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Round-up of National Affairs 2008

Round-up of National Affairs 2008

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Published by Abhijit Jadhav

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Categories:Business/Law, Finance
Published by: Abhijit Jadhav on Sep 23, 2009
Copyright:Attribution Non-commercial

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10/20/2011

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ROUND-UP OF NATIONAL AFFAIRS 2008
 
BANKING & FINANCE
 
FDI rules eased up:
The Union government has brought major changes to Foreign Direct Investment(FDI) rules, easing existing curbs on overseas capital in such key areas as realestate, petroleum refining, commodity exchanges, mining and aviation. Thereview, however, did not include the politically contentious issue of allowingforeign multi-brand retailers like Wal-Mart and Carrefour to open front-endstores in India. The changes cleared by the Cabinet included increasing the limiton FDI to 100 per cent for titanium mining and aircraft maintenance companies,from 49 to 74 per cent in cargo and chartered airlines, and from 26 per cent to 49per cent in public sector refining companies. The changes are expected to boostFDI inflows, which peaked to $16 billion through 2006-07. In 2007-08 thegovernment expects such inflows to reach $26 billion.
 India kicks off foreign currency futures trade:
On August 29, 2008, India launched exchange-traded rupee futures, with thefront-month contracts seeing the highest activity in heavy trade, but dealers saidvolumes may wane after the initial burst of interest. Dealers said banks and largecompanies accounted for the bulk of trading, although concerns regarding small
 
contract sizes and trading limits remains. All resident individuals of India areallowed to trade. Underlying exposure is not necessary. Cash settlement in Indianrupees is mandatory. Individual investment limit has been set to $200,000 perannum. RBI-permitted banks and SEBI permitted members can trade on theexchange.
Institutions now get direct market access:
In a move that will usher in algorithmic trading and transform the Indian stockmarket, SEBI has now allowed Direct Market Access (DMA) to institutionalinvestors. Foreign Institutional Investors (FIIs) and domestic institutions such asmutual funds and insurance firms can now directly execute their buy and sell
orders without any manual intervention by their brokers. However, brokers aren’t
entirely out of the picture because the trades will still be executed through theirsystems.
Insurance firms can lend shares:
IRDA, India’s insurance sector regulator, has decided to allow insurance
companies to lend shares to foreign and domestic institutions, a move that willcreate a new stream of revenues for these firms, and increase overall tradingactivity in the stock market. Postal life funds set to get street smart: Thegovernment has allowed the Postal Life Insurance Fund (POLIF) and Rural PostalLife Insurance Fund (RPOLIF) to enter the markets through investments in publicsector mutual funds. The Union Cabinet has appointed UTI MF and SBI MF as
 
managers of the over Rs 10,000-crore corpus of these two funds. It has alsoapproved setting up of an investment board for deciding investment policies. Thiswould primarily be applicable to new deposits into these schemes, as much of theexisting corpus is already invested in government bonds.
RBI measures to tackle liquidity crisis:
In the month of October 2008 the government and RBI took all possible measuresto shovel in as much money into the financial system as possible. RBI releasedbank funds it had impounded, allowed banks to borrow more against gilts, madeNRI deposits a little more attractive. The Centre, after delaying borrowing,advanced its spending by releasing Rs 25,000 crore to banks. Significantly, thegovernment also promised to recapitalize banks. The one percentage point cut inCRR, which was with retrospective effect from October 11, 2008, released Rs40,000 crore. This, with the farm relief package, released around Rs 65,000 croreinto the banking system.
Fresh guidelines on Basel II:
 As part of efforts to prepare Indian banks for compliance with new riskmanagement norms under Basel II, Reserve Bank of India (RBI) has come out withguidelines asking them to keep adequate capital to meet wide areas of risks,including those that could damage their reputation. The guidelines issued onSupervisory Review Process (SRP) ask banks to make provision for risks relating tocredit concentration, liquidity, settlement risk, reputation, strategy, and under

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