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In its second quarter review, the RBI has taken measures to address the surplus liquidity in money markets but has refined from increasing the policy rates. The measures taken to tighten liquidity are essentially a reversal of some of the measures taken in the aftermath of the financial crisis when domestic liquidity had become tight. For example, the SLR (banks’ required holding of government securities as a proportion of its deposits) has been restored to 25% from the reduced level of 24%.Since banks are already maintaining SLR in excess of 25%, this measure will not have any immediate impact. However, bond yields softened on this policy move as it would imply an increase in the mandated demand for government bonds.
Monetary Policy Measures Undertaken
- Restore the SLR for scheduled commercial banks to 25 percent of their NDTL with effect from the fortnight beginning 7 Nov,2009
- Impose CRR on liabilities of scheduled banks arising from transactions in CBLO (Collateralized borrowing and lending operations)with Clearing Corporation of India Ltd,(CCIL)with effect from the fortnight beginning 21 November,2009
- Reduce the limit of export credit refinance facility from 50 percent to 15 percent of eligible outstanding rupee export credit.
- Discontinue the special refinance facility for scheduled commercial banks
- Discontinue the special term repo facility for scheduled commercial banks for funding to mutual funds, non-banking financial companies and housing finance companies
- Discontinue the forex swap facility of banks.
REGULATORY POLICIES
The RBI has taken several steps to develop financial markets, ease constraints on banks with regards to branch authorization, and promote financial inclusion. It has also moved to tighten provisioning norms for banks, especially in the real estate sector. This move is likely to hit the profitability of many and has negatively affected bank stocks.
Developmental & Regulatory Measures
Financial Markets
- Final guidelines on repo in corporate bonds to be issued by end-November 2009.
- Drafts guidelines for regulation of Non-Convertible Debentures (NCDS) of Maturity of less than One Year will be placed on RBI’s website by end –November 2009
- Credit Default Swaps for corporate bonds resident entities to be introduced, subject to appropriate safeguards.
- STRIPS (Separate Trading for Registered Interest and Principal of Securities) to be launched, as scheduled, during the current financial year.
- Floating rate bonds to be issued during the current financial year depending upon market conditions and market appetite.
- Recognized stock exchanges will be permitted to offer currency futures contracts in currency pairs of Euro-INR, Japanese Yen-INR and Pound Sterling –INR, in addition to US dollar-rupee contracts which are already permitted.
Financial Inclusion
Business Correspondent (BC) Model
- To allow banks to appoint the following entities as BCs in addition to those permitted already:
- Individual kirana/medical/fair price shop owners
- Individual public call office (PCO) Operators
- Agents of small savings schemes of Government of India/Insurance companies.
- Individual who own petrol pumps
- Retired teacher, and
- Authorized functionaries of well-turn self-help groups (SHGs)linked to banks; and
- To allow banks to collect reasonable service charges from the customer in a transparent manner under their Board –approved policy for delivering services through the BC.This should be clearly explained to the customer.
Regulatory Measures for Commercial Banks
Relaxations in Branch Authorization Policy
- Domestic scheduled commercial banks (other than RRBs) will now be free to open branches in Tier 3 to Tier 6 centres as identified in the Census 2001 (with population up to 50,000)under general permission.
- Opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 centres (with population over 50,000) will continue to require prior authorization.
- Banks may plan their branch expansion in Tier 3 to Tier 6 centers in such a manner that at least one –third of such branches are in the under banked districts of under banked States as will be notified separately by the Reserve Bank. This would be one of the criteria in the Reserve Bank’s consideration of proposals by domestic scheduled commercial banks (other than RRBs) to open branches in Tier 1 and Tier 2 centres. In considering such proposals, the Reserve Bank would, in addition, take into account banks’ performance in financial inclusion, priority sector lending and level of customer service, among others.
Increase in Loan Loss Provisions
- Increase in the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets' from the present level of 0.40 percent to 1 percent.
- Banks advised to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70 percent from the current 10 percent, Banks should achieve this norm not later than end- September 2010.
Institutional Measures
- Currently, the RBI classifies NBFCs under three categories: asset finance companies, loan companies and investment companies. It has now been decided to introduce a fourth category of NBFCs, as Infrastructure NBFCs, defined as entities which hold minimum of 75 percent of their total assets for financing infrastructure projects.
- To link they risk weights of banks’ exposure to such NBFCs to credit rating assigned to the NBFC by external credit assessment institution (ECAIs).
(Courtesy: CII Communique, Vol. 18, Nov. 11 November 2009)
SUBMISSION OF ANNUAL STATEMENT OF ACCOUNTS
IN VAT FORM 240
Circular No. KSA.CR.148/09-10, dt.18.11.2009 - clarification regarding total turnover limit for Audit u/s. 31(4) of the KVAT Act.
Those dealers whose annual taxable turnover exceeded Rs.40 lakhs for the year 2008-09 are required to get their accounts audited as per the provisions of Sec.31(4) of the KVAT Act 2003. For the year 2009-10, dealers whose annual total turnover exceeds Rs.40 lakhs are required to get their accounts audited u/s. 31(4) of the KVAT Act 2003.
Kindly note that the last date for submission of annual statement of accounts in VAT Form 240 for the year 2008-09 is 31.12.2009.
Circular No. JCCT/ADMIN/VAT DVN-1/258/2008-09, dated 18.11.2009 clarification regarding issuing of registration for non-resident dealers
The office authorized for granting registration relating to non-resident dealers in Bangalore is LVO 010. While issuing registration for NRDs, apart from filing required necessary documents for registration under KVAT Act 2003, the following additional documents are required to be furnished:
- Copy of Works Contract/supply contract agreement entered in Karnataka, if already entered into.
- Documentary evidence of proof of address in other State of the dealer.
- Latest Tax paid receipt of the property owned by the dealer, if any.
- Security Deposit in form of Bank Guarantee/NSC obtained in Karnataka/DD.
- Particulars of local representative in Karnataka, if any.
(Courtesy: Circular received from FKCCI, Federation of Karnataka Chamber of Commerce & Industry)
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