RBI issues draft guidelines on IRB approach

Under the proposed Internal Rating Based Approach scheme, banks are allowed to use their own internal estimates for some or all of the credit risk components in determining the capital requirement for a given credit exposure. The RBI has sought comments on the guideline by 9th September

Mumbai: The Reserve Bank of India (RBI) on Wednesday said it plans to allow banks to calculate at their own the capital requirement to handle credit risk if they meet certain criteria, like risk oversight norms and corporate governance, reports PTI.

The central bank has issued a draft guideline for allowing banks to shift to Internal Rating Based (IRB) Approach.

Under this scheme banks are allowed to use their own internal estimates for some or all of the credit risk components in determining the capital requirement for a given credit exposure.

“This (draft) guideline is meant for the banks which are willing and allowed by the RBI to adopt more sophisticated IRB approach,” the central bank said.

The credit risk components include, Probability of Default (PD), Loss Given Default (LGD), Exposure at Default (EAD) and Effective Maturity (M).

The Basel-II framework provides two broad methodologies to banks to calculate capital requirements for credit risk, namely—Standardised Approach (SA) and Internal Rating Based (IRB) Approach.

The SA measures credit risk based on external credit assessments.

The RBI has sought comments on the guideline by 9th September.

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RBI panel for hassle free remittance, investment

A panel headed by former RBI deputy governor KJ Udeshi mooted that banks should not insist on to insist on the submission of form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme

Mumbai: The Reserve Bank of India (RBI) appointed panel on Wednesday suggested significant liberalisation of forex regulation to allow hassle free remittances and overseas investments, reports PTI.

“To enable hassle-free remittances by resident individuals, banks may be advised by the RBI not to insist on the submission of form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS),” the report of the panel headed by former RBI deputy governor KJ Udeshi said.

The report of the committee to review the facilities for individuals under Foreign Exchange Management Act (FEMA), 1999 said over a period of time, the FEMA rules now contain contradictory provisions and there is also a need to make definitions uniform and consistent across FEMA.

The committee is of the considered view that the procedural ‘knots’ in the system need to be untied to enable the present forex liberalisation to be effective and in the absence of untying of these knots, any further forex liberalisation will not be meaningful.

The report also noted that instead of an erstwhile single regulator (the RBI), we now have a multitude of regulators, each interpreting FEMA in his own way.

General permission, it said, may be granted to resident individuals to acquire shares of a foreign company in part or full consideration of professional services rendered to the foreign company or in lieu of director’s remuneration.

Besides, it suggested, general permission may be granted to resident individuals to acquire qualification shares of an overseas company for holding the post of a director without the existing limitations.

It is to be noted that the committee was set up, following the announcement in Annual Monetary Policy for 2011-12 in May.

“Recognising the need for facilitating genuine foreign exchange transactions by individuals—Residents/Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs)—under the current regulatory framework of FEMA, RBI has constituted a committee under the chairmanship of KJ Udeshi,” RBI governor D Subbarao had said in the Annual Monetary Policy for 2011-12.

The objective of the review was to identify areas for streamlining and simplifying the procedure so as to remove the operational impediments and assess the level of efficiency in the functioning of authorised persons, including the infrastructure created by them.

Among other recommendations, Indian resident employees or directors may be permitted to accept shares offered through an ESOP Scheme globally.

It also suggested that the Portfolio Investment Scheme needs to be reviewed in its entirety and there is no need for continuation of the existing scheme.

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EGoM to meet on to decide on more sugar exports

While the agriculture ministry is in favour of allowing more exports, the food ministry wants to defer the decision till September by when it would know the actual closing stock of sugar in this season and will get a clear picture of likely production in the next season

New Delhi: An Empowered Group of Ministers (EGoM) on food, headed by finance minister Pranab Mukherjee, is scheduled to meet on Friday to decide on allowing more sugar exports and lifting ban on wheat exports, reports PTI.

The government has so far this year allowed exports of one million tonnes of sugar in two equal tranches under Open General Licence (OGL).

"The EGoM meeting is scheduled for 12th August. Sugar and wheat exports are on the agenda," a highly placed source said.

Indian Sugar Mills Association (ISMA), the apex industry body for sugar sector, has been demanding that the government should allow another one million tonnes of sugar exports considering the huge surplus stock and higher global prices.

Not only industry, almost all political parties from Maharashtra are demanding more exports so that mills could make payments to sugarcane farmers.

On Tuesday, food minister KV Thomas had said in the Lok Sabha that mills owe Rs2,591 crore to sugarcane farmers till 15th May of the current 2010-11 season (October-September). Another Rs211 crore sugarcane arrear is pending from previous seasons.

Mills have not been able to make timely payment to cane farmers this season due to liquidity crunch following a decline in ex-mill prices.

While the agriculture ministry is in favour of allowing more exports, the food ministry wants to defer the decision till September by when it would come to know the actual closing stock of sugar in this season and will get a clear picture of likely production in the next season.

Sugar production of India, the world's second largest producer and biggest consumer, is estimated at 24.2 million tonnes in the 2010-11 season as compared to around 19 million tonnes last year. The annual demand is pegged at 21-21.5 million tonnes.

On wheat export, which has been banned since early 2007, sources said the issue may be discussed again but export is unlikely to take place given low global prices.

In its last meeting, which was held early July, the EGoM had deferred the decision to allow wheat exports.

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