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The Reserve Bank of India (RBI) on Tuesday infused Rs. 34,561 crore into the banking system in exchange for dollars, in its first dollar-rupee swap auction. In a statement, the central bank said the auction received bids for dollar 16.31 billion, approximately three times the notified amount.  Through the auction, RBI bought dollars totalling dollar 5.02 billion at a premium of Rs. 7.76, which works out to an annualized rate of 3.76% from authorized dealers and paid them rupees in return.  After three years, these banks will buy back the same amount of dollars at the premium offered in Tuesday’s auction. The enthusiastic response to the auction could prompt the Indian central bank to take this route as an alternative to open market operations (OMOs), which are frequently used to manage liquidity, experts said.  “It is a very well-offered auction and it only shows confidence within the central bank and the market participants that this instrument can be used as an alte...

The finance ministry has given its nod to set up a precious metals’ board to bring clarity on how the new comprehensive gold policy will be implemented.  The proposed board, to be known as the Precious Metals Board of India, will be the regulatory body for gold, silver, platinum, palladium and other commodities the government notifies.  During a meeting of government officials and industry stakeholders in New Delhi, the plan to set up the board was finalised and a proposal on this will be sent to the Prime Minister’s Office in a day or two, said a source.  The board is expected to have a chairman, two whole-time members, two part-time members from the finance ministry and one member each from the Securities and Exchange Board of India (Sebi), the commerce ministry and the warehouse regulator. The plan to constitute such a board was under consideration for long.  The finance ministry had set up a high-level panel to discuss its formation. The panel included repres...

The Reserve Bank of India should instead consider cutting the cash reserve ratio, a move it last resorted to six years ago The Indian central bank’s  purchases of bonds to inject cash into the financial system may have an unintended effect of distorting bond prices, according to Deutsche Bank AG.  The Reserve Bank of India should instead consider cutting the cash reserve ratio, a move it last resorted to six years ago, as various reserve requirements  enforced by the authority so far are curbing deposit growth and transmission of rate cuts, said Srinivas Varadarajan, managing director for fixed income and  currencies at the bank’s Indian unit.  “Open-market operation interventions beyond a point do have an impact on the micro structure of the government bond market,” he said in an interview. “The   RBI should look at CRR in addition to OMOs as active instruments to manage durable liquidity in the system.”  The central bank has bought a record ...

Non-banking finance companies (NBFCs) are beginning to add crucial jobs across various functions, indicating that stability has returned to a key sector that was unsettled last autumn by a liquidity squeeze and subsequent increases in capital costs.  NBFCs could hire about 15,000 people in FY20, an estimate by recruitment firm TeamLease showed. Among those adding jobs are Mahindra Finance, Shriram Transport Finance, Piramal Capital, Aditya Birla Finance, IIFL, Magma FinCorp, and Ugro Capital. These companies have already begun recruitments, and the Jan-March quarter alone could account for half the expansion in FY19, which ends in 10 days. According to TeamLease, NBFCs have hired around 10,000 employees in FY19.  Sector Overcomes IL&FS Setback “The (NBFC) sector is poised for the next level of growth in next few years and well-run NBFCs would benefit the most (from this expansion),” said Ramesh Iyer, managing director at Mahindra Finance. “We are also expanding and d...

The Reserve Bank of India is likely to ease the rules governing disclosure of transfer of bonds among various categories in the portfolios of banks. This could lead to a surge in the treasury income for banks.  The central bank may say that banks need not disclose the transfer of state bonds from the held-to-maturity (HTM) category to the available-for-sale (AFS) segment, said a person with direct knowledge of the matter. The RBI didn’t respond to an email seeking comment until publication of this report.  Banks will also get to shift more of state loans which are in the HTM category to AFS — which means an increase in liquidity as these bonds carry higher coupon rates. This will also help state governments buy back bonds if they want to cut their borrowing costs in falling interest rate regimes.  The matter was discussed in a meeting held between the RBI and state finance secretaries a week ago. The RBI had proposed a rulebased approach in fixing new ways and means...

The Reserve Bank of India (RBI) has struggled for more than a decade trying to ensure that policy rate changes end up getting reflected in bank lending rates. Fed up with banks unwilling to play ball on lending rates, the central bank has changed the math behind loan rates thrice in the last decade.  How banks calculate their loan rates could change yet again this year, if RBI goes ahead with a proposal to link them with external benchmarks. But this time, the math is not the central bank’s only problem. The growing currency in circulation is a greater risk at present, given the implications on liquidity. The fact that it has far exceeded deposit growth makes the problem bigger. Analysts at Edelweiss Securities Ltd point out that currency in circulation as a proportion of deposits is back to  pre-demonetization levels and higher than the average in the past 25 years. Falling deposit growth and rising cash among Indians are twin blows to liquidity in the banking system. E...

The finance ministry has asked banks to give preference to Indian manufacturers under the ‘Make in India’ initiative when purchasing ATMs.  A finance ministry official said the directions are in accordance with the guidelines issued in 2017 by the then Department of Industrial Policy and Promotion (DIPP). “Banks have been directed to ensure compliance,” he said. DIPP has since then been renamed the Department for Promotion of Industry and Internal Trade (DPIIT). DIPP had directed all departments to evolve an internal system of vetting the restrictive and discriminating terms against domestic manufacturers especially included in the tenders they float with states. The extant norms also said there should be no criteria for bidders that would be advantageous to foreign manufactured goods.  A bank executive said the move may help domestic ATM manufacturers, who number over 200,000. The Confederation of ATM Industries of India has in the past raised the issue that the revenues ...

Worried over a slowdown in exports, the government is looking to use India’s good relations with other countries to push up exports through governmentto-government (G2G) trading arrangements for food products.  The commerce department is exploring export of non-Basmati rice to the Philippines and Indonesia, and sugar to Egypt under this mechanism to boost exports that have been hit by rising protectionism globally and slowdown in trade. The department sent a proposal to Egypt last week to participate in its sugar tender. “We want to increase total exports and G2G trade is one such arrangement. This was a common way to trade a decade ago and is being revived now because many countries float tenders to procure food,” said one official aware of the details. “We want to be part of that procurement.”  The foreign trade policy for 2015-20 has set a target of dollar 900 billion for merchandise and services exports by 2020, which is seemingly unachievable due to muted growth of tr...

Imagine falling into a debt trap, exhausting all your sources of funding, and finding yourself at a dead end. In such situations, your only recourse may be filing for bankruptcy. Though Indian laws have the provision wherein individuals can file for bankruptcy, the process is not as streamlined as it is for corporate entities under the Insolvency and Bankruptcy Code (IBC). Though the IBC has rules for individual bankruptcy too, they have not been notified yet.  We tell you how the current bankruptcy law works and how can it change to your advantage under IBC. If you live in Mumbai, Kolkata or Chennai, you will be governed by the Presidency Towns Insolvency Act, 1909; for all other places in India, you will be governed by the Provincial Insolvency Act, 1920. Both laws are similar and eventually are meant to be replaced by the IBC.  Under the Provincial Insolvency Act, you can file for bankruptcy if you are unable to repay a debt greater than ?500. According to Aishwarya Sat...

The Central Board of Direct Taxes (CBDT) has asked its officers across India to avoid taking “coercive measures” against companies that have received notices under the so-called angel tax, in what can be seen as softening of its stance on an issue that has roiled the startup ecosystem.  In its written communication, the department also asked tax commissioners to resolve disputes with startups on a priority basis. The tax deals with premiums paid by investors while they invest in unlisted companies. The tax department’s latest step comes after the government issued a directive recently, giving a reprieve to startups on the treatment of such investments on a prospective basis.  Tax officials had questioned increasing valuations of startups even when their revenue is falling or remaining stagnant. The revenue department deems the capital in excess of a fair market value as ‘other income’ that is taxable. Also, in cases where the investor is not Indian, the tax department has ...

The Reserve Bank of India is using a new tool to enhance liquidity in the system through which it would buy as much as dollar 5 billion from the banks in a swap deal that could inject nearly Rs. 35,000 crores into the system. Banks would be required to park dollar funds with RBI with a deal to buy it back from the RBI after three years. The auction for this first of its kind US dollar buy/sell swap auction will take place on March 26. This is the first time the central bank is using a foreign exchange auction to augment banking liquidity after generally using bond purchases for the same all these years. RBI has infused more than Rs 2.36 lakh crore through such purchases so far this fiscal. “In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject Rupee liquidity for longer duration through longterm foreign exchange buy/sell swap in terms of its extant Liquidity Management Framework. The US doll...