Raghuram
Rajan appointed as the next RBI Governor
August 8th, 2013
August 8th, 2013
Raghuram Govind Rajan (50), who is
currently the Chief Economic Adviser to the Govt. of India,
has been appointed as Governor of the Reserve Bank of India (RBI) for 3 years.
He will take over from D. Subbarao who demits office on September 4, 2013. The
appointment was approved by Prime Minister Manmohan Singh.
Dr. Rajan, who is credited to have
correctly predicted the 2008 financial crisis, is set to take over the helm of
the central bank at a time when the economy
is grappling with a multi-pronged crisis of high consumer price inflation,
industrial slowdown, sharp depreciation of the rupee and a widening current
account deficit.
Arundhati
Bhattacharya is the new managing director of SBI
August 6th, 2013
The Govt. has
appointment Arundhati Bhattacharya has been appointed as the new managing
director of the State Bank of India
(SBI). Previously, Bhattacharya was the managing director of SBI Capital, the
merchant banking
arm of the bank.
Who
is SBI’s first woman MD (Managing Director)?
Ms Arundhati Bhattacharya will
be State Bank of India’s first woman managing director.
Who
was the first Woman MD (Managing Director) of a Public Sector bank in India?
The first woman MD of a Public
sector bank in India was Ms Ranjana Kumar. The Government of India
appointed Ms Ranjana Kumar as the Chairperson and managing
Director of the Indian Bank,
she became the first woman to become head of a public sector bank in India.
Some
other ladies who are at present heading banks in India:
Public Sector Banks:
- United Bank of India: Ms. Archana Bhargav (Chairman & MD)
- Allahabad Bank: Ms Shubhalakshmi Panse (Chairman & MD)
Private Sector Banks:
- ICICI Bank: Ms.Chanda Kochhar (MD & CEO)
- Axis Bank: Ms Shikha Sharma (MD & CEO)
Rajeev
Rishi appointed as Chairman and MD of Central Bank of India
August 6th, 2013
The Central Government has appointed
Rajeev Rishi, Executive Director, Indian Bank
has been appointed as the Chairman and Managing
Director, Central Bank of India.
He will have a tenure of five years from the date of taking over charge.
Prior to his appointment as Chairman & Managing Director
of Central Bank of India Shri Rishi was the Executive Director of Indian
Bank since October 2010.
RBI’s
cash-tightening measures to stay until Forex market stabilizes: Subbarao
August 4th, 2013
RBI Governor D Subbarao has defended the central bank’s 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 isn’t, then it can’t 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 India’s
professional forecaster’s survey. From the earlier estimation of 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 India, stated that the declining of the rupee is the biggest
risk to inflation.
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.
RBI’s 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
exchange inflows.
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.
India’s 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 London’s 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
London’s 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 People’s Bank of China
and its Central Bank promulgated 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 China’s 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 China’s lifting of control on
bank lending rates will affect its economy?
- A change in the China’s 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 China’s new jobs and wealth so this can bring a change.
- This will be a noteworthy development for China’s 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 RBI’s 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 Chartered 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 country’s largest bank,
State Bank of India, and other public sector banks such as Punjab
National Bank, Bank of India and Canara Bank. Earlier, three ‘new generation’
private banks were slapped with stiff 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 doesn’t 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 the External 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 RBI’s 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:
World’s 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 world’s 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:
- 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 Committee on 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:
- 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.
- Moderate risk (for banks, asset management companies, investment trusts, insurers, pension funds and university funds), not required to submit personal identification documents.
- 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 RBI’s 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
country’s 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.
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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 India’s 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 emigrated to other countries and the relatives of those emigrants. 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 University’s 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 country’s 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.
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