Friday, February 22, 2013

[aaykarbhavan] Business standard news updates 23-2-2013

New banks: RBI welcomes all, but sets stiff riders

BS REPORTER
Mumbai, 22 February
The Reserve Bank of India (RBI) today issued the final guidelines for
new bank licences, allowing any type of company to apply for a permit,
paving the way for new banks after nine years.
RBI said it would allow applications till July 1. No specific industry
was barred from applying, although draft rules issued in August 2011
had barred real estate companies and brokerages.
But the central bank has put stiff conditions. For example, the
guidelines said a promoter group's " business model should not be
misaligned with the banking model" and its business should not
potentially put the bank and the banking system at risk on account of
"group activities which are speculative or subject to high asset price
volatility".
Many experts said real estate companies and brokerages would find
these conditions onerous. DLF, the country's largest real estate
company, said it would not apply as it wanted to focus on its core
business. Some nonbanking financial companies could face a challenge,
as RBI has not permitted the firms to carry out activities otherwise
undertaken by banks.
The applications, expected to come in from Monday, will be screened by
a high- level committee of external experts. A decision would be taken
by the central bank.
RBI said successful applicants have a year to set up a bank. The new
banks must make a stock market listing within three years — one year
longer than proposed in the draft rules. The rules are intended to
ring- fence a company's regulated financial services operations, RBI
said.
It said the aspirants will have to set up non- operative financial-
holding companies (NOFHC), which should hold a minimum 40 per cent of
the equity capital in the bank. This has to be reduced to 20 per cent
within 10 years and 15 per cent in 12 years from the date of start of
business. An NOFHC will be registered as a non- banking financial
company with RBI and will be governed separately.
At least half the directors at such holding companies shouldn't be
connected to the founder groups, RBI said. "Entities, groups should
have a record of sound credentials and integrity, be financially sound
with a successful track record of 10 years." The minimum equity
capital required for setting up a bank under the new rules is ₹ 500
crore. Foreign shareholding shouldn't exceed 49 per cent in the first
five years. The new banks must open at least a fourth of its branches
in rural areas – a condition, many experts said, almost impossible to
achieve.
RBI said applicants meeting the eligibility criteria might not get a
permit. Feedback on the applicants will be sought from enforcement and
investigative agencies, it said. Public sector entities will be
allowed to apply for a licence. The draft norms had talked about
private sector entities only.
NEW LENDER GUIDELINES
|Entities, groups in private sector, public sector and NBFCs eligible
for bank licences; no sector excluded cap on foreign holding in new
banks and minimum paid- up equity capital at
₹ 500 cr
minimum stake of non- operative holding company in the bank for five
years; to be cut to 15% in 12 years of total branches must be in rural
and unbanked areas |Firms with sound credentials and integrity, and 10
years of successful business eligible |New banks must be listed within
three years — one year longer than what the draft had proposed
|Finance ministry expects permits to be issued by Mar 2014
49% 40% 25%
Source: RBI
Final norms remove bar on sectors; applications to be accepted till July 1
GUIDELINES FOR NEW BANK LICENCES P6>
Realtors, brokerages may not pass test RIL may apply for bank licence
Guidelines fair & open to all: India Inc
RBI DY GUV SINHA SET TO GET ONE- YEAR EXTENSION
RBI Deputy Governor Anand Sinha, due to retire this month- end, is set
to get an year's extension. He was the architect of the
bank licence norms. P6 >
BACK PAGE P14>
Conversion challenge before NBFCs
________________________________________

Click here to read more on Page: 14

Conversion challenge before NBFCs

BS REPORTER
Mumbai, 22 February
Non- banking finance companies ( NBFCs) are seen as key contenders to
receive the regulators green signal to foray in the banking space.
However, some of the likely applicants face a challenge in meeting the
criteria to convert themselves into a bank.
In its final guidelines, the central bank has clearly said such NBFCs
will not be permitted any activity a bank cannot do. If an NBFC
converts, any activity a bank is not allowed to undertake should be
divested, the Reserve Bank has said. The minimum net worth for an NBFC
converting to a bank is ₹ 500 crore.
The southbased Shriram Group, among the top contenders for abanking
foray, has two NBFCs in its fold. " The guidelines don't seem
different from the draft ones. We will have to discuss it with RBI,"
said G S Sundararajan, group director. " We need to understand the
implications in greater detail and then take a call." There are
certain challenges before NBFCs convert.
Most have a strong geographical presence or one in an asset class.
The challenge for Shriram would be converting asizable asset base in
one sector ( commercial vehicles).
While NBFCs don't have a sectoral lending cap, banks do.
Analysts seconded the view. " For some NBFCs, going for banking might
not be a wise idea. It depends on the business model of individual
NBFCs," said Shinjini Kumar, director, PricewaterhouseCoopers. "There
are some upsides as well as downsides in becoming abank." RBI's draft
guidelines had said groups having 10 per cent or more in total income
from broking or real estate activities would not be allowed to promote
a new bank.
However, it did away with these conditions in the final guidelines.
Therefore, agroup such as Religare Enterprises has also shown interest
in applying for a banking licence. It had 12 per cent income from
broking activities as of December 2012.
"We welcome the final guidelines. Banking is a logical extension of
Religare's diverse India financial services platform and we will
certainly apply for a licence," said Sunil Godhwani, chairman and
managing director.
Kolkatabased SREI Infrastructure Finance, an NBFC mainly into core
sector lending, also said it would apply for a licence.
RBI also cleared the deck for industrial houses to apply. Reliance
(ADAG), Tata Group and Aditya Birla Group already have an NBFC within
their groups and are likely to apply.
"Reliance Capital will be interested in applying," said Sam Ghosh,
chief executive.
"The Aditya Birla Group remains committed to meeting all the financial
needs of its target customer and aligning with this strategy, banking
will play a key role. Therefore, we intend to apply," said Ajay
Srinivasan, chief executive, financial services.
RBI GUIDELINES FOR NEW BANK LICENCES
If an NBFC converts, any activity, a bank is not allowed to undertake
should be divested and the minimum net worth for an NBFC converting to
a bank is ₹ 500 crore, the Reserve Bank said in its final guidelines
Reports of negligence in MCA21 project ' misguided': Infosys

PRESS TRUST OF INDIA
New Delhi, 22 February
Infosys, earlier awarded the contract for developing and maintaining
the website of the ministry of corporate affairs (MCA), today said it
had fulfilled its obligations and any reports of negligence were
"misguided".
Earlier this week, MCA had asked rival firm Tata Consultancy Services
( TCS) for temporary assistance to resolve glitches related to the
electronic filing system, MCA21, currently being implemented by
Infosys.
Concerns were raised over glitches in MCA21, including slow speed and
difficulties in uploading documents.
The MCA21 portal was launched in 2006 and is the main platform for
companies to file documents to the registrar of companies. Infosys had
taken over the MCA21 initiative from TCS on January 17, this year.
"Successful transition depends upon the current state and stability of
the applications and the full cooperation of both service providers.
We believe that we have fulfilled all our obligations as per the
contract," Infosys said in a statement.
It added the company was in constant touch with the ministry,
providing information relevant to the architecture and functioning of
the portal and has made no significant changes to the system managed
by incumbent vendor, Tata Communications.
"Any reports that imply that the instability in the MCA21 applications
is on account of our negligence are misguided," Infosys said.
Tata Communications was the vendor used by the earlier provider ( TCS)
to manage the technology infrastructure. "We have decided to continue
to retain the services of Tata Communications to manage the technology
infrastructure for us as well," Infosys said. Infosys had won a 6.5-
year contract to develop and maintain the MCA21, an application suite
offered by the ministry of corporate affairs.
"Transitioning a large application suite like MCA 21 at the best of
times is complex.... We are working with Ministry to ensure that the
system performs to its optimal level," Infosys said.
Budget may introduce new tax regime for SEZ units

NAYANIMA BASU
New Delhi, 22 February
The Union Budget for 2013- 2014 is likely to introduce a new tax
regime for units located in Special Economic Zones ( SEZs).
This will be on the lines suggested under the proposed Direct Taxes
Code (DTC) legislation. Under the new scheme, SEZ units will get
investment- led tax benefits, not those based on the profits earned.
Under the new norms, a company will enjoy income tax ( I- T) benefits
till it recovers the investment made to set up the unit inside an SEZ.
It will start paying income tax similar to those paid by units outside
SEZs once it recovers the capital.
This is to retain the interest of companies to set up shop inside the
tax- free enclaves, a senior commerce department official told
Business Standard. However, it is unclear if the new tax regime will
apply to existing or new units.
Some experts say the move will largely benefit those with high
investments, as in multiproduct or manufacturing SEZs. The investment
component for information technology ( IT) companies, for instance,
are comparatively lower. " This is not practiced anywhere in the
world. This will only give rise to more litigation. Only sectors
having huge investments will benefit such as in the infrastructure
sector but this will be extremely discouraging for IT companies," said
Hitendra Mehta, partner, Vaish Associates, a Delhi- based corporate,
tax and business advisory law company.
Under Section 10AA of the I- T Act, SEZ units get full exemption on
export income in the first five years, 50 per cent for the next five
years and 50 per cent of the ploughed- back export profit for the next
five years. Major SEZ developers are concerned about the deadline for
profit- linked deductions with the proposed introduction of DTC.
"While we discuss the support given to the export sector, only the tax
and duty forgone is highlighted. We forget the contribution made by
this sector in bridging the trade deficit. The Ministry of Finance
should re- look while finalising the Budget, especially in view of the
widening trade deficit year after year… Developers are probably shying
away from making investments as they are apprehensive of getting units
to establish their units in their SEZs if there is no tax advantage
available. The major benefit a unit can get is the I- T benefits,"
said P C Nambiar, director of Serum Bio Pharma Park, the country's
first biotech SEZ and chairman of the Export Promotion Council for
EOUs ( export- oriented units) and SEZs ( EPCES).
EPCES has also urged the finance minister to remove the Minimum
Alternate Tax ( MAT) and Dividend Distribution Tax ( DDT) on SEZs.
Introduction of MAT and DDT last year had adversely impacted SEZ
developers and units.
Of the 588 SEZs formally approved, 385 have been notified but only 161
are operational. As of September 30, total investments in SEZs was ₹
219,000 crore and employment generated was 893,465. Export during
2011- 12 was ₹ 364,477 crore. This sector registered export growth of
36 per cent over the previous period in the first half of this
financial year.
New model suggested under proposed Direct Taxes Code Bill
Under the new norms, a company will enjoy income tax benefits till it
recovers the investment made to set up the unit inside an SEZ
RUN- UP TO THE
BUDGET 2013- 14



--

CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
CONVENOR, CHENNAI WEST STUDY CIRCLE ICSI-SIRC
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