INDIAN BANK
HO/INTERNATIONAL DIVISION
66 Rajaji Salai, Chennai - 600 001
Website : www.indian-bank.com
FOREX NEWSLETTER
(FORTNIGHTLY)

Currency Outlook

The worries over record crude oil prices, widening India's trade deficit, greenback losses in overseas market and inflation could weigh on the rupee in the medium term. The market is also now awaiting capital inflows into the IPO by NTPC. The traders expect steady inflow from foreign funds. Keeping the above in mind rupee could move between 45.60 and 46.10 levels in the ensuing fortnight. Either side break will give further direction. Forward premia might track the spot rupee movements and 6 months forward might trade in a range of 2.00 - 2.75%. in the upcoming fortnight

Euro's support comes in at 1.2350 and a break below 1.2300 could polish off the recent rally. But we prefer the view that the rally would continue upward and a break above 1.2440 is an added confirmation for this view, which would probably generate a very sharp rally with eventual target at 1.2600. Against the Indian rupee the Euro is expected to trade between 56.50 and 58.00

Expected rally faces underperformance as GBP is losing grounds against CHF and EUR and may continue to do so. GBP/USD is expected to continue its rally with supports now at 1.7920 targeting 1.8250.

Against rupee the sterling is expected to trade between 81.50 and 83.75

Dollar/Yen is a bit sluggish after its huge down move from 111.50. 108.75 is strong support area and a break of that could send USD/JPY towards 107. Against Indian Rupee the JPY is expected to move between 41.25 and 42.50 during the upcoming fortnight.

Other News Items

India and Germany have resolved to enhance their annual bilateral trade to $10 b in the medium term from the current level of $5.4 b achieved in 2003-04. India has a unique advantage in services sector in terms of a very large pool of skilled human resources. This combined with Germany's technological skills could give a major push to bilateral ties, Mr. Kamal Nath, Commerce and Industry Minister said. (Source-Business Line dated 7/10/2004).

Non-Resident Indians (NRIs) apprehending imposition of income tax on the interest earned on deposits parked in India can heave a sigh of relief now. Even after withdrawing the exemption available to such income from next April, as proposed by Financial Minister, the Government may open another window for NRIs to enjoy the benefit. The commerce and industry ministry has said that interest earned on NRI deposits should not be subject to income tax if the deposit is parked with an Offshore Banking Unit (OBU) attached to any of the Special Economic Zones (SEZs) . The proposal is likely to be discussed by the Cabinet Committee on Economic Affairs soon. (Source - Eco. Times dt. 7/10/04).

Exports from India's manufacturing Sector have the potential to jump to a staggering $ 300 b by the year 2015, a confederation of Indian Industry-McKinsey report has said. India's manufacturing exports stood at $40 b during last fiscal. India's share of the world's manufacturing trade would stand at 3.5% from the current levels of 0.8%. This would create 25 to 30 million new jobs in the manufacturing industry and add one percent to India's GDP growth rate. (Source - Financial Exp. Dt.8.10.04).

With phasing out of quotas at the end of the year, vendor compliance and social audits of ready made garment units are being tightened up, says a garment industry source. The department stores in US and in Europe have been pressured by consumer action groups, like the Clean Clothes Campaign to ensure that there is no child labor in the factories and that the workers in textile and garment units are given all the benefits of a clean working environment and their rights. The social audit norms include things such as good ventilation, fire exits, two ft. between the aisles, toilets etc. The major problem facing garment exporters today is not the lack of orders but the pressure on prices. (Source - BL 6/10/04)

FEMA Updates

* Current Income like Rent, Dividend, Interest, Pension etc. from NRO Account.
* Upto USD 1 million for any purpose per calendar year from balances in NRO account subject to payment of applicable taxes. The limit of USD 1 million per year includes sale proceeds of immovable properties held by NRIs/PIOs for a period of 10 years. In case a property is sold after being held for less than 10 years, remittance can be made if the sale proceeds have been held by the NRI/PIO for the balance period.

For effecting remittances in foreign exchanges out of funds held in NRO account (amounts representing sale proceeds of immovable properties, rent, dividend, etc.), an application under sec.195 of the Income Tax Act has to be submitted to the branch. (Format enclosed to A.P.(DIR Series) circular No. 56 dated November 26, 2002). This application is to be signed by a person responsible for signing the return of Income (as to provisions of section 139(A) of the Income Tax Act) of the person making the remittance.

Along with the application a Certificate from a Chartered Accountant (Format enclosed to A.P.(DIR Series) circular No. 56 dated November 26, 2002) detailing the computation of Tax liability and date of payment must be submitted to the branch.

* For construction of new house/flat

* For purchase of house/flat not more than 15 years old for which residual life period should be minimum 25 years

* For Addition/Alteration/Renovation/ Repairs to the existing house

* NRIs within the age group of 21 to 50 are eligible

* Quantum of loan Rs.25 lakhs maximum

* For limit upto Rs.3.50 lakhs - Gross Monthly Income -Min. of USD 250 or its equivalent.

* For limit above Rs.3.50 lakhs & upto Rs.5.00 lakhs Gross Monthly Income - Min. of USD 500 or its equivalent.

* For limit above Rs.5.00 lakhs & upto Rs.25.00 lakhs -Gross Monthly Income - Min. of USD 900 or its equivalent.

* Margin 15 % of the project cost

Rate of Interest :

With repayment period upto 5 years 7.25%
Above 5 years upto 15 years 7.75%
(All are on floating rate basis)

Repayment : Maximum 180 equated monthly instalments
Repayment from fresh inward remittances/rental income from the property or repayment effected by close relatives (as defined under Sec. 6 of the Companies Act, 1956) of the borrower in India, if any, through their bank account directly to the borrower's loan account.

It has been decided to grant general permission for conversion of ECB into equity subject to the following conditions :

i) The activity of the company is covered under the automatic route for FDI or they had obtained Government approval for foreign equity in the company.
ii) The foreign equity after such conversion of debt into equity is within the sectoral cap, if any.
iii) Pricing of shares is as per SEBI and erstwhile CCI guidelines / regulations in the case of listed / unlisted companies as the case may be.
iv) Compliance with the requirements prescribed under any other statute and regulation in force.

This conversion facility is available for all ECBs availed either with the general or specific permission of Reserve Bank. This would also be applicable to ECBs irrespective of whether due for payment or not, as well as secured / unsecured loans availed from non-resident collaborators. Import payables, deemed as ECBs would not be eligible for conversion into equity / preference shares.

(AP DIR Circular No.15 dated October 1, 2004)

Government has decided to dispense with the requirement of obtaining prior approval of the Government (FIPB) in respect of transfer of shares / convertible debentures, by way of sale, from residents to non-residents (including transfer of subscriber's shares) of an Indian Company in sectors other than financial service sector (i.e. Banks, NBFCs, and Insurance) subject to certain conditions.

(AP DIR Circular No. 16 dated October 4, 2004)

(w.e.f 06.10.2004)				(w.e.f 01.10.04)
	USD	GBP	EUR	NRE
1 to 2 years	2.25	4.84	2.15	2.50
2 to 3 years	2.70	4.84	2.48	3.00
3 years	3.07	4.87	2.76	3.30
SB NRE (w.e.f 01.10.04)2.20

Archives

Issue 1/2004 Dt.01 06 2004
Issue 2/2004 Dt.16 06 2004
Issue 3/2004 Dt.01 07 2004
Issue 4/2004 Dt.16 07 2004
Issue 5/2004 Dt.02 08 2004
Issue 6/2004 Dt.16 08 2004
Issue 7/2004 Dt.01 09 2004
Issue 8/2004 Dt.16 09 2004
Issue 9/2004 Dt.01 10 2004

For any clarification please contact us at ibcoid@satyammail.com