Sodhani Committee Report

Sodhani Committee Report

The Expert Group on Foreign Exchange Markets in India, headed by the then Executive Director of RBI, Mr. O.P. Sodhani, submitted its Report to the RBI in June 1995.

The Report is widely regarded as an enlightened blue-print for the development of the Indian Foreign Exchange Market.

The Sodhani Committee had made 33 recommendations and of these, 25 recommendations called for action on the part of the RBI. RBI has accepted and implemented in full or to some degree, 20 out of the 25 recommendations.

Summary of Major Recommendations aimed at 

developing the Rupee - Dollar Market

1. The banks may be permitted to decide Open Position limits subject to their earmarking capital to the extent of 5% of Open Exposure Limit. The current cap of Rs 15 Crores on open exchange position may be withdrawn.

Accepted 

The ceiling of Rs 15 Crores was removed on 1st Jan, 1996. Currently, banks decide their own Overnight Open Position limits according to the capital base, volume of merchant transactions, dealing expertise and infrastructure. They have to earmark their capital to the extent of 5% of the open position limit to cover market risk. While the Limits are decided by the banks, these have to be approved by the RBI.

Only some foreign banks have gone in for increasing their Limits, most nationalised banks prefer to maintain their earlier levels.

2. The banks should be permitted to fix their own Gap limits based on capital, risk bearing capacity etc.

Accepted vide Credit Policy dated April 3, 1996

The banks are permitted to fix their own Gap limits, subject to a daily ceiling of $ 100 million or 6 times the net owned funds of a bank.

3. Banks may, on application to RBI, be permitted to initiate Cross Currency positions overseas.

Accepted vide Credit Policy dated April 3, 1996

Permissions granted on basis of infrastructural capabilities and dealing expertise and experience. Again, only a few foreign banks have applied for permission....