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To deal with global meltdown CII suggests five point agenda

17
Nov '08
For dealing with the impact of global financial crisis, Confederation of Indian Industry (CII) has come out with a new five point agenda.

Current Issues:
•Domestic liquidity shortage
•Exchange rate volatility and Steep depreciation of the Rupee
•Inadequate credit availability and slowdown in demand
•High Interest rates
•Decline in business and investor confidence and optimism

Steps taken by RBI, Government & SEBI:
•Repo Rate cut by 1.5%, CRR cut by 3.5%
•Interest rate ceiling on FCNR(B) and NRE deposits increased by 50 basis points.
•SLR cut by 1%
•Public sector oil marketing companies and bulk purchasers to access foreign exchange directly from RBI
•Rs 25,000 Crore under Agricultural Debt Waiver and Debt Relief Scheme to Banking system.
•Banks allowed to borrow funds from their overseas branches & correspondent banks up to a limit of 50% from 25% of their unimpaired Tier I capital or upto USD 10 million.
•ECB norms relaxed upto US$ 500 Mn for all sectors.
•Loans to mutual funds against and buy back of Certificates of Deposits (CDs) upto 20 Oct. 2008.
•Consolidation through creeping acquisition upto 5% allowed to persons holding 55% to 75% through buyback route with automatic exemption by SEBI.
•Special liquidity window for MFs and NBFCs.
•Special refinance facility for 90 days at the repo rate extended to banks.
•Buy back of MSS securities (details awaited)

CII Suggestions accepted:
CII thanks RBI, Ministry of Finance and SEBI for accepting its recommendation on:
•Cutting CRR
•Cutting Repo Rate
•Providing direct access to OMCs and bulk buyers for their forex requirements.
•Liquidity window to Mutual Funds & NBFCs
•ECBs limits relaxation for all sectors
•Consolidation through Promoters buy back

CII Recommendations: What more needs to be done?
1.Communication & Confidence
a.Comprehensive communication exercise by Government and regulators in consultation with industry to articulate the approach to mitigate risks arising out of the global financial crisis and strengthen confidence in the economy. Guarantee for all bank deposits for a two-year period, to maintain depositor confidence in the banking sector.

2.Domestic liquidity and interest rates
b.Further reduction in repo rate by at least 150 bps and in CRR by 250 bps to regulatory floor level of 3% to ensure adequate liquidity and reasonable cost of funding. RBI could also consider further reduction in SLR by 2% and allowing Oil and Fertilizer bonds acceptable for SLR. The reverse repo rate also could be cut by 50 bps, since the RBI has started borrowing from some banks.
c.Provision of special line of liquidity directly form the RBI to Mutual Fund and NBFC sectors, to enable orderly operation of financial markets.

3.Foreign exchange management
d.Faclitate greater foreign exchange inflows by ;


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