The RBI has asked all Banks and Financial Institutions (FIs) to provide information and documents sought by the Special Investigation Team (SIT) set up to uncover black money.
The new Government at Centre recently constituted an SIT under the chairmanship of former Justice M.B. Shah in pursuance of a July 2011 Supreme Court judgment.
The Finance Ministry has informed that the government will write to Switzerland seeking details of Indians with unaccounted money in Swiss banks.
As per the latest data published by Swiss National Bank, the volume of Indian money in various Swiss banks swelled 43% during 2013 to almost Rs. 14,000 crore, including money held directly by Indian clients and those through fiduciaries or wealth managers.
Switzerland has expressed its willingness to working together with the new government of India in its fight against tax evasion.
The Government of India has accepted the report of Mayaram Committee thereby accepting the definitions of FII and FDI. The panel headed by Finance Secretary was set up to rationalize the definitions of FII and FDI.
Some key points from Mayaram Committee Report:
- Foreign investment of 10% or more in a listed company will now be treated as FDI.
- An investor may be allowed to invest below 10% and this can be treated as FDI subject to the condition that the FDI stake is raised to 10% or beyond within one year from the date of the first purchase.
- If the stake is not raised to 10% or above, then the investment can be treated as portfolio investment.
- Foreign Portfolio Investors include Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs).
- Foreign investment in an unlisted company, irrespective of the threshold limit, may be treated as FDI.
The Reserve Bank of India (RBI) conducted Open Market Operations (OMOs) to sell Rs 2,255 crore of government bonds between June 2 to June 6, 2014, to absorb excess rupee liquidity it has injected into the system through dollar purchasing. As per market experts, the apex bank may have also been trying to curb volatility in government securities through these OMOs.
Some traders apprehend that if RBI continues the practice then bond prices may fall. Since the beginning of the new financial year on April 1, 2014, these have been the RBI’s largest sale of government bonds through OMOs, a platform where the apex bank anonymously sells or buys government securities in the secondary market.
The main motive behind the RBI’s measure was probably the excess rupee liquidity in the system.
The RBI’s dollar buying has brought in rupee liquidity into the system, besides the central bank’s routine term repo windows, where banks can borrow for a stipulated period like 4 to 28 days. For instance, it did a 28-day term repo for Rs 20,000 crore on June 6, 2014. To neutralize its impact, it has already begun selling in the rupee forwards market. During April 2014, the RBI sold about $1 billion, taking the outstanding net forwards sales to $32.06 billion.
The Reserve Bank of India will soon come up with India’s first payments bank, which will offer deposit and payment services but not provide loans.
This idea is in line with the recommendations made by the Nachiket Mor committee. The central bank sees huge potential for financial inclusion with focus on remittances by involving payment system product.
As per the RBI, while full-service banks require an entry capital of Rs.500 crore, payments banks can start operations with a capital of just Rs.50 crore since all their money will be invested in safe government securities.
They will be required to comply with all RBI guidelines for commercial banks.
According to the recommendations of Nachiket Mor committee:
- Permission should be given to existing banks to create subsidiaries to operate payments banks.
- Payments banks may be created by converting prepaid payment issuers (PPIs). These companies provide cards that customers can use to make payments with the money stored in them. There are 27 PPIs in the country, including Itz Cash Card Ltd, Oxigen Services (India) Pvt. Ltd and Airtel M Commerce Services Ltd.
Entry of payments banks made easier:
In order to expedite the process, the RBI will soon start its differentiated banking licence regime, where the central bank issues licences to new banks to undertake specific banking operations.The apex bank will also issue licences on a continuous basis to qualified aspirants instead of opening the licensing window after long intervals.The payments bank route is important for India Post, which failed to secure a banking licence. RBI Governor Raghuram Rajan said that India Post could begin as a payments bank. All these efforts are being made to promote financial inclusion in India, where more than half of the adult population still does not have access to banking services.
The RBI first introduced a 3-year financial inclusion programme in April 2010 to promote financial inclusion that witnessed banks opening outlets in 200,000 villages. Subsequently, it launched the phase II of the programme for 2013-2016.