Indias Financial Sector Will Not Be The Same Again After The

A. Corporates/Businesses - Residents

1. Issuing foreign currency denominated bonds to residents (only rupee settlement) and investing in foreign currency denominated bonds and deposits

2. Financial capital transfers abroad including for opening current/chequeable accounts.

3. Accessing capital markets abroad through GDRs & ADRs/ other forms of equity issues.

4. External Commercial Borrowings (ECB)

5. Foreign Currency Convertible Bonds/Floating Rate Notes

6. Loans from non-residents

7. Joint ventures/wholly owned subsidiaries abroad

8. Project Exports

9. Establishment of offices abroad

10. EEFC accounts for exporters and exchange earners

B. Corporates - Non Residents & OCBs

1. Foreign Direct Investment (FDI)

2. Portfolio Investment in India through stock exchanges in shares/debentures.

 

3. Disinvestments

BANKS

A. Banks - Residents

1. Loans and borrowings from overseas banks and correspondents including overdrafts in nostro account

2. Investments in overseas markets

3. Fund based /non fund based facilities to Indian joint ventures and wholly owned subsidiaries abroad.

B. Banks - Non Residents

1. Rupee Accounts of non resident banks

III. NON BANKS - FINANCIAL

A. Non Banks - Financial - Residents

1. SEBI registered Institutional investors (including MFs) investments overseas

2. All India Financial Institutions

Non Banks - Non Residents

1. FIIs

(a) Portfolio Investment

(b) Primary market investment/pvt placement

(c) Disinvestment

(d) Investments in debt instruments

IV. INDIVIDUALS

A Individuals-Residents

1. Foreign currency deposits with banks/corporates in India (only rupee settlement)

2. Financial capital transfers including for opening current/chequeable accounts

3. Loans from non residents

B. Individuals : Non Residents

1. Capital transfers from non repatriable assets held in India (including NRO and NRNR RD accounts)

*2. Foreign Direct Investment in India (FDI) (other than in real estate)

3. Portfolio Investment in India through stock exchanges.

4. Disinvestment

V. FINANCIAL MARKETS

1. Foreign Exchange Market

(a) Forward contracts

(b) Authorised dealers

(c) Products

2. Money Market

3. Government Securities Market

4. Gold

5. Participation in international commodity Present position

Not permitted.

Not permitted.

Permitted individually by Government. Approval under FERA given by RBI.

ECB are subject to overall ceiling with sub-ceilings as indicated below:

(i) Import linked short-term loans (Buyers/Suppliers credit) for less than 3 years (i.e. 35 months) approved by RBI subject to sub- ceiling fixed by Government. ii) Loans beyond 35 months approved by Government. iii) US $ 3 million for a minimum period of 3 years for business related expenses including financing rupee cost o the project - approved by RBI within sub-ceiling fixed by Government. iv) Government approved loans

Permitted individually by Government within overall ECB ceiling.

Allowed by RBI on a case-by-case basis for loans from NRIs on non-repatriable basis with restrictions on interest payment and end-use.

Proposals for investments up to US $ 4 million are cleared by the RBI. The extent of outflow is dependent upon the export performance of the Indian promoter and capability for repatriation by way of dividend, etc. within a period of five years. Cases not covered by these criteria are cleared by a Special Committee. Balances in EEFC accounts can be used for investments upto US $ 15 million without the specific approval of RBI.

RBI prior approval for variety of purposes while executing the projects abroad.

Powers given to ADs to allow remittances for exporters with an average annual export turnover of Rs.150 lakhs and above to open epresentative/non-trading offices. Further, EEFC account holders can utilise their balances without any restriction for establishing any type of offices. Other cases require RBI approval.

50% for EOUs and 25% for others- restrictions on use of funds for current account and permitted capital account transactions.

Currently OCBs are allowed facilities similar to NRIs. Other corporates are allowed to invest up to various proportions with RBI/Government approval under the FDI policy of the Government.

Allowed within the 24% limit (can be increased to 30%) which includes portfolio investment by NRIs, FIIs & OCBs subject to approval by the RBI which is valid for a period of five years. The investment restricted to 1% by individual NRIs/OCBs and 10% by individual FIIs. Corporates, other than OCBs and FIIs, are not permitted.

RBI okay needed except where sales are made through stock exchange under portfolio investment scheme.

ADs are permitted to borrow up to US $ 10 million from their overseas offices/correspondents without any conditions on end use and repayment of such borrowings.

Banks allowed to invest in overseas money markets up to $ 10 million. Cleared by RBI/Special Committee.

Used only for merchant based transactions - investments not allowed. Overdrafts allowed upto Rs. 150 lakhs for normal business requirements for temporary periods.

Not allowed

Borrowings from overseas markets or investments abroad subject to RBI/Government prior approval

(a) Investments in secondary market allowed for Sebi registered FIIs. Including portfolio investment by NRIs, FIIs and OCBs with a 10 per cent limit for individual FIIs and 1 per cent by individual NRIs/OCBs. FERA approval is given by RBI which is valid for a period of five years.

(b) Primary market offering/private placement allowed with RBI approval up to 15% of the new issue/capital.

(i) Disinvestment through SEs allowed freely. (ii) Other routes of disinvestment require RBI approval

Permitted to invest in dated Govt securities of Central and State Govt (excluding T-Bills) both in primary and secondary markets. ECB ceiling includes FII investment in Re debt instruments. The Debt Funds of FIIs are also allowed to invest in corporate debt securities listed or to be listed. FIIs can invest in equity and debt in 70:30 ratio , Debt Funds of FIIs can invest upto 100 per cent in debt instruments subject to to Sebis ceiling.

Not permitted.

Not permitted.

Residents are allowed to obtain interest free loans on non repatriation basis from non resident relatives for personal and business purposes other than investment. Other cases need RBI approval.

Not allowed; however, a few cases allowed on sympathetic grounds

a) FDI for NRIs with repatriation benefits are to be cleared by RBI/Government under FDI policy.

Allowed to NRIs within the 24 per cent ceiling (can be increased to 30 per cent at the option of the company) which includes portfolio investment by NRIs, FIIs and OCBs subject to RBI approval given for a period of five years. The investment restricted to 1 per cent by individual NRIs/OCBs and 10 per cent by individual FIIs.

Disinvestment to be approved by RBI except sales through SEs under portfolio investment scheme

(a) Forward contracts are allowed to be booked on the basis of business projections in respect of exporters and importers. Also forward cover allowed for non residents for limited purposes such as dividend remittance and freight/passage collections.

(b) Authorised dealers at present are only banks.

(c) Currently the only derivative in the rupee $ market is the forward contract. ADs have been allowed to enter into Rupee/$ currency swaps with counterparties in India subject to open position and gap limits. Cross currency derivatives and interest rate derivatives allowed for covering underlying exposures - to be routed through ADs

Banks allowed to lend and borrow freely. FIsallowed to lend with no limit/ allowed to borrow within small limits. Others allowed to lend to primary dealers for minimum amount of Rs.10 crores. MFs participate only as lenders. Residual restrictions on deposit rates applicable to public deposits; minimum period for CDs/MMMFs/fixed deposits specified.

A number of measures have been taken to strengthen the market for Government securities such as a move towards market related rates of interest, introduction of auctions and new instruments and measures to develop the secondary market through Primary Dealers (PDs) and Satellite Dealers (SDs).

At present, there are restrictions on import of gold. There are only three channels through which import of gold is allowed (i) through canalising agencies (ii) through returning NRIs and (iii) through special import licences.

Not allowed

Phase I (1997-98)

To be permitted without any ceiling.

$ 25,000 per annum.

No approval to be taken from RBI/Government. Reporting within 30 days from close of issue.

Queuing for purposes of implementing ceiling on ECB while ensuring that relatively smaller borrowers are not crowded out by a few very large borrowers. No restrictions on end use of funds.

Loans for periods with average maturity of 10 years and above to be kept outside the ceiling.

To be within ECB ceiling with same procedure viz. queuing vide item 4

To be allowed to borrow up to $ 250,000 per entity with payment of interest not exceeding LIBOR without restriction on period of loan, use of funds and repatriation of loan/interest.

Direct investments abroad to be allowed for ventures up to $ 50 million by ADs subject to transparent guidelines to be laid out by the RBI. Above $ 50 million through Special Committee. The current stipulation on repatriation of earnings by way of dividend etc. within a specified time period should be removed. JVs/WOSs can be set up by all parties and not restricted only to exporters/exchange earners.

Requirement of prior approval by the RBI may be dispensed with subject to reporting to the RBI.

Any corporate entity may open offices abroad without the need for prior approval from RBI. Capital expenditure towards opening of the offices and current expenditure for maintenance could be subject to overall value limits to be allowed by ADs.

100 % of earnings for all exporters/exchange earners to be allowed to be held in EEFC accounts in India. Use of funds allowed for current and permitted capital account transactions with cheque writing facility.

Prior approval of RBI not required for FDI. Reporting by ADs to the RBI

To be allowed to all non-residents without prior approval by RBI. Designated ADs should be required to report to the RBI.

RBI approval to be dispensed with.

(i) Each bank may be allowed to borrow from overseas markets, short- term (up to one year) and long-term (over one year), to the extent of 50 per cent of the unimpaired Tier I capital with a sub limit of one third (i.e. 16.67 per cent of unimpaired Tier I capital) for short-term borrowings. (ii) No restrictions on use of funds and repayment. Prudential norms regarding open position and gap limits to continue.

Investments may be in overseas money markets, mutual funds and foreign securities. To be allowed subject only to (i) requirements of Section 25 of BR Act 1949* (ii) open position/gap limits.

To be left to banks discretion - only restriction to be Section 25 of BR Act

Forward cover to be allowed to the extent of balances. Cancelling/ rebooking to be allowed. The present overdraft limit could be increased and limited investments may be allowed in rupee accounts

Overall ceiling of $500 million and the ceiling should be so operated that a few large funds do not pre-empt the overall amount.

(i) Borrowings more than one year to continue within ECB ceiling with Government approval.

(ii) Short-term borrowings to be allowed subject to limits. Investments in short term instruments to be permitted within limits up to the extent of liabilities maturing within one month.

To be allowed without RBI prior approval. Designated ADs would be required to report to RBI

(b) RBI approval not required. Designated ADs to report to the RBI.

(ii) RBI approval for disinvestment to be dispensed with.

Maturity restrictions on investments in debt instruments (including treasury bills) to be removed. FII investments in rupee debt securities to be kept outside ECB ceiling but could be part of a separate ceiling.

To be permitted without ceiling

$ 25,000 per annum

Residents to be allowed to take loans from non residents up to $ 250,000 per individual with payment of interest not exceeding LIBOR, without restrictions on period of loan, repatriation of principal/interest and use of funds.

$25,000 per year

No RBI permission for FDI subject to reporting by ADs.

Allowed to all non-residents without RBI prior approval. Designated ADs would be required to report to RBI.

RBI approval to be dispensed with.

(a) To allow spot market players participate in the forward market; FIIs, non residents and non resident banks having Re assets can be allowed forward cover to the extent of their assets in India. Banks to be allowed to quote two way in Re to overseas banks/correspondents both spot and forward subject to their position/gap limits. Those with economic exposures to be allowed to participate in forward market.

(b) All India FIs which comply with the regulatory/prudential requirements and fulfill well defined criteria should be allowed to participate as full-fledged ADs in the forex market.

c) All derivatives including rupee based derivatives to be allowed. Futures in currencies and interest rates to be introduced with the system of screen-based trading and an efficient settlement mechanism.

Market segmentation to be removed. Deposit rates to be deregulated and minimum period restrictions to be removed. Restrictions on participants in the money market to be freed. Level playing field for all banks, FIs and NBFCs regarding reserve requirements and prudential norms.

(i) Access to FIIs in Treasury bill market. (ii) RBI to develop Treasury bill market offering two-way quotes. (iii) Government Securities (including Treasury bills) futures to be introduced. (iv) RBI to provide Liquidity Adjustment Facility to PDs through Repos and Reverse Repos. (v) Dedicated gilt funds to be given strong and exclusive fiscal incentives (vi) Number of PDs and SDs to increase. Progressive increase in share of PDs in underwriting. Commission to PDs to be related to underwriting commitment. (vii) Government to initiate action for setting up of an Office of Public Debt (OPD) (viii) Delivery Versus Payment (DVP) system to be fully automated for all securities on a real time basis with proper safeguards for ensuring that risks are controlled.

(i) Banks and FIs fulfilling criteria to be allowed to operate freely both in domestic and international

markets.

(ii) Sale of gold by banks and FIs included under (i) above to be freely allowed to all residents.

(iii) Banks to be allowed to offer gold denominated deposits and loans. (iv) Banks fulfilling well-defined

criteria may be allowed to mobilise household gold and provide working capital gold loans to jewellery

manufacturers as also traders. (v) Banks may be allowed to offer deposit schemes akin to GAPs(gold

accumulation plans)

To be allowed Phase II (1998-99)

Same as Phase I.

$ 50,000 per annum.

Same as Phase I.

Same as Phase I except for loans with average maturity of 7 years and above to be outside ceiling.

Same as Phase I

To be allowed to borrow up to $ 500,000 per entity with payment of interest not exceeding LIBOR without restriction.

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I except that the ceiling will be 75 per cent of unimpaired Tier I capital with a sub-limit of one third (i.e. 25 per cent) for short- term borrowings.

Same as Phase I

Same as Phase I

Same as Phase I

Overall ceiling of $1 billion.

(i) Same as Phase I

(ii) Short-term borrowings to be allowed subject to limits. Investments in short term instruments to bepermitted within limits

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

$ 50,000 per annum

Residents to be allowed to take loans from non-residents up to $ 500,000 per individual with payment of interest not exceeding LIBOR, without restrictions.

$50,000 per year

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

(c) Direct access to overseas markets by corporates for derivatives without routing through ADs Phase I to continue.

Same as Phase I

(i) The OPD to take up part of issue of dated securities and all Treasury bills.

(ii) RBI to discontinue participation in 91 day Treasury bill primary auctions and it should only participate in the secondary market. (iii) Number of PDs and SDs to be further increased

Steps to be taken by Govt and the RBI for developing a well regulated market in India for gold and gold derivatives including forward trading. Both residents and non residents to be allowed to operate.

Same as Phase I

Phase III (1999-2000)

Same as Phase I.

$ 100,000 per annum.

Same as Phase I.

Same as Phase II.

Same as Phase II.

To be allowed to borrow up to $ 1 million per entity with payment of interest not exceeding LIBOR without restriction.

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I with additional provision that EEFC accounts can be held with banks outside India.

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I except that the ceiling will be 100 per cent of unimpaired Tier I capital with a sub-limit of one third (i.e. 33.33 per cent) for short- term borrowings.

Same as Phase I

Same as Phase I

Non resident banks may be allowed to freely open rupee accounts with banks in India without any restrictions.

Overall ceiling of $2 billion.

(i) Same as Phase I

(ii) Short-term borrowings to be allowed subject to limits. Investments in short term instruments to be permitted within limits.

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

$ 100,000 per annum

Residents to be allowed to take loans from non-residents up to $ 1 million per individual with payment of interest not exceeding LIBOR, without restrictions.

$100,000 per year

Same as Phase I

Same as Phase I

Same as Phase I

Same as Phase I

No restrictions on participants in spot/forward markets i.e. participation allowed without any underlying exposure.

(b) To allow select NBFCs to act as full fledged authorised dealers on basis of criteria similar to FIs.

Same as Phase I & II

Same as Phase I

(i) The OPD to take full responsibility for primary issues of all T- bills and dated securities. (ii) Full underwriting of issues by PDs with RBI discontinuing participation in primary market for dated securities.

Same as Phase I & II

Same as Phase I