RBI eases forward forex contracts norms for importers

Providing importers with greater flexibility in hedging, Reserve Bank on Tuesday allowed them book forward foreign exchange contracts up to 50 per cent of the eligible limit.

"...it has been decided to allow importers to book forward contracts, under the past performance route, up to 50 per cent of the eligible limit," the RBI said in a notification.

This, the RBI said, has been done after a review of the evolving market conditions and with a view to providing importers with greater flexibility in hedging facility.

It further said importers who have already booked contracts up to previous limit of 25 per cent in the current financial year, will be eligible for difference arising out of the enhanced limits.

Under the extant guidelines relating to hedging of currency risk of probable exposures based on past performance, importers are allowed to book contracts up to 25 per cent of the eligible limit.

The eligible limit is computed as the average of the previous three financial years? import turnover or the previous year's actual import turnover, whichever is higher.

RBI's steps to buy redemption for rupee

http://www.indianexpress.com/news/rbis-24-steps-to-buy-redemption-for-rupee/1146078/0

Below is a list of currency-related measures from Indian policy makers this year:

JULY

* RBI further lowers banks' limit on borrowing under daily liquidity adjustment facility (LAF); increases banks' cash reserve ratio requirements, announces 60 billion rupees sale in cash management bills.

* RBI tightens gold imports again, making them dependent on export volumes

* RBI raises the Marginal Standing Facility rate and Bank Rate, caps banks' limit on borrowing under daily LAF and announces sale of 120 billion rupees in debt via open market operations.

* RBI extends relaxation of the all-in-cost ceiling for issuers of external commercial debt

* India's regulators toughen rules for derivatives trading in currency markets

* RBI eases rules for non-bank asset finance companies to raise debt overseas

* RBI introduces provisioning, capital requirements for bank exposed to corporates with unhedged FX

JUNE

* India further tightens gold import rules

* RBI extends buyback time period of foreign currency convertible bonds until Dec. 31

* RBI allows telecommunications companies to refinance rupee loans until March

* RBI tightens gold lending norms for regional rural banks

* RBI eases rules for low-cost builders to access overseas loans, hedge entire borrowing

* RBI relaxes some forex option premium payment rules

* RBI asks exporters to realise dollar earnings and bring them back into the country within one year

* RBI restricts loans against gold coins by co-operative banks

* India fin min says RBI advised banks not to sell gold coins

* India raises gold duty to 8 percent

* RBI extends gold import curbs on nominated and trading agencies

MAY

* RBI mulls easing hedging norms for exporters, importers

* RBI cuts timeframe for exporters to repatriate earnings

RBI relaxes norms for opening subsidiaries by foreign NBFCs

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-relaxes-norms-for-opening-subsidiaries-by-foreign-nbfcs/articleshow/16757333.cms

Relaxing norms for foreign-owned NBFCs to open subsidiaries, the RBI today said such entities can now set up arms even if the overseas investment is less than 100 per cent.

"NBFCs having foreign investment more than 75 per cent and up to 100 per cent and with a minimum capitalisation of USD 50 million, can set up step down subsidiaries for specific NBFC activities," RBI said in a notification.

Earlier, only 100 per cent foreign owned non-banking financial companies (NBFCs) with minimum capitalisation of USD 50 million were allowed to set up subsidiaries.

The notification further said that the step down or operating subsidiaries could be set up without any restriction on their number and without bringing in additional capital.

The RBI notification follows government's decision last week in this regard.

Foreign investment in insurance hiked to 49%; pension opened up

http://www.thehindubusinessline.com/industry-and-economy/banking/article3965052.ece

In the biggest slew of reform measures in years, the Government went ahead with long-pending financial sector reforms, risking the wrath of political allies and setting the stage for a political showdown at the upcoming Assembly polls in key States.

The Cabinet on Thursday hiked the limit for foreign equity investment in insurance companies to 49 per cent. The wording is crucial; as there was no mention of foreign direct investment, the limit may combine FDI and FII investments.

It also paved the way for a major reform of the pension sector by clearing amendments to the Pension Bill and allowing foreign investments in the sector.

That was not all. Official amendments to the outdated Companies Act, the largest single piece of legislation in the world, were also cleared, as was an amendment to the Forward Contracts Regulation Act allowing options. Amendments to the Competition Act were approved, though bank mergers were kept out of its purview.

While India Inc welcomed the reforms push, political opposition to reforms, particularly in insurance, is bound to harden, especially because the Government ignored the views of the multi-party Parliamentary Standing Committee on Finance.

However, the Government appeared to have kept some elbow room. This was evident when Finance Minister P. Chidambaram said: “We will sit, discuss and negotiate…. We will reach out to all political parties, especially the principal Opposition party, to get the reform Bills passed.”

He said there have been instances when Bills have been passed, even when the government was in the minority. This was particularly with reference to the lack of required numbers to get the Bills passed in the Rajya Sabha.

Meanwhile, Chidambaram clarified that the new decision will not apply to Government-owned companies such as Life Insurance Corporation (LIC) and the five general insurance companies.

“The benefit of this amendment will go to the private sector insurance companies which require huge amounts of capital and that capital will be facilitated with the increase in FDI to 49 per cent,” Chidambaram told reporters.

The state-owned general insurance companies and GIC will, however, be permitted to raise capital from the market to meet future requirements, provided the Government’s shareholding does not fall below 51 per cent at any point.

To encourage health insurance, the capital requirement for a health insurance company is now proposed at Rs 50 crore (against Rs 100 crore for a general insurance company) to reduce entry barriers to a priority sector in the insurance space.

The definition of the ‘health insurance business’ has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic or international travel.

Further, the period during which a policy can be repudiated on any ground, including misstatement of facts, has been confined to three years from the commencement of the policy. Thus, no policy can be called in question on ground of misstatement after three years.

PENSION BILL

The Cabinet also approved five official amendments to the Pension Fund Regulatory and Development Authority Bill, 2011. These official amendments are based on the recommendations of the Standing Committee on Finance. Among these, the provision on assured return is key.

The provision says: “The subscriber seeking minimum assured returns will be allowed to opt for investing his funds in such schemes providing minimum assured returns as may be notified by the Authority.”

The other provision is related to foreign investment limit. It says the foreign investment ceiling in the pension sector, at 26 per cent or such percentage as may be approved for the Insurance Sector, whichever is higher, may be incorporated in the present legislation.

Asked whether these Bills will be brought for consideration and passage during the Winter Session, the Finance Minister said the time-table has to be approved by the Parliamentary Affairs Ministry.

Rupee may appreciate to 50 against dollar: FinMin

http://www.thehindubusinessline.com/industry-and-economy/economy/article3945787.ece

The Finance Ministry hopes that the rupee may strengthen to 50 against dollar in a few months time. The Government also hopes to keep the fiscal deficit to the Budget target.

This hope has come at a time when rupee closed at a five-month high of Rs 52.85 against the dollar on Friday. The rupee dipped to all time low at Rs 57.13/dollar in June. The Department of Economic Affairs Secretary Arvind Mayaram said, “Today it has breached Rs 53. It has gone below Rs 53. This brings down the subsidy requirement, especially in the petroleum sector. With the steps the Government is taking, we expect it could even touch Rs 50 in the next 2-3 months or four months, in which case our subsidy burden will go down even further.”

Appreciation in rupee is expected mainly because of higher inflow not just into the stock market but also through foreign direct investment. There is also some impact expected due to announcement of quantitative easing (QE 3) by the US Federal Reserve. Euro gaining strength after Spain announced tough new austerity measures is also helping the rupee gain against the dollar.

Although he refused to give details about reduction in fuel subsidy due to appreciation of rupee, Mayaram did admit, “One rupee change in exchange rate can bring about 80 basis point change in the rate of inflation.”

Meanwhile, forex experts differ on the Government’s estimation about the rupee.

Vivek Rajpal from Nomura termed this as “optimistic”. He said that the rupee has appreciated to Rs 52.50 from Rs 56. “This is a very big move and there is expectation that a similar trend will continue.”

His expected level is Rs 52/$ while Citi Group’s Maya Bhandari’s level is Rs 48 by the year end.

Residency certificate a must for foreign investors to get tax benefit

http://www.thehindu.com/todays-paper/tp-business/residency-certificate-a-must-for-foreign-investors-to-get-tax-benefit/article3940406.ece

The government has mandated that from April 1, 2013, all foreign investors desirous of claiming benefits under the double taxation avoidance agreements (DTAAs) will have to produce tax residency certificates (TRC) of their base country in which they are located.

According to a notification issued by the Central Board of Direct Taxes on September 17, 2012, the amendments to the Income Tax Act, 1961, will take effect from April 1, 2013, and apply in relation to assessment year 2013-14 and subsequent years. The notification, in effect, amends Section 90 and Section 90A of the I-T Act dealing with taxation of foreign investment and tax benefits under DTAAs. 

Till date, India has inked DTAAs with 84 countries. Under Section 90 (4) of the Act, as inserted by the Finance Act, 2013, with effect from April 1, 2012, it is provided that an assessee, not being a resident, to whom an agreement referred to in sub-section (1) of Section 90 applies, shall not be entitled to claim any relief under a DTAA unless a certificate, containing such particulars as may be prescribed, of his being a resident in any country or specified territory outside India is obtained by him from the government of that country or specified territory.

A similar provision has been inserted in sub-Section (4) of Section 90A of the Act and pursuant thereto, the CBDT notification seeks to insert Rule 21BA and Forms 10FA and 10FB specifying the manner in which the TRC should be obtained.

Accordingly, the TRC to be obtained by an assessee for availing himself of tax benefits shall contain the name of the assessee along with status — whether it is an individual or a company — the nationality (in case of individual) and the country wherein the company or firm is registered or incorporated. 

This apart, the TRC should have the tax identification number (TIN) of the assessee, its residential status for the purposes of tax, the period for which the TRC is applicable and the address of the assessee for that period. Also, the certificate shall be duly verified by the government of the country or the specified territory of which the assessee claims to be a resident for the purposes of tax. A clause in the various DTAAs that India has entered into, the assessee can take the advantage of paying capital gains tax in either of the two nations, wherever the rate of the levy is lower. Thus, the interplay of treaty and domestic legislation ensures that a taxpayer, who is resident of one of the contracting countries to the treaty, is entitled to claim applicability of beneficial provisions either of treaty or of the domestic law.

Chidambaram lowers taxes on overseas borrowings

http://businesstoday.intoday.in/story/chidambaram-lowers-taxes-on-overseas-borrowings/1/188286.html

The government on Friday reduced tax on overseas borrowings by domestic companies to 5 per cent from 20 per cent so that local companies could easily raise funds abroad.

Finance Minister P. Chidambaram said the reduced tax rate will be applicable to the funds borrowed between July 2012 and June 2015.

This lower rate of taxation will apply to interest paid to a non-resident by an Indian company for money borrowed in foreign currency from a source outside India, either under a loan agreement or by way of long-term infrastructure bonds.

Chidambaram said appropriate amendments would be made in the Income Tax Act, 1961, under which the interest income of a non-resident investor will be taxed at the reduced rate.

Rupee may fall by another 4% as forex loan paybacks loom

http://economictimes.indiatimes.com/markets/forex/rupee-may-fall-by-another-4-as-forex-loan-paybacks-loom/articleshow/16358821.cms

The relative calm in the currency market may be disturbed in the next few weeks as corporate demand to repay about $8 billion of maturing loans and a likely slowdown of inflows due to revival of troubles in Europe put pressure on the rupee. 

The currency, which acquired the distinction of being the worst performer in the region last year, may tumble about 4% as the demand for the greenback remains strong and also because of high crude oil imports as the government continues to dither in passing on high prices to customers. 

With the central bank maintaining that its strategy is to avoid volatility in the currency market and not target a particular level, economists, including Indranil Sengupta at Bank of America Merrill Lynch, expect a steady fall to at least 57 to the US dollar. 

"ECB redemption will weaken the rupee, but if there is some policy action being taken on the FDI front by the government, then we could see some flows to offset the negative bias," said Naveen Raghuvanshi, AVP,Development Credit Bank. 

Foreign loans, including convertible bonds, worth $8 billion, are estimated to come up for redemption in September and October, while loans worth $23 billion will have to be repaid by the end of the fiscal. With inflows likely to thin down if fresh troubles brew in Europe, Greece is struggling to meet the austerity measures and a German court is expected to rule on the European bailout package. 

Heavy FII inflows since January hint at round-tripping

http://economictimes.indiatimes.com/news/economy/finance/heavy-fii-inflows-since-january-hint-at-round-tripping/articleshow/16344327.cms

 Few on the Dalal Street have bothered to question the quality of foreign flows into Indian stocks in the last few months. The reasons could be lack of evidence or reluctance to become the party-pooper. 

But, as Indian stocks attract fresh flows in 2012 - the highest among Asian peers - despite the economic slowdown and threat of a sovereign ratings downgrade, a section of the market is raising questions about the source of the rush of overseas money into the nation's equity market this year. 

Sebi data shows Indian stocks attracted foreign institutional flows worth about $12 billion since January. While Sebi foreign inflow data does not give investor category details, brokers catering to foreign institutions said a bulk of this money has come from exchange-traded funds (ETFs) and India-dedicated funds on hopes the government will revive the investment climate in the country. 

But, data from EPFR, a global fund flow tracker, shows foreign funds have invested about $1.1 billion so far this year. EPFR, which tracks $17 trillion in total assets across global funds, calculates investments by global funds, Asia funds, emerging market funds, exchange-traded funds and foreign mutual funds, according to its website. Sebi's foreign institutional investor (FII) data includes investments other than institutional money. 

"There are two major challenges here: data accuracy, with questions about Sebi's methodology, and the heterogeneous nature of FII flows which frankly includes round-tripping of money through Mauritius and return of black money through the FII route in response to perceptions about the rupee value," said Nick Paulson-Ellis, country head of Portugese broking firm Espirito Santo, which released a report titled "Where is the money coming from" on Monday. 

Round-tripping involves routing of resident Indians' illicit money back into the country, mostly through tax-friendly nations like Mauritius, to avoid taxes. The previous finance minister Pranab Mukherjee had introduced the controversial General Anti-Avoidance Rule (GAAR) mainly to prevent structures in Mauritius aimed at avoiding taxes. 

But, the committee led by tax expert and economist Parthasarathi Shome has recommended deferring GAAR and doing away with many of the tax proposals in the original document. Out of the $12 billion that flowed into Indian stocks so far this year, it is difficult to account for $5-6 billion of the money, said Sanjeev Prasad, senior executive director and co-head, institutional equities, Kotak Securities. 

Remittances to India rise to $66 bn in FY12

http://businesstoday.intoday.in/story/remittances-india-growth/1/187897.html

India received over $66.13 billion in remittances in the year 2011-12 as compared to $55.62 billion in the previous, a hike of 19 per cent.

"We have received $66.13 billion in remittances in 2011-12," Minister for Overseas Indian Affairs Vayalar Ravi said on Friday in a written reply to a question in Lok Sabha.

The remittances to the country through private transfer of funds have been on the rise in the last few years.

India received $53.63 billion in 2009-10 while in 2008-09, the amount was $46.9 billion.

Quoting a recent study conducted by Reserve Bank of India, he said remittances from Gulf countries accounted for an average 27 per cent of the total remittances to India during the first half of 2009-10.

Forex reserves rise $282 million

http://www.thehindubusinessline.com/industry-and-economy/banking/article3871175.ece

Foreign exchange reserves rose $282 million during the week ended August 31, to $290.46 billion.

In the previous week ended August 24, the reserves stood at $290.18 billion.

The forex reserves comprise foreign currency assets, gold reserves, SDRs (Special Drawing Rights) and reserve tranche position in the IMF.

The increase in reserves during the week was mainly on account of the value of gold reserves going up by $524.7 million. This increase could be attributed to the recent rise in gold prices in the international markets.

The foreign currency assets, which constitute almost 89 per cent of the total reserves, decreased $252 million to $257.62 billion during the week.

Since March-end, the reserves have come down by $3.93 billion.

RBI permits investment in Pakistan by India Inc

http://www.financialexpress.com/news/rbi-permits-investment-in-pakistan-by-india-inc/999502/

Reserve Bank today permitted Indians to invest in Pakistan, a move which will help enhance bilateral trade and investment.

The RBI notification comes on a day when Indian External Affairs Minister S M Krishna is visiting Pakistan aimed at strengthening bilateral relations.

"It has now been decided that the overseas direct investment by Indian parties in Pakistan shall henceforth be considered under the approval route," RBI said in a notification.The moves comes days after India allowed investment from Pakistan.

"Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security), Regulations, 2004 are being issued separately," the RBI said.

Bilateral trade between the neighbours stood at about USD 3 billion and is expected to reach USD 6 billion in the next three years. Earlier, Pakistan had expressed concern over certain issues related with investments from India.

Britain announces LIBOR overhaul

http://www.thehindubusinessline.com/industry-and-economy/banking/article3751012.ece

British regulatory authorities are preparing to overhaul Libor, the now discredited interbank lending rate that serves as a benchmark for the pricing of trillions of dollars of assets globally.

The review of the London Interbank Offered Rate will be led Martin Wheatley, the managing director of the Financial Services Authority who will make his recommendations to the government, for inclusion in a financial services bill. He warned that the attempts to manipulate the rate by banks, details and the scale of which have only begun to be apparent in the last couple of months, had cast a shadow over the entire financial services industry.

He added that aside from the reforms to Libor itself, it was necessary to consider alternative benchmarks for at least some transactions that now rely on Libor.

The review will examine whether banks should be required to submit actual figures on the trades they make rather than the notional data as well as an improved governance system. It will also look at the current systems for tackling abuse, including the possible use of criminal sanctions. Thirdly, it will look at other price setting mechanisms used in the market, and whether they would need policy changes too.

The British Bankers Association, currently responsible for collating and overseeing Libor said it was pro-actively cooperating with regulatory authorities, and that the absolute priority of everyone was to ensure the provision of a reliable benchmark.

Some $350 trillion of derivative contracts and $10 trillion of loans are now indexed to Libor globally, it is estimated.

Forex reserves up at $289.15 b

India’s foreign exchange reserves rose by about $502 million in the week ended August 3.

The forex reserves, comprising predominantly foreign currency and gold stood at $289.15 billion.

The reserves stood at $288.64 billion for the week ended July 27.

Since March-end 2012, the country’s forex reserves have dipped by about $5.2 billion.

Exports reduce by 5.45% in June 2012

http://businesstoday.intoday.in/story/exports-dip-in-june/1/186871.html

India's export growth declined 5.45 per cent in June for the second month in a row, to $25 billion.

Besides, reflecting slowdown in the domestic economy, imports too dipped sharply by 13.46 per cent to $35.37 billion, from $40.8 billion in June 2011, resulting in a narrower trade deficit of $10.3 billion for the month.

According to the data released by the Commerce Ministry on Wednesday, exports during the April-June quarter of 2012-13 fiscal dipped by 1.7 per cent to $75.2 billion, from $76.5 billion in the same period last fiscal.

Commerce Secretary S R Rao has said the markets in the euro zone, the US, China and Japan are still not showing healthy growth and these are signs of global recession.

Imports during the first quarter of this fiscal dipped by 6.10 per cent to $115.25 billion, from $122.74 billion in the April-June period of last fiscal.

Trade deficit during the quarter stood at $40 billion.

India's forex reserves rise by $1.31 bn - week ending 27 Jul 2012

http://businesstoday.intoday.in/story/indias-forex-reserves-rise-by-$1.31-billion/1/186942.html

India's foreign exchange (forex) reserves grew by $1.31 billion to $288.64 billion for the week ended July 27, Reserve Bank of India (RBI) data showed.

The forex had earlier risen by $589 million to $287.34 billion for the week ended July 20, 2012. The country's forex reserves had declined by $872.7 million in the week ended July 13, 2012.

Foreign currency assets, the biggest component of the forex reserves kitty, increased by $1.29 billion to $256.39 billion for the week under review, according to weekly statistical supplement released by RBI.

The foreign currency assets had risen by $565.5 million to $255.10 billion for the week ended June 20.

RBI relaxes restrictions for exporters on foreign exchange earnings

http://www.thehindubusinessline.com/industry-and-economy/banking/article3708171.ece

The Reserve Bank of India relaxed some of the restrictions it had placed on the foreign exchange market over the last six months.

On Tuesday, it allowed exporters to retain all their foreign exchange earnings in foreign currency, for a limited period. It allowed them to partially cancel and rebook forward contracts.

In May, the RBI had ordered that only half of the foreign exchange earnings could be held as it is in foreign currency in Exchange Earner’s Foreign Currency (EEFC) account.

The move was aimed at stemming the rapid depreciation in the rupee against the dollar

On Tuesday, the RBI gave partial relief to companies by allowing them to retain the entire foreign exchange earnings in EEFC account, but for a limited period only. The foreign currency has to be converted in to rupee on the last day of the month following the month in which the money is received.

For instance, if $1,000 is received on June 14, 2012, it can be parked in EEFC account only till July 31, 2012.

The amount converted to rupee can, however, be reduced to the extent of payment commitments in foreign currency of the company.

Adopt e-documents to help exporters, banks urged

http://www.thehindubusinessline.com/industry-and-economy/article3692856.ece

Banks must adopt the electronic Bank Realisation Certificate as this will reduce transaction costs for exporters and make them competitive, said Mr S.R. Rao, Commerce Secretary, Ministry of Commerce.

This involves electronic transmission of documents and details on foreign exchange realisation on exports from banks to the Directorate General of Foreign Trade (DGFT).

“The Government has a firm endeavour and commitment to make our exports competitive vis-à-vis competition from other markets. Policy attempts are being made to reduce transaction costs substantially,” said Mr Rao.

Currently, exporters get a manual certificate from banks. “eBRC will not only bring down transaction costs but it will also reduce paper work. It will be particularly useful for small exporters,” said Mr Rao.

Reserve Bank eases derivatives exposure guidelines for banks

http://www.financialexpress.com/news/reserve-bank-eases-derivatives-exposure-guidelines-for-banks/978480/

The Reserve Bank of India (RBI) on Monday eased the norms for banks to restructure derivatives contracts by allowing them to partially or fully terminate the contract before maturity.

Such termination would not be treated as restructuring of the contract provided all other parameters are unchanged, the central bank said. Therefore, banks need not settle mark-to-market value at the time of termination through cash, RBI said.

‘In such cases, if the MTM value of the derivative contract is not cash settled, banks may permit payment in instalments of the crystallised MTM of such derivative contracts (including Forex Forward Contracts),’ the central bank said in a notice. The RBI has allowed banks to recover the mark-to-market hit in instalments from their clients, subject to some conditions.

The central bank said that banks must have a board approved policy for the same.

Forex reserves drop by $2.36 b

India’s foreign exchange reserves declined by $2.36 billion in the week ended July 6 compared with an increase of $1.36 billion in the week ended June 29. 


As on July 6, the forex reserves stood at to $287.62 billion against $289.99 billion in the prior week. The reserves fell mainly because of the steep $2.32 billion drop in foreign currency assets. Changes in foreign currency assets expressed in US dollar terms include the effect of appreciation/depreciation of non-US currencies (such as the Euro, Sterling, and Yen) held in reserves, an RBI statement said. 


In the week under review, the rupee was more or less stable against the dollar. It opened at 55.56 on July 2 and closed at 55.44 on July 6. Since the beginning of the current fiscal (April 2012), India’s forex reserves have declined by about $6.8 billion.