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Banking and capital markets: India - EY - India

Finesse: March-June 2011

Banking and capital markets: India

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Regulatory actions

EntityDateNews
Forward Markets Commission (FMC)22 JuneThe FMC proposes to put in place a uniform transaction chargestructure across exchanges to standardize norms. Under the proposed regime, basic or minimum charges and the slab structure of each charge category will be prescribed by the commission. However, exchanges will be free to impose charges, depending on their costs, but these will have to be within a uniform slab structure that will be prescribed by the commission.i
FMC30 MayThe FMC is considering a proposal to allow market-makers to play a significant role in commodity futures. They can catalyze trading activity in several commodities that currently witness negligible trading.ii
Ministry of Finance28 MayThe Government has raised the overall limit for external commercial borrowings from US$20 billion to US$30 billion. Indian companies, which are finding it difficult to raise capital within the country due to rising interest rates, will now be able to increase their overseas borrowing.iii 
National Housing Bank (NHB)3 JuneThe NHB has increased its minimum net-owned fund (NOF) requirement for housing finance companies five-fold to INR100 million from INR20 million. NOF is the aggregate of the paid-up equity capital and free reserves.iv
RBI7 JuneThe 27-country EU block has urged the Indian Government not to make it mandatory for European banks to dilute their stake to 74% in their subsidiaries. In addition, demands have been made to relax the terms of new branch licenses and priority sector lending.v 
RBI28 MayIn an investor-friendly move, the RBI has reduced the time within which banks need to resolve their customers' complaints relating to ATM transactions from 12 to 7 working days.vi 
RBI4 MayThe RBI has clarified that banks’ loans to microfinance institutions (MFIs) will be eligible for classification as priority sector advances, subject to fulfillment of certain conditions. This announcement is expected to improve the flow of banking credit to MFIs, which are witnessing shortage of funds.vii
RBI23 AprilThe RBI has instructed banks to create special buffers that will be used by them to make specific provisions for bad loans during a system-wide downturn. Known as a counter-cyclical provisioning buffer, it needs to be set up out of any surplus funds available after complying with the stipulated 70% provision of coverage ratio (PCR) of gross non-performing assets, as of September 2010.viii 
SEBI4 JuneSEBI has permitted the Bombay Stock Exchange (BSE) to list small and medium enterprises (SMEs) on the BSE platform. Companies with a paid-up capital of between INR5 million and INR100 million will be categorized as SMEs. However, they will trade on a different platform under the BSE terminal and there will be market-makers for SMEs to ensure their liquidity. SEBI will permit trading of an SME on the main BSE bourse once its capital increases to INR250 million.ix 
SEBI3 JuneSEBI has allowed market-making for futures and options in new listings or securities in which the average turnover is less than 0.1% of market capitalization, as well as for all securities in a new exchange or segment. However, such schemes will be only be valid for six months or till the average turnover reaches 1% of the market capitalization.x 
SEBI12 MaySEBI and the Unique Identification Authority of India (UIDAI) are planning to link all security transactions with the unique identification (UID) number to increase transparency and prevent fraud. A pilot project on this is likely to be launched shortly.xi 
SEBI7 MaySEBI has made applications, supported by the blocked amount (ASBA) facility that is mandatory for all non-retail investors investing in public and rights issues. This will adversely impact the fee income of collecting banks, since it is expected that they will lose out on the float of funds they received during an issue.xii 
SEBI19 AprilSEBI plans to implement several measures to protect investor interest, strengthen the regulatory mechanism and make markets and intermediaries more efficient In 2011–12. The proposals under consideration include enhancement of SEBI’s surveillance mechanism, creation of a forensic accounting cell, audit systems for exchanges, an exit policy for de-recognized exchanges, extension of the call auction mechanism for IPOs and illiquid stocks and utilization of professional firms for investigation.xiii 
SEBI8 MarchSEBI and the RBI have allowed the introduction of interest rate futures (IRFs) on 9-day treasury bills (T-bills) issued by the Union Government.xiv 

Other Important News

EntityDateNews
BSE8 AprilThe Bombay Stock Exchange (BSE) has signed a memorandum of understanding (MoU) with Japan’s Osaka Securities Exchange (OSE) with the objective of forging a partnership, including cross-licensing of each other’s indices.xv 
Government of India19 MayThe Government of India, the Andhra Pradesh Government and a consortium of five banks are jointly setting up the country’s first exclusive microfinance bank to provide an alternative source of funds to the poor.xvi 
Industry-wide31 MayThe All India Bank Depositors Association (AIBDA) has suggested that the RBI should determine the floor rate for savings bank deposits without prescribing any ceiling. According to the AIBDA, this should help in protecting the interest of small depositors while ensuring healthy competition.xvii
Many banks19 MaySeveral banks are planning to begin offering the facility of merchant payments through mobile phones on a pilot basis in three months’ time. Banks will use the Interbank Mobile Payment Service platform for this service.xviii 
Many banks15 MayPSU banks plan to open 1,500 branches in rural areas in FY12. The RBI has instructed these banks to open 25% of their branches in rural areas, but they do not require the central bank’s permission for this initiative.xix
Many banks9 AprilSeveral Indian private and public sector banks are going beyond traditional markets to raise money and are thereby diversifying their investor and lender base. Since the beginning of this year, there has been an increase in the number of banks looking beyond the UK, Japan and the US to raise money through international bonds from markets including Switzerland and Taiwan.xx
Many banks6 AprilPublic sector banks are lining up to foray into equity broking services. Apart from expanding their service offerings, this will also make it easier for them to distribute financial products including mutual funds and insurance.xxi

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i Anindita Dey, “Uniform transaction charges across exchanges mooted,” Business Standard, 22 June 2011, via Dow Jones Factiva, © 2011 Business Standard Limited

ii Dilip Kumar Jha and Rajesh Bhayani, “FMC examines proposal to allow market makers,” Business Standard, 30 May 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

iii Deepshikha Sikarwar, “ECB limit raised to $30 billion,” The Economic Times, 28 May 2011, via Dow Jones Factiva, © 2011 The Times of India Group. All rights reserved.

iv “NHB raises initial capital requirement for housing finance companies,” The Economic Times, 3 June 2011, via Dow Jones Factiva, © 2011 The Times of India Group

v Dheeraj Tiwari and Amiti Sen, “EU urges Indian government not to make mandatory for European banks to dilute stake to 74% in subsidiary,” The Economic Times, 7 June 2011, via Dow Jones Factiva, © 2011 The Times of India Group

vi “Banks will have to resolve ATM complaints within seven days,” The Economic Times, 28 May 2011, via Dow Jones Factiva, © 2011 The Times of India Group.

vii “RBI provides relief to MFIs,” Business Standard, 4 May 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

viii “RBI asks banks to create special buffer,” Financial Express (India), 23 April 2011, via Dow Jones Factiva, ©2011 Indian Express Pty. Ltd.

ix Ankita Pathak, “SEBI allows BSE to list SMEs on its platform,” 4 June 2011, Daily News and Analysis, via Dow Jones Factiva, © 2011 Diligent Media Corporation Limited.

x “Sebi allows market-making in illiquid equity derivatives,” Mint, 3 June 2011, via Dow Jones Factiva, © 2011HT Media Limited

xi “One number to rule all transactions,” Mint, 12 May 2011, via Dow Jones Factiva, © 2011 HT Media Limited.

xii “Mandatory Asba to pinch banks,” Financial Express (India), 7 May 2011, via Dow Jones Factiva, © 2011 Indian Express Pty. Ltd.

xiii “Sebi unveils ambitious initiatives for 2011-12,” Business Standard, 19 April 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

xiv “RBI, Sebi allow IRFs on 91-day T-bills,” Mint, 8 March 2011 via Dow Jones Factiva, © 2011 HT Media Limited.

xv “BSE joins hands with Osaka Securities Exchange,” Business Standard, 8 April 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

xvi G. Naga Sridhar, “Soon, a microfinance bank for lending to poor,” Business Line (The Hindu), 19 May 2011, via Dow Jones Factiva, © 2011 The Hindu Business Line.

xvii “Depositors' body wants RBI to set floor, not ceiling, rate on savings bank account,” Business Line (The Hindu), 31 May 2011, via Dow Jones Factiva, © 2011 The Hindu Business Line.

xviii “Banks to enable payments via mobile phones in three months,” Business Standard, 19 May 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

xix “PSU banks to open 1,500 rural branches in 2011-12,” Financial Express (India), 15 May 2011, via Dow Jones Factiva, © 2011 Indian Express Pty. Ltd.

xx Deeptha Rajkumar, “Banks explore non-traditional markets to raise money,” The Economic Times, 9 April 2011, via Dow Jones Factiva, © 2011 The Times of India Group.

xxi “Public sector banks make beeline to offer equity broking services,” Financial Express (India), 6 April 2011, via Dow Jones Factiva, © 2011 Indian Express Pty. Ltd.

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