January -2014

Norms relaxed for participation of NBFCs in Insurance JVs

Reserve Bank of India (RBI) on 28 November 2013 relaxed norms for participation of Non-Banking Finance Companies (NBFCs) in the insurance joint ventures by allowing them to hold more than 50 percent in such companies. The notification of Reserve Bank of India has stated that - it has been decided that in cases where IRDA issues calls for capital infusion into the Insurance joint venture company, the RBI may, on a case to case basis, consider need based relaxation of the 50 percent group limit. The relaxation will be subject to compliance by the NBFC with all regulatory conditions. In the operation of Insurance Company, the IRDA often requires an insurance company to expand its capital taking into account the stipulations of the Insurance Act and the solvency requirements of the insurance company. The restriction of a group limit of the NBFC to 50 percent of the equity of the insurance joint venture company prescribed in the above mentioned circular may act as a constraint for the insurance company in meeting the requirement of IRDA.

RMS for Trade Facilitation in Export Sector Introduced

Union Finance Minister P.Chidambaram was on 13 November 2013 inaugurated the IT based Risk Management System (RMS) for the Customs clearance of export goods at New Delhi. Government has introduced RMS to enhance trade facilitation in export sector and to check smuggling of drugs, weapons and other illegal substances harmful to the country. RMS will also enable the Excise and Customs Department to enhance the level of facilitation and speed up the process of cargo clearance. The single window system of RMS will contribute to reduce in dwell time, by achieving the desired objective of reducing the transaction cost in order to make the business internationally competitive. The launch of RMS in exports covers 11 Customs stations at Bangalore, Chennai, Delhi, Hyderabad, Mumbai, Pune and Tutocorin. It would be extended to all EDI Customs stations by year end. Benefits are expected to accrue to the trade in terms of faster clearances and reduced transaction costs thereby enhancing the global competitiveness of our export goods.

Medium Manufacturing Enterprises to be included under Priority Sector

The Reserve Bank of India (RBI) on 26 November 2013 allowed banks to treat loans given to medium manufacturing enterprises after 13 November 2013 as priority sector advance. RBI stated that the step has been taken to provide enhanced liquidity support to the medium and small enterprises. The RBI also allowed incremental bank loans to medium services enterprises extended after 13 November 2013 to up to 100 million rupees and raised the loan limit given to micro and small service enterprises to 100 million rupees from 50 million rupees that will be treated as priority sector advance. This facility will remain open till 31 March 2014. Under priority sector advance, most banks have to lend 40 percent of their loans to agriculture, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sectors.

NIC got approval of 75 % Innovation Fund Corpus

The National Innovation Council (NInC) on 20 November 2013 got approval of 75 percent of the 500 crore rupees initial corpus of the upcoming India Innovation Fund (IIIF), which is an Indian model of innovation. IIIF will have contributions from Ministry of Finance, public sector banks (PSBs) and multilateral agencies and is being mobilized by NInC. The main objective of IIIF is to finance Enterprises focusing on the bottom of the pyramid that is, firms delivering goods and services to the poorest of the country. Multilateral agency, PSBs and financial institutions already gave commitment of 375 crore rupees and additional commitments to council, which mentioned in NInC annual “Report of the People 2013”. The launch date not yet decided though it is in its final stage of launching the fund. Minimum 50 percent of advances from the fund would be to micro, small and medium enterprises (MSMEs) in the first close. The fund will not invest more than 15 percent of the corpus in any single company to ensure spread of investment. The fund intends to partner with public R&D programmes and laboratories to support the commercialization and deployment of socially relevant technologies and solutions.

The fund would be registered with Securities and Exchange of India (SEBI). A pipeline of the potential investment prospects has been identified. A specialised core teamis also expected to be in place before the first closure. It is expected that the fund would be operational by the beginning of 2014. The fund may increase eventual size of 5000 crore rupees in the long term.

About National Innovation Council (NInC)

The National Innovation Council (NInC) was set up by the Prime Minister under chairmanship of Sam Pitroda, an adviser to PM on public information infrastructure and innovations (PIII). NInC will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country. The task of the National Innovation Council include formulating Roadmap for innovation for 2010-2020 and creating framework for evolving an Indian model of innovation, with focus on inclusive growth, encouraging central and state governments , universities and R&D institutions to innovate and to encourage the multi displinary and globally competitive approaches for innovations and others. The Council will also promote the setting up of State and Sector Innovation Councils to help implement strategies for innovation in Stated and Specified sectors.

Provision for Higher Sugar Export announced

The Union Government of India on 15 November 2013 announced the provision of higher sugar export with domestic production becoming surplus.

The condition of export of sugar has been relaxed by doubling the limit of the overseas shipment that sellers can register. The export of sugar has been doubled to 50000 tonnes from 25000 tonnes per application for registration was announced by the Directorate General of Foreign Trade. The sugar production of India is projected at 25 million tonnes in 2013-14, which is two million tonnes more than the domestic demand.

Third-party payment for Export and Import Transactions allowed

The Reserve Bank of India (RBI) on 8 November 2013 has allowed third party payment for the export and import transactions. The procedure relating to payments for exports or imports was liberalized taking into account the evolving international trade procedure. Banks are allowed to receive the payments for export of goods/software from the third party. The order of RBI also permits the banks to make payments to the third party for imports of goods. The third party refers to an entity other than the buyer or the seller. The procedure was liberalised taking into account the evolving international trade practices. However , banks would have to follow certain conditions in case of export transaction:

• Firm irrevocable order backed by a tripartite agreement should be in place

• Third party payment should come from a Financial Action Task Force (FATF) compliant country and through the banking channel only

• The exporter should declare the third party remittance in the Export Declaration Form;

• It would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF

• Reporting of outstandings, if any, in the XOS would continue to be shown against the name of the exporter. However, instead of the name of the overseas buyer from where the proceeds have to be realised, the name of the declared third party should appear in the XOS

• In case of shipments being made to a country in Group II of Restricted Cover Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be received from an Open Cover Country

The banks have been allowed to make payments for import transactions to a third party for import of goods , subject to conditions as under:

• Firm irrevocable purchase order / tripartite agreement should be in place

• Third party payment should be made to a Financial Action Task Force (FATF) compliant country and through the banking channel only

• The Invoice should contain a narration that the related payment has to be made to the (named) third party

• Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party

• Importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods

• The amount of an import transaction eligible for third party payment should not exceed USD 100,000. This limit will be revised as and when considered expedient

Banks to Charge customers on actual usage of SMS alerts

The Reserve Bank of India (RBI) on 26 November 2013 directed the banks to charge customers for the transaction SMS alerts on the basis of usage, instead of imposing a fixed fee. The RBI in its notification issued to all
banks has asked the banks to charge customers based on actual usage of SMS alerts, considering the technology available with banks to considering the technology available with banks and the telecom service
providers.

The notification has been done to ensure reasonableness and equity in the charges levied by banks for sending SMS alerts to customers. In its second quarter review of monetary policy 2013-14, the RBI had advised
banks to charge for SMS alerts on usage basis. Earlier, the Reserve Bank of India had set the guidelines for banks to send online alerts to the customers for all types of transactions, irrespective of the amount in March
2011.

Sale of 5 kg LPG cylinders extended to petrol pumps

The Government of India on 4 November 2013 decided to extend the sale of the non-subsidized 5 kg cooking gas (LPG) cylinders at petrol pumps across the country. The proposal to extend the scope of the scheme was approved by M. Veerappa Moily, the Union Minister of Petroleum and Natural Gas.Earlier, the scheme was in operation in Mumbai, Kolkata, Chennai and Bengaluru. The scheme was launched on 5 October 2013 by
Moily in Bangalore for sale in selected company owned and company operated petrol pumps in the four cities. The cylinders will be sold at market rates. The scheme will be delayed in poll bounding states like Delhi, Madhya Pradesh and Chhattisgarh. The scheme has allowed to sale the 5 kg LPG cylinders with just proof of Identity through Petrol Stations to students, IT professional, BPO employees and people with odd duty timings. As per the decision, the sale of the cylinders would be done with or without regulator for the first time. The cylinders will be charged 1000 rupees and the regulator will be available at 250 rupees. Whereas, the cost of refills of the LPG will be as per to the non-domestic rates applicable in the market. A 5 kg is sold at about 340 to 350 rupees.

Refinance window for the MSME extended to 5000 crore

The Reserve Bank of India on 18 November 2013 opened a 5000 crore rupees refinance window for MSME sector, for a period of one year to ease the liquidity. The view of easing the liquidity stress to the Micro and Small Enterprises sector was taken by the RBI to provide refinance to the small Industrial Development Bank of India. Basically the Micro and Small Enterprises sector is employment intensive and contributes significantly to exports. At present, the slowdown in the economy has resulted in the liquidity tightness in the MSEs in the manufacturing and services sector raising the need of liquidity support. The availability of the refinance facility will be till 13 November 2014.

Women SHGs to get Banks loans at 7 percent

The Reserve Bank of India (RBI) on 19 November 2013 directed Public Sector Banks (PSBs) to provide loans to women self-help groups (SHGs) at 7 per cent per annum to avail the benefit of interest rate subvention scheme under the Swarnajayanti Gram Swarozgar Yojana-Aajeevika (SGSY) scheme.

Salient features of RBI Notification

1. All women SHGs will be eligible for interest subvention to avail the credit upto 3 lakh Rupees at 7 per cent per annum.

2. PSBs will be subvented to the extent of difference between the Weighted Average Interest charged and 7 per cent subject to the maximum limit of 5.5 per cent, for the FY-2014.

3. This subvention will be available to all the PSBs on the condition that they make SHG credit available at 7 per cent in the 150 districts.

4. The Regional Rural Banks (RRBs) will be subvented to the extent of difference between the lending rates and 7 per cent for the FY-2014 on the condition they make SHG credit available at 7 per cent.

5. SHGs will be given an additional 3 per cent subvention on prompt repayment of loan.

Swarnajayanti Gram Swarozgar Yojana-Aajeevika (SGSY) is an initiative by the government to provide sustainable income to poor people living in rural areas of the country.

About Interest Rate subvention concept

Interest Rate subvention is a subsidy of interest given by Government to certain sectors like Textiles, Agriculture etc. For eg. Textile Company borrows from Bank at 10 percent and Government gives subvention of 2 percent. Hence net bank takes interest from textiles companies 8 percent. Other sectors have to pay 10 percent to the bank.

Foreign banks subsidiaries permitted to acquire domestic PSBs

The Reserve Bank of India (RBI) on 6 November 2013 permitted the Wholly Owned Subsidiaries (WOS) of the foreign banks to acquire the domestic private sector banks. RBI also permitted the banks to set up
branches anywhere in the country. As per the permission given by RBI, the foreign banks will have to seek permission of RBI to open branches in certain sensitive locations. The foreign bank subsidiaries have also
been allowed to list on the local stock exchanges. Although, they will not be allowed to hold more than 74 percent in the private banks they may acquire. The order of the RBI also stated that the foreign banks that
commenced banking business in India before August 2010 will be given an opportunity to convert into a wholly owned subsidiary.

Key features of the Framework

• Banks with complex structures, also the banks which do not provide adequate disclosure in their home jurisdiction, as well as the banks which are not widely held and banks from jurisdictions having legislation giving a preferential claim to depositors of home country in a winding up proceedings, would be mandated entry into India only in the WOS mode.

• Foreign banks in whose case the above conditions do not apply can opt for a branch or WOS form of presence.

• A foreign bank opting for branch form of presence shall convert into a WOS as and when the above conditions become applicable to it or it becomes systemically important on account of its balance sheet size in India.

• Foreign banks, which commenced banking business in India before August 2010 shall have the option to continue their banking business through the branch mode. However, they will be incentivised to convert into
  WOS because of the attractiveness of the near national treatment afforded to WOS.

• To prevent domination by foreign banks, restrictions would be placed on further entry of new WOSs of foreign banks/ capital infusion, when the capital and reserves of the WOSs and foreign bank branches in India exceed 20 per cent of the capital and reserves of the banking system.

• The initial minimum paid-up voting equity capital for a WOS shall be ‘ 5 billion for new entrants. Existing branches of foreign banks desiring to convert into WOS shall have a minimum net worth of 5 billion.

• The parent of the WOS would be required to issue a letter of comfort to the RBI for meeting the liabilities of the WOS.

Corporate Governance

(i) Not less than two-third of the directors should be non executive directors;

(ii) A minimum of one-third of the directors should be independent of the management of the subsidiary in India, its parent or associates

(iii) Not less than fifty percent of the directors should be Indian nationals /NRIs/PIOs subject to the condition that not less than 1/3rd of the directors are Indian nationals resident in India

• The branch expansion guidelines as applicable to domestic scheduled commercial banks would generally be applicable to WOSs of foreign banks except that they will require prior approval of RBI for opening branches at certain locations that are sensitive from the perspective of national security.

• Priority Sector lending requirement would be 40 per cent for WOS like domestic scheduled commercial banks with adequate transition period for existing foreign bank branches converting into WOS.

• On arm’s length basis, WOS would be permitted to use parental guarantee/ credit rating only for the purpose of providing custodial services and for their international operations. However, WOS should not provide counter guarantee to its parent for such support.

• WOSs may, at their option, dilute their stake to 74 per cent or less in accordance with the existing FDI policy. In the event of dilution, they will have to list themselves.

Definition of Infrastructure lending Sub Category widened

Reserve Bank of India on 25 November 2013 widened the definition of infrastructure lending sub category in a bid to expedite Projects. In a notification issued by RBI, it has stated that new sub-sectors that have been added in the list will include hotels with project cost of more than 200 crore rupees bring built anywhere in India and of any star rating. The list will also include convention centres with project cost of more than 300 crore rupees. RBI also stated that the new sub-sectors will get classified as ‘infrastructure’ for the purpose of lending by banks and select All India Term-Lending and Refinancing Institutions. Various sub-sectors under the categories such as Transport, Energy,Water & Sanitation, Communication, Social and Commercial Infrastructure come under infrastructure lending. Hotel and convention centre come under ‘Social and Commercial
Infrastructure’ category for this kind of lending.

Bharatiya Mahila Bank launched

Prime Minister Dr. Manmohan Singh and UPA Chairperson, Sonia Gandhi Jointly inaugurated India’s first all-women bank, Bharatiya Mahila Bank in Mumbai on 19 November 2013,marking the birth anniversary of former Prime Minister Indira Gandhi. The main objectives of the bank will be to focus on the banking needs of women and to promote their economic empowerment. The bank will commence operations with an initial capital of one thousand crore rupees.

The Union Government on 12 November 2013 appointed Usha Ananthasubramanian as the first chairperson and managing director of public sector Bharatiya Mahila Bank (BMB).

About Bharatiya Mahila Bank

1. The Mahila bank aims to service women and women-run businesses, support women’s self-help groups and their livelihoods and promote further financial inclusion.

2. An only-for-women bank first time in India.

3. Bhartiya Mahila Bank will be a universal bank and will provide every banking service and facility that is provided by comparable Public and Private sector banks. It will establish branches all over the country and, in due course, some branches in abroad.

4. The Union Cabinet cleared the proposal for setting up of all women bank on August 2013.

5. The Reserve Bank of India gave its in-principal approval for the  Bharatiya Mahila Bank in June 2013 and the banking company was set up.

6. The Union government approved 1000 crore Rupees seed capital for the women focused public sector bank announced by Union finance minister P. Chidambaram in his 2013-14 budget speech.

Continuation of Agriculture Export Plan of APEDA approved

The Cabinet Committee on Economic Affairs (CCEA) on 25 November 2013 approved the continuation of the Agriculture Export Promotion Plan Scheme of the Agricultural and Processed Food Products Export Development Authority (APEDA) during 12th Plan Period (2012-13 to 2016-17). It was a proposal of the Ministry of Commerce and Industry for APEDA with four components namely infrastructure development, transport assistance, market development and quality development. The CCEA meeting was chaired by Prime Minister of India, Manmohan Singh. The outlay of the scheme will be 1100 crore rupees during the 12th Plan
period.

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