RBI extends time limit for FCCB buyback

The Reserve Bank of India (RBI) today extended the time limit for buyback of Foreign Currency Convertible Bonds (FCCBs) issued by companies, by nine months to March 31, 2012 but has reduced the discount slabs for the buyback.

The earlier deadline for buyback of FCCBs was set for June 30, 2011.

Indian firms can now buyback the FCCBs at a minimum discount of 8% on the book value utilising their foreign currency funds under the automatic route, as against 15% earlier, the RBI said in a notification.

Under the approval route, Indian companies have been allowed to buyback the FCCBs at a minimum discount between 10 and 20% on the book value utilising their internal accruals. This was earlier fixed at 25-50%.

"After reviewing the current policy on buyback/prepayment of FCCBs, the RBI in consultation with the government of India has decided to extend the time limit for buyback of FCCBs issued by Indian companies up to March 31, 2012 at reduced discount rates," the central bank said.

It further added: "The existing policy on the premature buyback of FCCBs has been reviewed and it has been decided to extend the time limit for such facility and liberalise the procedure."

FCCB is a debt instrument with an equity option by which companies raise funds from overseas. It remains a debt till the option is exercised and the bond is converted into equity.

The extension of the window allows greater freedom and leeway to Indian companies.

FCCBs witnessed a huge surge during 2006-07. However, the global economic meltdown on 2008-09 impacted most of the companies.

As per today's notification, under the approval route the companies have been allowed to buyback the FCCBs at a minimum discount of 10% of book value up for redemption of up to $50 million as against 25% earlier.

For redemption of $50-75 million the discount has been fixed at 15% as against 35% earlier. As for redemption of $75-100 million, the discount rate has been reduced to 20% from 50%.

Source: Business Standard

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2nd PAN mandatory for Rs 5 lakh and above jewellery purchases

New Delhi: Be ready to mandatorily flash your PAN card, for any purchase of jewellery worth Rs five lakh or more from tomorrow -- a move that would help the tax department keep an eye on such high value transactions.

As per the amendments in the income tax rules, coming into effect from July 1, quoting PAN (Permanent Account Number) will be mandatory for any payment of Rs five lakh or more for purchase of bullion or jewellery.

High-value purchase of jewellery, among valuables, have often been feared to be a much favoured route for circulation of black money and quoting of PAN would help the tax authorities in tracking such transactions.

Recently, RBI had also asked the banks to consider the jewellers and bullion dealers as high-risk customers and to keep an enhanced vigil on their transactions.

The business transactions of jewellers and bullion dealers are highly cash intensive in nature and it is feared that they could be used for flow of black money into the system.

In order to check any possible money laundering, the banking sector regulator in January wrote to banks and financial institutions to treat the accounts of entities dealing in the jewellery and bullion trade as ‘high-risk’.

Besides jewellery purchase of Rs five lakh and above, furnishing of PAN would be mandatory for some other transactions also with effect from tomorrow.

These include issue of a debit card by any bank, as against the current practice of the PAN being asked for issuing credit cards only.

The payment of Rs 50,000 or more in a year for life insurance premium would also require PAN from tomorrow.

The transactions that already require PAN include sale or purchase of any immovable property valued at Rs five lakh or more, sale or purchase of motor vehicles other than two- wheelers and bank deposits exceeding Rs 50,000.

These also include telephone connection applications, opening of bank accounts, hotel an restaurant bills of over Rs 25,000 and mutual fund investments of Rs 50,000 and above, among others.

Source: Financial Express

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IOB raises base rate to 10.25%

Chennai: Public sector Indian Overseas Bank has raised its base rate from 10 per cent to 10.25 per cent with effect from Friday.

The city-headquartered company also raised the Bench Mark Prime Lending rate from 14.25 per cent to 14.50 per cent with effect from July one, 2011, a bank statement here said.

Source: Financial Express

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Credit up 20.9%, deposits rise 17.7% in 12 mths to mid-June

Mumbai: Credit offtake from banks grew by 20.9 per cent to over Rs 41 lakh crore during the one-year period ended June 17, 2011, indicating an upswing in industrial activity.

According to the RBI data, credit offtake during the period stood at Rs 41.23 lakh crore against Rs 34.10 lakh crore in the same period of the previous year.

Meanwhile, deposits went up to over Rs 54.94 lakh crore till mid-June this year against Rs 46.64 lakh crore as on June 18, 2010. This is a rise of over 17.7 per cent on an annual basis.

In the annual monetary policy 2011-12 announced last month, the RBI had said that credit is likely to rise at a faster pace because of the economy's growth momentum.

"Sustained growth momentum could ... continue to exert pressure on interest rates through high demand for credit," it had said.

The RBI had projected credit growth to be 19 per cent this fiscal, while deposit growth has been pegged at 17 per cent.

During 2010-11, bank credit had increased by 21.5 per cent, while deposits grew by only 15.5 per cent.

In December last year, the apex bank had expressed concern over the widening ratio between the credit and deposit rates of banks. Toward the end of the last fiscal, however, the gap in the credit-deposit ratio stood reduced.

Source: Financial Express

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RBI OK's shares issue under FDI scheme

Mumbai: The Reserve Bank of India said it has decided to permit the issuance of equity, preference shares under the government route of the foreign direct investment scheme for some categories.

"Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI," the notification said.

RBI notification

Foreign Direct Investment (FDI) in India - Issue of equity shares under the FDI Scheme allowed under the Government route

RBI/2010-11/586

A. P. (DIR Series) Circular No.74

June 30, 2011

To

All Authorised Dealer Category-I Banks

Madam / Sir,

Foreign Direct Investment (FDI) in India - Issue of equity shares under the

FDI Scheme allowed under the Government route

Attention of Authorised Dealers Category – I (AD Category - I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

2. In terms of the Schedule 1 of the Notification, ibid, an Indian company may, under the automatic route, issue equity shares/ preference shares to a person resident outside India, being a provider of technology / technical know-how and against royalty / lumpsum fees due for payment subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

3. The extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:

(I) Import of capital goods/ machineries / equipments (including second-hand machineries), subject to compliance with the following conditions:

- The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;

- There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;

- The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and

- All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.

(II) Pre-operative/pre-incorporation expenses (including payments of rent, etc.) subject to compliance with the following conditions:

- Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred;

- Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor;

- Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI; and

- The capitalization should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.

4.(i) All requests for conversion should be accompanied by a special resolution of the company.

(ii) Government’s approval would be subject to pricing guidelines of the Reserve Bank and appropriate tax clearance.

5. These directions have been issued with reference to the relevant paras of the Consolidated FDI Policy Circular 1 of 2011 dated March 31, 2011, issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

6. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 will be issued separately.

8. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Meena Hemchandra)

Chief General Manager-in-Charge

Source: Financial Express

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