The Hindu Business Line : RBI mulls interest for EEFC balances

After having brought in a bunch of measures towards capital account convertibility, the Reserve Bank of India is working on the next set, said Mr Salim Gangadharan, Chief General Manager.

Among the `measures under assessment' are payment of interest on funds kept by exporters in the Export Earners' Foreign Currency (EEFC) accounts, allowing foreigners to park funds in foreign currency accounts in India and to invest in Indian stock markets, allowing foreign entities to raise funds through rupee bonds and revamping of short term suppliers' credit.

Speaking to Business Line, Mr Gangadharan said that these measures are only under consideration and no decision has been reached yet.

Speaking on `Fuller capital account convertibility' at The India Finance Forum-2006, an annual conference of finance professionals organised by the CII, Mr Gangadharan said that considerable liberalisation in the capital account had already happened.

For example, corporates have been allowed to borrow up to $750 million through the external commercial borrowings route, against the previous limit of $500 million.

Dr Ajit Ranade, Chief Economist of the Aditya Birla Group and Mr Hemant Mishr, Head (Sales and Marketing), Standard Chartered Bank, spoke of the inevitability of rupee convertibility, noting that the South-East Asian crisis should not be taken as an argument against convertibility.

It should be viewed in terms of giving foreign investors a "sense of comfort" or giving Indians an opportunity to hold assets abroad, they added.

Risk management

Companies must not be satisfied with merely insuring their strategic risks, but must also look at insuring other risks such as operational risk, according to Mr N.V. Subba Rao, Head— Risk Services, Cholamandalam MS Risk Services Ltd.

"For every rupee spent on risk insurance (visible risk), Rs 8 to Rs 36 is the underlying uninsured risk," he said. Uninsured risks can result in loss in profits or personnel besides destroying the surrounding environment. He cited the case of a power plant in Panama that lost $ 2,50,000 of profit in a fire at its premises, when the actual property damage was only $ 75,000.

Further, he said companies must evaluate risks and design a suitable insurance scheme and not go by the simple `rate card' approach. "When de-tariffing is implemented, companies will have to conduct comprehensive risk analysis before applying for insurance," he said. The insurance scheme would depend on the quality of risk management practices in a company, he said.

Companies should look at including contractors, vendors, suppliers and other elements of the supply chain as part of risk analysis so as to strengthen risk management practices, he said.

A report on risk management practices by Ernst and Young was also presented at the session. The report stressed the need for an enterprise risk management system where strategy, business and process related risks were addressed and communicated within the organisation.

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