[aaykarbhavan] Business standard news update and legal digest 6-1-2014

Banks seek leeway from RBI

MANOJIT SAHA & ABHIJIT LELE Mumbai, 5 January Bankers seem to be finding it difficult to implement the Reserve Bank of India's (RBI's) new guidelines on identification and early resolution of stress, though they admit the move is in the right direction and will bring discipline among corporate borrowers as lenders. Lenders have sought more time from the banking regulator, as they feel the 30- day stress- resolution norms are a bit too stringent. According to them, at least 60 days will be required to firm up the resolution mechanism, known as the Corrective Action Plan ( CAP). RBI's discussion paper on early recognition and resolution of financial distress has recommended that banks come up with a CAP in 30 days under a joint lenders' forum ( JLF). Bank of India Chairperson & Managing Director V R Iyer welcomes the proposal of having a definite timeline for bankers to act. "But the suggested timeline ( 30 days) to firm up a package is too stiff," she tells Business Standard. "Banks have to conduct audits, such as receivables audit, viability audit and forensic audit, before working out on package. These cannot be done within suggested timeframe. It needs at least two months to complete work," she adds. The CAP involves rectification — that is, obtaining a specific commitment from the borrower to regularise the account within a specific time period, without involving any loss or sacrifice on the part of the existing lenders. It includes restructuring and recovery of stressed accounts. At present, banks are not very prompt in working on proposals, especially when that involves a large number of lenders. Each bank takes its own time and, at times, it takes even six months to finish the work. According to bankers, their views has been conveyed to RBI through the Indian Banks' Association ( IBA). "This move will bring all bankers together at an early stage for the formation of a joint lenders' forum. We will also conduct workshops to take the idea forward. This will ensure smooth implementation of the initiative," said IBA Chief Executive Mohan Tanksale. IBA has sought time till the end of the month — RBI had wanted a feedback on the proposals by January 1 —to convey its overall views. RBI is keen to implement the proposals by the end of the financial year. Another issue bothering the banks is the proposal on accelerated provisioning. The central bank has proposed higher provisioning if banks fail to report their stressedasset status early or resort to deferring NPA classification. Turn to Page 7 > NEW NPA NORMS Say 30 days not enough to resolve stress; want higher provision norms deferred till economy picks up FEELING THE SQUEEZE RBI's proposals |Lenders' panel: Early formation of alenders' panel with a deadline to resolve the issue |Incentives: For lenders agreeing to a plan — collectively and quickly |Provision: To be accelerated if no agreement is reached |Future trouble: Expensive future borrowings for those not cooperating with lenders in resolution |NPA sale: Lenders could spread losses on sale over two years |More Parties: Sector- specific companies/ private equity firms encouraged to play active role in the stressed asset market

 

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Banks seek leeway from RBI

They are to face a higher provisioning requirement if they fail or decline or delay implementation of debt recast, as agreed in JLF. "The present macro conditions - characterised by a long spell of low economic growth, sharp rise in pool of stressed assets and a higher burden of credit costs - are not conducive for accelerated provisioning," says asenior executive of a public- sector bank. Bankers say there is a trend of minority banks ( those with limited exposure to a particular borrower) often not wanting to participate or putting roadblocks in the proposed debt recast plan. Banks have made a request to the regulator to defer the accelerated- provisioning requirement by six- nine months, or till the economic activity picks up. Those involved in the turnaround exercise for companies, on the other hand, say this is the right time to introduce accelerated provisioning. Nikhil Shah, senior director at Alvarez & Marsal India Pvt Ltd, the Indian arm of a US- based firm specialising in turnaround management and corporate restructuring, says it is feasible in India. It should be introduced now to mandate banks to recognise problem early and deal with it. When it comes to pushing for a change in management at companies that are NPAs or are under corporate debt restructuring packages, bankers are receptive. RBI is has been talking about it. It is difficult to bring management change. But, it could act as a pressure point. In the process, we may get professional advisory firms to ensure promoters do not use delay tactics, says Bank of Indias Iyer.

Common return for service tax, excise duty on back burner

VRISHTI BENIWAL New Delhi, 5 January After a Goods & Services Tax (GST), implementation of another indirect tax reform, it turns out, is unlikely to see the light of day soon. The finance ministry is leant to have put its plan to harmonise service tax and central excise duty returns on the back burner. An indefinite deferment of this measure, meant to simplify business processes, implies assessees will continue to file separate returns for service tax and excise duty till a GST is introduced. According to officials, a common return for central excise duty and service tax was envisaged when 119 services were taxed. However, with the introduction of a ' negative list' for taxation of services in July 2012, it became difficult to merge the two forms. An internal committee formed by the Central Board of Excise and Customs ( CBEC) had made this observation. "The proposal has been discarded. There were many issues, including different periodicity of the returns and the new reporting format under the negative list," said a finance ministry official, asking not to be named. In the negative- list regime, introduced in July 2012, all services that do not figure on the list are taxed. It has about two dozen categories of services that are exempt. The idea of harmonisation was to introduce monthly and quarterly filing of returns, and payment of taxes, for both service tax and excise duty. Under the current practice, returns for excise duty are filed on amonthly and quarterly basis, while that for service tax is filed on a half- yearly basis. On the other hand, payment of taxes are not aligned with service tax returns. The service tax payment is made every quarter in the case of individuals and proprietary &partnership firms, whereas it is done every month by all others. According to the harmonisation proposal, the assessees who paid service tax of ₹ 25 lakh or more in aprevious year and new assessees other than individuals and firms were to file returns on a monthly basis, while the rest needed to do so every quarter. "This will improve cash flow for small businesses registered as companies or other corporate bodies, while it will make large non- corporate entities pay tax on monthly business," CBEC had said. Also, a harmonisation could have facilitated better audit by bringing down paperwork in filing of the two returns — from about 15 pages to one page. It was also seen as a precursor to the introduction of GST, which is to subsume most indirect taxes. But now the thinking in the finance ministry is that a single return will add an unnecessary process. So, it will be prudent to wait for the GST rollout. The plan to bring a single form for service tax and central excise duty was announced in Budget 2012- 13 by Pranab Mukherjee, the then finance minister. The announcement to introduce a negative list was made in the same Budget. Soon after, in April 2012, CBEC had issued a circular proposing amendments to harmonise returns for excise duty for service tax. These forms were never notified. The U- turn on the return harmonisation plan means another of Mukherjee's decisions has been reviewed by Finance Minister P Chidambaram. Some other such decisions are provisions related to the General AntiAvoidance Rules, tax demand on Vodafone, fiscal deficit target for 2012- 13 and negotiations with states on GST and Central Sales Tax compensation. Common return for excise duty and service tax was envisaged when 119 services were taxed

 

Reliance Jio unveils 4G services at IIT Bombay event KATYA B NAIDU Mumbai, 5 January Wireless machines that measure blood pressure and record data in the cloud so that it can be accessed remotely. Mobile phone- based urine analysis. These were some of the fourthgeneration (4G) services displayed by Mukesh Ambanis Reliance Jio Infocomm, the only operator in India with a nationwide licence to provide such services. While 4G services are yet to be rolled out, Reliance Jio gave a sneak peek of what could be expected at Techfest, the annual science and technology festival of the Indian Institute of Technology (IIT) here. Also on display were Reliance Jio's entertainmentbased services, which included an Android- based set- top box that allows users to view live high- definition TV shows without glitches and breaks. It also has a service called Catch- up TV, wherein one can watch TV shows which are seven days old. "There is no need for recording TV shows. We store seven days of programming on our server, and a user can access it anytime ( within seven days)," said an exhibitor at the company's stall. Jio, which has been procuring entertainmentbased content, has around 500 Indian movies and 2,500 episodes of Indian TV shows to be streamed and watched online. "A user can watch half the show or movie on his or her TV, pause it and watch the rest either on a tablet or a mobile phone, using the same log- in," said the exhibitor. The company also has a Jio Drive service, where 100 GB of storage on the cloud is offered free to subscribers. This could be used to store videos, documents and pictures, and allows for easy peer- to- peer sharing. This service is available across Windows, Mac and Android operating systems. The operator has tied up with Bharti Airtel and Reliance Communications to spruce up its infrastructure backbone. It has set up test networks of its high- speed 4G connectivity at zones and areas at the IIT campus, to give students a feel of the 4G experience. On a fibre backbone, the speeds were as high as 51 Mbps. Long- term evolution technology, through which tablets and other wireless devices were connected, had speeds of more than two Mpbs, as it was spread across multiple devices. "This is merely to test our networks and get feedback from these young users," said aReliance Jio official. He added that some of the applications were developed inhouse. Reliance Jio's pilot remote healthcare project, which is now restricted to six Reliance Foundation clinics, was also on display at Techfest. People try out the cricket gaming features at a showcase of Reliance Jio's 4G services at IIT- Bombay on Sunday PHOTO: SURYAKANT NIWATE   Ponzi schemes can't be matched on return claims: Sebi chief PRESS TRUST OF INDIA Mumbai, 5 January Pitching for easier access by common investors to genuine financial products to take on the ponzi menace, capital markets regulator Securities and Exchange Board of India ( Sebi) has said there were many good products available, although they cannot match tall claims made by illicit funds. "No good product or no legitimate investment can guarantee a 20- 30- 40 per cent return year- on- year, which some of these products claim to offer. No legitimate financial activity in this country can match the promises made by such illegal and unscrupulous fund providers. That is a fact. These schemes cannot be matched, because they are fraudulent," Sebi Chairman U KSinha said. He was replying to a question on whether these ponzi schemes promising huge returns to investors were mushrooming because of a lack of good genuine products in the market. "So, the question arises that whether there are good products available. The answer is, yes, there are plenty of good products available in the market," Sinha told PTI in an interview. "While these good products cant compete with any of the unscrupulous products, more importantly, the procedure or transaction of those ( good) products is still a problem in remote areas and rural parts of the country". Flagging the problems coming in the way of right products reaching the common investors, the Sebi chief said, "If you are a villager or living in asmall town, you perhaps, do not have access to certified mutual fund advisors." Having identified these bottlenecks, Sinha said, Sebi had begun working on ways to make it easier for the common investors to access genuine products. Over the past few years, there has been a major spurt of illicit schemes, many of which are of the nature of ponzi funds where investors are initially given huge returns from the money collected from new investors and at a later stage the operator vanishes leaving all investors in lurch. Sebi itself has been cracking down on various illicit moneypooling investment frauds, while it has also been granted greater powers to tackle this menace. Listing out other steps to ensure that investors are provided access to right products, Sinha said, " What we have done is, in partnership with mutual fund industry body AMFI (Association of Mutual Funds in India), we have identified certain districts in the country where we have decided to focus more. The way these 85- 86 districts have been identified is that these are the districts where bank deposits are very high and the penetration of capital market products is very low. "This means, people have got surplus money there and they are using the banking system, but not using the capital market instruments," he added. Sinha said Sebi has shared the information about these districts with AMFI and the mutual funds have been asked to go and open branches in those areas. The Sebi chairman further said branches are being opened in these areas now and the regulator has also asked the mutual fund industry to adopt districts. UK Sinha, chairman, Sebi FILE PHOTO   BRIEF CASEN [1] M J ANTONY Carrying over the coals The coal block allocation scam is nearing a crucial phase, with the court ruling that no sanction is necessary to prosecute top civil servants while it is monitoring it. The CBI is being nudged to complete its investigation and it has to show results in the coming weeks. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sorting out Aadhaar cards The Aadhaar case vanished from the court radar after a terse order a few months ago that no citizen should suffer for want of this unique identity card. The order created amurky situation with the Centre and states speaking in different tongues. One of the earliest tasks before the court is to sort out the mess so that this ambitious scheme could continue to benefit the public. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sahara investors' nightmare The Sahara saga, after months of prevarication, is also approaching a critical stage with its promoter Subrata Roy and top executives barred from leaving the country and a strict embargo on transactions with regard to the properties of the group companies till the court decides on the return of ₹ 20,000 crore collected from the public in bonds. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Safety of Kudankulam plant Though the Kudankulam nuclear plant has been commissioned, litigants are returning to the court alleging that it is running without following the 15 conditions regarding its safety imposed in its judgment. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Tied up in Radia tapes The Niira Radia tapes, which implicated a large number of companies and their honchos, had gone behind bolted doors of the judges' chambers as Ratan Tata raised seminal questions of privacy of individuals versus the freedom of the media. The case will come out of the closet within a few weeks. This time, it will be before a new Bench as Justice G S Singhvi, who spearheaded the case till now, has retired. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Bitter battles over medicines There are more bitter medicines for multinational pharmaceutical companies even after the Novartis judgment in the patent case. The court has asked the government to bring a report in January on the trials on 157 drugs which were not evaluated and had not passed the three- tier mandatory tests. The court is monitoring the procedure following complaints of misuse of clinical tests on unsuspecting patients. In another PIL, the court is watching the drug price orders to make medicines available at reasonable rates. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Gas pricing saga The Chief Justice has promised to hear this month two petitions involving the pricing of the KG Basin gas and a dispute on arbitration between Mukesh Ambani- owned RIL and the government. One moved by Gurudas Dasgupta, MP, and another Common Cause, challenge the Centre's decision to raise the price of natural gas. They have also questioned the agreement on arbitration. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Disturbances in the air In the second week of the month, the Chief Justice will take up the petition of Bharatiya Janata Party leader Subramanian Swamy with the reply of the government on the Jet- Etihad deal. Challenging the agreement, the BJP leader has alleged that there was a grant of largesse of a national asset to a foreign airline ( Etihad Airways), giving it undue enrichment at the cost of the public, national and domestic airlines as well as airports. The Supreme Court, which had shaken the corporate and political stalwarts in the past two years, has more in its arsenal for the coming months. Here are some of them:   New year resolution for regulators As we head into 2014, here is a new year resolution our financial sector regulators would do well, do adopt: shun intuition in making regulations, and instead, focus on behavioural science and empirical costbenefit analysis. New year resolutions are typically based on recent learnings. Year 2013 has demonstrated how the most well- intentioned and intuitively seemingly obvious regulatory measure can deliver counter- productive results. Some examples will make it clear. Take the market for initial public offerings ( IPOs) of equity shares. Since April 1, 2013, there has been but one new IPO, in calendar year 2013, three IPOs. Consider the recent policy measures aimed at tightening the screws purportedly to improve the quality of IPOs. The Securities and Exchange Board of India ( Sebi) had announced a regulatory policy of moving from a disclosure- based regime to a merit- based regime whereby Sebi would disallow IPOs that are of a bad quality in its view. Sebi also floated the concept of a "mandatory safety net" where investors would be protected against a steep fall in price of shares after listing, with promoters having to buy shares from allottees in the IPO at the IPO price. The intention was to make the securities market safe for investors in public offerings. The safety net concept was never officially introduced and never officially withdrawn. But the effect achieved by such policy is there for all to see - in this financial year, just one new company felt comfortable listing its shares on stock exchanges of the third largest economy in the world. Also in 2013, the Reserve Bank of India made it mandatory to use a secret PIN ( personal identification number) to authorise every payment transaction using credit cards and debit cards. The intention was to make card payments even more secure in India for consumers using credit cards. However, the regulator took the eye off the ball and a material execution failure on the part of card issuers has led to a contrary outcome. In recent weeks, after the introduction of the PIN requirement, card customers have faced so much inconvenience that a number of payments have migrated from card payments to cash payments. Merchant establishments have had an inadequate number of chipcard reading machines to replace card swiping machines. Most restaurants could not acquire wi- fi enabled credit card readers, resulting in customers having to walk up to the cash counter to enter the PIN even in five- star hotels akin to cash payments in college canteens. Worse, many merchants simply ask the customer for the PIN and the gullible routinely hand it over. Most merchant establishments enter the amount directly and all the customer gets to see is the request for the PIN, effectively signing off without seeing the amount being signed off. Another example from the capital markets in 2013 is the extraordinary measure aimed at protecting small investors against stock brokers, by asking the latter to put away the amount claimed by the investor in a dispute. Having to block amounts however small regardless of the merits of the claim has led to brokers being fearful of unscrupulous small investors making false claims. Driven by such fear, many brokers apprehensive of suffering financial injury from multiple fake claims, which would force them to settle disputes unfavourably have decided to play safe by quitting servicing small investors. Each of these examples has one common feature: that the regulators have achieved a result diametrically opposite to regulatory objectives, however laudable their intent. In the conflict between the objective to keep the market safe from abuse, and the objective of letting markets function normally and efficiently, regulators have unwittingly hurt the very markets they regulate. Indeed, if there were no market at all, there can be no abuse at all. But that is too high a price to pay for ensuring absence of controversy. To draw on a parallel, if in the fear of terror attacks one were to adopt a strip search of every guest entering a hotel to ensure security, the hotel would perhaps feel quite secure but would need to shut down owing to guests staying away from patronising it. When the learning from 2013 is that regulatory measures can unwittingly nudge market behaviour into adirection diametrically opposite to intended objectives, the new year resolution for 2014 should appropriately respond. Measuring costs and benefits of introducing new regulations is easy to advocate. Actually computing them meaningfully and truthfully is much harder. However, if one were serious about meeting regulatory objectives meaningfully, there is no other alternative. Indeed many a new year resolution is adhered to only in breach - following that trend with this one would be at great peril to our markets. The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own. somasekhar@ jsalaw. com WITHOUT CONTEMPT SOMASEKHAR SUNDARESAN   Modi promises relook at taxation system PRESS TRUST OF INDIA New Delhi, 5 January Bharatiya Janata Party ( BJP)' s prime ministerial candidate Narendra Modi on Sunday promised a review and reform of the taxation system in the country, saying the existing structure was a burden on the common man. "The present taxation system is a burden on the common man. There is a need to reform it and and introduce a new system. It is the need of the time," Modi said at an event organised by Baba Ramdev, who had demanded abolition of all kinds of taxes and pitched for a single tax in the form of " Banking Transaction Tax" if the Modi becomes prime minister. Modi's remarks assume significance, as the BJP has been talking about abolition of taxes in its internal meetings in the past as well. Former BJP chief Nitin Gadkari had last month said he was contemplating incorporating a proposal to abolish income, sales and excise taxes in the vision document of his party. Ramdev had also said that once Modi succeeds in coming to power, he should also declare the black money being held by Indians in foreign banks to be national wealth and bring it back and also set up a National Farmer Income Commission. Modi, as well as BJP President Rajnath Singh, and Leader of Opposition in Rajya Sabha Arun Jaitley expressed support for the proposals saying the party would examine them in all seriousness. "The expectation and hope, which Baba Ramdev has put in the BJP and me personally, we will try our best to live up to that... My party leaders and experts have recently met and considered the issue for over three hours. Some problems may appear in the first sight but we will have a look at it and find new solutions," he said.

 

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CS A Rengarajan

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