A report by the Independent Commission on Banking (ICB), which urged the British government to impose a “ring-fence”: a strict separation between the retail and investment-banking operations of Britain’s banks. The commission, chaired by Sir John Vickers, an independent-minded economist, also called for a big increase in the amount of capital held within these ring-fenced banks as a buffer against losses.

The commission was set up by the coalition government last year. Pleasing both of its constituent parties looked a tough task: before the general election, some Liberal Democrats had called for a complete break-up of Britain’s biggest banks; the Conservatives, the dominant party in the coalition, were less confrontational.

The case for firm measures is difficult to dispute. The bail-out of Royal Bank of Scotland alone required a capital injection of £46 billion ($85 billion) from the public purse in 2008. The assets of Britain’s biggest banks are about 4.5 times bigger than its GDP; in the depths of the crisis, the country found itself in a similar position to Switzerland (the assets of whose two biggest banks were six times as large as the national economy), and Ireland (3.5 times). All faced not only the collapse of banks that were too big to be allowed to fail, but also the frightening prospect of trying to prop up banks that might have proved (and in Ireland’s case were) too big to save.

Yet the commission’s ring-fence proposal remains controversial, not least because it puts Britain at odds with much of the rest of the world. In Europe, universal banking, which combines retail and commercial banking with racier wholesale and investment sorts, is commonplace and likely to persist. In America, which banned universal banking after the Great Depression under the Glass-Steagall act, the division between the two kinds was incrementally weakened for decades, before it was finally scrapped in 1999. During the crisis the Federal Reserve and Treasury forced most of America’s big independent investment banks into arranged marriages with commercial firms. Britain’s exceptionalism in trying to reinvent Glass-Steagall reflects its twin desires to tame banking and allow British banks to compete in global markets.

The ICB proposes that all retail and small-business banking should be conducted by a separate subsidiary, with independent governance and its own padding of extra capital. This is the part of a bank that regulators see as too important to fail. The ICB hopes to keep these bits safe by both strictly limiting what they can do—betting on markets by using derivatives, for instance, is strictly forbidden—and by giving them the capacity to absorb extra losses. The minimum amount of equity (the gold standard of capital) that they will have to hold will be set at 10%. This is a far higher level than the 7% demanded by international rules. On top of that, retail banks will have to hold another 7% to 10% of loss-absorbing capital.

These retail markets are, by their nature, largely local, so there seems little chance that foreign banks will take advantage of lower capital requirements in their home countries to flood Britain with mortgages and credit cards. Retail banking in Britain will probably become a lot more boring, quite a bit safer and somewhat less profitable. Customers will hardly notice, though shareholders may well look elsewhere.

Source:www.economist.com

The Union Minister of Commerce, Industry and Textiles, Shri Anand Sharma has stressed the need to avoid protectionist tendencies by the developed economies. Speaking to a delegation of the US- Congress and German- Bundestag, the Minister said “crisis leads to inward thinking but protectionism is counter-productive as it deepens recession. Wherever protectionism has been resorted to, it has never helped.” He further said that, there is a need to sensitize the US policy makers about the actual nature of outsourcing as it is well documented that for every job that is outsourced there are higher end jobs created in the outsourcing economies. The Minister emphasised that Indian companies are a major source of employment generation in the US market. ‘We need to engage more not less” the minister added.

The Minister expressed confidence that the U.S. Generalized System of Preferences (US GSP) scheme, which expired last December, will be revived soon by the US Congress with full and long term reauthorization. The U.S. Generalized System of Preferences (GSP) is a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories. Citing the adverse impact on employment in vulnerable sectors, the Minister said that US Government has withdrawn the GSP benefit in respect of a number of products from India, e.g. jewellery. However, he pointed out, the benefits have not gone to any LDC beneficiaries but to major trading partners like China and France.

The Minister also assured the legislators of India’s firm commitment to the processes of liberalization and economic reforms. He said that fundamentals of Indian economy are strong and there are a slew of reforms measure in the pipeline like National Manufacturing policy and FDI in retail that will further prop up the growth trajectory. Shri Sharma remained optimistic of continued high GDP growth rate. “FDI is looking good after a disappointing last year. We hope to make up for the lost ground this year”.

During the meeting the Commerce Minister informed that Germany and US are India’s big trading partners. USA is one of the largest trading partner and a leading export destination.

Source: pib.nic.in

If a person is NRI or PIO, she/he can, without the permission from the Reserve Bank, open, hold and maintain the different types of accounts given below with an Authorised Dealer in India, i.e., a bank authorised to deal in foreign exchange. NRO Savings accounts can also be maintained with the Post Offices in India. Opening of accounts by individuals/entities of Bangladesh / Pakistan nationality requires prior approval of the Reserve Bank. All such requests may be referred to the Chief General Manager-in-Charge, Foreign Exchange Department, Foreign Investment Division, Reserve Bank of India, Central Office, Mumbai – 400 001.

Types of accounts which can be maintained by an NRI / PIO in India

1. Non-Resident (Ordinary) Rupee Account (NRO Account)
2. Non-Resident (External) Rupee Account (NRE Account)
3. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

Investment Facilities available to NRIs/ PIOs in India

Investments made by NRIs/PIOs can be on a repatriation or Non-repatriation basis.

NRI may, without limit, purchase on repatriation basis:

• Government dated securities / Treasury bills
• Units of domestic mutual funds;
• Bonds issued by a public sector undertaking (PSU) in India.
• Non-convertible debentures of a company incorporated in India.
• Perpetual debt instruments and debt capital instruments issued by banks in India.
• Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
• Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.
• Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

NRI may, without limit, purchase on non-repatriation basis:

• Government dated securities / Treasury bills
• Units of domestic mutual funds
• Units of Money Market Mutual Funds
• National Plan/Savings Certificates
• Non-convertible debentures of a company incorporated in India
• Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.
• Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-repatriable basis, subject to the limits prescribed by the SEBI.

Note:

NRIs are not permitted to invest in small savings or Public Provident Fund (PPF). Investment in immovable property by NRIs/PIOs are also allowed, based on few conditions as laid down by Reserve Bank of India.

Facilities to returning NRIs/PIO

Returning NRIs/PIO may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India

An individual resident can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

-         the minimum maturity period of the loan is one year

-         the loan is free of interest; and

-         the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the NRI.

Source: http://www.rbi.org.in/

The provisions of section 370 and 372 have been combined with Section 372

Company can’t directly or indirectly:

1. Make any loan, guarantee /provide security to any body corporate.

2. Acquire securities by way of subscription or otherwise of any body corporate.

3. Exceeding 60 % of aggregate of its paid up capital and free resaves.

4. 100% of free reserves whichever is more.

Provisions Regarding the above :

Special resolution  must specify -

1. Specific limits

2. Particulars of body corporate.

3. Propose of investment loans and security.

Board may give guarantee without being authorize by Special Resolution (not include loans and others) -

1. A resolution passed at board meeting

2. Due to exceptional circumstances

3. The resolution of board is confirmed within 12 months of AGM Or GM whichever is earlier.

For the loans given by the company -

a) Its rate of interest should be lower than bank rate of RBI.

b) All the particulars regarding loans and investments should be recorded within 7 days of transactions and should be kept open for inspection by any member.

c) Company in default u/s 58A cant make any investment, loans until such default continues.

Exceptions -

1. Banking / Insurance/ house financing/ industrial financing.

2. A company whose principle business is acquisition of shares, debentures, stocks and securities.

3. A private company.

4. The company whose shares is allotted in pursuance of sec 81(1)(a).

5. A loan/guarantee by holding co to its subsidiary company for acquisition.

Penalties -

1. Rs. 50000 or Rs . 50000 with imprisonment.

2. Rs. 5000 for non maintenance of register for Rs. 500 /day.

Source: www.caclubindia.com

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