Liberalise NRFC accounts

Wednesday, 6 June 2012 00:06 - - {{hitsCtrl.values.hits}}

By R.M.B Senanayake

1. The Sunday Times reported that the Treasury Secretary has told the banks to encourage the opening of Non-Resident Foreign Currency accounts by Sri Lankans resident abroad.

The banks pay very low rates of interest on such accounts. Further there is no convertibility for such NRFC accounts if they convert the NRFC foreign currency into rupees to invest in the country. Why not allow these account holders to buy financial and real assets in the country- invest in the country and permit them to re-convert the sale proceeds of such assets back into foreign currency?

They may be allowed to open special rupee accounts just like the foreigners who invest in the stock and bond markets by opening Securities Investment External Rupee accounts. If this can be allowed, the NRFC account facility can be extended to foreigners as well. The foreigners could then be attracted to send in foreign remittances for investment here.

2. Presently Sri Lankans abroad who wish to invest in the local stock and bond markets can do so only by sending foreign remittances. But there are several Sri Lankans abroad who have money here which they would like to invest locally .The present rules regarding the opening of CDS accounts for investing in the stock market are too strict.

Why not allow these Sri Lankans abroad to open CDS accounts freely but allow repatriation of their investments and dividends or interest only if they send the money through the special securities accounts? The broker firms and the banks could monitor those trades where foreign currency accounts have been debited so that credits to such accounts will not be permitted unless the money came in through a foreign currency account.

Those Sri Lankans abroad who don’t wish to repatriate their investments can always use their rupees for local expenses. They often visit the country at least once a year. This same facility can be extended to foreigners also who wish to pay for stocks and bonds in rupees provided they do not wish to take out their investments later on.

3. There is much criticism of the BOI by the Secretary to the Treasury. Now that income tax rates are low, why not allow foreigners who wish to buy financial or real assets or to set up an industry or invest in a non-listed company by way of equity or debt, be permitted to do so without seeking BOI or any other official’s permission?

They could be allowed to buy land without having to pay the prohibitive special tax of 100%. The BOI could then deal only with those large foreign corporate investors who seek tax concessions for their investments. Sri Lankan expatriates are quite wealthy and would like to invest locally because of the possibility of getting higher returns.

4. The Central Bank has allowed loans and borrowings by resident banks from overseas banks to build their Tier 1 Capital. Why not allow local companies at least listed companies to borrow abroad say up to 25% of their net worth?

5. India permits resident individuals to invest without limit in overseas companies listed on a recognised stock exchange and which have a shareholding of at least 10 per cent in an Indian company listed on a recognised stock exchange in India as well as in rated bonds/fixed income securities. Should we not allow registered mutual funds to invest say, up to 50% of their funds in foreign funds or stocks?