a certificate from NHB stating that use of ECB for financing prospective owners of individual unit is for low cost affordable housing. HFCs should ensure that the cost of such individual units should not exceed Rs.30 lakh, and the loan should not exceed Rs.25 lakh; and units financed should have a maximum carpet area of 60 square metres.
Fact Box: Diaspora Bonds

June 25th, 2013
India thinks over Diaspora Bonds India is examining to introduce Diaspora Bonds to attract investment from NRIs (Non-Resident Indians), to facilitate greater inflow of funds in the infrastructure sector. The government is examining longer-term investment instruments for overseas Indians so that the NRI community could participate and benefit from Indias growth. Current Status: At present most of the diaspora investments are in portfolio investments of a short-term nature. Plan of Govt: The government is considering the option of diaspora bonds for longer term investment instruments to provide opportunities for overseas Indians and thus facilitate greater inflow of funds in the infrastructure sector. What are Diaspora Bonds (DBs)?
A sovereign bond that targets investors that have emmigrated to other countries and the relatives of those emmigrants. For example, the Government of India tries to sell a government bond to Americans of Indian origin. Diaspora bonds are marketed to members of the diaspora. Attraction for issuing countries:
Patriotic discount - Diaspora investors sometimes offer what is called a patriotic discount to governments in their country of origin/ancestry. As per George Washington Universitys Liesl Riddle, when diaspora members invest in their homelands, they are motivated by more than just profit: Social and emotional motivations also play a role. Stable source of finance, especially in bad times Support to sovereign credit rating Diaspora investors might be willing to accept a lower rate of return and have a greater tolerance for uncertainty when buying diaspora bonds than a mainstream investment. Diaspora investors might partially view the purchase of a diaspora bond as an act of charity and might also have a greater understanding of a countrys level of risk than other foreign investors. Attraction for investors:
Patriotism & desire to do good in the country of origin Risk management Diaspora investors are likely to view the risk of receiving debt service in local currency with much less apprehensions. What is difference b/w Foreign Currency Deposits (FCDs) and DBs ? Foreign Currency Deposits (FCDs) are also used by countries to attract foreign currency inflows.
But, Diaspora bonds are typically long-dated securities to be redeemed only upon maturity. FCDs, in contrast, can be withdrawn at any time. FCDs are likely to be much more volatile, requiring banks to hold much larger reserves against their FCD liabilities, thus decreasing their ability to fund investments. Diaspora bonds, on the other hand are a source of foreign financing that is long-term in nature. What is Indias Experience in DBs? Diaspora bonds are not yet widely used as a development financing instrument. Diaspora bonds issued by the government-owned State Bank of India (SBI) have raised over $11 billion to date. 3 separate occasions on which the Indian government has tapped its diaspora base of non-resident Indians (NRIs) for funding on
1. India Development Bonds (IDBs) following the balance of payments crisis in 1991 ($1.6 billion) 2. Resurgent India Bonds (RIBs) following the imposition of sanctions in the wake of the nuclear explosions in 1998 ($4.2 billion) 3. India Millennium Deposits (IMDs) in 2000 ($5.5 billion).
Features of the IDBs, RIBs and IMDs: Opportunistic issuance in 1991, 1998 and 2000 Balance of payments support Fixed rate bonds Maturitiy: 5 year bullet maturity Limited to diaspora No SEC registration Non-negotiable SBI distribution in conjunction with international banks. The conduit for these transactions was the government-owned State Bank of India (SBI). Thus, the proceeds from such bonds can be used to finance investment. Issues were done in multiple currencies US dollar, British pound, Deutsche Mark/Euro.
EXIM Bank of India receives license to open representative office in Myanmar

June 24th, 2013
Myanmar has provided the Export Import (EXIM) Bank of India with a licence to open a representative office in Yangon. Key Points: Exim Bank has extended seven Lines of Credit (LOC), amounting USD 247.43 million to Myanmar Foreign Trade Bank (MFTB). These LOCs are carrying out various projects, including upgradation of the Yangon Mandalay railway system, setting up Moreh-Tamu OFC link, Thanlyin refinery projects, assembly/manufacturing plant for assembly and manufacturing of Tata vehicles, setting up of three transmission lines and upgradation of Thanbayakan Petrochemical Complex. It should be recalled that an MoU was signed b/w the EXIM and the MFTB during the visit of PM Manmohan Singh in May 2012, for LOCs aggregating to USD 500 million. The MoU covers sixteen ongoing irrigation schemes, two irrigation projects, project for procurement of rolling stock, equipment and upgradation of three major railway workshops in Myanmar. Indias total trade with Myanmar has expanded 4.1% to touch $1.9 billion in FY13.
RBI leaves key policy rate unchanged

June 19th, 2013
The Reserve Bank of India (RBI) has left the key policy rate, the repo rate, untouched at 7.25% in its June mid-quarter monetary policy. Cash Reserve Ratio (CRR), stood at 4%. Repo is the rate at which banks borrow from the Central bank. CRR is the portion of deposits that banks are required to keep with RBI. Consequently, the Reverse Repo rate will remain at 6.25%, and the Marginal Standing Facility (MSF), rate and the Bank Rate at 8.25%. Why no change?
While the market was expecting some cut in interest rates on account of easing inflation and low manufacturing growth, the RBI left the rates unchanged. As per experts, interest rate cuts could not be made due to shrinking difference in interest rates offered in Indian markets and Western markets, which is why the Foreign Institutional Investors in our debt market pulled off about $3 billion. Bringing the interest rates much lower at this point of time could have aggravated the situation by encouraging FII to pull out more from the debt market.
Fitch upgrades Indias sovereign outlook to stable

June 19th, 2013
Fitch Ratings has revised Indias sovereign credit outlook to stable from negative and affirmed the BBB- rating assigned earlier. Why this upgrade? Fitch revised the outlook to stable after noticing the steps taken by the government to control the budget deficit, including the commitments made in the 2013-14 budget, as well as some, albeit limited, progress in addressing some of the structural hindrances to investment and economic growth. Although slow and modest, a recovery in the real GDP growth has been forecasted with real GDP expected to expand 5.7% and 6.5% in 201314 and 2014-15, respectively. Key Strengths: Fitch has pointed to Indias inherent economic strength despite declension in the Current Account Deficit (CAD), which in part has been due to a surge in gold imports. Indias foreign debt is moderate and RBIs international reserves, which stood at $288 billion which serve as shock absorber in case of any external impact. Indias investment-grade ratings are supported by high domestic savings rates that limit the reliance on foreign savings for private investment and fiscal funding, as well as by a relative long maturity of government debt issued in its own currency. Success in containing the upward pressure on the Central government budget deficit in the face of a weaker-than-expected economy. Government has started to address structural factors that have dampened the investment climate and growth prospects, notably regulatory uncertainty, delays in approvals of investment projects and supply bottlenecks in the power and mining sectors.
Fact Box: Hindu rate of growth

June 18th, 2013
Are we moving towards Hindu rate of growth again? As India registered a meager GDP growth of 4.8% in the first quarter of 2013 it has rendered dreams of achieving a double-digit growth somewhat blurred. It has also opened the window to the vilipending term Hindu rate of growth. What is Hindu rate of growth? The term Hindu rate of growth was coined by Professor Rajkrishna, an Indian economist, in 1978 to characterize the slow growth and to explain it against the
backdrop of contentment clamored for makers were
socialistic economic policies. The term came into being to show Indias with the low growth rate, post independence. While the other countries more growth, Indian fatalism was cited as a possible reason why policy not seeking ways to boost the economy.
The word Hindu in the term was used by some early economists to imply that the Hindu outlook of fatalism and contentedness was responsible for the slow growth. However many later economists pointed out that the so-called Hindu rate of growth was a result of socialist policies implemented by the then staunch secular governments and had nothing to do with Hinduism. Counter-views: In contrast to the term, GDP data estimates by Paul Bairoch, a Belgian economic historian, published in 1982 questions this contentment. This data, later confirmed by British economist Angus Maddisson, showed that India held close to a quarter of the worlds share of GDP in 1750. After colonization started, Indias share dropped to 20% by 1800 and fell precipitously to 3% in 1880. When do we say that a country is having Hindu rate of growth? Small growth rate alone does not characterize Hindu rate of growth. Prolonged low growth rate, albeit not an economic contraction, is not sufficient to be deemed as the Hindu rate of growth. In addition to growth being low and extending over a long period of time, the term also captures a low per-capita GDP, by factoring in the population growth. For eg: Indias annual population growth rate was over 2% in the 1980s and the per capita GDP growth rate, with 3.5% GDP growth, was a meager 1 % characterizing Hindu rate of growth. Current Picture: Annual population growth has been on a decline and is around 1.4 per cent currently, helping higher per capita income growth. So, while the phrase Hindu rate of growth may have characterized a phase, it cannot be considered a generic term for Indias growth rate. In an open global economy, we cannot get back to this phase, even if we try. The phrase may have been obsolete in a few years of being coined, as we entered the neoHindu cycle of growth being in tune with the global economy.
Fitch revises outlook of 10 banks and FIs to Stable

June 16th, 2013
The outlook of ten Indian banks and Financial Institutions (FIs) have been revised to stable from negative by rating agency Fitch. The upgrade is despite the fact that the rating agency expects Non-Performing Loans (NPLs) and restructured assets to continue to rise in the financial year ending March 2014. The banks and financial institutions whose ratings have been revised include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Bank of Baroda (New Zealand) Limited (BOBNZ), Canara Bank (Canara), IDBI Bank Ltd.
(IDBI), ICICI Bank Ltd. (ICICI), Axis Bank(Axis), Export-Import Bank India (EXIM), and Housing and Urban Development Corporation Ltd. (HUDCO).
of
The international rating agency has also affirmed their BBB- long-term Issuer Default Ratings (IDRs). As per Fitch Ratings, Non-Performing Loans (NPLs) and restructured assets may continue to rise in the financial year ending March 2014. Government banks stressed assets were at 11.59% as of end-2012 against the sector average of 9.61%.
Rupee depreciation to make durables, cars costly

June 16th, 2013
The sliding down of rupee which has depreciated by nearly 8% against the U.S. dollar during the last one-and-a-half months may make home appliances and cars dearer as the fall in rupee value has put pressure on costs of companies, forcing them to consider increasing the price of their products. As per experts, the hike in prices may not be good as the consumer sentiment is already low due to factors such as slowdown in theeconomy and high interest rates. The decline of rupee has resulted into the higher import costs for companies which buy many spare parts and services from foreign markets. This import cost is putting upward pressure on the overall cost of various products like cars, electronic devices etc. However, the depreciation in rupee may be good news for the $100 billion domestic ITITeS sector, which has been facing strong headwinds due to an uncertain global economy. It may be beneficial as Indian IT industry is majorly export based.
Students going abroad worry as Rupee falls

June 15th, 2013
The continuous fall in rupee value which reached an all time low last week has become a matter to worry about for the students planning to study in the U.S.A. and their parents who have to spend more than they expected initially. Why it costs more? As the Rupee falls against the Dollar those students who study in US will have to pay more than what they previously thought. It happens in case when they have to buy dollars in exchange of rupees. If, for example, initially, one was buying a unit of dollar by spending a few units of rupee, after depreciation of rupee one has to shell out more units to buy a unit of dollar which makes it expensive. At present, compared to last year, parents have to spend Rs. 7 to Rs. 8 more per dollar. It means those paying a fee of Rs. 5 lakh initially in an average university have to shell out Rs. 60,000 more apart from other expenses.
Project Monitoring Group to be set up to expedite infra projects

June 15th, 2013
Prime Minister Manmohan Singh has directed for the creation of aProject Monitoring Group who will monitor the implementation and fast tracking of all the 215 infrastructure projects of Rs. 7 lakh crore funded by banks. The Group will be set up under the Cabinet Secretariat which will proactively pursue all large projects to ensure their timely commissioning. Similarly, the Administrative Ministries, in consultation with the Finance Ministry, and the Finance Ministry on its own also were tasked with the identification of such priority projects. The Cabinet Secretariat was directed to hold a meeting with Chief Secretaries of States to have State Governments on board with this new mechanism. A list of projects of the public sector from various ministries such as Coal, Power, and Shipping has already been compiled. FICCI has also submitted a list of 52 projects in the private sector, with an investment greater than Rs.1,000 crore, which are delayed due to various bottlenecks. The Cabinet Secretariat has prepared an Online System portal for tracking projects of over Rs.1000 crore.
June 13th, 2013
CCI
Projects
Tracking
Railways to launch Mobile Payment Ticketing Facility

Soon, passengers will be able to book their train tickets via mobile SMS as Indian Railways is to start Mobile Payment Ticketing Facility from July 1, 2013. The service will be available to all mobile subscribers. This facility offered by irctc, will have no role of travel agents and commercial organisations. Only individual users will be allowed to book on the portal. Travel agents in the IRCTC service have been accused of blocking tickets to sell them at a premium. How to book the ticket? A passenger has to type the train number, destination, journey date, class and passenger details like name, age and gender on the SMS box. For starting, one has to register their mobile number with IRCTC as well as their bank. The bank provides MMID (Mobile Money Identifier) andOTP (One Time Password) for payment authorization. The sender will receive transaction ID and then make payment through sending another SMS by typing PAY followed by the transaction ID, MMID as received from the bank and password, thus the booking is complete. Charges: The service will be available to all mobile subscribers and Rs 3/- will be charged per SMS and payment gateway charges will be Rs 5/- for ticket amount upto Rs 5,000 and Rs 10/- for more than Rs 5,000.
Banks to audit documents of credits of Rs 5 Crore and above periodically: RBI

June 11th, 2013
As per the directions made by RBI, Banks will have to do periodical audits and reverification of the documents of all credits of and above Rs 5 crore, till the loan is completely repaid. The instructions have been made in order to check frauds. As notified by the RBI, the banks should provide quarterly review notes of such audits that include information like number of accounts where rectification is required, list of deficiencies observed by auditors and steps taken to rectify the deficiencies. The direction came up after RBI found a large volume of frauds at the time when the branches of banks were under concurrent audit. The bank found that frauds were perpetrated on account of the submission of forged documents of the borrower, which were certified by advocates/chartered accountants/valuers.
RBI imposes restrictions on gold loans by Co-op banks

June 10th, 2013
Intensifying the efforts to discourage the demand for gold, the Reserve Bank of India has extended the restriction on advance against gold on co-operative banks as well. RBI has directed state/central co-operative banks to ensure that the weight of the specially minted gold coin(s) for which they are granting advance does not exceed 50 grams per customer. Also the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the Board approved limit. Similar limitations are already in force on commercial banks. Recently, the government raised import duty on gold to 8% from 6%. Banks have also been advised not to sell gold coins. RBI has also imposed restrictions on gold imports by banks. The increasing imports of the yellow metal has become a cause of concern for both the government as well as the RBI as it putting pressure on the CAD (Current Account Deficit), which is likely to be around 5% of the GDP in 2012-13. The monthly average of gold import in 2012-13 was 70 tonnes. The rise in gold import is also linked to the fall in its prices in the internationalmarket.
Fact Box: e-BRC (Bank Realization Certificate)

June 8th, 2013
MoU inked b/w DGFT and Government of Delhi to use e-BRC (Bank Realization Certificate) An MoU was signed b/w the Directorate General of Foreign Trade (DGFT) and Commissioner (Trade and Taxes) and Government of NCT of Delhi for making use of electronic Bank Realization Certificate (e-BRC). With this, Delhi has become the second state to sign the MoU. The first state to sign this MoU was Maharashtra. What is e-BRC? e-BRC is electronic form of earlier physical Bank Realization Certificate. It was launched in 2012 by thethe Directorate General of Foreign Trade (DGFT) to reduce
transaction cost to exporters, who will not be required to make any request to bank for issuance of bank export and realisation certificate (BRC). BRC is issued by a bank after realization of export proceeds in the country. It is an important document required for claiming benefits under various Foreign Trade Policy schemes. In addition, BRC data is used by VAT, Income Tax and Drawback departments.
Finance Ministry asks IBA to set up independent body to oversee CDR mechanism
June 8th, 2013
The Indian Banks Association (IBA) has been asked by the Finance Ministry to set up an independent body to oversee the Corporate Debt Restructuring (CDR) mechanism. The step has taken after witnessing a surge in the number of debt restructurings over the past two years. Both the IBA and the finance ministry has expressed concern that banks and their clients are taking undue advantage of the CDR mechanism, deferring the issue of Non-Performing Assets (NPA) formation. Under CDR, there were 106 cases of restructured loans, of Rs 76,470 crore, in 2012-13. This was a rise from 50 cases (exposure of Rs 39,600 crore) the previous year. The Independent Body: The independent oversight mechanism will not have any government representative or any serving banker but some experts who will scrutinize from the correctness point of view whether the case referred is genuine. The committee will act as an advisory body which will help the banks examine a particular case and it will not be mandatory for a bank to go to the committee. The finance ministry has been asking banks to deal strictly with wilful defaulters and to become more aggressive on loan recovery. The Reserve Bank of India has also made the debt recast norm tougher. It has said all loans to be restructured after April 1, 2015, should be classified as NPA.
Fact Box: Indian Banks Association (IBA)

June 7th, 2013
K R Kamath re-elected as IBAs Chairman K R Kamath, the chairman and managing director of Punjab National Bank (PNB), has been re-elected as the Chairman of the Indian Banks Association (IBA) for 2013-14 tenure. Indian Banks Association (IBA) Established on September 26, 1946. It is an association of Indian banks and financial institutions. It is based in Mumbai. Currently represents a total of 173 banking companies which are operating in India. Objective: Strengthening, development and coordination of the Indian banking. It also facilitates various member banks.
The Managing Committee of the IBA consists of a chairman, three deputy chairmen, one honorary secretary as well as 26 members.
IndusInd Bank ties up with American Express to launch credit card for affluent customers
June 2nd, 2013
IndusInd Bank has joined hands with American Express to unveil IndusInd Bank Iconia American Express Card for its rich customers. Card Benefits The card offers its customers reward golf, entertainment, travel and dining. points and lifestyle benefits such as
Subscribers of the card will get a reward of 1.5 point on weekdays and of 2 points on the weekends on every Rs 100 they spend. These points can then be redeemed for cash credit at full value, i.e, a rupee for each reward point and for partner air miles. IndusInd Bank ventured into the credit card sector after acquiring Deutsche Banks loss making credit card business from its Indian operations in 2011.
RBI notifies restrictions on bank loans against Gold

May 31st, 2013
Taking further measures to curb the expanding Current Account Deficit (CAD) and forex outflow, the RBI has imposed restrictions on banks and NBFCs for providing loans against purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold ETF and units of gold Mutual Funds to discourage demands for gold. Banks have also been directed to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the board approved limit. However , Banks are allowed to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these will weigh much more, thereby circumventing the RBIs guidelines regarding restrictions on grant of advance against gold bullion. Current Status: At present, banks are allowed to provide advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds. Why this measure? India is one of the largest importers of gold. In the last few years, India has witnessed a sharp rise in the demand as well as in the prices of gold which has in turn led to bigger imports. As the imports are generally paid in dollars/ foreign currency, it has led to massive outflow of foreign exchange reserves leaving a huge CAD. CAD occurs when a countrys total imports of goods, services and transfers are greater than the countrys
total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world. Very high CAD is detrimental to the outlook of the whole economy of the country. Government has taken several steps recently, including raising import duty, to curb the inbound shipments of gold. RBI too had put restrictions on banks on gold imports.
SEBI to double charges for Algorithmic (Algo) trading

May 23rd, 2013
Market regulator SEBI has announced that it will double the charges for orders based on Algorithms (algo) in stock exchanges from May 27, 2013. What is Algo Trade? Algorithmic (Algo) trading refers to orders generated by use of advanced mathematical models that involve automated execution of trade. It is mostly used by large institutional investors and has raised concerns that algo exposes small investors to possible systemic risks. Charges on an algo trade vary among exchanges. Why SEBI is increasing the charges on Algo trade? Algo trading method is mostly used by large institutional investors and has raised concerns that algo exposes small investors to possible systemic risks. The move to increase the algo trade charges is intended to disincentivise those having high order-to-trade ratio using algo. Brokers with repetitive instances of high daily order-to-trade ratio will face additional penalty in the form of suspension of their proprietary trading book.
Shashi Kant Sharma sworn-in new CAG

May 23rd, 2013
The President of India has appointed Shashi Kant Sharma, IAS, as Comptroller & Auditor General of India, in terms of Article 148 (1) of the Constitution of India. Sharma (61) is a 1976 batch Indian Administrative Service (IAS) officer of the Bihar cadre and was before serving as secretary in the Ministry of Defence. Sharma succeeds Vinod Rai whose audit reports on 2G spectrum and coal block allocations during triggered a number of controversies and brought in the concept of presumptive loss in audit. The CAG has tenure of 6 years, or till the incumbent is 65, whichever is earlier. What is the controversy over appointment of Shashi Sharma as CAG ?
Mr. Prashant Bhushan (Aam Aadmi Party leader and a Supreme Courtlawyer) objected Sharmas appointment as the CAG, terming it illegal and unconstitutional. Mr. Prashant Bhushans laid the contention was that Sharma in the last 10 years held many sensitive positions in the defence ministry that dealt with procurements and his appointment as the CAG would mean a conflict of interest as he will be auditing defence deals in which he had a role as defence secretary. A public suit has also been filed in the Supreme Court challenging Sharmas appointment as the CAG.
Finance Ministry appoints auditors without consulting RBI

May 22nd, 2013
Deviating from the earlier practice of consulting the RBI while appointing auditors for the same, the government has appointed auditors for the Reserve Bank of India after consulting with the Comptroller & Auditor General (CAG). As per government, this has been done to avoid conflict of interest. The RBI and the finance ministry appeared to have some friction over many issues in recent months, particularly over the conduct of monetary policy with senior ministry officials often seemingly dissatisfied over the pace of interest rate cuts by the central bank. There is also a less high-profile conflict over dividends declared by RBI out of its profits. However, the government maintained that there is no relation of appointing auditors to dividends. In the 2013-14 budget, the government has assumed 43,996 crore in dividends from the Reserve Bank of India and state-run banks, a sharp increase from 25,447 crore the year before. The government expects RBI to pay it more dividends. What the Finance Ministry is asking RBI to do?
Fin Min wants RBI to pay the government more in dividends. It is also asking the RBI to interests to the banks on the CRR it keeps with itself. After RBI indicated its inability to pay interests, finance ministry has been reviewing RBIs balance sheet over the past year. The ministry had suggested that RBI should pay 7% interest on the CRR. As per ministry this step would help slash rates even if the central bank does not ease monetary policy. It had argued that major central banks either do not mandate a reserve ratio or pay interest on the mandatory reserves they ask banks to set aside. How does the mechanism? appointment of auditors take place under the existing
Under the existing mechanism for the appointment auditors, the CAG provides a list of CA firms eligible for appointment as statutory central auditors. In case of RBI, two central auditors and four local auditors were being appointed by the finance ministry in consultation with RBI.
RBI directs banks to adhere to Clean Note Policy

May 18th, 2013
The Reserve Bank of India, under its Clean Note Policy, has directed banks to eliminate stapling of note packets and issue only clean currency notes to the public.
What is Clean Note Policy? Clean Note Policy is a policy being run by the RBI with an objective to give the citizens good quality currency notes and coins, while the soiled notes are withdrawn out of circulation. Under this policy Banks have been directed the following: Stop stapling of note packets and instead secure note packets with paper bands. Sort notes into re-issuables and non-issuables. Issue only clean notes to public. Stop writing of any kind on the watermark window of bank notes. As per RBI, on an average, one out of five paper notes in circulation (over 20%) is disposed every year after getting soiled and the number of such soiled currency bills stood at over 13 billion units during the fiscal ended March 31, 2012. RBI will launch a pilot project for plastic or polymer currency notes with an aim to enhance the shelf-life of notes.
Estimated GDP Growth at 5.7% for 2013-2014 RBI

May 4th, 2013
The RBIs has projected a GDP growth for 2013 -14 at 5.7% as against finance ministrys projection of 6.1%- 6.7%. Indian economy grew by 5% in 2012-2013 on account of poor performance of manufacturing,agriculture and services sector. RBIs current assessment is that economic activity will remain subdued and will only show a modest pick-up in second half of 2013-14, subject to appropriate conditions in the later part of year. Assumptions for calculating growth rate Agricultural Sector: Normal monsoon and agricultural growth are expected to return to trend levels in second half of 2013-14. Industrial & Service Sector: Growth outlook expected to be subdued primarily due to: Decline in new investment Existing projects stalled by bottlenecks and implementation gaps Sluggish growth in services and exports driven by bleak global sentiments.

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