RBI PANEL’S RECOMMENDATION

The Reserve Bank of India (RBI) panel on priority sector lending proposed increment in the target (priority sector) for foreign banks to 40%of net bank credit from the current level of 32 per cent with sub-targets of 15 per cent for exports and 15 per cent for the MSE sector. In the MSE sector 7 per cent of net bank credit is to be earmarked for micro enterprises. The committee, under the chairmanship of M. V. Nair, Chairman, Union Bank of India re-examined the existing classification and suggested revised guidelines with regard to priority sector lending and related issues.

Recommendations

The panel suggested focussed lending to small farmers and microenterprises who are excluded from formal financial channels.

Farm Sector

The committee noted that small and marginal farmers constituting more than 80% of total farmer households in the country face exclusion from formal financial channels. The committee suggested that the sector agriculture and allied activities be made a composite sector within the priority sector, by doing away with the distinction between direct and indirect agriculture. It suggested fixing of the targets for agriculture and allied activities at 18 per cent. A sub-target for small and marginal farmers within agriculture and allied activities equivalent to 9 per cent is to be achieved in stages by 2015-16.

MSE Sector

The MSE sector may continue to be under the priority sector. The panel recommended a sub-target for micro enterprises within the MSE sector equivalent to 7 per cent, which also is to be achieved in stages by 2013-14. Banks, as per the report should ensure that the number of outstanding beneficiary accounts register a minimum annual growth rate of 15%. The report called for a sub-target for micro enterprises of 7% of ANBC or CEOBE, whichever is higher to be achieved in stages by 2013-14. This would be within micro and small enterprises (MSE) covering almost 26 million units across the country.

Housing & education loans

The loans to housing and education may continue to be under the priority sector. It sugggested granting of loans for construction or purchase of one dwelling unit per individual up to Rs..25 lakh, loans up to Rs..2 lakh in rural and semi urban areas and up to Rs..5 lakh in other centres for repair of damaged dwelling units under the priority sector. To encourage construction of dwelling units for economically weaker sections and low income groups, housing loans granted to these individuals may be included in the weaker sections category. All loans to women under the priority sector may also be counted under loans to weaker sections. The limit under the priority sector for loans for studies in India may be increased to Rs..15 lakh and Rs..25 lakh in case of studies abroad, from the existing limit of Rs..10 lakh and Rs..20 lakh, respectively. The committee recommended allowing non-tradable priority sector lending certificates on a pilot basis with domestic scheduled commercial banks, foreign banks and regional rural banks as market players. The panel suggested making food and agro-based processing with an initial investment in plant and machinery up to R20 crore eligible for loans under priority sector and that there be no ceiling for loans for units that process perishable agriculture produce. The measure is expected to boost processing levels in India, which currently is extremely low at around 6% compared with over 30% inmost Asian and Latin American developing countries. The commmittee feels that limit for loans for studies in India should be increased to Rs. 15 lakh while for studies overseas, it should go up to Rs. 25 lakh, from the existing limits of Rs. 10 lakh and Rs. 20 lakh respectively. According to committee, the
Differential Rate of Interest (DRI) scheme has become obsolete and should be scrapped.

Bank Loans to Non-bank  Financial Intermediaries

The objective of reaching out to a large number of small and marginal farmer households and microenterprises in defined time-frame could be supplemented by allowing bank loans to non-bank financial intermediaries for on-lending to specified segments to be reckoned for classification under priority sector, up to a maximum of 5% of ANBC or CEOBE, whichever is higher. Further, allowing non-tradable Priority Sector Lending Certificates (PSLCs), on a pilot basis, that can be only transacted between domestic scheduled commercial banks, foreign banks and RRBs,may lead to the development of amarket for PSLCs, the committee feels.

BALTIC DRY INDEX PLUNGED TO ITS LOWEST LEVEL

The Baltic Dry Index, ameasure of shipping costs fordry bulk goods plunged to its lowest level after it touched 647 points on 3 February 2012. The lowest level was nearly 20 points lower than the  previous low of 663 points recorded during the 2008 global financial meltdown. In the past 26 years since the Baltic index came into being, the index had never slipped below650 points. The current fall recorded on 3 February 2012 in the Baltic raised serious concerns among shipping companies. The Baltic dry index was noticed to have fallen even in January 2012 though shipping analysts had predicted a recovery for the shipping sector in 2012. Sea-borne traffic was expected to rise 20-25% in 2012 from the 1500 level in 2011. However, the sea borne traffic that plunged by more than 62% in 2012 left analysts clueless about the much-expected recovery. China had declared a week-long holiday  for the lunar new year celebrations starting from23 to 28 January 2012 and the surplus iron ore inventory in the country further reduced the demand for  iron ore, affecting the struggling global
shipping sector. In addition, the adverse weather conditions in Brazil and two tropical cyclones in Australia also affected iron ore shipments and port operations.  The Baltic Dry Index which has been in existence since 1744 is issued daily by the UK-based Baltic Exchange. It tracks the worldwide international shipping prices of major raw materials and dry bulk cargoes by sea, including  grain, iron ore, coal and other fossil fuels. The BDI measures the shipping costs of these raw materials for four different sizes of merchant vessels on 26 different geographic routes and averages the min to one index. The index’s movements are closely tracked because
they reflect the demand for dry commodities from industries and consumers around the world. A higher demand for ships to transport dry cargo will obviously reflect in a strong index and vice versa. The index had dropped
below 700 points in 2009, at the peak of global economic slowdown, but had since picked up and never dropped below the 1,000-mark in the past three years. In 2009,when the Baltic had slipped to record lows, western economies slipped into recession and growth slowed down in emerging countries like China and India.

FDI POLICY FOR POWER EXCHANGES

Union finance ministry urged the department of industrial policy and promotion to design a FDI policy for power exchanges on the lines of commodity exchanges. The ministry strssed upon the urgent need for clear FDI regime for power exchanges. since power exchanges are akin to commodity exchanges, a similar structure is to be followed while designing the FDI policy for power exchange. Currently, FDI in power exchanges is not explicitly banned but the rules don’t provide for foreign investment on the lines of commodity exchanges. FDI is permitted in power exchanges up to 49%. Experts opined that a clarification is required to provide certainty and also emphasised on the need to relook at the negative list concept followed in the FDI policy as the foreign exchange management act works on positive list concept. A recent FDI proposal from Multiples Private Equity, promoted by Renuka Ramnath, to pick up minority stake in Financial Technologies promoted Indian Energy Exchange (IEX) prompted the ministry’s direction in this respect. The proposal was put on hold. Trading on the exchange is 100% physical delivery based and only 2% of the total generation is traded through any exchange. Currently, India has two power exchanges- Indian Energy Exchange, National Stock Exchange-promoted Power Exchange India. Policymakers are of the view that FDI policy should be rationalised and simplified to encourage overseas investment in sectors as the country needs foreign capital to support a 9% growth. Central Electricity and Regulatory Commission were till date supervising the inflows in the power sector.

TELECOM MISSION DECIDED TO ALLOW SHARING OF 2G SPECTRUM ONLY

The apex decision-making body of the communications ministry, the Telecom Commission decided to allow mobile phone companies to share spectrum. The Commission has however limited this facility to 2G airwaves alone. Second generation (2G) spectrum is largely used for offering vanilla voice services. The telecommnication companies cannot therefore share 3G spectrums. The Commission also decided to introduce slew of riders to govern spectrum sharing. The riders are as follows:

• Only those operators that have airwaves in a particular region can share it. Spectrum can be shared only between two spectrum holders. A non-licensee or licensee who has not been assigned spectrumas yet cannot be party to spectrumtrading.

• Two companies can share airwaves only if their combined holdings do not exceed the limits prescribed in the M&A norms. The Telecom Commission had recently approved sector regulator TRAI’s recommendation that during mergers, the combined entity be allowed to have up to 25% of the total airwaves inthe region.

• Spectrum sharing deals will also have to be renewed every five years.

• When operators share spectrum, both companies will have to pay usage charges on the total airwaves held jointly. Currently, operators share between 2% and 6% of their annual revenues based on the quantity of airwaves they hold.

• The telcos sharing spectrum must pay the government the commercial value of the airwaves it is using. It essentially means, an operator that has 4.4 MHz of airwaves, and is sharing radio frequencies with another telco  that has the same amount, must pay current prices for additional 4.4 units of spectrum it is using.

NABARD INTRODUCES NEW SYSTEM FOR FARMERS

The National Bank for Agriculture and Rural Development (NABARD) has introduced a Negotiable Warehouse Receipt (NWR) systemto help farmers avoid distress sale of their produces. NABARD chief general manager K.C. Shashidhar said the NWRs would enable small andmarginal farmers with Kisan Credit Cards to avail post-harvest loans at concessional interest rates and store their produce in warehouses against warehouse receipts. At present, concessional loan at 7 per cent interest is available to farmers as pre-harvest loan. However, in the case of postharvest loans, the farmers must pay commercial interest rates. The interest
subvention being offered now would be released through NABARD for the post-harvest loans granted by cooperative banks and regional rural banks.

SESA GOA ACQUIRED GOA ENERGY PRIVATE LIMITED

Sesa Goa Limited,amajority-owned sub sidiary of Vedanta Resources acquired Goa Energy Private Limited from Videocon Industries Limited in a 101 crore Rupees deal. Sesa Goa as per an agreement inked with Videocon Industries on 3 November 2011, had agreed to completely buy out Goa Energy Private Limited for the enterprise value of Rs. 101 crore on cash free debt-free basis, including normative working capital of Rs. 2.75
crore. Goa Energy Private Limited has underits ownershipa 30-MWwaste heat recovery power plant in Goa, which utilizes the waste heat and gases from Sesa Goa’s coke making and pig iron facilities.

KOMLI MEDIA ACQUIRED ADMAX

Asia Pacific’s leading media technology company, Komli Media acquired South EastAsia’s largest digital media network Admax Network .The fresh acquisition is set to provide Komli Media with the region’s largest and
most diverse publisher network of 4,600 local and international websites which includes Admax’s exclusive sales partnership with Facebook in Thailand, Indonesia and Philippines and with MSN in Thailand.

CIL SIGNED AGREEMENT WITH TRADE UNIONS

State-run Coal India (CIL) announced its decision to increase wages by 25%, which would put an additional burden of Rs.6,500 crore on the public sector unit. The hike is to benefit over 3.7 lakh workers of the world’s largest coal producer. An agreement was signed betweenits trade unions and CIL management for increase in the wages under which minimum guaranteed benefit would be 25% of gross as on 30 June 2011. The National Coal Wage Agreement was signed and will be of five years tenure with effect from 1 July 2011. Increase inbasic would be 88per cent, which will be reflected in all fixed allowances. As per the new pact, the house rent
allowance in non-urban areas would be two per cent of basic per month instead of fixed amount of Rs.150 a month.

STERLITE INDUSTRIES MERGED INTO SESA GOA

The mining giant Vedantamerged its Indian subsidiaries, Sterlite Industries into sister concern and iron  ore miner Sesa Goa. The merger is the part of company’s strategyto consolidate and simplify the structure of company
and eliminate cross holding. The move would also serve to improve capital structure of the company. Vedanta is a mining major led by Indian origin industrialist Anil Agarwal. Vedanta would hold 58.3 per cent in the new
company Sesa Sterlite. Sesa Sterlite would hold 58.9% stake in Cairn India.

DOMESTIC AIR CARRIERSTO DIRECTLY IMPORT AVIATION TURBINE FUEL

Director General of Foreign Trade [DGFT] issued a formal notification allowing the domestic airlines to directly import Aviation Turbine Fuel [ATF]. At present only state trading enterprises of the government are allowed to import ATF. The govern-ment’sdecisionto allow domestic airlines to import ATF on their own would help the carriers to bring down their operating cost as the tax imposed on ATF itself put a huge economic burden on the Airlines operating in India. The tax leviedon ATF by differentstates varies from 4% to above 32%across the country. This makes the  cost of ATF in India 50% more expensive than other developing economies.

FDI IN INDIA INCREASED BY 31% IN 2011

Foreign direct investment (FDI) in India went up by 31 per cent to 27.5 billion US Dollars in 2011 despite uncertain global economic slowdown and uncertainities. FDI inflows in 2010 totalled USD 21 billion. services,
telecom, housing and real estate, construction and power were the sectors that attracted maximum FDI in 2011. Mauritius, Singapore, theUS, the UK, the Netherlands, Japan, Germany and the UAE were found to be the major investors in India.

PMEA PANEL PROJECTED 7.5-8% GROWTH RATE

The Prime Minister’s Economic Advisory Panel (PMEAC) projected 7.5 - 8 per cent growth rate for the fiscal 2012-13. India is also expected to achieve a higher economic expansion if the global environment turns favour able. Indian economy was growing at over nine per cent before the financial meltdown of 2008 pulled down the growth rate to 6.7 per cent in 2008-09. The economy recorded a growth rate of 8.4 per cent in 2010-11, which according to the CSO estimates is expected tomoderate to 6.7 per cent in the current fiscal 2011-12. Asper the Review of Economy (2011-12) released, the growth rate in 2011-12 is likely to be 7.1%,marginally higher than 6.9 per cent projected by the Central Statistical Organisaton (CSO).

RBI CUT THE CRR BY 75 BASIS POINTS TO 4.75%

The Reserve Bank of India on 9 March 2012 cut the cash reserve ratio (CRR) by 75 basis points. TheCRR was cut to 4.75 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning 10March 2012. The RBI action will inject around Rs. 48,000 crore of primary liquidity into the banking system. The central bank agressively cut the CRR, the amount of cash that banks need to park with the RBI (or CRR) from5.50 per cent to 4.75 per cent of deposits to ease the liquidity crunchbeing facedby banks.The central bank had reduced the CRR from 6 per cent to 5.50 per cent of deposits in its third quarter review of monetary policy in January 2012.

FIRST NATIONWIDE ANNUAL INDIA CONSUMER PRICE INDEX RELEASED

As per the first nationwide retail inflation data released by the Centre of Statistical Office on 21 February 2012, inflation based on the all India Consumer Price Index stood at 7.65 per cent in January 2012. The annual consumer price index (CPI) data released for the first time measures retail prices in major food groups, fuel, clothing, housing and education across rural and urban India. While food and beverages reported a moderate rate of price rise of 4.11 per cent year-on-year in January, the inflation numbers for fuel and light, and clothing, bedding and footwear segments were in double digits. Overall retail inflation in rural and urban areas stood at 7.38 per cent and 8.25 per cent in January, respectively. Consumer price inflation for rural India (CPI-R) was recorded at 7.38%, for urban India (CPI-U), it stood at 8.25%. Beginning 21 February 2012, the union government will release the nation-wide Consumer Price Index (CPI) on a monthly basis for better reflection of retail price movement as well as help the Reserve Bank take effective monetary policy steps to tackle inflation. The new CPI will eventually replace the Wholesale Price Index (WPI) for policy actions to deal with the price situation.

IIP REGISTERED GROWTH OF 6.8 %

As per the data released by the ministry of statistics and programme implementation on 12 March 2012, Indian industrial sector registered a growth of 6.8 per cent in January 2012 on a year-on-year basis. The Index of Industrial Production (IIP) recorded a growth rate of 4 per cent growth for the period April-January 2012. Mining sector witnessed a contracted growth of 2.7 per cent in January 2012. Manufacturing sector, which makes up for the 75% of IIP, recorded an impressive growth of 8.5 per cent. Growth in Power sector and basic goods stood at 3.2 % and 1.6% respectively. Slowgrowth in the sectors like crude oil, refinery products, steel and cement deterred the overall growth scenario.

RBI CHANGEDTHE BANK RATE

The Reserve Bank of India (RBI) changed the bank rate, a medium-term signal rate after nine years. The bank rate, a benchmark rate at which RBI buys or re-discounts bills of exchange or other commercial papers eligible for purchase, was hiked with immediate effect to 9.5% from 6%. The bank rate will change whenever there is a change in the repo rate. The rate was raised with the objective to realign it with the marginal standing facility (MSF) rate as a one-time technical adjustment to link it with the main policy repo rate. Under the revised operating procedure, marginal standing facility, instituted at 100 bps above the policy repo rate, has been in operation. MSF is a special facility for banks to access overnight money up to 1%of their deposits. Banks raise this money at 9.5%.

RBI PARTIALLY LIFTED CURBS ON BANKS’ FOREIGN EXCHANGE TRANSACTIONS

The Reserve Bank of India partially lifted the curbs on banks’ foreign exchange transactions which it had imposed in December 2011. Several banks, including large lenders such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank and some public sector institutions were allowed to run higher net overnight open positions (NOP) in foreign exchange. The revised NOP caps are however still way below the earlier limits banks enjoyed before the restrictions were imposed in December 2011. Banks use the open position limits to carry out proprietary trades or buy and sell dollars to meet requirements of corporate clients. The open position limits differ from lender to lender depending on the size and level of treasury activity. Open positions also help banks meet customer needs. Banks usually buy some dollars on a given day to arrange funds for a corporate that has to pay for its imports the next day. The dollar bought captured under NOP lowers the cost and ensure availability of foreign exchange. Similarly, for a corporate looking to convert its dollar external commercial borrowings into rupees, the bank sell some dollars to other banks so the client can be offered a competitive conversion price. When the RBI brought in the curbs, a uniform limit of Rs. 50 crore was imposed on all banks. It must be noted that though the central bank has selectively raised the NOPs for many banks in the other restrictions on for extransactions have not been lifted.

4.3% GROWTH IN INDIA’S MERCHANDISE EXPORTS IN FEBRUARY 2012

As per data released by the Commerce Ministry on 9 March 2012, India’smerchandise exports in February grew only by 4.3 per cent to$24.6 billion due to poor overseas demand. Exports in February grew at the slowest pace in three months.The poor performance in the export sector was attributed to dip in demand for electronics, engineering and textiles goods in Europe. Imports outpaced exports and rose 20.6 per cent to $39.8 billion in February 2012 thereby moving the trade deficit to $15.2 billion. Imports however declined from $40.1 billion in January 2012. Meanwhile, exports during April 2011-February 2012 registered a 21.4 per cent growth to reach $267.4 billion, crossing $250.46 billion in the last financial year. Imports during this period grew at a faster pace of 29.4 per cent to $434.2 billion, widening the trade deficit to $166.8 billion. During April 2011-February 2012 exports recorded a 21.4 per cent growth to reach $267.4 billion, crossing $250.46 billion reached in 2010-11. Imports during April 2011-February 2012 period grew at a faster pace of 29.4 per cent to $434.2 billion, widening the trade deficit to $166.8 billion during the period. The main drivers of exports during April 2011-February 2012 were engineering, petroleum products and gems and jewellery.

NEW TELECOM POLICY ANNOUNCED

The New Telecom Policy was announced by communications minister Kapil Sibal. The key policy measures are aimed at reassuring incumbent operators who had been seeking clarity in rules at a time when the government is making every possible effort to put the scam-tainted telecomsector back on track.

Salient features of New Telecom Policy Policy

• The government decided to allow sharing of bandwidth and eased rules formergers and acquisitions (M&As) in the telecomsector. The maximum airwaves that companies canhold, also known as the prescribed limit,was enhanced to 8MHz inall regionsexceptDelhi andMumbai,where the cap is at 10 MHz.

• The new policy favours a unified licence regime and a uniform licence fee of 8% of an operator’s adjusted gross revenue (AGR) across all telecom service areas. telcos currently pay 6-10%of their AGR as license fees.

• The policy defined the exit policy permitting mergers between operators, which do not exceed 35% of the market share and 25% of the spectrum available in the sector.

• The policy allows spectrum sharing, too, though the government has refused to allow leasing and left a decision on spectrum trading for a later date. The sharing will initially be allowed for five years and could be renewed for another five on terms to be prescribed.

• Telecom regulkator TRAI had recommended that telecom companies could merge their operations if the combinedmarket share of the newentity is less than 60%.

• The department of telecom(DoT) prescribed a limit of 2x8 MHz to be assigned to a GSM service provider and 2x5MHz for CDMA players while renewing licences for another 10 years.

• Taking into consideration the higher density in the two key metros of Delhi andMumbai, the limitwill be 2x10MHz and 2x6.25 MHz for GSM and CDMA players, respectively.

• An operator can acquire additional spectrumbeyond these prescribed limits through a market mechanism. Operators keen to extend the licence will have to pay a fee of Rs. 2 crore for metro andA circles, Rs. 1 crore for B circles and Rs. 50 lakh for C circles.

RBI ISSUED CIRCULAR FOR DEPLOYMENT OF WLATMS

The Reserve Bank of India (RBI) issued the ‘Draft Circular for Deployment of White Label Automated Teller Machines (WL ATMs) from non bank entities. The central bank also announced its plans. The central banks’d issuance of the draft reflected the bank’s intention to accelerate the growth and penetration of ATMs in the country. ATMs rolled out by non-banks will be like White Label ATMs (WLA) and will provide ATM services to customers of all banks. WLA means ATM owned, run and maintained by third parties on a contract basis from a financial institution. The WLA operator can choose the location of the WLA. However, it will have to adhere to annual targets and the ratio of WLA between Tier I &II and Tier III-VI centres that may be stipulated by the RBI. Non-bank entities proposing to set up WLAs have to apply to the RBI seeking authorisation under the Payment and Settlement Systems Act 2007. The non-banking entities should have a minimum net worth of Rs. 100 crore at the time of making the application and on a continuing basis after issue of the requisite authorisation. Being non-bank owned ATMs, the guidelines on five free transactions in a month for using other bank ATMs will not be applicable for transactions made on the WLAs. The charges for the transactions have to be displayed on the screen before the customer initiates the transaction. The WLA operator will have to declare one Sponsor Bank, whichwill serve as the Settlement Bank for the settlement of all the service transactions at theWLAs. The Sponsor Bank should be a member of one of  the ATM networks authorised by the RBI and also be a member of the RTGS. At present only banksare permitted to setup Automated Teller Machines (ATMs) in India. Banks have played amajor role in encouraging ATM adoption and modifying behavioral strategies in the domain of personal banking.

VISA ON ARRIVAL SCHEME REGISTERED 72 % INCREASE

The number of foreigners availing Visa on Arrival (VoA) scheme registered 72 per cent increase in January 2012 as against January 2011. There were as many as 1359 foreigners, who availed themselves of the scheme in January compared with 790 in January 2011, registering a growth of 72 per cent. As a facilitative measure to attract more foreign tourists, the Government had launched Visa on Arrival scheme in January 2010 for citizens of five countries — Finland, Japan, Luxembourg, New Zealand and Singapore. The Government had extended the scheme to four more countries — Cambodia, Indonesia, Vietnam and the Philippines from January 2011. Therewere total 6.81 lakh foreign tourists in India in January against 6.24 lakh during the same month in 2011, registering a growth of 9.2 per cent. January 2012 also witnessed a growth of about 50 per cent inforeign exchange earnings and 9.2 per cent rise in foreign tourist arrivals in India. Forex earnings during January 2012 were Rs.8623 crore compared with Rs.5,777 crore in January 2011, a growth of 49.3 per cent.

CEC SUBMITTED FINAL REPORT ON ILLEGAL MINING

The Central Empowered Committee (CEC) set up by the Supreme Court to investigate illegal mining in Karnataka submitted its final report. The committee recommended the cancellation of leases of 49 mines that have violated the terms of their licence. It also recommended the auction of these leases. The report is likely to radically change the manner in which mining is done in the country and jeopardise planned investments in steel plants in the southern state. 45 mines cleared of any wrong doing is to bebe allowed to mine as soon as the ban is lifted while 72 other mines will resume only after they have paid penalties. The collected fines will be used to establish a Sustainable Mining Development Fund and set up dedicated mining infrastructure for the area. The CEC agreed with a report by the Council for Forest Research and Education that had recommended capping iron ore production in Karnataka’s at 30 million tonnes. The report had mentioned that 30 million tonnes was Karnataka’s so called carrying capacity, meaning that production beyond 30 million would cause irreparable damage to the environment.

ADVISORY GROUP ON ARF FAVOURED $20 BILLION LIMIT FOR INVESTMENTS BY FIIS

A government-appointed advisory group on asset reconstruction firms that submitted its report to Finance Minister Pranab Mukherjee favoured $20 billion limit for investments by foreign institutional investorsin security receipts (SRs) issued by securitisation firms. The report of the advisory group also recommended a subcap of 10% participation by foreign institutional investors in SRs be removed. Security receiptsare the ones issued by a securitisation company for a period of seven years to qualified institutional buyer or banks as they do not pay cash up front. The advisory group constituted to look into the condition of ARCs, in its report recommended that reconstruction firms should be allowed to buy performing loans from banks, arrange the min groups, and issue bonds on such groups or securitise in banking parlance. RBI rejected the proposal to allow ARCs deal with healthy assets. As per the RBI ARCs should only play the role of resolving only NPAs in the system and should not be allowed to deal in healthy assets. The committee however suggested that ARCs can hold these assets through Special Purpose Vehicles (SPVs), which will be regulated according to RBI guidelines. ARCs came into business after the government passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The primary purpose of an ARC is to help the banking system get rid of NPAs to avoid crisis in the financial system. The ARCs function by buying non-performing assets (NPAs) frombanks and financial institutions at a discount (mutually agreed upon) through a trust following which it recovers the outstanding amount, and earns a fee for managing the trust. The ARC show ever did not manage to taken off in India. The pace of new bad loans with banks far exceeded the amount transferred to ARCs. between March 2009 and March 2010, even as bad loans with banks increased by Rs. 15774 crore, transfers toARCs stood only at rs 10675 crore. Credit rating agency Crisil’s report in September 2011 projected gross non-performing assets (NPAs)- essentially, bad loans outstanding to touch 3% of assets in March 2012, against 2.3% in March 2011.

TRAI TO ACT LIKE A CIVIL COURT

The apex decision-making body of the communications ministry cleared the proposal to enable the Telecom Regulatory Authority of India (TRAI) to act like a civil court. The communication ministry’s decision to approve the proposal resulted in more powers for the watchdog. TRAI was thus put at par with the Securities and Exchange Board of India and the Competition Commission of India. TRAI had been argued that transferring the spectrummandate to it would ring in more transparency. With the power to act like a civil court it would be able to carry out regular audits and ensure this scarce national resource is used optimally. TRAI’s new powers are mentioned in the upcoming National Telecom Policy 2012. The telecom regulator can thus now summon persons, examine them on oath, demand documents and evidence on affidavits and, in appropriate cases, call for expert assistance inconducting. The Telecom Commission took a broad decision that the regulator, TRAImust be strengthened and must be empowered todischarge itsduties. TRAI had been demanding additional powers since2006, butits requestswere spurned by former telecom ministers A Raja and Dayanidhi Maran. It was however not clarified whether TRAI would be permitted to penalise operators for non-compliance of the terms and conditions of their licence.