Indians can invest up to $2,50,000 annually overseas

 

In mid-January, India’s foreign exchange reserves touched a new life-time high at $322.135 billion, driven by higher foreign fund inflows and lower Forex outgo on the back of a massive fall in global crude prices. File photo

Encouraged by foreign exchange reserves touching record levels, the Reserve Bank of India (RBI) on Tuesday doubled the annual overseas investment ceiling for individuals to $2,50,000. 

“On a review of the external sector outlook and as a further exercise in macro-prudential management, it has been decided to enhance the limit under the Liberalised Remittance Scheme (LRS) to $2,50,000 per person per year,” the RBI said in its Bi-Monthly Monetary Policy Statement. 

In view of the worsening current account deficit and a volatile rupee, the RBI had in August 2013 reduced the ceiling from $2,00,000 to $75,000 per person in a year under the LRS. Consequently, with improvement in Forex situation, it was raised to $1,25,000 in June 2014. 

The LRS allows residents to acquire and hold shares, debt instruments or other assets outside India without prior approval of the RBI. 

In mid-January, India’s foreign exchange reserves touched a new life-time high at $322.135 billion, driven by higher foreign fund inflows and lower Forex outgo on the back of a massive fall in global crude prices. 

Foreign funds had been pumping more and more dollars into Indian equities ever since the new government assumed charge in May. 

In 2014, FIIs pumped in $16.15 billion into Indian equities while they have exhausted the cap of $30 billion in Government securities. They have parked $32.5 billion in corporate bonds, which is 64 per cent of their cap of $51 billion. 

Foreign direct investments (FDI) in the country rose by 22 per cent to $18.88 billion during the eight months of the current fiscal. The amount was $15.45 billion in the April-November period of 2013-14. 

India’s current account deficit narrowed to 1.9 per cent of GDP in the first half of current fiscal from 3.1 per cent of GDP in the corresponding period of 2013-14.

Loan recast: Raghuram Rajan spurns bankers call for extension

Virtually rejecting the demand for extending the loan restructuring window beyond April 1, 2015, the Reserve Bank of India Governor Raghuram Rajan on Tuesday said the practice of forbearance should end to increase investor confidence in banks’ balance sheets.

“To build the confidence in banks’ balance sheets, we have to come to an end of forbearance. We have to put banks on the right track,” Mr. Rajan told reporters at the customary post-policy interaction, when asked if the RBI is considering to extend the deadline.

“I do not think the answer is to pretend and extend or extend and pretend, it is ‘to call a spade a spade’,” said the academic-turned-author-turned central banker.

The RBI in May last year announced that from April 1, there would be not any room to restructure loans and that banks would have to treat any recast loan as a bad asset and make mandated provisions.

Fearing a hit on their balance sheets — banks have to provide more for a bad asset compared to a restructured loan — lenders have been requesting for an extension in the deadline citing weak macro-economy and the resultant stress in corporates’ clash-flows leading to defaults.

Mr. Rajan said better investor confidence in balance sheets would help banks raise the much-required capital, especially given that the system is migrating to the capital-intensive Basel-III system under which they need over Rs. 5.3 trillion in additional capital.

The Governor further said that RBI had given “enormous amounts of new flexibility” for the banks to put projects back on track.

“Do what is needed, including making new loans if necessary, to complete a project but move on beyond that,” Mr. Rajan told the banks.

The restructured assets in the system had increased to 6.2 per cent as of September 2014, against 5.9 per cent in March 2014, according to the RBI’s financial stability report. The State-run banks are the worst performing ones on the asset quality. The overall stressed assets — NPAs and CDR loans — are over 10.5 per cent as of the September quarter.

Already, some lenders such as Axis Bank and Federal Bank had said they would see a spike in restructuring during the last quarter as the window comes to a close.

Spurt in vegetable prices next month may be spoiler for inflation, warns RBI

 

 Inflation, excluding food and fuel, declined for the second consecutive month in December.

Seasonal spurt in vegetable prices next month could partly reverse the benefits of low global oil prices reducing inflation and increasing disposable incomes, the Reserve Bank of India (RBI) warned on Tuesday.

“The sharp reduction in oil prices as well as in inflation is likely to increase personal disposable incomes and improve domestic demand conditions in the year ahead,” the central bank said in its monetary policy document.

Inflation, excluding food and fuel, declined for the second consecutive month in December. This was largely on account of the declining prices of transport and communication since August, reflecting the impact of plummeting global crude oil prices, and softer commodity prices more generally.

“However, seasonal increases in vegetable prices, which typically set in around March, have to be monitored carefully,” the RBI said, adding that the retail inflation is likely to be around the target level of 6 per cent by January 2016.

The upside risks to inflation stem from the unlikely possibility of significant fiscal slippage, uncertainty on the spatial and temporal distribution of the monsoon as also the low probability but highly influential risks of reversal of crude prices due to geo-political events, it said.

Referring to economic activities, it said the revision in the base year for GDP and calculation methods will mean some revision in GDP numbers for 2014-15 as well as in forecasts.

However, RBI has retained the baseline projection for growth (using the old GDP base) at 5.5 per cent for 2014-15 and 6.5 per cent for next fiscal.

RBI said advance indicators of industrial activity, like indirect tax collections and expansion in order books point to a modest improvement in the months ahead.

“Policy initiatives in land acquisition, as well as efforts underway to unlock mining activity and to widen the space for FDI in defence, insurance and railways, should create a more conducive setting for industrial revival,” it said.

Faster clearances are also helping in resuscitating stalled projects and the “improvement in business confidence” is visible in a pick-up in new investment intentions, especially in transportation, power and manufacturing.

Overall, the RBI added that the growth prospects will be contingent upon a turnaround in investment and a durable improvement in the business climate to complement the upsurge in business optimism.

Macro-economic indicators favour rate cut by RBI, say bankers

 

 RBI is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday. File photo

With inflation under control, bankers believe that macroeconomic indicators are conducive for a further rate cut of 0.25 per cent by RBI on Tuesday, even as some expect the central bank to maintain a status quo.

The improving fiscal situation, in the wake of a record Rs. 22,577 crore garnered from CIL stake sale, and weakness in manufacturing sector are among pointers towards a possible cut in rates, experts said.

However, some bankers said the RBI Governor Raghuram Rajan may go for a status quo and would like to wait for cues from the Budget presentation on February 28 before undertaking any rate cut.

RBI, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday.

According to bankers and economists, there is room for further rate cut by RBI as retail and wholesale inflation rates have remained benign.

The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record Rs. 22,577 crore through disinvestment of 10 per cent stake in Coal India Ltd.

While lowering the policy repo rate to 7.75 per cent from 8 per cent, RBI had also said on January 15 that further rate cuts would depend on inflationary expectations and improvement in the fiscal situation.

“My expectation is that the RBI may go for status quo as no new data have come post January 15. RBI Governor would like to wait till Budget before taking any action on rate front,” Bank of Maharashtra Chairman and Managing Director Sushil Muhnot told PTI.

While the retail inflation slipped to 5 per cent in December, the Wholesale Price Index (WPI) inflation remained near zero level (0.1 per cent).

The government’s fiscal situation is expected to improve further with more disinvestments.

So far, it has realised over Rs. 24,000 crore with just two disinvestment share sales, including SAIL’s Rs. 1,719 crore late last year.

It targets to raise a total of Rs. 43,425 crore from disinvestment in the current fiscal, ending next month.

Citing favourable macroeconomic conditions, the government and the industry have also been asking for further rate cuts to lower the cost of capital, while concerns were expressed last month on Rajan maintaining a highly hawkish monetary stance.

Even after last month’s rate cut, many had said that RBI’s move was “too little and too late”, while many bankers and experts have forecast overall lowering of rates by up to one percentage points in the coming months.

Oriental Bank of Commerce’s chief Animesh Chauhan said most macroeconomic indicators favour a rate cut and he hopes that the RBI Governor would consider a rate cut on February 3 by 25 basis points.

Last month, Mr. Rajan had said that the further easing of rates would depend on “data that confirm continuing disinflationary pressures”.

“Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure,” Mr. Rajan had said.

State-run IFCI’s Managing Director Malay Mukherjee said, “There is a widespread expectation of rate cut but RBI has all the data and will take a decision in its wisdom.”

PSU banking behemoth SBI also said in a research report that RBI may go for a “token cut” in interest rates in its upcoming policy review.

Bank of Baroda Executive Director Rajan Dhawan said that if there is credible fiscal consolidation, the rates will start coming down.

“With inflation coming down, I believe all rates such as deposit and lending rates will come down to more credible levels soon. I cannot second guess RBI, as it is their prerogative, but I feel when you have stable, low inflation, the policy rates have to come down,” Mr. Dhawan said.

“I think the RBI is waiting and watching to see the impact of all the measures that they and the government have taken...it will definitely result into lower rates in the future,” he added.