Highlights of the Mid-Term Reveiw of the Annual Policy 2006-07

Highlights of the Mid-Term Reveiw of the Annual Policy 2006-07 Repo Rate increased to 7.25% from 7.0% Reverse Repo Rate, Bank Rate & CRR kept unchanged. GDP growth forecast at 8.0% during 2006-07 (against earlier estimates of 7.5%-8.0%) Inflation to be contained within 5.0%-5.5% during 2006-07. Fresh issues of Central Government securities to be included in ‘When issued’ trading. Scheduled commercial banks & primary dealers allowed to cover their short positions in Central Government securities within five trading days. Resident individuals would be free to remit up to US$ 50,000 per financial year as against the earlier limit of US$ 25,000. 100% of foreign exchange earnings can be retained in Exchange Earners’ Foreign Currency (EEFC) accounts. Authorised dealer banks may borrow funds from their overseas branches & correspondent banks (including borrowing for export credit, external commercial borrowings (ECBs) and overdrafts from their Head Office/Nostro account) up to a limit of 50% of their unimpaired Tier I capital or US$ 10 mn, whichever is higher. Eligible ECB borrower can avail additional US$ 250 mn with average maturity of more than 10 years under the approval route. Prepayment of ECB up to US$ 300 mn without prior approval of the Reserve Bank. Increased foreign remittances allowed for corporates: Authorised dealer banks may allow remittances on behalf of their customers higher of 15% of the average of 2 year sales or 25% of net worth, for initial expenses, & up to 10% of the average 2 year sales for recurring expenses. Remittances for acquisition of immovable property for the overseas office, within these limits is also permitted. Limit on investments in Government securities by FIIs to be enhanced in phases to US$ 3.2 bn by March 31, 2007. Ceiling of overseas investment by mutual funds enhanced to US$ 3 bn (from US$ 2 bn). Booking of forward contracts for customs duty component of imports permitted. FIIs to be allowed to rebook a part of the cancelled forward contracts. Forward contracts booked by exporters & importers in excess of 50% of eligible limit to be on deliverable basis & cannot be cancelled. Authorised dealer banks to be permitted to issue guarantees/letters of credit for import of services up to US$ 100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident. Lock-in period for sale proceeds of immovable property credited to NRO account eliminated, subject to a cap of US$ 1 mn in a financial year. Banks, with approval of their boards, may formulate a transparent policy for providing One Time Settlement facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control. For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address. Basel II: Indian banks having presence outside India & foreign banks to migrate to the Basel II framework effective March 31, 2008 & other scheduled commercial banks to migrate in alignment but not later than March 31, 2009. Prudential limit on credit & non-credit facilities to Indian JVs/Wholly Owned Subsidiaries abroad to be enhanced to 20 per cent of unimpaired capital funds. Financially sound Urban Co-operative Banks (UCBs) registered in States that have signed MoU with the Reserve Bank & those registered under the Multi-State Co-operative Societies Act, 2002 to be allowed to convert existing extension counters into full-fledged branches. NBFCs allowed to issue co-branded credit cards with banks without risk sharing & market & distribute MF products. (The above is extracted from the Highlights issued by the Reserve Bank of India on 31st October, 2006) Full Text in word / pdf formats. technorati tag: News, Views, Direct Taxation, Finance, Economy, Capital Market

Quoted in Business Standard on Suzlon Energy

I have been quoted in Business Standard on 28th October, 2006. Below is the full article as it appeared in the supplement. I have highlighted my quote in the article. -------------------------------------------------- Suzlon Energy to go slow on buyouts Gayatri Ramanathan / Mumbai October 28, 2006 After pulling off one of the largest acquisitions in Indian corporate history in March this year, wind power major Suzlon Energy has ruled out further acquisitions. “For the next three to four years we are looking at an organic growth for the company while we consolidate the Hansen acquisition,” Tulsi Tanti, chairman, told Business Standard. Suzlon had acquired Belgian gearbox maker Hansen in March this year for $520 million (Rs 2,600 crore). The wind power solutions company may, however, put up a turbine manufacturing plant in Portugal and double capacity at its China plant over two to three years. Tanti said the Portugal plan was contingent on the company winning a Portuguese government tender for wind farms. “Other than this, we have no plans to put up a manufacturing plant anywhere except India as that gives us the maximum margins,” said Tanti. He said that the Suzlon would also expand the capacity of its China plant to 1200 mw from the current 600 mw by FY 2008-09. “This will help us service the Chinese market, expected to grow to 30,000 mw by 2020, more efficiently,” said Tanti. Analysts, however, pointed out that the company’s ability to borrow further may be in question given its current debt equity ratio which stands at 1.2: 1. Suzlon’s total debt is pegged at Rs 3,298 crore, of which Rs 2,600 crore was borrowed for the Hansen acquisition. Mehul Mukati, research analyst at Emkay Securities, said, “Unless they look at an acquisition that does not involve a cash outflow such as a stock swap, there is no way Suzlon is going to raise finances for an acquisition in the next few years. They have enough cash flow to service their existing debt, but it will take them a few years to pay off the principal.” technorati tag: News, Views, Direct Taxation, Finance, Economy, Capital Market