October 2015 - PHD Chamber of Commercephdcci.in/image/data/Research Bureau-2014/FOREX Newsletter-2015... · market, SEBI has created 7 ... USD 2421 million of Debt during October

October 2015

FOREX COMMITEE NEWSLETTER

2| October 2015

In the month of October 2015, the exchange rate of rupee against various currencies has remained more or less same and has not witnessed any major upward or downward movements. The average exchange rate of Rupee against USD stands at 65.1, 99.7 against pound sterling, 73.0 against Euro and 54.2 against Japanese Yen in October 2015. A modest pickup has been observed in our foreign exchange reserves positions. It has scaled up marginally to USD 354 billion as on 30th October 2015 as compared with USD 350.28 billion as at end-Sep 2015. The latest position of foreign exchange reserves as on November 6, 2015 is about USD 352 billion consisting of Foreign Currency Assets, Gold reserves at USD 18.6 billion, SDRs at around USD 4.0 billion and Reserve Position in the IMF at USD 1.3 billion. At regulatory front, RBI issued norms on Gold Monetisation Scheme (GMS), 2015. Gold Monetisation Scheme (GMS), which modifies the existing ‘Gold Deposit Scheme’ (GDS) and ‘Gold Metal Loan Scheme (GML), is intended to mobilise gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold. The Reserve Bank of India, in consultation with Government of India, has decided to issue Sovereign Gold Bonds. The bonds will be issued by RBI on 26th November 2015 which is offering investors a fixed rate of 2.75% per annum payable semi-annually on the initial value of investment. Further, with a view to liberalising the existing hedging facilities, RBI allowed resident individuals, firms and companies who have actual or anticipated foreign exchange exposures, to book foreign exchange forward and FCY-INR options contracts up to USD 1 million without any requirement of documentation on the basis of a simple declaration. Securities and Exchange Board of India (SEBI) has commenced regulating the commodity derivatives market under Securities Contracts Regulation Act (SCRA) 1956 with effect from 28th September, 2015 and the Forward Contracts Regulation Act (FCRA) 1952 got repealed with effect from 29th September, 2015. To fulfil this additional responsibility of regulating the commodity derivatives market, SEBI has created 7 departments and notifies 12 associations as stock exchanges The net FII investments in the month of October 2015 is estimated at USD 3444 million with a Y-O-Y growth of about 26% as against (-) USD 874 million in September 2015 with a Y-O-Y growth of (-)125%. The total net FII investment consists of around USD 1023 million of equity and about USD 2421 million of Debt during October 2015. Stock Markets’ performance has improved slightly in the month of October 2015. S&P BSE Sensex closed at 26,656.83 as on 30th October 2015 as against 26,154.83 on 30th September 2015, registering an increase of about 2%. While, CNX Nifty closed at 8065.80 on 30th October 2015 as compared to 7948.90 on 30th September 2015 indicating an increase of about 1.5%.

FOREX COMMITTEE NEWSLETTER


3| October 2015

The monthly turnover in India’s foreign exchange market including Merchant and Interbank transactions in the category of purchases declined from around USD 524 billion in September 2015 to around USD 498 billion in October 2015. In the category of sales, the turnover also declined from about USD 548 billion in September 2015 to about USD 506 billion in October 2015. Monthly Turnover in foreign exchange market (USD billion)

Source: PHD Research Bureau compiled from RBI

Daily trend of exchange rate of rupee against various currencies—In the month of October 2015, the exchange rate of rupee against USD has remained more or less same hovering between 64 to 65. The same trend has been witnessed in the exchange rate of rupee against Pound Sterling which has been in the range of 99 to 100. Whereas, the exchange rate of rupee against Euro has appreciated slightly from 73.1 in the beginning of the month to 71.6 on closing of the month of October 2015. The exchange rate of rupee against Japanese Yen has also appreciated from about 54.5 in the beginning of the month to 53.9 on closing of the month of October 2015. Trend of rupee against various currencies (Oct 2015)


0100200300400500600700

Apr-

14

May

-14

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr-

15

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct

-15

Purchase Sales

India’s Foreign Exchange market turnover

Rupee Movement Average Exchange rate of Rupee against USD stands at 65.1 in Oct 2015, 99.7 against pound sterling, 73.0

against Euro and 54.2 against Japanese Yen.


4| October 2015

Monthly trend of rupee exchange rate (High and Low) against currencies In the month of October 2015, the exchange rate of rupee against USD recorded highest at 65.3, while it registered lowest at 64.7. The exchange rate of rupee against pound registered highest at 100.5 and lowest at 99.1. In case of Euro currency, exchange rate of rupee recorded highest at 74.5 and lowest at 71.2.

Trend of rupee’s high and low against currencies (Rupees per unit of foreign currency)


India’s foreign exchange reserves scaled up marginally to USD 354 billion as on 30th October 2015 as compared with USD 350.28 billion as at end-Sep 2015. The latest position of foreign exchange reserves as on November 6, 2015 is about USD 352 billion consisting of Foreign Currency Assets, Gold reserves at USD 18.6 billion, SDRs at around USD 4.0 billion and Reserve Position in the IMF at USD 1.3 billion. Movement In Foreign exchange reserves (USD Billion)


0

50

100

150

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15

USD High USD Low Pound Sterling High Pound Sterling Low

Euro High Euro Low Yen High Yen Low

310320330340350360

Foreign exchange reserves

Exchange rate of Rupee against

USD stood highest at 65.3 and lowest at

64.7 in Oct 2015

Foreign exchange reserves scaled up marginally to USD 354 billion ending Oct 2015


5| October 2015

h


6| October 2015

RBI releases list of approved applicants for Registration of Institutions, Organisations and Associations for grant of Financial Assistance from the Depositor Education and Awareness Fund (DEA Fund)--The Reserve Bank of India today released the names of 20 entities that have been approved by the DEA Fund Committee for registration for seeking grant of financial assistance from the Depositor Education and Awareness Fund. The names of the 20 entities are Vasantha Lakshmi Charitable Trust & Research Centre, Nellore, Andhra Pradesh, Society for Social Transformation, A.P.,Voluntary Organisation in Interest of Consumer Education Society, New Delhi, Progressive Action for Community Emancipation (PACE), Chittoor, Andhra Pradesh, International Network of Alternative Financial Institutions-India, Madurai, SAMARPIT- Centre for Poverty Alleviation and Social Research, Bilaspur, Voluntary Integrated Development Society, A.P., Initiatives for Development Foundation, Bengaluru, MOTHER, Bhubaneswar, Genesis Academy of Banking & Finance Education Trust, Mumbai, MONEYLIFE Foundation, Mumbai, ASSLS Organization, A.P., Consumer Education and Research Society, Ahmedabad, Consumer Unity & Trust Society (CUTS), Jaipur, Indian School of Microfinance for Women, Ahmedabad, Swadhaar Finaccess, Mumbai, Xavier Labour Relations Institute (XLRI), Jamshedpur, Aparajita Mahila Sangh, Indore, Priyasakhi Mahila Sangh, Indore and DHAN Foundation, Madurai RBI issues norms on Gold Monetisation Scheme (GMS), 2015--GMS, which modifies the existing ‘Gold Deposit Scheme’ (GDS) and ‘Gold Metal Loan Scheme (GML), is intended to mobilise gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold. Definitions

i. Collection and Purity Testing Centre (CPTC) - The collection and assaying centres certified by the Bureau of Indian Standards (BIS) and notified by the Central Government for the purpose of handling gold deposited and redeemed under GMS.

ii. Designated bank – All Scheduled Commercial Banks (excluding RRBs) that decide to implement the Scheme.

iii. Gold Deposit Account – An account opened with a designated bank under the Scheme and denominated in grams of gold.

iv. Medium and Long Term Government Deposit (MLTGD) - The deposit of gold made under the GMS with a designated bank in the account of the Central Government for a medium term period of 5-7 years or a long term period of 12-15 years or for such period as may be decided from time to time by the Central Government.

v. Nominated bank – A Scheduled Commercial Bank authorized by RBI to import gold under the extant Foreign Trade Policy.

vi. Refiners – The refineries accredited by the National Accreditation Board for Testing and Calibration Laboratories(NABL) and notified by the Central Government for the purpose of handling gold deposited and redeemed under GMS.

vii. Scheme - Gold Monetization Scheme, 2015 which includes Revamped Gold Deposit Scheme (R-GDS) and Revamped Gold Metal Loan Scheme (R-GML).

viii. Short Term Bank Deposit (STBD) - The deposit of gold made under the GMS with a designated bank for a short term period of 1-3 years.

Recent regulatory developments


7| October 2015

Revamped Gold Deposit Scheme (R-GDS)

i. This scheme will replace the existing Gold Deposit Scheme, 1999. However, the deposits outstanding under the Gold Deposit Scheme will be allowed to run till maturity unless these are withdrawn by the depositors prematurely as per existing instructions.

ii. All designated banks will be eligible to implement the scheme. iii. The principal and interest of the deposit under the scheme shall be denominated in gold. iv. Persons eligible to make a deposit - Resident Indians (Individuals, HUFs, Trusts including

Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the scheme. Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such case shall be credited to the joint deposit account opened in the name of such depositors. The existing rules regarding joint operation of bank deposit accounts including nominations will be applicable to these gold deposits.

v. All deposits under the scheme shall be made at the CPTC. However, at their discretion, banks may accept the deposit of gold at the designated branches, especially from the larger depositors.

vi. Interest on deposits under the scheme will start accruing from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the CPTC or the bank’s designated branch, as the case may be, whichever is earlier.

vii. During the period commencing from the date of receipt of gold by the CPTC or the designated branch, as the case may be, to the date on which interest starts accruing in the deposit, the gold accepted by the CPTC or the designated branch of the bank shall be treated as an item in safe custody held by the designated bank.

viii. On the day the gold deposited under the scheme starts accruing interest, the designated banks shall translate the gold liabilities and assets in Indian Rupees by crossing the London AM fixing for Gold / USD rate with the Rupee-US Dollar reference rate announced by RBI on that day. The prevalent custom duty for import of gold will be added to the above value to arrive at the final value of gold. This approach will also be followed for valuation of gold at any subsequent valuation dates and for the conversion of gold into Indian Rupees under the Scheme.

ix. Reporting – The designated banks need to submit a monthly report on GMS to the RBI in the prescribed format.

GMS - linked Gold Metal Loan (GML) Scheme

i. The gold mobilized under STBD may be provided to the jewellers as GML. The designated banks can also purchase the gold auctioned under MLTGD and extend GML to the jewellers.

ii. The jewellers will receive the physical delivery of gold either from the refiners or from the designated bank, depending on the place where the refined gold is stored.

iii. The existing Gold (Metal) Loan (GML) Scheme operated by nominated banks in terms of paragraph 2.3.12 of the RBI Master Circular on Loans and Advances dated July 1, 2015 will continue in parallel with GMS-linked GML scheme. All prudential guidelines for the existing GML Scheme as prescribed in the Master Circular as amended from time to time will also be applicable to the new Scheme.

iv. The designated banks other than the nominated banks shall be eligible to import gold only for redemption of the gold deposits mobilised under the STBD.


8| October 2015

Memorandum of Procedure for channeling transactions through Asian Clearing Union (ACU)-- In view of the understanding reached among the members of the ACU during the 44th Meeting of the ACU Board in June, 2015, it has been decided to permit the use of the Nostro accounts of the commercial banks of the ACU member countries, i.e., the ACU Dollar and ACU Euro accounts, for settling the payments of both exports and imports of goods and services among the ACU countries. Consequently, payments for all eligible:

export transactions may be made by debit to the ACU Dollar / ACU Euro account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the ACU Dollar / ACU Euro account of the authorised dealer maintained with the correspondent bank in the other member country;

import transactions may be made by credit to the ACU Dollar / ACU Euro account in India of a bank of the member country in which the other party to the transaction is resident or by debit to the ACU Dollar / ACU Euro account of an authorised dealer with the correspondent bank in the other member country.

Further, all eligible export/import transactions with other ACU member countries (except in the case of certain countries where specific exemptions have been provided by the Reserve Bank of India) shall invariably be settled through the ACU mechanism.

Risk Weights for Claims on Foreign Central Banks—RBI has decided to amend Claims on Foreign Sovereigns and Foreign Central Banks under Master Circular on Basel III Capital Regulations. Claims on foreign sovereigns and their central banks will attract risk weights as per the rating assigned to those sovereigns and central banks/ sovereign and central bank claims, by international rating agencies as follows:

Claims on Foreign Sovereigns/Central Banks – Risk Weights S&P*/Fitch Ratings AAA to

AA A BBB BB to

B Below B Unrated

Moody’s ratings Aaa to Aa A Baa Ba to B

Below B Unrated

Risk Weight (%) 0 20 50 100 150 100 *Standard & Poor’s

Source: RBI RBI allows resident individuals, firms and companies who have actual or anticipated foreign exchange exposures, to book foreign exchange forward and FCY-INR options contracts up to USD one million without any requirement of documentation on the basis of a simple declaration--As announced in the Fourth Bi-monthly Monetary Policy Statement on September 29, 2015, with a view to further liberalising the existing hedging facilities, it has been decided to allow all resident individuals, firms and companies, who have actual or anticipated foreign exchange exposures, to book foreign exchange forward and FCY-INR options contracts up to USD 1,000,000 (USD one million) without any requirement of documentation on the basis of a simple declaration. While the contracts booked under this facility would normally be on a deliverable basis, cancellation and rebooking of contracts are permitted. Based on the track record of the entity, the concerned AD Cat-I bank may, however, call for underlying documents, if considered necessary, at the time of rebooking of cancelled contracts.


9| October 2015

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Ninth Amendment) Regulations, 2015--In the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated 3rd May 2000), amendments in Schedule 5 are: (A) in paragraph 2, (i) the existing sub-paragraph (3) shall be re-numbered as Paragraph 2C (ii) after the existing sub-paragraph (2), the following shall be added namely:- “(3) A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.” (iii) after adding sub-paragraph (3) in paragraph 2, the existing paragraph 2C shall be re-numbered as sub-paragraph (4) in Paragraph 2. (B) In paragraph 3, after the existing sub-paragraph (2), the following shall be inserted namely:- “(2A) A non-resident Indian who subscribes to the National Pension System, under sub-paragraph (3) of paragraph (2) of this Schedule shall make payment either by inward remittance through normal banking channels or out of funds held in his NRE/FCNR/NRO account.” RBI enhances limit for investment by FPIs in Government Securities--The limits for investment by foreign portfolio investors (FPI) in Government securities were last increased to USD 30 billion vide A.P.(DIR Series) Circular No.111 dated June 12, 2013. Subsequently, the allocation of limits between long term investors and other FPIs was modified and the requirement of investment by FPIs in securities with minimum residual maturity of three years was put in place vide A.P. (DIR Series) Circular No.99 dated January 29, 2014 and A.P. (DIR Series) Circular No. 13 dated July 23, 2014.

It has been decided by RBI to enhance the limit for investment by FPIs in Government Securities in two tranches from October 12, 2015 and January 1, 2016 respectively as under:

( Central Government

securities State

Development Loans

Aggregate

For all

FPIs

Additional for Long

Term FPIs

Total For all FPIs (including Long Term

FPIs) Existing Limits 1244 291 1535 Nil 1535 Revised limits with effect from October 12, 2015

1299 366 1665 35 1700

Revised limits with effect from January 1, 2016

1354 441 1795 70 1865

For the present, the security-wise limit for FPI investments will be monitored on a day-end basis and those Central Government securities in which aggregate investment by FPIs exceeds the prescribed threshold of 20% will be put in a negative investment list. No fresh investments by FPIs in these securities will be permitted till they are removed from the negative list. There will be no security-wise limit for SDLs for now.


10| October 2015

Modified directions for Non Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) --In terms of extant instructions on pricing of credit by Micro Finance Institutions (MFIs), the maximum variance between the minimum and maximum interest rate on loans cannot exceed 4%. The National Scheduled Castes Finance & Development Corporation (NSFDC) under the Ministry of Social Justice & Empowerment, Government of India, has proposed to expand its outreach by channelizing funds through select NBFC-MFIs at lower rate of interest. The objective of NSFDC is to work for the economic empowerment of persons belonging to Scheduled Castes living below the Double Poverty Line. In order to enable NBFC-MFIs to act as channelizing agents of NSFDC, it has been decided by RBI that the condition relating to the maximum variance permitted shall not be applicable to loans extended by NBFC-MFIs against funding by NSFDC. The on-lending to individuals by NBFC-MFIs out of funds of NSFDC shall only be through direct credit to their accounts with banks. Further, NBFC-MFIs shall exclude borrowing from NSFDC in arriving at the average cost of funds of the company for the purpose of pricing of credit, other than to the beneficiaries targeted by NSFDC. For this, NBFC-MFIs shall maintain proper record of funds received from NSFDC and the lending out of those funds. RBI decided to permit investment in shares of Market Infrastructure Companies (MICs) –With reference to circulars RPCD CO RF BC 65/07.02.03/2003-04 dated February 23, 2004 and RPCD CO RF BC 26/07.02.03/2005-06 dated August 04, 2005 in terms of which guidelines were issued to State Cooperative Banks/Central Cooperative Banks (StCBs/CCBs) for investment in Non-SLR securities. On a review of the guidelines, it has been decided by RBI to permit investment in shares of Market Infrastructure Companies (MICs) as under:

Investments made by StCBs/CCBs in MICs will be reckoned as Non-SLR investments; StCBs/CCBs are allowed to exceed the limit for investments in Non-SLR securities, if it

becomes necessary to do so for acquiring membership of MICs; The MICs eligible for such investments by StCBs/CCBs are Clearing Corporation of India Ltd.

(CCIL), National Payments Corporation of India (NPCI) and Society for World Wide Inter-Bank Financial Tele-Communication (SWIFT). The list of eligible MICs will be updated from time to time by the Reserve Bank of India.

Subscription to National Pension System by Non-Resident Indians (NRIs)-- With a view to enabling NRIs’ access to old age income security, it has now been decided by RBI, in consultation with the Government of India, to enable National Pension System (NPS) as an investment option for NRIs under FEMA, 1999. Accordingly, NRIs may subscribe to the NPS governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The subscription amounts shall be paid by the NRIs either by inward remittance through normal banking channels or out of funds held in their NRE/FCNR/NRO account. There shall be no restriction on repatriation of the annuity/ accumulated savings. Sovereign Gold Bonds, 2015-16—It has been decided by the Government of India to issue Sovereign Gold Bonds, 2015 (“the Bonds”) with effect from November 05, 2015 to November 20, 2015. The Government of India may, with prior notice, close the Scheme before the specified period. The terms and conditions of the issuance of the Bonds shall be as follows:

Eligibility for investment: The Bonds under this Scheme may be held by a person resident in India, being an individual, in his capacity as such individual, or on behalf of minor child, or


11| October 2015

jointly with any other individual. “Person resident in India” is defined under section 2(v) read with section 2 (u) of the Foreign Exchange Management Act, 1999.

Form of Security: The Bonds shall be issued in the form of Government of India Stock in accordance with section 3 of the Government Securities Act, 2006. The investors will be issued a Holding Certificate. The Bonds shall be eligible for conversion into de-mat form.

Date of Issue: Date of issuance shall be November 26, 2015. The investors can apply for the Bonds in receiving offices from November 05, 2015 to

November 20, 2015. The issuance can be closed by Government of India earlier than November 20, 2015 with a prior notice.

Denomination: The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be 2 grams with a maximum subscription of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

Issue Price: Price of the Bonds shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by the India Bullion and Jewellers Association Ltd. (IBJA).

Interest: The Bonds shall bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal.

Receiving Offices: Scheduled commercial banks (excluding RRBs) and designated Post Offices (as may be notified) are authorized to receive applications for the Bonds either directly or through agents.

Payment Options: Payment shall be accepted in Indian Rupees through Cash or Demand Drafts or Cheque or Electronic banking. Cheque or draft should be drawn in favour of the bank / post office (Receiving Office), specified in paragraph 7 above and payable at the place where the applications are tendered.

Redemption: The Bonds shall be repayable on the expiration of eight years from the date of issue. Pre-mature redemption of the Bond is allowed from fifth year of the date of issue on the interest payment dates.

The redemption price shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by IBJA.

Repayment: The receiving office shall inform the investor of the date of maturity of the Bonds, one month before its maturity.

Eligibility for Statutory Liquidity Ratio (SLR):The investment in the Bonds shall be eligible for SLR.

Loan against Bonds:The Bonds may be used as collateral for loans. The Loan to Value ratio will be as applicable to ordinary gold loan mandated by the RBI from time to time. The lien on the Bonds shall be marked in the depository by the authorized banks.

Tax Treatment:Interest on the Bonds shall be taxable as per the provisions of the Income-tax Act, 1961. Capital gains tax treatment will be the same as that for physical gold.

Transferability:The Bonds shall be transferable by execution of an Instrument of transfer in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part III, Section 4 of the Gazette of India dated the 1st December, 2007.

Tradability in Bonds:The Bonds shall be eligible for trading from such date as may be notified by the Reserve Bank of India.

Commission for distribution:Commission for distribution shall be paid at the rate of rupee one per hundred of the total subscription received by the receiving offices on the applications received and receiving offices shall share at least 50% of the commission so received with the agents or sub-agents for the business procured through them.


12| October 2015

SEBI commences regulating Commodity Derivatives Market under SCRA : Creates 7 departments and notifies 12 associations as stock exchanges --Securities and Exchange Board of India (SEBI) has commenced regulating the commodity derivatives market under Securities Contracts Regulation Act (SCRA) 1956 with effect from 28th September, 2015 and the Forward Contracts Regulation Act (FCRA) 1952 got repealed with effect from 29th September, 2015. To fulfil this additional responsibility of regulating the commodity derivatives market, SEBI has created the following additional departments/divisions: S.No. Department Division 1 Commodity Derivatives Market

Regulation Department (CDMRD) (i) Exchange Administration (ii) Market Policy (iii) Risk Management and Products (iv) Exchange Inspection and Complaints against

Exchanges 2 Market Intermediaries Regulation &

Supervision Department (MIRSD) (i) Commodity Derivatives Division - 1 (ii) Commodity Derivatives Division - 2

3 Integrated Surveillance Department (ISD)

(i) Commodity Derivatives Division - 1 (ii) Commodity Derivatives Division - 2

4 Investigations Department (IVD) (i) Commodity Derivatives Division 5 Department of Economic Policy and

Analysis (DEPA) (i) Commodity Research (Agriculture) (ii) Commodity Research (Non Agriculture)

6 Legal Affairs Department (LAD) (i) Division of Policy and Regulatory Affairs for commodity Derivatives

(ii) Division of Regulatory Assistance for Commodity Derivatives

7 Enforcement Department (EFD) (i) Enforcement Division for commodity Derivatives - 1

(ii) Enforcement Division for commodity Derivatives - 2

Source: SEBI

RBI releases ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks, March 2015'--The Reserve Bank of India today released the web publication ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks (SCBs), March 2015’. The highlights are:

Gross outstanding credit of scheduled commercial banks (excluding regional rural banks) as at end March 2015 amounted to during the year 2014-15.

The number of borrowal accounts increased by 4.0 per cent to 122 million in March 2015 from 117 million in March 2014.

Rural and Semi-urban centres registered higher growth in credit during the year at 13.9 per cent and 14.3 per cent, respectively as compared with growth observed in Urban and Metropolitan centres at 9.8 per cent and 8.0 per cent, respectively.

Small borrowal accounts each with credit limit up to three-fourth of total number of borrowal accounts, had a lower credit growth of 7.2 per cent.

Other key announcements


13| October 2015

The share of credit to ‘Agriculture’ sector and ‘Industry’ sector in gross bank credit decreased marginally to 11.7 per cent and 42.3 per cent, respectively in March 2015 from 12.0 per cent and 42.7 per cent, respectively in March 2014. The share of ‘Personal Housing Loans’ increased to 9.4 per cent in March 2015 from 8.5 per cent in March 2014.

The weighted average interest rate of all loans and advances declined by 25 bps during the year to 11.79 per cent as at the end of March 2015 from 12.04 per cent as at end March 2014.

RBI signs MoU on “Supervisory Cooperation and Exchange of Supervisory Information” with the Central Bank of UAE--The Reserve Bank of India, today, signed the Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Central Bank of UAE, United Arab Emirates. The MoU was signed by Mr. Saeed Abdulla Al Hamiz, Assistant Governor for Banking Supervision Affairs on behalf of Central Bank of UAE and Mrs. Meena Hemchandra, Executive Director on behalf of the Reserve Bank of India at the Head Office of Central Bank of UAE at Abu Dhabi, United Arab Emirates. Mr T.P. Seetharam, Indian Ambassador to UAE graced the occasion. The Reserve Bank has entered into Memorandam of Understanding, Letter for Supervisory Co-operation and Statement of Co-operation with supervisors of a few countries to promote greater co-operation and share supervisory information. With the signing of the MoU with the Central Bank of UAE, the reserve Bank has signed 29 such MoUs, one Letter for Supervisory Co-operation and one Statement of Co-operation. RBI signs MoU on “Supervisory Cooperation and Exchange of Supervisory Information” with the Bangladesh Bank--The Reserve Bank of India, today, signed the Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Bangladesh Bank, Peoples Republic of Bangladesh. The MoU was signed by Mr. Md. Saiful Islam, Executive Director on behalf of Bangladesh Bank and Mrs. Meena Hemchandra, Executive Director on behalf of the Reserve Bank of India at the Central Office of Reserve Bank in Mumbai. The Reserve Bank has entered into Memorandam of Understanding, Letter for Supervisory Co-operation and Statement of Co-operation with supervisors of a few countries to promote greater co-operation and share supervisory information. With this RBI has signed 30 such MoUs, one Letter for Supervisory Co-operation and one Statement of Co-operation. RBI invites feedback on report of the Working Group on Implementation of Ind AS by Banks in India--The Union Budget for 2014-15 emphasised the urgent need for convergence of the current Indian accounting standards with International Financial Reporting Standards (IFRS). The Ministry of Corporate Affairs (MCA), Government of India notified the rules for IFRS converged Indian accounting standards (Ind AS) along with its implementation road map for corporates in a phased manner from 2016-17 onwards. The roadmap for convergence of insurance companies, banking companies and non-banking financial companies (NBFCs) is expected to be announced by MCA in due course. The Reserve Bank recommended to the MCA a roadmap for implementation of Ind AS by banks from 2018-19 onwards and NBFCs in a phased manner (2018-19 and 2019-20).

Considering these developments, a Working Group was constituted to look into the issues in implementation of Ind AS by banks. The Working Group has structured its recommendations into the following key areas with focus on financial instruments.

Classification and Measurement of Financial Assets--The Working Group reviewed the requirements of Ind AS 109 with regard to the classification and measurement of financial


14| October 2015

assets which are similar to the requirements laid down in IFRS 9 issued by the IASB. The Working Group also took cognizance of the fact that there were a number of RBI circulars containing guidance and instructions on accounting matters which may not necessarily conform to the requirements of Ind AS 109. Therefore, a review of the important RBI circulars was carried out to identify areas requiring attention.

Classification and Measurement of Financial Liabilities--The IASB finalised the requirements relating to financial liabilities in October 2010. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39 with some changes made to the fair value option for financial liabilities to address the issue of own credit risk. The Working Group reviewed the Ind AS 32 and Ind AS 109 and also compared these requirements with the existing accounting practices and RBI guidelines on the matter to identify and assess potential issues as well as suggest solutions. The key issues identified by the Working Group pertain to the following areas (a) Initial recognition (b) Subsequent measurement (c) De-recognition of financial liabilities (d) Offsetting/ netting (e) Classification: Equity versus liability

Hedge Accounting and Derivatives--Hedge Accounting formed Phase III of IASB’s project to replace IFRS 9 in its entirety. The IASB has segregated the overall hedge accounting broadly into two components i.e. (a) general hedge accounting and (b) macro hedging. In November 2013, the IASB added to IFRS 9 a new hedge accounting model in respect of component (a) above. The new general hedge accounting model represents a substantial overhaul of hedge accounting model and corresponding disclosures that will enable entities to better reflect their risk management activities in their financial statements. However, as at May 2015, the prescriptions in relation to component (b) i.e. Macro Hedging are still a work in process and the IASB has issued in April 2014 a Discussion Paper titled ’Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging’ with public comment period which ended on October 17, 2014. The Working Group therefore did not consider the discussion paper and its propositions as they have yet to be translated into an accounting standard even internationally and instead focussed on the interaction of current RBI prescriptions on derivatives and hedge accounting with Ind AS requirements contained in Ind AS 109.

Fair Value Measurement--As the Indian banking sector moves towards reporting under converged International Financial Reporting Standards, one of the key issues facing the industry would be the application of fair value measurement, in view of the very nature of banking business and the preponderance of financial instruments on a bank’s balance sheet. Challenges in migrating to fair value measurement arise on account of the absence of active markets for corporate bonds and loans, differences with extant RBI instructions and practices on valuation, absence of an established body of accredited valuers and lack of adequate historical experience in the use of fair values by banks. In deliberating its recommendation with respect to Fair Value Measurement, the Working Group was guided by the following objectives: (a) Valuation in accordance with the accounting standards and international best practices with departures only in exceptional cases (b) Transparency in the application of the valuation methodology and the inputs to the valuation process (c) Valuation to be determined on an independent and objective basis (d) Consistency in valuation of identical or similar instruments and (e) Ease of regulatory supervision.


15| October 2015

Impairment of Financial Assets--Given the business of banking, ensuring that the recoverable value of impaired financial assets is properly reflected and such financial assets are adequately provided for is of critical importance. One of the lessons of the financial crisis was that the pre-crisis accounting model for impairment waited for the impairment to be incurred before requiring a loss allowance thereon and was criticised for being a “too little, too late” approach. In order to address this issue, as a part of its project to replace IAS 39, the IASB developed a forward looking “expected credit loss” (ECL) framework for recognising impairment on financial assets. Unlike IAS 39, where an entity only considers those losses that arise from past events and current conditions, IFRS 9 broadens the spectrum by requiring an entity to base its measurement of expected credit losses on reasonable and supportable information that is available without undue cost or effort, and that includes historical, current and forecast information. The IFRS 9 ECL requirements, which have been incorporated without any significant change in Ind AS 109, also represents a paradigm shift from current practice in the Indian banking industry which follows income recognition, asset classification and provisioning (IRACP) norms prescribed by the Reserve Bank.

Presentation of Financial Statements and Disclosure--As a part of designing the formats, the Working Group considered several alternative approaches possible. Some of the key considerations, besides the Ind AS requirements, included the changes in the business of banking over the years through the introduction of new products, increase in offbalance sheet items, need for enhanced disclosure relating to impairment, extent of guidance to be given for presentation and disclosure, etc. During the course of deliberations particularly while reviewing the financial statements of banks based in the EU, the Working Group also arrived at the conclusion that minimum formats for financial statements need to be specified to promote comparability. Accordingly, the Working Group has suggested the formats as below: Balance Sheet13, including statement of changes in equity (Annex I, Form A, to be prescribed under the Third Schedule to the BR Act) (b) Profit and Loss Account (Annex I, Form B, to be prescribed under the Third Schedule to the BR Act) (c) Notes (Annex II, to be prescribed by way of RBI circulars) (d) Guidance for preparation of financial statements (Annex III, to be prescribed by way of RBI circulars)

Derecognition, Consolidation and Other Residuary Issues--In the course of deliberations with bankers and a review of extant RBI instructions, the Working Group identified areas where the extant instructions may not be consistent with Ind AS and may need to be reviewed or withdrawn. These recommendations are discussed under the following heads. (a) Derecognition (b) Consolidation (c) Residuary issues


16| October 2015


17| October 2015

September 2015 IIP grows at about 3.6% --Growth in industry output, as measured in terms of IIP, for the month of September 2015 is estimated at 3.6% as compared with 6.3% during August 2015. The cumulative growth for the period Apr-September 2015 stands at 4% as compared to 2.9% in the corresponding period of the previous year. The growth in the three sectors mining, manufacturing and electricity in September 2015 stands at 3%, 2.6% and 11.4% respectively as compared to 4.2%, 6.6% and 5.6% in August 2015. The cumulative growth for the period Apr-Sept 2015-16 in the three sectors mining, manufacturing and electricity over the corresponding year stands at 1.5%, 4.2% and 4.5% respectively. Capital goods growth stands at 10.5% during September 2015 as compared to 21.3% during August 2015. The cumulative growth of capital goods stands at 7.9% during Apr-September 2015-16 as compared to 6% during Apr-Sept 2014-15. October 2015 CPI inflation at 5% --The all India general CPI (Combined) for October 2015 stands at 5% as compared to 4.41% in September 2015. The inflation rates for rural and urban areas for October 2015 are 5.54% and 4.28% as compared to 5.05% and 3.61% respectively, for September 2015. Rate of inflation during October 2015 is high in pulses and products at 42.2%, Spices at 9.82%, Pan, tobacco and intoxicants at 9.5% and Prepared meals, snacks & sweets etc. at 6.83% . October 2015 WPI inflation stands at (-)3.81%--Driven by the increase in the prices of food articles, pulses, oilseeds, wheat, vegetables and edible oils, inflation increased to (-)3.81% (Y-O-Y) for the month of October 2015 as compared to (-)4.54% (Y-O-Y) for the month of September 2015. The Index for Wholesale Prices for the month of October 2015 rose by 0.1% to 176.7 (provisional) from 176.6 (provisional) for the previous month. ECBs stand at US$ 2.1 bn during October 2015-Indian firms have raised US$ 2.1 billion through external commercial borrowings (ECBs) in the month of October 2015 as against US$ 2.6 billion during September 2015 by automatic and approval route. The borrowings stood at US$ 2.1 billion in October 2015 as compared to US$ 2.7 billion in October 2014. Net FII investments stands at about USD 3444 million in Oct 2015-- The net FII investments in the month of October 2015 is estimated at USD 3444 million with a Y-O-Y growth of about 26% as against (-) USD 874 million in September 2015 with a Y-O-Y growth of (-)125%. The total net FII investment consists of around USD 1023 million of equity and about USD 2421 million of Debt during October 2015. Merchandise exports decline by (-)17.53% in October, 2015--India’s exports for the month of October 2015 stands at USD 21.4 billion as compared to USD 25.8 billion in October 2014 registering a growth of (-) 17.5%. During October 2015, the imports are registered at USD 31.1 billion as compared to USD 39.5 billion in October 2014, registering a growth of (-)21.2%. The balance of trade stands at around USD (-)9.8 billion during October 2015 as compared to USD(-)13.6 billion for October 2014.

Macro-Economic Indicators


18| October 2015

Value of Foreign Trade USD Billion Period August September October Exports

FY16 21.26 21.8 21.4

Growth (%) (-)20.66% (-) 24.3% (-)17.5

Imports

FY16 33.74 32.3 31.1

Growth (%) (-)9.95% (-) 25.4% (-)21.2 Trade balance

FY16 (-)12.47 (-) 10.4 (-)9.8 Source: PHD Research Bureau, compiled from Ministry of Commerce and Industry, Govt of India

Trends in the Secondary Market--S&P BSE Sensex closed at 26,656.83 as on 30th October 2015 as against 26,154.83 on 30th September 2015, registering an increase of about 2%. During October 2015, Sensex recorded an intraday high of 27,618.14 and an intraday low of 26,168.71. Movement of BSE Sensex since April 2015

Month Open

High Low Close % change on closing values over previous month

Apr-15 27,954.86 29,094.61 26,897.54 27,011.31 (-) 3.38

May-15 27,204.63 28,071.16 26,423.99 27,828.44 3.03

Jun-15 27,770.79 27,968.75 26,307.07 27,780.83 (-) 0.17

Jul-15 27,823.65 28,578.33 27,416.39 28,114.56 1.2

Aug-15 28,089.09 28,417.59 25,298.42 26,283.09 (-) 6.5

Sep-15 26,127.04 26,471.82 24,833.54

26,154.83 (-) 0.48

Oct-15 26,344.19 27,618.14 26,168.71 26,656.83 1.92

Source: PHD Research Bureau compiled from BSE Sensex.

While, CNX Nifty closed at 8065.80 on 30th October 2015 as compared to 7948.90 on 30th September 2015 indicating an increase of about 1.5%. During October 2015, Nifty recorded an intraday high of 8336.30 and an intraday low of 7930.65.

Movement of CNX NIFTY since April 2015 Month Open

High Low Close % change on closing

values over previous month

Apr-15 8483.70 8844.80 8144.75 8181.50 (-) 3.64

May-15 8230.05 8489.55 7997.15 8433.65 3.08

Jun-15 8417.25 8467.15 7940.30 8368.50 (-) 0.77

Jul-15 8376.25 8654.75 8315.40 8532.85 1.96

Aug-15 8510.65 8621.55 7667.25 7971.30 (-) 6.6

Sep-15 7907.95 8055 7539.50 7948.90 (-) 0.3

Oct-15 7992.05 8336.30 7930.65 8065.80 1.47

Source: PHD Research Bureau compiled from NSE.


19| October 2015

The price of gold has increased marginally to Rs. 26557 (Spot price average per 10 grams) in the month of October 2015 as against Rs. 26240 in the month of September 2015. The price of crude oil has also increase marginally to about USD 47 per barrel in the month of October 2015 as against USD 46.1 per barrel in September 2015.

Trend of price of Gold since Jan 2015 (Rs.) Trend of price of Crude oil (USD/bbl)

Source: PHD Research Bureau compiled from Ministry of Petroleum & Natural Gas, Government of India and MCX.

24500

25000

25500

26000

26500

27000

27500

Jan-

15

Feb-

15

Mar

-15

Apr-

15

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct

-15

Commodities


20| October 2015

India’s key Statistics so far...

S. NO. Indicators Sep 2015 1 Turnover in foreign exchange market *

Purchase (USD billion) 498 Sales (USD billion) 506

2 Exchange rate of rupee against USD (monthly average)* 65.1 3 Exchange rate of rupee against Pound Sterling (monthly average) * 99.7 4 Exchange rate of rupee against Euro (monthly average) * 73.0 5 Exchange rate of rupee against Japanese Yen (monthly average) * 54.2 6 Foreign exchange reserves (USD billion)^ 354 7 IIP (growth in %)** 3.6 8 CPI inflation (%)* 5 9 WPI inflation (%)* (-) 3.8

10 FDI equity inflow (% growth)*** 6.6 11 External Debt (USD billion)@ 483 12 ECBs (USD billion)* 2.1 13 Net FII investments (USD million)* 3444 14 Current Account Deficit as % of GDP Q1 2015-16 1.2 15 India’s Exports (USD billion) * 21.4 16 Growth of exports (%) * (-)17.5 17 India’s Imports (USD billion)* 31.1 18 Growth of Imports (%) * (-)21.2 19 Trade Balance (USD billion)* (-)9.8 20 BSE SENSEX $ 26,656.83 21 CNX Nifty $ 8065.80 22 Repo rate ^^ 6.75% 23 Reverse repo rate^^ 5.75% 24 Cash Reserve ratio^^ 4% 25 Statutory Liquidity Ratio^^ 21.5%

Source: PHD Research Bureau compiled from various sources. *Data for the month of October 2015.^ Foreign exchange reserves ending 30th October 2015. **Data for month of Sep 2015, *** Data for June 2015,@Data for the end month June 2015, @@ Data for Aug 2015. $Data for BSE SENSEX AND CNX NIFTY are closing figures of the month of Oct 2015. ^^Key policy rates such as repo, CRR , reverse repo and SLR pertains to as on 29th Sep 2015


21| October 2015

Disclaimer “Forex Committee Newsletter” is prepared by PHD Chamber of Commerce and Industry to provide a broad view of developments related to forex affairs of our economy. This newsletter may not be reproduced, wholly or partly in any material form, or modified, without prior approval from the Chamber. It may be noted that this newsletter is for information purposes only. Though due care has been taken to ensure accuracy of information to the best of the PHD Chamber’s knowledge and belief, it is strongly recommended that readers should seek specific professional advice before taking any decisions. Please note that the PHD Chamber of Commerce and Industry does not take any responsibility for outcome of decisions taken as a result of relying on the content of this newsletter. PHD Chamber of Commerce and Industry shall in no way, be liable for any direct or indirect damages that may arise due to any act or omission on the part of the Reader or User due to any reliance placed or guidance taken from any portion of this newsletter. Copyright 2015 PHD Chamber of Commerce and Industry ALL RIGHTS RESERVED. No part of this publication including the cover, shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of, and acknowledgement of the publisher (PHD Chamber of Commerce and Industry).


22| October 2015

FOREX COMMITTEE

Dr. SP Sharma, Chief Economist Mr. Shyam Poddar, Chairman Ms. Surbhi Sharma, Sr. Research Officer Mr. Ambuj Jain, Co-Chairman

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October 2015 - PHD Chamber of Commercephdcci.in/image/data/Research Bureau-2014/FOREX Newsletter-2015... · market, SEBI has created 7 ... USD 2421 million of Debt during October