'RBI has liberalised forex norms for people'

The role of the Reserve Bank of India (RBI) has changed from regulation and control to delegation and liberalisation. Banks have been permitted to make available the foreign exchange to individuals, corporates, exporters, importers etc without any hassles.

Customers need not run from pillar to post either in the banks or in the RBI to meet their forex needs as the RBI has made the liberalised norms customer-friendly, said FR Joseph, chief general manager, forex department, Reserve Bank of India (RBI) Central Office, Mumbai.

He was addressing the executives of Corporation Bank at its corporate office on Monday on 'External Sector Reforms'.

Joseph spoke on various key functions of the RBI and elaborated the reforms taken up in the external sector and foreign exchange management.

He said that the country was in a precarious position in 1991 with the foreign exchange reserves as little as $ 1billion. Further, 10 per cent of these reserves were short-term debts, thus increasing the possibility of an outflow any time.

However, subsequent to the bold reforms undertaken, the reserves have now grown up to $118 billion, with just four per cent short-term debts.

The country has also prepaid a major loan to the IMF and also retired the high-cost Resurgent India Bonds with out facing any constraints what so ever on the liquidity and forex reserves front, he said.

Joseph said that the rupee was made fully convertible on the current account in 1997 and this has been very successful.

As far as the individuals are concerned, all restrictions on the capital account convertibility (CAC) on the rupee have been removed and an individual is free to invest abroad, including in immovable assets, subject to a ceiling of $25,000 a year. Many more such liberalised reforms are in the process, he added.

On the interest rates offered on FCNR and NRE deposits, the RBI has linked the interest rates offered to LIBOR and this has helped rationalise the interest rates, eliminating any arbitrage opportunities and risk free gains.

The RBI also barred the non-banking finance companies from accessing these deposits. External Commercial Borrowings (ECB) limits under the automatic route for corporates have been enhanced to $ 500 million. Corporates can also invest funds abroad up to their net worth.

Automatic Foreign Direct Investment (FDI) has been allowed in a large number of sectors, said Joseph, adding that full CAC shall also be ushered in subject to bringing down inflation to sub three per cent levels, controlling the fiscal deficit and reducing the gross non-performing assets (NPA) of the banking industry to less than five per cent.

Complimenting the Corporation Bank for its excellent performance, Joseph said that the bank is poised for greater laurels.

Earlier, the Corporation Bank's chairman and managing director K Cherian Varghese welcomed the gathering and said that the expert-sessions like this will help gain valuable insights in to the subject.