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Reuters

RBI to ease pricing norms for securities, hikes personal remittance limit to $250K a yr

03 February, 2015

Reserve Bank of India (RBI) has increased the individual annual foreign exchange remittance limit, virtually tripling it in the last eight months to $250,000 per person in a year. The central bank decided to enhance the limit after a review of the external sector outlook and as a further exercise in macro prudential management, it said in its sixth bi-monthly monetary policy review on Tuesday.

Earlier in 2013, RBI had reduced the limit to $75,000 but raised it to $125,000 last June seeing the stability in the foreign exchange market. The limit does not come strapped with any end-use restrictions, except for prohibited foreign exchange transactions such as margin trading, lotteries and such transactions.

RBI said that in order to ensure ease of transactions, it has also been decided in consultation with the government that all the facilities for release of exchange/remittances for current account transactions available to resident individuals under Schedule III to Foreign Exchange Management (current account transactions) Rules 2000, shall also be subsumed under this limit.

The central bank also talked about other regulatory measures in the policy review meet.

In a significant move, RBI has decided to introduce greater flexibility in the pricing of instruments/securities, including an assured return at an appropriate discount over the sovereign yield curve through an embedded optionality clause or in any other manner. It will issue guidelines in this regard separately.

RBI said this is with a view to meet the emerging needs of foreign direct investment in various sectors with different financing needs and varying risk perceptions as also to offer the investor some protection against downside risks.

It has also harmonised investment norms for foreign portfolio investors (FPIs) in government securities and corporate bonds.

FPIs are currently permitted to invest in G-Secs with a minimum residual maturity of three years. No such condition has been stipulated for their investments in corporate bonds. It has decided that all future investment by FPIs in the debt market in India will be required to be made with a minimum residual maturity of three years. Accordingly, all future investments within the limit for investment in corporate bonds, including the limits vacated when the current investment by an FPI runs off either through sale or redemption, shall be required to be made in corporate bonds with a minimum residual maturity of three years.

It has added that FPIs will not be allowed to invest incrementally in short maturity liquid/money market mutual fund schemes. There will, however, be no lock-in period and FPIs shall be free to sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors. RBI will come with detailed operational guidelines by the end of this month.

Applicants line up for niche banks

RBI has also disclosed that it has received at least 72 applications for ‘small finance’ banks and 41 applications for ‘payments’ banks licence as of the deadline which ended on February 2. It added that the number of applications may increase as it compiles possible filings at regional offices.

Last November RBI issued final guidelines for setting up new ‘small finance’ and ‘payments’ banks to support financial inclusion by providing small savings accounts, payments/remittance services to migrant labour workforce and low income households and supply of credit to small business units among others.

It had also extended the deadline for submitting applications for setting up of small finance banks and payments banks from January 16 to February 2, 2015.

Two External Advisory Committees (EACs) will evaluate the applications received for setting up of small finance and payments banks and thereafter make their recommendations to the Reserve Bank. The EAC for small finance banks will be chaired by former RBI deputy governor Usha Thorat while Nachiket Mor, former ICICI Bank honcho and currently director, Central Board of the Reserve Bank, will chair the EAC for payments banks.

(Edited by Joby Puthuparampil Johnson)


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RBI to ease pricing norms for securities, hikes personal remittance limit to $250K a yr

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