The impact of FDI on banking, insurance

Indias financial system has very little exposure to foreign assets and their derivative products and it is this feature that is likely to prove an antidote to the financial sector ills that have plagued many other emerging economies
Service Economics | Shanto Ghosh, Ipsa Mohanty and Anushree Ashokbhat

The global banking industry weathered turbulent times in 2007 and 2008. The impact of the economic slowdown on the banking and insurance services sector in India has so far been moderate. The Indian financial system has very little exposure to foreign assets and their derivative products and it is this feature that is likely to prove an antidote to the financial sector ills that have plagued many other emerging economies. Owing to at least a decade of reforms, the banking sector in India has seen remarkable improvement in financial health and in providing jobs. Even in the wake of a severe economic downturn, the banking sector continues to be a very dominant sector of the financial system. The aggregate foreign investment in a private bank from all sources is allowed to reach as much as 74% under Indian regulations. The insurance sector has also been fast developing with substantial revenue growth in the non-life insurance market. However, despite its enormous population, India only accounts for 3.4% of the Asia- Pacific general insurance markets value. The cap on foreign companies equity stakes in insurance joint ventures is 26%, but is expected to rise to 49%. The third quarter of 2008 saw the beginning of negative net capital inflows into the country. Notwithstanding this bleak scenario, the investment pattern with regard to foreign direct investment (FDI) and inflows from non-resident Indians remains resilient and FDI inflows into the country grew by an impressive 145% between fiscal 2006 and 2007 and by a respectable 46.6% between fiscal 2007 and 2008. However, owing to the economic downturn, the growth in FDI inflows in fiscal 2009 slowed to 18.6% from the previous fiscal. Despite the surge in investments, the stringent regulatory framework governing FDI has proved to be a significant hindrance. However, FDI norms have been relaxed to a considerable extent with respect to certain sectors. Private banks, for instance. Foreign investment, in addition to technological innovation and expertise, brings with it a plethora of risks. An unwarranted increase in the size of foreign holding in the banking and insurance sector will inevitably expose the country to risks not commensurate with those that an emerging market economy such as ours is equipped to grapple with. At the same time, it is important to recognize that FDI in banking can address several issues pertaining to the sector such as encouraging development of innovative financial products, improving the efficiency of the banking sector, better capitalization of banks and better ability to adapt to changing financial market conditions

Prohibition of Trading
APRNo Comments | Author Priya Chetty | Category: Banking No banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realization of security given to or held by it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business.

However this restriction shall not apply in respect of those functions or any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.

Explanation: For the purposes of this section, goods means every kind of movable property, other than actionable claims, stock, shares, money, bullion and specie and all instruments referred to in clause (a) of sub-section (1) of section 6. The aforesaid clause reads as under: drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bill of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, travellers cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others; the negotiating of loan and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities

Are Indian Banks Insulated From Global Volatility

Are Indian Banks Insulated From Global Volatility The Indian banking system has undergone a sea change in past fifty years. When we trace back the history of Indian Banking, this system was started by private people. The Reserve Bank of India was founded in 1935, through RBI Act, Imperial bank it acted as both central bank and commercial bank. In the Indian banking structure, the RBI stands as the head of banking system and final authority on all money matters. Nationalisation of 14 major banks in 1969 and 6 banks in 1980 is marked as the beginning of public sector banks. In words of late Prime Minister, Indira Gandhi, the main objective of nationalisation of commercial banks was to increase the financial and banking powers for the Government of India. In the Indian banking system, foreign banks also play a major role in financing Indias external trade. Their main function is to provide finance for import and export trade. In recent years, they are providing credit to Indian companies But during the phase of late 2000s many world economies faced crisis. The main economy that went through this, paying heavily was the U.S. It led to the failure of a number of banks. 25 banks failed and were taken over by the Federal Deposit Insurance Corporation (FDIC) in 2008, while 140 failed in 2009. In contrast, in five years prior to 2008, only 11 banks had failed. A bank failure is the closing of a bank by a federal or state banking regulatory agency. The FDIC seizes a banks assets when its capital levels are too low or it cannot meet obligations the next day. It first pays off the insurance to the depositors up to the deposit insurance limit. Second, selling and collecting the assets of the failed bank and settling its debts. The main banks which failed were the Washington Mutual Bank and lost 307,000 million dollars worth of assets. The financial crisis of 2007 to the present is a crisis triggered by a liquidity shortfall in the United States banking system caused by the...

Fdi In Banking Sector

oreign Direct Investment as seen as an important source of non-debt inflows, and is increasing being sought as a vehicle for technology flows and as a means of attaining competitive efficiency by creating a meaningful network of global interconnections. FDI plays a vital role in the economy because it does not only provide opportunities to host countries to enhance their economic development but also opens new vistas to home countries to optimize their earnings by employing their ideal resources. India has sought to increase inflows of FDI with a much liberal policy since 1991 after decade's cautious attitude. The 1990's have witnessed a sustained rise in annual inflows to India. Basically, opening of the economy after 1991 does not live much choice but to attract the foreign investment, as an engine of dynamic growth especially in view of fast paced movement of the world forward Liberalization, Privatization and Globalization. Limits for FDI FDI in the banking sector has been liberalized by raising FDI limit in private sector banks to 74 per cent under automatic root including investment by foreign investment in India. The aggregate foreign investment in a private bank from all sources will be 74 per cent of paid-up capital of the bank. FDI and Portfolio investment in nationalized banks are subject to overall statutory limit of 20 per cent. The same ceiling also applies in respect of such investment in State Bank of India and its associate banks. The Present Banking Scenario In recent times economy is been pushing to increase the role of multi-national banks in the banking and insurance sector, despite, the concern expressed by the left communist parties are opposing the finance minister move to raise overseas investment limits in the insurance business. The government wants to fulfill a pledge to allow companies like New York Life Insurance, Met Life Insurance to raise investment in local companies to 49 per cent from 26 per cent.

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Fdi In Insurance Sector

Introduction Economic policymakers in most countries go out of their way to attract foreign direct investment (FDI). A high level of FDI inflows is an affirmation of the economic policies that the policymakers have been implementing as well as a stamp of approval of the future economic health of that particular country. There is clearly an intense global competition for FDI. India, for its part, has set up the India Brand Equity Foundation to try and attract that elusive FDI dollar. According to UNCTAD (2007), India has emerged as the second most attractive destination for FDI after China and ahead of the US, Russia and Brazil. While India has experienced a marked rise in FDI inflows in the last few years (doubling from an average of US$5-6 billion the previous three years to around US$ 19 billion in 2006-07) (Figure 1), it still receives far less FDI flows than China or much smaller economies in Asia like Hong Kong and Singapore was ahead of India (Figure 2). Not surprisingly Indias growth strategy has depended predominantly on domestic enterprises and domestic demand as opposed to FDI and export demand. For instance, Indias FDI as a share of GDP in 2007 represented only about 1.7 percent compared to 2.8 percent in China and even below Pakistan, and its share of gross fixed investment is 5.2 percent compared to 7.0 in China and 16.7 percent in Pakistan (Table 1). FDI has been a relatively limited source of external financing and reserve buildup in India. Country Sources of FDI Among countries, Mauritius has been the largest direct investor in India. Firms based in Mauritius invested over US$20 billion in India between August 1991 and July 2007 or over two-fifth of total FDI inflows during that period (Table 2). However, this data is rather misleading. Mauritius has low rates of taxation and an agreement with India on double tax avoidance regime. To take advantage of that situation, many companies have set...

Foreign Direct Investment 1 MANUAL ON FOREIGN DIRECT INVESTMENT IN INDIA

- Policy and Procedures MAY- 2003

SIA (Secretariat for Industrial Assistance) Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India New Delhi 2 Published by: Secretariat for Industrial Assistance Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India, New Delhi May, 2003 This Manual on Industrial Policy and Procedures in India is intended to serve as a comprehensive guide to prospective investors/entrepreneurs and does not purport to be a legal document. In case of any variance between what has been stated in this Manual and that contained in the relevant Act, Rules, Regulations, Policy Statements, etc., the latter shall prevail. 3 FOREWORD In recognition of the important role of Foreign Direct Investment(FDI) in the accelerated economic growth of the country, Government of India initiated a slew of economic and financial reforms in 1991. India is now ushering in the second generation reforms aimed at further and faster integration of Indian economy with the global economy. As a result of the various policy initiatives taken, India has been rapidly changing from a restrictive regime to a liberal one, and FDI is encouraged in almost all the economic activities under the automatic route. 2. Over the years, FDI inflow in the country is increasing. However, India has tremendous potential for absorbing greater flow of FDI in the coming years. Serious efforts are being made to attract greater inflow of FDI in the country by taking several actions both on policy and implementation front. Since the last publication of the Manual in November 2002, Foreign Investment Promotion Board has been shifted to Department of Economic Affairs, Ministry of Finance and Company Affairs. However, the subject relating to FDI Policy and its promotion and facilitation as also promotion and facilitation of.

Investing In India INVESTING IN INDIA

Foreign Direct Investment-Policy & Procedures Department of Industrial Policy & Promotion Ministry of Commerce & Industry Government of India New Delhi March, 2005 This booklet on Investing in India-Foreign Direct Investment- Policy and Procedures is intended to serve as a guide to prospective investors/entrepreneurs and does not purport to be a legal document. In case of any variance

between what has been stated in this booklet and the relevant Act, Rules, Regulations, Policy Statements, etc., the latter shall prevail. ASHOK JHA Secretary Government of India Ministry of Commerce & Industry (Department of Industrial Policy & Promotion) Udyog Bhawan, New Delhi -110 011 Tel: 23011815, 23012667 Fax: 23016298 Email: ashokjha@nic.in FOREWORD Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy. FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. The Government of India reviews the FDI policy on an ongoing basis. Important Policy initiatives taken in the recent past include raising FDI equity limit in domestic airlines sector to 49% and placing it under the automatic route; allowing FDI up to 100% under the automatic route for the development of townships, housing, builtup infrastructure and construction development projects; procedural simplification for approval of proposals for new joint ventures, technology collaborations with existing joint ventures, technology transfer/trade marks agreement in India and transfer of shares from existing Indian companies. This publication is aimed at providing investors up to date information on the policies and procedures relating to FDI....