Working Capital Control and Banking Policy

CAPITAL CONTROL
In economics, capital manage is the monetary policy device that a countrys government (i.e.,
sovereign
authority) uses to regulate the flows into and out of a countrys capital explanation, i.e., the flows
of
investment-oriented money into and out of a country or currency. The decade as the Asian
Currency
Crisis in 1997-1998 has rekindled debate in excess of the wisdom of developing markets having
capital
controls. As globalization advanced with the formalization of the World Deal Institutions and
Uruguay
Round of Common Agreement on Tariffs and Deal (GATT), developing countries were urged
through
the International Monetary Finance and others to liberalize their capital controlled environments.
As it became clear that countries doing this, including Malaysia, Thailand and Mexico,
essentially ceded
manage of their economies to external forces, namely international capital movements, hot
money and
capital flight; and countries that did not, like China and India, retained manage and were not
almost as
vulnerable to the volatility of international capital movement, some argued that capital controls
were
advisable for smaller economies to exploit, and to transition absent from them only in excess of
extensive, common evolutionary timelines. Malaysia is an instance of a country that switched
regimes,
from open in the late 1990s, to close.
Economists supporting capital controls in sure cases were not only from the left, but also liberal
economists like Jagdish Bhagwati and news publications like The Economist.
Banking Policy and Trends Policy Events
These contain freedom for banks to lend at interest rates below their respective PLRs to
exporters and
other creditworthy borrowers (including public enterprises), permission to formulate fixed
deposit plans
offering higher and fixed interest rates to senior citizens, flexibility in the composition of
working
capital as flanked by cash credit and loan components, reduction in exposure limits for
borrowers,
revised guidelines for exposure of banks to capital market, and guidelines for investment in non-
SLR
securities by the private placement circuit.
The initiatives specially aimed at strengthening the operational efficiency of banks relate to the
Voluntary Retirement Plan, the Banking Service Recruitment Boards, Credit Fact Bureau, and
enlargement of the reach and scope of the electronic funds transfer facility.
Voluntary Retirement Plan (VRS)
VRS was implemented through 26 out of 27 public sector banks in 2000-2001. Indian Banks.
Association (IBA), the total staff strength in public sector banks at the end of March 2000 was 8,
63,188 out of whom 1, 26,714 or 14.7 per cent applied for VRS. In relation to the80 per cent of
the number of
applications were carried, and the staff relieved under VRS until December 31, 2001 were 1,
01,300.
This constituted 11.7 per cent of the total staff strength at the end of March 2000. Banks were
advised
through the Reserve Bank to treat the ex-gratia payment as deferred revenue expenditure (DRE),
which
would not be reduced from Tier I capital. The location will be regularized through the end of the
accounting year in which the DRE gets completely wiped out. The maximum era of deferment
has been
fixed at five years, including the year of acceptance of VRS applications through the banks.
Banking Service Recruitment Boards
In pursuance of the announcement made through the Fund Minister in his Budget speech, the
Banking
Service Recruitment Boards (BSRBs) have been abolished. Accordingly, banks have been
advised to
frame their own recruitment strategies, with the approval of the respective Boards, to meet future
necessities.
While framing such strategies, banks are required to ensure, inter alia, that the recruitment policy
is
transparent and fair, with due symbols of the members of SC/ST and minority societies in
selection
committees. Banks have also been advised to ensure that reservations in posts and related
concessions/relaxations in fees and spots, as laid down through the Government of India, are
strictly
followed.
Electronic Funds Transfer (EFT)
EFT facilitates transfer of funds electronically within and crossways municipalities and flanked
by
branches of a bank and crossways banks. EFT is operated through RBI, and is accessible for
funds
transferred crossways 13 biggest municipalities in the country as on January 11, 2002. With
effect from
October 1, 2001, big value transactions upto Rs. 2 crore have been permitted under EFT. Transfer
of
funds on a similar-day foundation was implemented effective from January 2, 2002 at the four
metro
centers with three settlements per day.
Little and Medium Enterprises (SMEs)
Troubles Facing the SSI Sector
The SSI sector confronts many troubles despite its strategic importance in any industrialization
strategy
and its immense potential for employment generation. The problem which continues to be a large
hurdle
for the development of the sector is lack of access to timely and adequate credit. The Abid
Hussain
Committee on SSIs (1997) examined the troubles of the SSI sector and recommended a package
of
policies to restructure the industry in the context of current global economic changes.
The Expert Committee was of the view that the existing institutional building for delivering
credit to
SSEs requires a thorough overhaul. It endorsed the recommendations of the Nayak Committee
and
urged the RBI to implement the similar. The Committee recommended restructuring of financial
support