Raghuram Rajan's big-ticket announcements today

Reserve Bank of India governor Raghuram Rajan on Wednesday announced a slew of proposals in his first day of office.

Below are some highlights of the proposed action.

MONETARY POLICY

• Postpones first monetary policy statement as governor to September 20 from September 16
• To set up a panel on how to strengthen monetary policy framework, which will submit report in three months

RUPEE, CAPITAL INFLOWS

• To allow exporters to re-book cancelled forward currency contracts up to 50 per cent of the value of cancelled contracts and up to 25 per cent for importers
• Will push for more trade settlements in rupees, open up financial markets for those who receive rupees to invest back in
• Will offer a special window for swapping foreign currency non-resident (FCNR) deposits with a minimum tenor three of years and more, at a fixed rate of 3.5 per cent per year
• Will raise overseas borrowing limit of 50 per cent of unimpaired Tier I capital to 100 per cent for banks
• Borrowings mobilized under this provision can be swapped with RBI at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market

DEBT/BROADER MARKETS

• Will introduce cash-settled 10-year interest rate future contracts
• Will examine introduction of interest rate futures on overnight interest rates
• Will steadily but surely liberalise markets, restrictions on investments and position-taking
• To issue inflation-indexed savings certificates tied to CPI to retail investors by end November
• Need to reduce requirement for banks to invest in government securities in a calibrated way

BANKING SYSTEM

• To set up external committee to screen bank license applicants
• Hopes to announce licenses within, or soon after, January 2014
• Will push foreign banks to set up wholly-owned subsidiaries
• Will look at continuous or on-tap bank licensing system for applicants
• Will issue guidelines to free rules on setting up bank branches for domestic commercial banks
• To look at rising non-performing assets and restructuring/recovery process
• Need to accelerate the working of debt recovery tribunals and asset resconstruction companies
• Proposes to collect credit data, examine large common exposures among banks
• Will encourage banks to clean up their balance sheets
• Will encourage banks to commit to raising capital when necessary
• Bad loan problem is not alarming yet, but will fester if unaddressed
• To set up committee that will access every aspect to financial inclusion

Source: NDTV Profit