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Raghuram Rajan takes charge as new RBI Governor, unveils 'big package', vows more

Sep 04 2013, 22:04 IST
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Raghuram Rajan and D Subbarao at RBI headquarters on the day the former took over as the cbank chief. IE photo Raghuram Rajan and D Subbarao at RBI headquarters on the day the former took over as the cbank chief. IE photo
SummaryRaghuram Rajan ditches much-maligned D Subbarao policy, set to align it with what UPA govt wants.

re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident (FCNR) deposits and dollar funds.

"My sense is that we certainly don't need false optimism.

But I think there is good reason to believe that in the medium run, the future of the country is strong," he said.

Asked about Standard and Poor's downgrade threat, he said the international rating agency "nearly reiterated what has been its long standing claim about there being one-third possibility of a rating downgrade...it is not something new. So I won't read too much into the statement."

The measures announced by Rajan include enhancing the re-booking limit on cancelled forward exchange contracts for exporters to 50 per cent, extending a similar facility to importers and introducing cash settlement in 10-year interest rate future contracts to develop the money and G-sec markets.

Rajan indicated the RBI will take steps to reduce the Statutory Liquidity Ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission.

The new RBI chief also said he will steadily liberalise the markets and lift restrictions on investment and position-taking, together with Sebi, and will examine introduction of interest rate futures on overnight interest rates.

While the RBI has enhanced the re-booking limit on cancelled forward currency contracts to 50 per cent for exporters, importers will be allowed a 25 per cent limit.

The central bank will push for more trade settlements in rupees and open up the financial markets for those who receive rupees to invest it back in.

Rajan said the RBI will raise the overseas borrowing limit of 50 percent of unimpaired Tier I capital to 100 per cent for banks and will introduce cash-settled 10-year interest rate future contracts.

The central bank will also examine introduction of interest rate futures on overnight interest rates; steadily but surely liberalise markets, restrictions on investments and position-taking; and issue inflation-indexed savings certificates tied to CPI to retail investors by end November.

He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries.

Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets.

Referring to the announcements, he said, "This is a part

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