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HindustanTimes Wed,24 Sep 2014

Raghuram Rajan's new proposals

Reuters  Mumbai, September 04, 2013
First Published: 22:44 IST(4/9/2013) | Last Updated: 22:46 IST(4/9/2013)

Reserve Bank of India governor, Raghuram Rajan, on Wednesday announced a slew of proposals in his first day of office. Below are some highlights of the proposed action.


   
Monetary policy
* Postpones first monetary policy statement as governor to September 20 from September  16

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* To set up a panel on how to strengthen monetary policy framework, which will submit report in three months
   
Rupee, capital inflows
* To allow exporters to re-book cancelled forward currency contracts up to 50% of the value of cancelled contracts and up to 25% for importers

* Will push for more trade settlements in rupees, open up financial markets for those who receive rupees to invest back

* Will offer a special window for swapping foreign currency non-resident (FCNR) deposits with a minimum tenure of three years and more, at a fixed rate of 3.5% per year

* Will raise overseas borrowing limit of 50% of unimpaired Tier I capital to 100% for banks

* Borrowings mobilised under this provision can be swapped with RBI at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market

* Above schemes will be open till November 30, 2013
   
Debt / broader markets
* Will introduce cash-settled 10-year interest rate future contracts

* Will examine introduction of interest rate futures on overnight interest rates

* Will steadily but surely liberalise markets, restrictions on investments and position-taking

* To issue inflation-indexed savings certificates tied to CPI to retail investors by end November

* Need to reduce requirement for banks to invest in government securities in a calibrated way
   
Banking system
* To set up external committee to screen bank license applicants

* Hopes to announce licenses within, or soon after, January 2014

* Will push foreign banks to set up wholly-owned subsidiaries

* Will look at continuous or on-tap bank licensing system for applicants

* Will issue guidelines to free rules on setting up bank branches for domestic commercial banks

* To look at rising non-performing assets and restructuring/recovery process

* Need to accelerate the working of debt recovery tribunals and asset resconstruction companies

* Proposes to collect credit data, examine large common exposures among banks

* Will encourage banks to clean up their balance sheets.

* Will encourage banks to commit to raising capital when necessary

* Bad loan problem is not alarming yet, but will fester if unaddressed

* To set up committee that will access every aspect to financial inclusion


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