FOREIGN BANK SUBSIDIARIES
RBI prescribes ₹ 500- cr initial capital
BS REPORTER
Kolkata, 29 October
Foreign banks seeking to set up subsidiaries in India would need at
least ₹ 500 crore as initial paid- up voting equity capital or net
worth.
Though foreign lenders would be incentivised to convert their branches
here into whollyowned subsidiaries, subsidiarisation wouldn't be
mandatory.
The wholly- owned subsidiaries of foreign banks would be given " near-
national treatment", including for the opening of branches, the
Reserve Bank of India ( RBI) said on Tuesday. Currently, the banking
regulator is finalising the scheme of subsidiarisation; it would
release the guidelines in this regard by mid- November.
"The scheme of subsidiarisation of foreign banks in India, which aims
to reduce the risk they pose to the system while giving them near-
national treatment as promised in the past, would be placed on our
website within two weeks. It will be guided by the two cardinal
principles of reciprocity and a single mode of presence," RBI Governor
Raghuram Rajan said at the central bank's second quarter review of
monetary policy.
In January 2011, RBI had released a discussion paper on the presence
of foreign banks in India. Currently, foreign lenders are present only
in the form of branches or representative offices.
As of March, 43 foreign banks operated in India, through a network of
333 branches; and, 47 foreign lenders were present in through
representative offices. According to its commitments to the World
Trade Organization, India has to allow 12 new foreign bank branches in
a year.
In August, the central bank had said it expected foreign banks that
became systemically important by the virtue of their balance sheet
size to voluntarily opt to convert their branches into wholly- owned
subsidiaries. It had also indicated for new foreign banks,
subsidiarisation would be made mandatory, under certain conditions.
"I think we will really have to wait for the policy ( on subsidiarisation).
To a large extent, what is being said is not different from what has
been said before— foreign banks will be nudged into becoming
whollyowned subsidiaries, the terminology of near- national treatment
has remained in the refrain. So, we will have to really wait for two
weeks to see what near- national treatment means," said Naina Lal
Kidwai, director for the Asia- Pacific region and country head (
India), HSBC.
Among foreign banks, HSBC has the second- largest presence in India,
with a network of 50 branches.
"We are opening branches.
It all depends on where those (new) branches ( are allowed) and what
strictures come with those openings. There are still some tax- related
issues that need resolution, which I think would be resolved. But I do
think we also have to juxtapose this against the general environment
because there is an impression that foreign banks would just go out
there and gobble up every bank. Believe me, that is not the scenario
that would to pan out," Kidwai said.
The announcement on the proposed release of subsidiarisation norms led
to speculative buying of shares of mid- sized private banks, as
investors expected these lenders to be possible acquisition targets
for foreign banks. Karnataka Bank shares gained about six per cent,
while City Union Bank, Lakshmi Vilas Bank and Dhanlaxmi Bank shares
rose 2.5- 5.1 per cent in Tuesday's trade.
"In the past decade, over a dozen M& As ( mergers and acquisitions)
have taken place in the banking space. But almost all these, except
one or two, were for issues of governance and profit and loss. It was
almost the last option for some of these banks. Not too many banking
M& As have happened for the creation of value... Also, if you focus on
the principle of reciprocity, as mentioned in the statement, I doubt
many foreign banks will become whollyowned subsidiaries. I don't think
the world has become very liberal; every country still wants to
protect its own banks," said N Kamakodi, managing director and chief
executive, City Union Bank.
Top bankers have asked RBI to ensure there is no regulatory arbitrage
while offering specialised banking licences to new entities. " We
should not disturb the equation of regulation and create a regulatory
arbitrage," said Chanda Kochhar, managing director and chief
executive, ICICI Bank. " We definitely don't want regulatory
arbitrage.
Also, we don't want them to come into areas that might be cross-
subsidising some segments universal banks are currently involved in,"
said Arundhati Bhattacharya, chairman of State
Bank of India. BS REPORTER 'Avoid regulatory arbitrage in specialised
banking licences'
India slips 3 spots to 134 in ease of doing business
Better placed on protecting investors, firms getting credit despite
overall slide
PRESS TRUST OF INDIA
Washington, 29 October
India has slipped three notches to the 134th spot in the ' Doing
Business 2014: Understanding Regulations for Small and Medium- Size
Enterprises report, topped by Singapore, according to the
International Finance Corporation and the World Bank.
In the ranking of 189 economies, India has dropped from 131 the
previous year, while Singapore continues to remain at the top.
Singapore is followed by Hong Kong and New Zealand at the second and
third positions, respectively.
Others in the top 10 are the US ( four), Denmark ( five), Malaysia (
six), Korea (seven), Georgia ( eight), Norway ( nine) and the UK (
10).
India has been ranked lower at 179 in terms of ease of starting a
business in the 2014 list when its government is making efforts to
improve the business climate.
Last year, based on this criterion, India was at 177.
The ranking is based on parameters, including starting a business,
dealing with construction permits, getting electricity, registering
property, getting credit, protecting investors, paying taxes, trading
across borders, enforcing contracts and resolving insolvency. " The
ranking and the underlying indicators do not measure all aspects of
the business environment that matter to firms and investors or that
affect the competitiveness of the economy. Still, a high ranking does
mean the government has created a regulatory environment conducive to
operating a business," the report said.
Protecting investors
The country is a much better place in terms of protecting investor
interest and companies getting credit for their activities.
When it comes to protecting investors, the country is at 34th position.
It is 28th in getting credit. However, the country is at 182nd
position when it comes to dealing with construction permits.
inflation, falling rupee." TOP 5
Geography 2013 2014 Singapore 1 1 Hong Kong 2 2 New Zealand 3 3 US 4 4
Denmark 5 5
BRICS
South Africa 41 41 Russian Federation 111 92 China 96 99 Brazil 118
116 India 131 134 REPORT CARD
Markets on the ease of doing business list by IFC and World Bank
ECONOMY
Employees' Pension Scheme deficits
much lower than thought
The estimated deficit in the Employees' Pension Scheme has declined
from ₹ 54,203 crore to ₹ 10,000 crore between the issue of the
previous actuarial report ( 2009) and the latest one.
Sources in the labour ministry said the latest report was yet to be
finalised and the steep reduction was due to to a change in the data,
as well as in the approach to the data.
The previous actuarial report had complained it was handicapped by
paucity of data. Last year, Employees' Provident Fund Organisation
staff had admitted the organisation didn't have any information of the
ages of 95 per cent of its subscribers. To get a more accurate idea of
its pension liabilities, it made a fresh effort to secure the birth
records of all account holders.
The latest actuarial report was based on the revised data, sources said.
The second reason for the decline in the deficit is that the previous
actuarial report had erred in looking at all subscribers of the
pension scheme, while only those who had completed 10 years of service
were eligible for pensions. This is a key feature of the EPS but was
not taken into account by the actuary. Most subscribers withdraw from
the scheme much before completion of 10 years, say sources.
The latest report has rectified this and looked at the liabilities
specifically pertaining to those who have completed at least 10 years
of service. A third reason for the sudden fall in the deficit in the
pension scheme is adoption of a World Bank- approved evaluation
methodology called PROST or Pension Reform Options Simulation Toolkit.
The main difference between the analysis given by using PROST and that
of the actuarial valuation normally followed is that the formerl gives
an analysis of cash flow considering ongoing
scheme. BS REPORTER [1] New Delhi
Source Business line
Why corporate India is like this only
K. Ramesh
Indian companies, being family-oriented, do not squabble in court.
How assertive are Indian shareholders? The Department of Corporate
Affairs (DCA) website updates the total number of cases added in the
Company Law Tribunal (CLB) every year; these include disputes arising
from "oppression and mismanagement". The total number of cases under
this head that were added to the existing disputes in the last four
years are: 393 (2009-10), 384 (2010-11), 447 (2011-12) and 365
(2012-13). That's a total of 1,589 cases.
Taking into consideration cases that have been disposed of, there are
1,261 pending cases as of March 31, 2013. Add the pending 200 cases
pertaining to whether shareholders can assert their right to transfer
shares in their favour, and the total is 1,461.
This constitutes a paltry 0.12 per cent of the total number of
companies — 11.60 lakh! Deducting the number of dormant companies
(about 4 lakh) from the total, shareholders' disputes account for only
0.2 per cent of the 7.6 lakh functional companies.
The CLB adjudicates disputes between shareholders and even settles
procedural matters such as change of registered office, delayed
registration of charges and so on. Even if all the cases pending
before the CLB as of March 2013 — 10,823 —are taken into account, it
amounts to less than 1 per cent of the total companies extant! The
legal fraternity knows only about arrears of pending cases and
congestion in different courts owing to the exponential growth of
litigation. The litigation within CLB comes as a refreshing contrast!
How it works
Why is this? It's important to understand a thing or two about
companies in India. The DCA states that out of a total of 11, 63,136
companies registered in India, 95.84 per cent have a paid-up capital
of less than Rs 2 crore (one-third of $1 million), which is nothing
compared to the global standards. Such 'small companies' are unlisted,
closely owned by family and/or close friends with no outside interests
to be protected by law.
In fact, if we take the sum total of all registered companies in
India, and varied sections under which disputes can be raised within
that corporate structure, the extent of litigation within small
companies would be far less than 1 per cent.
Western society and its jurisprudence is built on celebrating
'individual rights'; the law jealously safeguards such rights,
offering remedies/relief whenever such right is actually or
apprehended to be invaded or injured. Therefore, in the Western model,
corporate governance, regulations to protect class rights, prohibiting
related party transactions, and protecting arm's length transactions
have to be provided through rules.
The Articles of Association (AOA) of a limited company (an internal
charter providing rules for members vis-à-vis the company and
vis-à-vis other members) was enabled as the 'statutory contract'
whereby the rights of individual member could be asserted.
Big contrast
In contrast, given the nature of the majority of Indian companies, the
foundation is not a contract (read AOA) offered by law, but
'relationship'. Relationships have chosen the corporate vehicle to
carry on business. Personal capital is risked and there is little
third party support by way of credit. Indian investors run their
businesses not by following the AOA, but by ignoring it; their
individual rights are 'accommodated' not asserted, as, individual
rights merge with collective rights for the common good. That explains
negligible shareholder litigation in corporate relationships.
This does not mean differences or disputes do not crop up. What it
means is that when such disputes arise, they are settled amicably
outside the law. This sociological reality is not recognised by our
lawmakers and policymakers who blindly work on tinkering with laws
imported from the West.
Our policymakers should look at the 'numbers game'. The entire
corporate income is only around 15 per cent of GDP. It is the combined
effort of the large number (98 per cent) of small companies that are
impact players in India's business scenario.
(The author is a practising corporate lawyer and fellow of ICAI.)
(This article was published on October 29, 2013)
Keywords: Indian shareholders, Department of Corporate Affairs,
Company Law Tribunal, CLB, existing disputes
--
CS A Rengarajan
9381011200
CS Benevolent Fund is a collective effort towards extending the much
needed financial support to the community of Company Secretaries in
times of distress Let us lend support and join for noble cause.
SHARING KNOWLEDGE SKY IS THE LIMIT
This mail and its attachments (if any) are confidential information
intended for persons to whom the email is planned for delivery by the
sender. If you have received this mail in error please notify the
sender of the error by forwarding the email and its attachments (if
any) and then deleting the mail received in error and the relevant
email trail in this connection without making any copies or taking any
prints.
------------------------------------
receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.
To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.comYahoo Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/aaykarbhavan/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/aaykarbhavan/join
(Yahoo! ID required)
<*> To change settings via email:
aaykarbhavan-digest@yahoogroups.com
aaykarbhavan-fullfeatured@yahoogroups.com
<*> To unsubscribe from this group, send an email to:
aaykarbhavan-unsubscribe@yahoogroups.com
<*> Your use of Yahoo Groups is subject to:
http://info.yahoo.com/legal/us/yahoo/utos/terms/
No comments:
Post a Comment