RBI moots drastic changes for Indian financial system

An expert panel of the RBI has released a report on fuller convertibility on the capital account. As CNBC-TV18 reports, the recommendations of this report, if accepted, will have far reaching consequences on the Indian financial system.

 

Sample this: it calls for lower government stake in PSU banks, and asks that Industrial banks be allowed in the Indian banking space. The more dramatic recommendation is with respect to FIIs -- it wants P-notes to be phased out.

 

The report lays down a five-year roadmap, saying that the overall ECB ceiling and automatic approval ceiling should be gradually raised. It proposes that ECBs of 10-year maturity in 06-07 and 7-year maturity in 07-08 should be outside ceiling, while end use restriction on ECBs should be removed for 06-07. ( Also Read: How's Dalal Street reading RBI's report on convertibility? )

 

Further it advocates the review of transaction limit of USD 20 million on import-linked loans. It asks for the revamping of import linked loan scheme to a unlimited borrowing. Further, the limits for corporate investment abroad should be doubled in phases.

 

It calls for prohibiting the FIIs from investing fresh money via P-notes and recommends phasing out of existing P notes within one year.

 

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