Sodhani Committee Report

Summary of Major Recommendations aimed at
developing the Rupee - Dollar Market

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 The current cap of Rs 15 Crores on open exchange position may be withdrawn.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.
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.
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.
In orderto impart depth and liquidity to the forward markets, banks should be allowed to lend or borrow short - term funds upto six months in the overseas markets upto specified limits.
Accepted vide Credit Policy dated April 15, 1997
The number of market participants should be increased by permitting financial institutions like IDBI, IFCI etc. to trade in the forex market.
Market intervention by RBI should be selective rather than continuos. Forex swaps may be used as a tool by RBI to control the forward margins.
Accepted
The RBI no longer quotes two way prices on a daily basis. It intervenes in both Spot and Forward markets.
Banks should have the freedom to determine the interest rates and maturity period of FCNR (B) deposits subject to a cap being put in place by RBI.
Accepted in part
Interest rates on FCNR (B) deposits are fixed by RBI and are uniform across all banks.
Exporters should, subject to liquidation of outstanding advances, be permitted to retain 100% of export earnings in foreign currency in India.
Not accepted as yet
Exporters are allowed to retain 50% of their export earnings in foreign currency accounts (EEFC Accounts - Exchange Earners Foreign Currency Accounts). However, by the Credit Policy dated 15th April, 1997, exporters can lend upto $ 3 million abroad out of their EEFC accounts. Another move towards Capital Account Convertibility.
Inter - bank borrowings should be exempt from statutory pre - emptions to help the emergence of a Rupee term money market and a deep and liquid debt/ forex market.
ACCEPTED ! Vide Credit Policy dated April 15, 1997
RBI should take the initiative in collecting and publishing on a daily basis critical data on foreign exchange transactions.
Ongoing Process
The proposed Forex Clearing House in Bombay may be set up early considering the substantial benefits this could offer to banks.
Accepted
Forex Clearing House operations are under trial in Bombay.