Reserve Bank of India to ease doing business for start-ups

Feb 2, 2016 0

MUMBAI– Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday announced various steps to facilitate the ‘ease of doing business’ for startups.

Rajan announced a string of initiatives, while announcing the sixth bi-monthly monetary policy review here.

“In keeping with the government’s Start-up India initiative, the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups,” he said in the monetary policy statement.

Raghuram Rajan

Raghuram Rajan

Rajan pointed out that the slew of RBI initiatives will include enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, and deferring receipt of considerations for transfer of ownership.

The initiatives also consists facilitating ‘escrow arrangements’ and simplification of documentation and reporting procedures for start-ups, he said.

Besides, the Indian central bank aims to make it easy for start-ups to raise foreign capital and operate in India.

Start-ups across sectors will find it easy to receive foreign venture capital investments and also easily transfer shares from foreign venture capital investors to other residents and non-residents.

The RBI is also planning to permit start-ups to raise rupee denominated loans from foreigners and allow them to create innovative convertible instruments to raise funds.

In addition, it aims to enable startups to issue shares without cash payment through ‘sweat equity’ or other legitimate payment owned by the company, as long as the payment does not fall into the purview of the Foreign Exchange Management Act (FEMA).

Rajan said RBI is preparing a detailed statement on start-ups to be issued separately.

The start-up India campaign was started by Prime Minister Narendra Modi on January 16.

He had then announced tax rebates for the first three years, exemptions on capital gains, a corpus fund of Rs.10,000 crore and a mobile app to register startups in a day among others.

The central government is expected to bring out more incentives to promote entrepreneurship and startups in the forthcoming budget.

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Securitisation of loans key to develop small banks

Jan 22, 2016 0

NEW DELHI– While non-banking finance companies (NBFCs) in India will continue to fund through securitisation, the practice of pooling of loans will be key for developing small finance banks, Moody’s Investors Service said on Thursday.

“Securitisation will continue to be instrumental for these small Indian finance banks, as it will take time for them to develop a retail deposit franchise,” the American agency said in a report here.

Securitisation involves pooling of financial assets or loans together to create a new security, which is then sold to investors.

“At the same time, NBFCs and MFIs (micro-finance institutions) will continue to fund through securitisation as the sector grows,” Moody’s said.

The Reserve Bank of India in September 2015 granted in-principle approval to 10 entities, including eight MFIs, to operate as small finance banks.

“With the aim of promoting financial inclusion to the under-served segment, the small finance banks will accept deposits and extend credit to marginal farmers and small business units. Their mandate overlaps with the target market of MFIs,” the report added.

In both India and China, NBFCs are key providers of credit to individuals and small businesses that would otherwise have limited access to bank loans or would incur high interest for such loans, Moody’s said.

“While there are various funding avenues open to the NBFCs in India and China, securitisation has proven to be reliable and competitively priced, and is therefore an important source of the funds the NBFCs use for lending,” said Moody’s assistant vice president Georgina Lee.

According to the US consultancy firm, the development of domestic securitisation markets will help both India and China achieve the objective of financial inclusion.

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Strengthening rupee swells India’s foreign reserves: Experts

Jan 2, 2016 0

MUMBAI– A strengthening rupee on account of healthy buying activity buoyed India’s foreign exchange reserves (Forex) kitty by $943.4 million, experts said on Saturday.

According to the Reserve Bank of India’s (RBI) weekly statistical supplement, the overall Forex reserves stood at $352.04 billion for the week ended December 25.

For the previous week ended December 18, the country’s foreign reserves had plunged by $1.40 billion at $351.10 billion.

Market observers pointed-out that strengthening rupee on account of unwinding of long-positions of US dollar prompted India’s central bank to purchase greenbacks.

The rupee has strengthened on the back of fresh demand in anticipation of healthy foreign capital influx into the central and the state governments’ bonds from January 1 onwards.

This led the Indian central bank to intervene in the open markets by purchasing greenbacks to keep the rupee value competitive for domestic exporters.

On a weekly basis, the rupee strengthened by 19 paise at 66.21 (December 23) to a US dollar from its previous close of 66.40 to a greenback (December 18).

“US dollar purchases by the central bank post the FOMC (Federal Open Market Committee) has led to the rise in the overall reserves,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

“The central bank bought greenbacks on account of strengthening rupee due to unwinding of (US Dollar’s) long-positions in anticipation of rupee demand.”

On September 29, the RBI had said that it intended to provide a more predictable regime for investment by foreign funds and decided to raise their exposure limits in phases in central government securities to 5 percent of the outstanding stock by March 2018.

In another key decision, the central bank had set a separate limit for investment by such funds in state development loans, which are to be increased in phases to reach 2 percent of the outstanding stock by March 2018.

The RBI’s decision is expected to usher in around $2.5 billion by this fiscal end.

Other analysts attributed to the rise in the reserves value on interest payments received by the RBI on foreign securities held by it.

“It is assumed that the RBI may have received year end interest payments on foreign securities it holds. This might be one of the reasons for the rise in overall reserves,” an analyst told IANS.

In addition, the foreign currency assets (FCAs) which constitutes the largest component of India’s Forex reserves gained by $922 million to $329.19 billion in the week under review.

Notwithstanding the gain in overall Forex kitty, the country’s gold reserves remained stagnant at $17.54 billion.

Gold reserves had plunged by $1.14 billion at $17.54 billion during the week ended December 4, as international prices crashed to a six-year low.

However, the special drawing rights (SDRs) were higher by $16.2 million at $4.01 billion.

Similarly, the country’s reserve position with the International Monetary Fund (IMF) rose. It edged-up by $5.2 million to $1.30 billion.

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Insurers should be Indian-owned, controlled by January 18

Dec 23, 2015 0

CHENNAI–The Insurance Regulatory and Development Authority of India (IRDAI) on Wednesday said all insurance companies have to report compliance on Indian ownership and control criteria by January 18, next year.

In a letter to chief executive officers of all insurance companies in the country on Wednesday, V.R. Iyer, member (finance and investment) IRDAI, said insurers have to report compliance to Indian ownership and control criteria by that date.

Insurers who are not able to conform to the Indian-owned and controlled criteria should submit an assurance from their board of directors on compliance within six months from date of issuance of guideline on the subject by IRDAI.

The IRDAI had issued the guidelines on Indian Owned and Controlled insurance company on October 19, 2015.

As the amended insurance law, an Indian insurance company should be owned and controlled by Indians.

According to the IRDAI, majority of insurers have not approached it and the Foreign Investment Promotion Board (FIPB) seeking a change in their shareholding pattern.

The insurance law was amended allowing foreign direct investment (FDI) up to 49 percent from the earlier limit of 26 percent.

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India fourth biggest exporter of illicit capital: Report

Dec 9, 2015 0

WASHINGTON–With an average annual outflow of $51.03 billion, India is the fourth biggest exporter of illicit capital over a decade with such financial flows surging to $1.1 trillion in 2013, according to a new report.

Dev Kar

Dev Kar

China, with $139.23 billion average annually ($1.39 trillion cumulative), was the biggest exporter of illicit financial flows from developing and emerging economies, according to a study released Wednesday by Global Financial Integrity (GFI), a Washington-based research and advisory organization.

Russia with $104.98 billion average ($1.05trillion cumulative) and Mexico with $52.84 billion average ($528.44 billion cumulative) came next.

India with $51.03 billion average ($510.29 billion cumulative) was fourth followed by Malaysia with $41.85 billion average annually ($418.54 billion cumulative) ranked fifth.

Authored by GFI Chief Economist Dev Kar and GFI Junior Economist Joseph Spanjers, the report pegs cumulative illicit outflows from developing economies at $7.8 trillion between 2004 and 2013, the last year for which data are available.

Titled “Illicit Financial Flows from Developing Countries: 2004-2013” the study reveals that illicit financial flows first surpassed $1 trillion in 2011, and have grown to $1.1 trillion in 2013.

This marks a dramatic increase from 2004, when illicit outflows totaled just $465.3 billion.

“This study clearly demonstrates that illicit financial flows are the most damaging economic problem faced by the world’s developing and emerging economies,” said GFI President Raymond Baker, a longtime authority on financial crime.

“This year at the UN, the mantra of ‘trillions not billions’ was continuously used to indicate the amount of funds needed to reach the Sustainable Development Goals. Significantly curtailing illicit flows is central to that effort.”

Illicit financial flows averaged a staggering four percent of the developing world’s GDP, the study noted.

In seven of the 10 years studied, global IFFs outpaced the total value of all foreign aid and foreign direct investment flowing into poor nations.

The IFF growth rate from 2004-2013 was 8.6 percent in Asia and 7 percent in Developing Europe as well as in the MENA and Asia-Pacific regions, the report found.

The report recommends that world leaders focus on curbing opacity in the global financial system, which facilitates these outflows.

Specifically, GFI suggested that governments establish public registries of verified beneficial ownership information on all legal entities, and all banks should know the true beneficial owner(s) of any account opened in their financial institution.

Government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations; laws already in place should be strongly enforced.

Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis.

All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20, the report suggested.

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