Highlights of the Mid-Term Reveiw of the Annual Policy 2006-07
- Repo Rate increased to 7.25% from 7.0%
- Reverse Repo Rate, Bank Rate & CRR kept unchanged.
- GDP growth forecast at 8.0% during 2006-07 (against earlier estimates of 7.5%-8.0%)
- Inflation to be contained within 5.0%-5.5% during 2006-07.
- Fresh issues of Central Government securities to be included in ‘When issued’ trading.
- Scheduled commercial banks & primary dealers allowed to cover their short positions in Central Government securities within five trading days.
- Resident individuals would be free to remit up to US$ 50,000 per financial year as against the earlier limit of US$ 25,000.
- 100% of foreign exchange earnings can be retained in Exchange Earners’ Foreign Currency (EEFC) accounts.
- Authorised dealer banks may borrow funds from their overseas branches & correspondent banks (including borrowing for export credit, external commercial borrowings (ECBs) and overdrafts from their Head Office/Nostro account) up to a limit of 50% of their unimpaired Tier I capital or US$ 10 mn, whichever is higher.
- Eligible ECB borrower can avail additional US$ 250 mn with average maturity of more than 10 years under the approval route.
- Prepayment of ECB up to US$ 300 mn without prior approval of the Reserve Bank.
- Increased foreign remittances allowed for corporates: Authorised dealer banks may allow remittances on behalf of their customers higher of 15% of the average of 2 year sales or 25% of net worth, for initial expenses, & up to 10% of the average 2 year sales for recurring expenses. Remittances for acquisition of immovable property for the overseas office, within these limits is also permitted.
- Limit on investments in Government securities by FIIs to be enhanced in phases to US$ 3.2 bn by March 31, 2007.
- Ceiling of overseas investment by mutual funds enhanced to US$ 3 bn (from US$ 2 bn).
- Booking of forward contracts for customs duty component of imports permitted.
- FIIs to be allowed to rebook a part of the cancelled forward contracts.
- Forward contracts booked by exporters & importers in excess of 50% of eligible limit to be on deliverable basis & cannot be cancelled.
- Authorised dealer banks to be permitted to issue guarantees/letters of credit for import of services up to US$ 100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident.
- Lock-in period for sale proceeds of immovable property credited to NRO account eliminated, subject to a cap of US$ 1 mn in a financial year.
- Banks, with approval of their boards, may formulate a transparent policy for providing One Time Settlement facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control.
- For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address.
- Basel II: Indian banks having presence outside India & foreign banks to migrate to the Basel II framework effective March 31, 2008 & other scheduled commercial banks to migrate in alignment but not later than March 31, 2009.
- Prudential limit on credit & non-credit facilities to Indian JVs/Wholly Owned Subsidiaries abroad to be enhanced to 20 per cent of unimpaired capital funds.
- Financially sound Urban Co-operative Banks (UCBs) registered in States that have signed MoU with the Reserve Bank & those registered under the Multi-State Co-operative Societies Act, 2002 to be allowed to convert existing extension counters into full-fledged branches.
- NBFCs allowed to issue co-branded credit cards with banks without risk sharing & market & distribute MF products.
(The above is extracted from the Highlights issued by the Reserve Bank of India on 31st October, 2006)
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