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Banking (WT/TPR/S/249, p.142 and 143, para. 68)

As noted from the Secretariat report, a number of regulatory changes and legislative amendments are awaiting enactment and a Financial Sector Legislative Reforms Commission has been set up to rewrite and streamline the financial sector laws, rules and regulations by 2013. We would like to know the interface between the legislation enactment proposed by the Minister of Finance and the work of the Commission.

Reply: Through a resolution dated 24 March 2011, the Government set up the Financial Sector Legislative Reforms Commission (FSLRC) with a view to rewriting and harmonizing the financial sector legislation, rules and regulations to address the contemporaneous requirements of the financial sector.

The Commission will make its recommendations within 24 months of the date of the resolution. It is chaired by Supreme Court Justice (Retd.) B. N. Srikrishna, and has ten members with expertise in the fields of finance, economics, law and other relevant fields.

The FSLRC can call for such information and take such evidence as it may consider necessary from various sources including Ministries and Departments of the Government of India and State Governments. The Commission will also engage with the inter regulatory body the Financial Stability and Development Council (FSDC) as a part of this exercise.

The apex level FSDC was set up by the Government on 30 December 2010 with a view to strengthen and institutionalize the mechanism for maintaining financial stability and enhancing inter regulatory coordination. The Chairman of the Council is the Finance Minister of India and its members include:

• 
  Financial sector regulatory organizations: the heads of the financial sector regulatory authorities – Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA), Pension Funds Regulatory Development Authority (PFRDA);
  
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  Ministry of Finance: Finance Secretary and/or Secretary, Department of Economic Affairs (DEA); Secretary, Department of Financial Services; and the Chief Economic Adviser.
  

This Council will monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates. It will address inter regulatory coordination issues and thus spur financial sector development. It will also focus on financial literacy and financial inclusion. A sub committee of FSDC has also been set up under the chairmanship of Governor, RBI.

Hong Kong China 3:

(WT/TPR/S/249, p.143, para. 70)

We also note that since 1 December 2009, Indian banks no longer require a licence from the Reserve Bank of India (RBI) to open a branch in areas with a population below 50,000, subject to reporting. Would the "licence exemption" apply to foreign banks under the same circumstance?

Reply: The opening of branches by foreign banks, existing and new, in India is subject to a limit of 12 branches in a year, as per India's commitments to WTO. Therefore, the general permission granted to domestic scheduled commercial banks is not applicable to foreign banks.

Hong Kong China 4:

(WT/TPR/S/249, p.145 and 146, paras.77 and 78)

It is mentioned in the Secretariat report that the RBI formulated a Roadmap for Presence of Foreign Banks in India and the Guidelines on Ownership and Governance in Private Banks in 2005. In addition, a Discussion Paper on the former was released in January 2011 to seek feedback from all stakeholders and the general public with respect to the form of foreign bank presence in India. We would be grateful for India's advice on the latest progress on the consultation and whether the guidelines, once finalized, would be introduced on a mandatory basis.

Reply: The Discussion Paper on presence of Foreign Banks in India was released by RBI on 21 January 2011 inviting suggestions/comments from all stakeholders. The responses received from the stake holders would be taken into account while finalising the guidelines. At present, RBI is in the process of analysing the various suggestions/comments received from the stakeholders.

Since the guidelines are yet to be finalised, it would be premature to comment on the outcome.

Hong Kong China 5:

Insurance (WT/TPR/S/249, p. 151, para.101; and p.153, para.108)

We note that in recent years, the Indian authorities have attempted to raise the foreign equity limit in an Indian insurance company from 26% to 49%, and introduce flexibility to raise capital through other forms instead of through equity alone. We are interested in knowing the time frame of their implementation. Separately, we would like to know if there are any other concrete proposals to increase private sector investment from foreign investors and whether there have been obstacles to such attempts.

Reply: The Government had introduced the Insurance Laws (Amendment) Bill, 2008 in the Parliament on 22.12.2008. The Bill, inter alia, provides that the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees in Indian Insurance Companies may be increased from 26% to 49% except in case of insurance co operative societies where the limit would continue to be 26% as at present.

At present, the Bill is pending under consideration before the Standing Committee on Finance and no fixed time frame can be specified at this stage.

Indian companies have been granted general permission for conversion of external commercial borrowings (ECB) (excluding those deemed as ECB) in convertible foreign currency, into equity shares/fully compulsorily and mandatorily convertible preference shares. General permission is also available for issue of shares/preference shares against lump sum technical know how fee, royalty. From 1.4.2011, import of capital goods/ machinery/equipment and pre operative/ pre incorporation expenses have also been included for issue of shares against non cash considerations (all of the above being subject to specified conditions).

The policy on FDI is reviewed on a continuing basis, with a view to its further liberalization and increasing its investor friendliness.

Hong Kong China 6: