Rupee declines: forwards rise
Mumbai: The rupee fell against the dollar on Tuesday as demand for the dollar rose. The rupee opened at 44.98 and closed at 45.02, lower than Monday's 44.97/98.

Forwards: There was a sharp rise in forwards.
Reacting to the 25-basis point hike to 7.25 per cent in the repo rate, the six-month closed at 2.13 per cent (1.82 per cent) and the 12-month ended at 1.89 per cent (1.67 per cent).

Bonds: Bonds dropped around nine paise, reacting to the Reserve Bank of India's mid-term credit policy. Total traded volume on the order matching system was Rs 3,610 crore (Rs 1,950 crore). Bank dealers said the market expected the RBI it to increase the reverse repo rates in the near future.

G-secs: The 7.59 per cent 10-year 2016 paper opened at Rs 99.86 (7.61 per cent YTM) and closed at Rs 99.75 (7.63 per cent YTM) against Rs 99.84 (7.61 per cent YTM) on Monday. The 8.07 per cent 11-year 2017 paper opened at Rs 102.96 (7.64 per cent YTM) and closed at Rs 102.87 (7.66 per cent YTM) against Rs 102.96 (7.64 per cent YTM).

Call rates: Call rates remained unchanged between 6.80 per cent to 6.90 per cent. In the first one-day reverse-repo auction under LAF, the RBI received and accepted one bid amounting to Rs 50 crore. There were no repo bids. In the second one-day reverse-repo auction, the RBI accepted and received seven bids for Rs 3720 crore.

CBLO: The CBLO market saw 450 trades aggregating to Rs 25,336.70 crore in the 5.50-6.80 per cent range.
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Banks allowed to borrow more from overseas branches
Mumbai: The Reserve Bank of India has hiked the borrowing limits of banks from their overseas branches. Banks can borrow up to a limit of 50 per cent of their tier I capital or $10 million (whichever is higher) from their overseas branches and correspondent banks. This includes borrowings for financing export credit, ECBs and overdrafts from their head office (HO) or nostro accounts. The earlier overall limit had been 25 per cent excluding borrowings for export credit.

Also companies which are eligible for accessing external commercial borrowings, can also avail themselves of an additional $250 million with an average maturity of more than 10 years under the approval route. This is over and above the existing limit of $500 million. Corporates will have greater flexibility in managing their liquidity and interest costs and can now prepay up to $300 million of ECBs against the earlier limit of $200 million.

The RBI has said that short-term borrowings up to a period of one year or less, should however not exceed 20 per cent of Tier I capital, within the overall 50 per cent limit.
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RBI leaves key interest rates untouched, eases restrictions on use of forex reserves
Mumbai: The RBI has left key interest rates untouched and taken measures to ease use of the $166-billion forex reserves.
The RBI has hiked the repo rate (the rate at which RBI lends money to banks) has been marked up by 25 basis points to 7.25 per cent. Analysts say this should not matter as banks have not been frequent visitors at RBI counters.

The governor of RBI YV Reddy said, "We expect the banks to rebalance their portfolio and reassess their policies to avoid any contingencies. In the current circumstances, liquidity may be more expensive in the future. We have urged banks to rebalance their credit-deposit ratio."

Easing restrictions on use of forex the RBI has allowed Indians to freely remit up to $50,000 per year against the earlier limit of $25,000. The present facility of $10,000 per year for private travel will continue on a self-declaration basis. For the not so wealthy, retail loans should not cost more as banks have little reason to mark up interest rates.

Acting on the suggestions of an Internal Task Force set up to study the Tarapore report on Fuller Capital Account Convertibility: The RBI has taken the following measures:

• It has allowed all categories of exporters to retain 100 per cent of their forex earnings in their Exchange Earner's Foreign Currency (EEFC) accounts.
• Access to overseas markets by banks has been made easier. Banks can borrow from their overseas branches and correspondent banks up to 50 per cent of their unimpaired Tier 1 capital or $10 million, whichever is higher, as against the earlier limit of 25 per cent.
• Corporates can raise an extra $250 million in External Commercial Borrowings (ECBs) over the existing limit of $500 million under the automatic route, in a financial year.
• Prepayment of ECBs up to $300 million (earlier cap of $250 million) without reference to the central bank has also been okayed.
• To help Indian companies move abroad, the RBI has lifted the limit on credit and non-credit facilities extended by banks from 10 per cent to 20 per cent of their unimpaired capital.
  
• Mutual funds can now invest $3 billion ($2 billion) overseas.
  
• FIIs have been permitted to invest more funds in government securities above the current $2-billion cap. Accordingly, the existing limit will be raised in phases to $2.6 billion by December 31 and further to $3.2 billion by March 31, 2007. The $1.5-billion bind on corporate debt will continue.
  

In the Mid-Term Review of Annual Policy Statement for 2006-07, the RBI has also allowed short sales to banks and primary dealers (and not FIIs) with the proviso that short positions will have to be covered (buying securities to honour sales made earlier) within five days. Intra-day shorting was permitted in February 2006. FIIs can azlso rebook 25 per cent of cancelled forward contracts to bet on rupee-dollar volatility.
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IDFC net up 35 pc
Mumbai: Infrastructure Development Finance Company (IDFC) has recorded a 35.42 per cent rise in net profit to Rs 141.40 crore for the quarter ended September 30 against Rs 104.41 crore for the same quarter in the previous year, on a stand-alone basis.

Total income has increased to Rs 387.62 crore (Rs 244.85 crore). Total expenditure has gone up to Rs 208.48 crore (Rs 129.39 crore). Interest and other charges have gone up to Rs 196.04 crore (Rs 116.24 crore). The consolidated net profit jumped to Rs 154.81 crore (Rs 105.80 crore) during the quarter.
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Banks given more time to implement Basel II norms
Mumbai: The Reserve Bank of India has extended the original deadline of March 31, 2007 to March 31, 2008 for foreign banks operating in India and Indian banks with overseas branches to implement Basel norms.

Other commercial banks have another year till March 31, 2009.

"Taking into account the state of preparedness of the banking system, it has been decided to provide banks some more time to put in place appropriate systems so as to ensure full compliance with Basel II," the RBI said in its report.

Banks will have to migrate to the standardised approach for credit risk and the basic indicator approach for operational risk under Basel II norms.
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HSBC infuses $200mn in India operations
Mumbai: The Hong Kong and Shanghai Banking Corporation (HSBC) has infused fresh capital to the tune of $200 million (Rs 904 crore) into its India operations to support its business expansion plans.

With this additional investment, the British bank's capital base India has grown from Rs 4001.3 crore at the end of March 2006 to Rs 4909.5 crore now. The fresh capital infusion was done on October 31, 2006.

The bank's capital adequacy ratio which stood at 10.6 pc at the end of March 2006 will go up to almost 13 pc computed on the asset base of March 2006.

As of March 2006, the bank's asset base stood at Rs 37,500 crore. The capital will be used to support the bank's growth in India. This capital infusion has come after an infusion of $150 million in March 2005.
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Rural money lending norms under RBI scrutiny
Mumbai: The RBI will review the laws governing money lending to ensure the interests of rural households are protected.

The RBI has constituted a technical group to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different States in the interest of rural households. The apex bank said since various state governments have shown interest in the deliberations of the group and therefore, it proposes to co-opt as special invitees representatives from the state governments for wider representation.

RBI asked banks to review their practices concerning lending for housing, as it has been reported to it that some banks are not fully transparent in indicating the circumstances and factors governing the benchmark in respect of floating rates as well as in regard to reset clauses.

The central bank asked banks to also afford an opportunity to borrowers to obtain fair and transparent terms consistent with legal requirements and fair practices.

The RBI said it has been taking measures on an ongoing basis for protection of customers' rights, enhancing the quality of customer services and strengthening grievance redressal mechanisms in the central bank as well as in banks.
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