1. SODHANI COMMITTEE
(on Forex Markets)
Prepared By- Bhargav Dudugadapa - 11020241008
Eshant Gaur - 11020241040
Kushagra Pandey - 11020241047

2. Introduction
• The Sodhani Committee
was set up to look into::
• promotion of NRI investments in
India
• widening and deepening of
foreign exchange market.
• Report was submitted to
the RBI in June 1995
• The Sodhani committee has
made 33 recommendations
and of these 25 reco-
mmendations called in
action on part of RBI.

3. PROMOTION OF NRI
INVESTMENTS IN INDIA

4. Investments in Capital Market
 % Scheme
40
• NRIs/ OCBs are permitted to subscribe to new issues of shares
(equity & preference) or convertible debentures of any new or
existing company with the right of repatriation
• Restriction that aggregate issue to non-residents does not
exceed 40 % of the face value of the new issue.
• RBI permission needed.
• Such investment can be made only in private or public limited
companies raising capital for setting up new industrial/
manufacturing activities.
• Investment under this scheme can also be made in new or
existing companies engaged in the following areas of activity:
• Hospitals ( including diagnostic centres)
• Hotels with 3,4 and 5 start rating
• Shipping
• Development of computer software
• Oil exploration services

5. 100 % Scheme
 NRIs./ OCBs are permitted to invest in priority
industries and in Indian Companies primarily engaged
in export trading activity, with full repatriation benefits
upto 100% of the new issue of shares.
What did Sodhani Committee recommend ?
Merge both schemes and allow 100 % repatriation to
companies eligible
for 40 % scheme and no prior permission required
RBI Obliged :: Amendments to Sections 19(1) and
29(1)(b) of FERA

6. Capital Markets Contd.
• Indian companies are required to obtain permission
from RBI to issue shares/debentures to NRIs/OCBs.
• Thereafter NRIs/OCBs are required to come to RBI
for approval for making investments in
 shares/debentures, and again at the time of
disinvestment.
What did Sodhani Committee recommend ?
One general Permission
RBI obliged::amendment in Section
 10C.11 Investment with Repatriation Benefits dated
3rd June 2006

7. Real estate
• lock-in period of 3 years and ceiling of 16% on
profits from investments in housing and real estate
What did Sodhani Committee recommend ?
• Investments with no holds bar.
RBI Obliged::Press Note 2 of 2005 dated March 3, 2005
As an extension investments in
townships, housing, infrastructure and construction/
development projects was also allowed

8. Sick Units
•  The restrictions on investment by NRIs in sick units
with a lock-in period of five years
• the eligibility criteria that the shares of the company
should have been quoted below par for two years
What did Sodhani Committee recommend ?
That such power be granted
RBI Obliged: Amendments in section 10C.11 to
10C.19, Investment with Repatriation
benefits in Exchange Control Manual.

9. Educational Institutions
What did Sodhani Committee recommend ?
•  Investments by NRIs in educational institutions in
medical, management and technical areas were
to be on non-repatriation basis
RBI Obliged::RBI Notification No- FERA 113 and FERA
114

10. Power to banks
• No power for banks to grant housing loans to NRIs
What did Sodhani Committee recommend ?
That such power be granted
RBI Obliged: Amendments in sections
10D.2, 10D.3, 10D.4 , Loans in India to non residents
was made in exchange control manual by a notice
dated  03
Jun 2005

11. EXPANSION OF FOREIGN
EXCHANGE MARKET

12. Need for changes in the
Forex Regulations
• Market players in forex became active in the
seventies, consequent upon the collapse of Bretton
Woods Agreement.
• India was somewhat insulated since stringent
exchange controls prevailed and banks were
required to undertake only cover operations
• In 1978, the RBI allowed banks to undertake intra-
day trading in foreign exchange

13. • The exchange rate of the rupee, which was
pegged to an undisclosed basket of
currencies, was partially floated in March, 1992 and
fully in March, 1993.
• The unification of the exchange rate was
instrumental in developing a market-determined
exchange rate of the rupee, based on demand
and supply in the forex market.
• It was also an important step in the progress
towards current account convertibility, which was
achieved in August, 1994 when India accepted
obligations under Article VIII of IMF’s Articles of
Agreement .

14. Wider Market
What did Sodhani Committee recommend? Market
participants in the foreign exchange
market be enlarged by including IDBI, ICICI,
etc.
Accepted vide Credit Policy dated April 15, 1997

15. Market Intervention
What did Sodhani Committee recommend? Market
intervention by RBI should be
selective and discreet.
Accepted The RBI no longer quotes two way prices
on a daily basis. It intervenes in both Spot and Forward
markets.
Market intervention by RBI should be selective rather
than continuous. Forex swaps may be used as a tool
by RBI to control the forward margins.

16. Bank lending
What did Sodhani Committee recommend?
Banks should be allowed to borrow and lend
upto six months in overseas markets
Accepted vide Credit Policy dated April 3, 1996

17. What did Sodhani Committee recommend?
The removal of the limit of Rs.15 crores for
open position was recommended. This limit
has since been replaced by the limits
specific to the size of the bank.
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.

18. New Clearing System
What did Sodhani Committee recommend? Setting up
a clearing system for foreign exchange market.
Accepted
Forex Clearing House operations are under trial in
Bombay.

19. Thank you