JNANA VARDHINI

SIBSTC MONTHLY NEWSLETTER -COVERING CONTEMPORARY BANKING RELATED TOPICS

10th Issue

MAY- 2011

SOUTHERN INDIA BANKS’ STAFF TRAINING COLLEGE

No.531, Faiz Avenue, 11th Main, 32nd Cross

IV Block, Jayanagar, BANGALORE-560 011

Website: www.sibstc.edu.in

Email:

I. FEATURES OF VARIOUS DEPOSIT SCHEMES AVAILABLE TO NON-RESIDENT INDIANS (NRIS)

Particulars / Foreign Currency (Non-Resident) Account (Banks) Scheme [FCNR (B) Account] / Non-Resident (External) Rupee Account Scheme
[NRE Account] / Non-Resident Ordinary Rupee Account Scheme [NRO Account]
Who can open an account / NRIs (individuals / entities of Bangladesh/ Pakistan nationality/ ownership require prior approval of RBI) / NRIs (individuals / entities of Bangladesh / Pakistan nationality/ownership require prior approval of RBI) / Any person resident outside India (other than a person resident in Nepal and Bhutan). Individuals / entities of Bangladesh / Pakistan nationality / ownership as well as erstwhile Overseas Corporate Bodies require prior approval of the RBI.
Joint account / In the names of two or more non-resident individuals provided all the account holders are persons of Indian nationality or origin. / In the names of two or more non-resident individuals provided all the account holders are persons of Indian nationality or origin. / May be held jointly with residents
Nomination / Permitted / Permitted / Permitted
Currency in which account is denominated / Pound Sterling, US Dollar, Japanese Yen, Euro, Canadian Dollar and Australian Dollar / Indian Rupees / Indian Rupees
Repatriablity / Repatriable / Repatriable / Not repatriable except for the following:
Current income up to USD 1 million per financial year for any bonafide purpose, out of the balances in the account, e.g., sale proceeds of assets in India acquired by way of purchase/ inheritance / legacy inclusive of assets acquired out of settlement subject to certain conditions
Type of Account / Term Deposit only / Savings, Current, Recurring, Fixed Deposit / Savings, Current, Recurring, Fixed Deposit
Period for fixed deposits / For terms not less than 1 year and not more than 5 years / At the discretion of the bank / As applicable to resident accounts.
Rate of Interest / Subject to a cap as stipulated by RBI. At present, with effect from 15.11.2008, interest is paid within the ceiling rate of LIBOR / SWAP rates plus 100 basis points for the respective currency/ corresponding maturities.
On floating rate deposits, interest is paid within the ceiling of SWAP rates for the respective currency / maturity plus 100 basis points.
For floating rate deposits, the interest reset period is six months. / Subject to a cap as stipulated by RBI.
Fixed/Recurring Deposits
At present, with effect from 15.11.2008, interest rates on NRE deposits for one to three years should not exceed the LIBOR/SWAP rates plus 175 basis points for corresponding maturities, as on the last working day of the previous month, for US dollar of corresponding maturities. The interest rates as determined above for three year deposits will also be applicable in case the maturity period exceeds three years.
SBAccount:
Interest rate shall be at the rate applicable to domestic savings account. / Fixed/ Recurring Deposits
Banks are free to determine interest rates for term deposits.
SBAccount
Interest rate shall be at the rate applicable to domestic savings account.
Operations by Power of Attorney in favour of a resident by the non-resident account holder / Operations in the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments or remittance to the account holder himself through normal banking channels / Operations in the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments or remittance to the account holder himself through normal banking channels. / Operations in the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments in rupees, remittance of current income to the account holder outside India or remittance to the account holder himself through normal banking channels.
Remittance is subject to the ceiling of USD 1(one) million per financial year.
Loans
a. In India
i) to the Account holder
i) to Third Parties / Permitted only up to Rs.100 lakhs
Permitted only up to Rs.100 lakhs / Permitted up to Rs.100 lakhs
Permitted up to Rs.100 lakhs / Permitted subject to the extant rules
Permitted, subject to conditions
b)Abroad
i) to the Account
holder
ii) to Third Parties / Permitted
(Provided no funds are remitted back to India and are used abroad )
Permitted
(Provided no funds are remitted back to India and are used abroad only) / Permitted
(Provided no funds are remitted back to India and are used abroad only)
Permitted
(Provided no funds are remitted back to India and are used abroad only) / Not Permitted
Not Permitted
c. Foreign Currency Loans in India
i) to the Account holder
ii) to Third
Parties / Permitted up to Rs.100 lakhs
Not Permitted / Not Permitted
Not Permitted / Not Permitted
Not Permitted
Purpose of Loan In India to the Account holder / i) Personal purposes or for carrying on business activities *
ii) Direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms / companies
iii) Acquisition of flat / house in India for his own residential use. / i) Personal purposes or for carrying on business activities.*
ii) Direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms / companies.
iii) Acquisition of flat / house in India for his own residential use. / Personal requirement and / or business purpose.*
Purpose of Loan in India to Third Parties / Fund based and / or non-fund based facilities for personal purposes or for carrying on business activities / Fund based and / or non-fund based facilities for personal purposes or for carrying on business activities *. / Personal requirement and / or business purpose *
Purpose of Loan Abroad
To the account holder and Third Parties / Fund based and / or non-fund based facilities for bonafide purposes. / Fund based and / or non-fund based facilities for bonafide purposes. / Not permitted.

* The loans cannot be utilized for the purpose of on-lending or for carrying on agriculture or plantation activities or for investment in real estate business.

Note :

a. When a person resident in India leaves India for Nepal and Bhutan for taking up employment or for carrying on business or vocation or for any other purpose indicating his intention to stay in Nepal and Bhutan for an uncertain period, his existing account will continue as a resident account. Such account should not be designated as Non-resident (Ordinary) Rupee Account.

b. ADs may open and maintain NRE / FCNR (B) Accounts of persons resident in Nepal and Bhutan who are citizens of India or of Indian origin, provided the funds for opening these accounts are remitted in free foreign exchange. Interest earned in NRE / FCNR (B) accounts can be remitted only in Indian rupees to NRIs and PIO resident in Nepal and Bhutan.

c. In terms of Regulation 4(4) of FEMA, ADs may open and maintain Rupee accounts for a person resident in Nepal and Bhutan.

d. AD Category – I banks and authorized banks may credit the proceeds of account payee cheques/ demand drafts / bankers' cheques, issued against encashment of foreign currency to the NRE account of the NRI account holder where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II.

e. AD Category – I banks and authorised banks may permit remittance of the maturity proceeds of FCNR (B) deposits to third parties outside India, provided the transaction is specifically authorised by the account holder and the Authorised Dealer is satisfied about the bonafides of the transaction.

(Source: RBI FAQ series, updated till 11.04.2011)

WORLD TRADE ORGANISATION (WTO)

The World Trade Organization (WTO) is born out of negotiations during the period 1986-94 called Uruguay round under the Marrakech Agreement and replaced General Agreement on Trade and Tariffs (GATT), which started in 1948. WTO commenced its activities from 01.01.1995 replacing GATT.

WTO deals with regulation of trade between participating countries. It provides a framework for negotiating and formalizing trade agreements and dispute resolutions among the member countries Most of the issues that the WTO focuses are derived from previous trade negotiations, especially from the Uruguay Round (1986–1994).

The WTO has 153 members, representing more than 97% of the world's population, and 30 observers, most seeking membership. The WTO's headquarters is at the Geneva, Switzerland.

GATT: A systematized International trade among the countries started in 1948 as per the rules framed under General Agreement for Trade and Tariffs (GATT). During the period 1948 to 1994, the trading system came under GATT. GATT helped establish a strong and prosperous multilateral trading system that became more and more liberal through rounds of trade negotiations. But by the 1980s the system needed a thorough overhaul particularly with the major roles played service industries for the economic development of the countries. This led to the Uruguay Round and ultimately to the WTO.

The WTO is a wider version covering trade, services, inventions, creations and intellectual property. WTO agreements are negotiated and signed by the bulk of the world’s trading nations. These documents provide legal ground rules for international trade and commerce.

WTO started with the following broad principles viz.

·  General Agreement on Trade & Tariffs – GATT (for goods)

·  General Agreement on Trade in Services (GATS)

·  Trade Related Aspects of Intellectual Property Rights (TRIPS)

The main objectives of WTO are to help free trade/ services flow across countries in a transparent manner. It helps liberalize trade and services between countries. WTO deals with the rules of trade between nations at a global level.

The WTO’s creation in 1995 marked the biggest reform of international trade since after the Second World War. It also brought to reality — in an updated form — the failed attempt in 1948 to create an International Trade Organization.

Functions of WTO

§  Administering WTO trade agreements

§  Forum for Trade negotiations

§  Handling trade disputes

§  Monitoring national trade policy

§  Co-operations with other international organizations.

Head of WTO – Pascal Lamy (France)

Earlier WTO Chiefs

§  Renato Ruggiero (Italy) – 1995-99

§  Mike Moore (New Zealand) – 1999-02

§  Supachai Panitchpakdi (Thailand) – 2002-05

§  Pascal Lamy (France) – Present chief of WTO – 2005

The WTO agreements fall into the following six main parts:

·  The Agreement Establishing the WTO

·  Goods and Investment- the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures.

·  Services — the General Agreement on Trade in Services.

·  Intellectual Property — the Agreement on Trade Related Aspects of Intellectual Property rights (TRIPS)

·  Dispute settlement (DSU)

·  Reviews of governments' trade policies (TPRM)

The Doha Development Round started in 2001 and continues today.

The WTO launched the current round of negotiations, the Doha Development Agenda (DDA) or Doha Round, at the fourth ministerial conference in Doha Qatar in November 2001. The Doha round was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries.

The negotiations have been highly contentious and agreement has not been reached, despite the intense negotiations at several ministerial conferences and at other sessions. Disagreements still continue over several key areas including agriculture subsidies. Talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non tariff barriers, services, and trade remedies. The most significant differences are between developed nations led by the European Union (EU), the United States (USA), and Japan and the major developing countries led and represented mainly by Brazil, China, India, South Korea, and South Africa. There is also considerable contention against and between the EU and the USA over their maintenance of agricultural subsidies—seen to operate effectively as trade barriers.

Current progress

Several countries have called for negotiations to start again. Brazil, called several countries’ leaders to urge them to renew negotiations. Pascal Lamy visited India to discuss possible solutions to the impasse. A mini-ministerial meeting held in India on September 2010. The declaration at the end of the G20 summit of world leaders in London in 2009 included a pledge to complete the Doha round.

At the 2011 annual conference of the World Economic Forum in Davos, British Prime Minister David Cameron called for the Doha talks to conclude by the end of the year, saying that "We've been at this Doha round for far too long. It's frankly ridiculous that it has taken 10 years to do this deal." Similar comments were made by German Chancellor Angela Merkel and former WTO director-general Peter Sutherland.

Efforts are on to resolve the issue and to forge ahead as per the terms of Doha Round with subsequent changes.

INTERNATIONAL MONETARY FUND (IMF)

The International Monetary Fund (IMF) is the intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries. Its objectives are to stabilize international exchange rates and facilitate development through the encouragement of liberalizing economic policies in other countries as a condition of loans, debt relief, and aid. It also offers loans with varying levels of conditionality, mainly to poorer countries.

During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an institution charged with overseeing the international monetary system—the system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. The new global entity to ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade