RBI opens windowfor MFs | |||
Mumbai, 17 July Mutual funds faced ₹ 50,000- crore redemption orders from banks and companies on Tuesday, prompting the Reserve Bank of India ( RBI) to provide them a threeday repo borrowing window at a 10.25 per cent interest rate. The central bank had previously provided such access to special funding in 2008 when fund houses had faced redemption pressure of ₹ 80,000 crore to ₹ 1,00,000 crore over three- four days — about 20 per cent of the sector's total assets of around ₹ 5 lakh crore at that time. That was in the wake of a global financial crisis. Tuesday's redemption, on the other hand, was a little over six per cent of fund houses' total assets of ₹ 8.11 lakh crore ( as of June 2013). The special window had a sobering effect on Wednesday, though fund houses remained edgy. The actual figures of redemption were not available but fund houses said there were some inflows, too, unlike Tuesday, when only heavy selling was seen. Sentiments improved after short- term interest rates cooled a little on Wednesday after surging the previous day. The rates of one- month certificates of deposit, which had jumped 150 basis points on Tuesday, came down to 10.4 per cent. Tuesday's surge in redemptions follows RBI's liquidity- tightening measures, as banks and corporate entities usually park their shortterm money with fund houses for better returns. Industry sources said the Securities and Exchange Board of India (Sebi) and the Association of Mutual funds in India ( Amfi), held a meeting on Tuesday and RBI was approached for opening the special window. Reliance Mutual Fund CEO Sundeep Sikka said RBI's special window was a welcome step, though the industry had been able to manage the redemptions so far. " We may or may not require this window," he said. Some industry players, however, admitted fund managers were on back- to- back conference calls during the day to convince clients not to withdraw. RBI calmed nerves further by allowing banks availing of the additional liquidity support through the repo window to seek waiver of penal interest for shortfall in maintenance of statutory liquidity ratio ( up to 0.5 per cent of their net demand and time liability). Also, the waiver would be available to banks in addition to the two per cent waiver allowed under marginal standing facility. Turn to Page 20 > Special ₹ 25,000- crore three- day repo facility after ₹ 50,000- crore redemption on Tuesday THE SMART INVESTOR P15 > >YOUR MONEY: Debt investors don't need to panic TACKLING THE LIQUIDITY CRUNCH FALLING YIELD Category Avg return (%)* >Gilt ( medium & long- term) - 2.59 >Income - 2.03 >Short- term - 1.39 >FMPs - 0.92 >Others - 0.77 >Gilt ( short- term) - 0.71 >Ultra short term - 0.47 >Liquid - 0.18 >Overall - 1.02 *Loss of schemes on July 16, compared with July 15 Source: Value Research Monday | RBI issues guidelines to cap LAFat₹ 75,000 cr from July17 Tuesday | MFs face ₹ 50,000- crore redemption pressure |Sebi and Amfi meet, request RBI to open special window |Amfi issues circular directing fund houses to MTM debt securities below60 days Wednesday | RBI opens special repo windowof₹ 25,000 crore for three days at10.25% Redemptions were in ultra, ultra- short- term, short- term, and liquid funds, as they faced mark- to- market losses India's MF universe Assets in ₹ ' 000 cr; in June 2013 1.6 Other ETFs 8.5 Gilt funds 9.6Gold ETFs 16 Balanced funds 1.9 Fund of funds (investing overseas) 22.5 ELSS ( equity) 441 Income funds 148 Equity funds Total 811.1 162 Liquid/ money market funds | |||
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Ordinance to empower Sebi cleared | |||
New Delhi, 17 July The government will promulgate an ordinance to empower the Securities and Exchange Board of India ( Sebi), the capital markets regulator, to directly go for search and seizure operations on errant listed companies. It will also get the task of regulating those non- banking financial companies ( NBFCs) collecting at least ₹ 200 crore, which hitherto do not fall under any watchdog, a senior finance ministry official explained. The ordinance will also empower Sebi to seek information such as records of telephone calls from any entities or persons in respect to any share transaction being investigated by it. An ordinance to this effect was cleared by the Cabinet on Wednesday. The move is aimed at tightening the checks on chit fund companies floated under other garb to get around the rules, in the aftermath of the scandal concerning the Bengal- based Saradha Group which left scores of investors high and dry. Currently, the Prize Chits and Money Circulation Schemes ( Banning) Act, 1978, is acentral one, enforced by states. Since it bans prize chit fund companies, the question of regulating these do not arise. Many chit fund schemes are being launched under other garb, officials said. NBFCs have to get a licence from the Reserve Bank of India to start operations, but there are many fraudulent schemes being operated under various names to avoid regulatory control. Sebi already regulates collective investment | |||
Multi- brand retail FDI policy riders might be eased | |||
New Delhi, 17 July Under pressure from international retailers, the government might soon amend the foreign direct investment ( FDI) policy on multi- brand retail trading (MBRT) by easing some conditions which had drawn sharp criticism from global investors. However, there is no proposal to hike the FDI limit in the sector from 51 per cent. The department of industrial policy and promotion (DIPP), nodal agency for FDI policy under the ministry of commerce and industry, seems to have prepared a note for the Cabinet Committee of Economic Affairs ( CCEA) to consider. It would mean changes in the FDI policy approved in September. The government will seek to change three main conditions that have invited the most criticism by retail conglomerates such as Walmart, Tesco and Carrefour. This pertains to the riders concerning back- end infrastructure, mandatory sourcing and establishment of retail stores only in cities having more than amillion population. The move comes at a time when the economic scenario is gloomy, with the rupee at an all- time low and investment sentiment depressed. It was only last month that DIPP had issued a set of clarifications on these issues but this failed to soothe retailers' nerves. On back- end infrastructure, the government is planning to highlight the condition of creating " additional" infrastructure. A senior official, told Business Standard, the main reason why government opened the sector to FDI was "only" to create additional and state- of- art back- end infrastructure such as cold chains and storage facilities. For, the "present back- end facilities are not enough and the existing players will get an easy exit route if foreign retailers buy them out, leading to a real estate business of sorts." According to extant policy, "At least 50 per cent of total FDI brought in shall be invested in back- end infrastructure within three years of the first tranche of FDI." It does not specify whether such an investment will be in existing infrastructure or new ones. The clarifications issued later said even front- end investment must go in creating new facilities. It seems the policy on 30 per cent mandatory procurement from MSMEs is also set to change. It says this much procurement of processed products should be from domestic small industries with investment of not more than $ 1 million in plant and machinery (P& M). The government might relax this to say once the 30 per cent threshold is met, the retailer can source from the same supplier, even if the investment in P& M exceeds $ 1 mn, keeping in mind quality consistency. The government is also set to change the rider that retailers can set up their outlets in only cities with more than one million population. For full reports, visit www. business- standard. com Note by DIPP in final stages; likely to recommend easing of all three main conditions specified in September last year |FDI policy in multibrand retail likely to change |No change in FDI limit on cards; cap to remain 51 per cent |DIPP to soon move CCEA on this; note being finalised |Government to ease the stiff conditions |For back- end infra, the new policy might now clearly specify that investments have to be made in creating new facilities, as existing infra is not sufficient, leading to wastage |New policy might also relax sourcing conditions |Retailers might be allowed to open stores in cities with a population of less than one million population |
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Source Times of India
Companies can get tax breaks on employee stock option plans
The author has posted comments on this articleLUBNA KABLY, TNN | Jul 18, 2013, 01.04AM IST
MUMBAI: A special bench set up by the Bangalore Income-tax appellate tribunal (ITAT) has ruled that discounts under the employee stock option plans (ESOP) are an employee cost and should be allowed as a deduction, over the vesting period, in the hands of the issuing company.
The special bench held that when a company undertakes to issue ESOPs at a discounted price, the primary objective is not to raise share capital but to retain its key employees. It brushed off the contention of the tax authorities that such discount was a capital expenditure or that it was a contingent liability.
The special bench of the ITAT was set up to determine the deductibility of ESOP discount, as a clutch of companies including Biocon had filed appeals on this issue. The ITAT also had to determine when and how much should be allowed as a deduction.
The special bench held that when a company undertakes to issue ESOPs at a discounted price, the primary objective is not to raise share capital but to retain its key employees. "The objective is securing the consistent and concentrated efforts of its dedicated employees during the vesting period. The discount is construed, both by the employees and the company, as a part of the remuneration package. Such discounted premium on shares is a substitute to giving direct incentive in cash for availing of the services of the employees," stated the special bench in its order. It brushed off the contention of the tax authorities that such discount was a capital expenditure or that it was a contingent liability.
Punit Shah, co-head (tax), KPMG, says, "This decision offers substantial clarity. Going forward, more companies will be inclined to claim a deduction for the ESOP discount." Industry players feel it will result in a substantial decline in litigation.
The special bench of the ITAT was set up to determine the deductibility of ESOP discount, as a clutch of companies, including Biocon, had filed appeals on this issue. The ITAT also had to determine when and how much should be allowed as a deduction.
In a 50-page order relating to Biocon's case, the special bench looked into various stages of an ESOP scheme such as granting, vesting and exercise. At the grant stage, the company merely offers to make available shares at a discount price.
The second stage is vesting and the vesting period varies from company to company. During this period, the company incurs the obligation to issue discounted shares. The shares are allotted at the end of the vesting period, post which the employee can exercise his right to purchase the shares under the ESOP scheme at the discounted price.
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