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Babita Rana

Dr. Raghuram Rajan takes charge as new RBI governor

Announces several measures on day one
Dr. Raghuram Rajan took charge as the 23rd Governor of the Reserve Bank of India (RBI) on 4 September 2013. He replaced the outgoing Governor Dr. D. Subbarao. The new Governor announced several measures on his day one in the office. The followings are the highlights of his first official statement as the Governor: The September 2013 mid-quarter policy review is postponed to 20 September 2013 from the earlier scheduled date of 18 September 2013 The RBI will shortly issue a circular to completely free bank branching for domestic scheduled commercial banks in every part of the country. This will be subject to banks fulfilling certain inclusion criteria in under-served areas in proportion to their expansion in urban areas. The RBI is in the process of constituting an external committee for issuing new bank licenses. Dr. Bimal Jalan, a former RBI Governor, will chair this committee. The new licenses are likely to be announced before or soon after Anand Sinha (Deputy Governor) retires in January 2014. There is a need to reduce the requirement for banks to invest in government securities in a calibrated way to ensure the flow of credit to the productive sectors of the economy. As the Government finances improve, the scope for such reduction will increase. Furthermore, as the penetration of other financial institutions such as pension funds and insurance companies increases, we can reduce the need for commercial banks to invest in government securities. Dr. Nachiket Mor will head a committee on priority sector lending/financial inclusion. The committee will assess every aspect of the RBIs approach to financial inclusion to suggest the way forward. The RBI, together with the Government and SEBI, will steadily liberalise financial markets as well as restrictions on investment and position taking. The RBI introduced the following measures as initial measures in this regard: Presently, exporters are permitted to re-book cancelled forward exchange contracts to the extent of 25 per cent of the value of cancelled contracts. This facility is not available for importers. To enable exporters/importers greater flexibility in their risk management, the limit available to exporters is enhanced to 50 per cent. Importers will be allowed a similar facility to the extent of 25 per cent. To develop the money and G-sec markets, the RBI will introduce cash settled 10-year interest rate future contracts The RBI will also examine introduction of interest rate futures on overnight interest rates. The current overseas borrowing limit of 50 per cent of the unimpaired Tier I capital will be raised to 100 per cent. The borrowings mobilised under this provision can be swapped with the RBI at the option of the bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market. This scheme will be open up to 30 November 2013. To help banks bring in safe money to fund the current account deficit, the RBI will offer a special concessional window for swapping FCNR deposits that will be mobilised by banks following the recent relaxations permitted by the RBI. This window will be available to swap fresh FCNR (B) dollar funds mobilised for a minimum tenor of three years and more at a fixed rate of 3.5 per cent p.a. for the tenor of the deposit. This schemes will be open up to 30

November 30 2013, which coincides with the date when the relaxations on NRI deposits expire. The new Governor emphasised on the need to improve efficiency of the loan recovery system, especially at a time of economic uncertainty. There is a need to accelerate the working of Debt Recovery Tribunals and Asset Reconstruction Companies. There is also a need to take a close look at rising NPAs and the restructuring/recovery process. The RBI will examine and announce the necessary steps in this regard shortly. The RBI together with the Government will issue Inflation Indexed Savings Certificates linked to the CPI New Index to retail investors by end- November 2013. The RBI will implement a national giro-based Indian Bill Payment System such that households will be able to use bank accounts to pay school fees utilities, medical bills and make person to person transfers electronically. References 1. http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29479

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