| RBI panel wants banking services for all by Jan ' 16 |
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Mumbai, 7 January Acommittee headed by Reserve Bank of India (RBI) board member Nachiket Mor has drawn up a plan to overhaul the Indian banking landscape. Come January 1, 2016, all resident Indians above 18 years of age will have full- service bank accounts and every accountholder will have an electronic payment access point within 15 minutes of walk — if the recommendations of the committee are implemented. The Mor committee on comprehensive financial services for small businesses and low- income households, in a report released on Tuesday, recommended some sweeping changes in the present guidelines, such as increasing the priority- sector lending target from 40 per cent of net bank credit to 50 per cent, and doing away with farm- loan subsidies. "Banks must be required to freely price farm loans on the basis of their risk models and any subvention. And, the waivers deemed necessary by the government should be transferred directly to the farmers and not through interest subsidies or loan waivers," the report said, adding farm loans should not be priced below the base rate. After joining RBI as Governor, Raghuram Rajan had set up this panel with some highprofile members like former Citigroup CEO Vikram Pandit and Mahindra & Mahindra Financial Services Chairman Bharat Doshi. For a country where 90 per cent of all small businesses do not have access to formal finance and 60 per cent of citizens do not have functional bank accounts, the suggestions of the panel, appointed by RBI Governor Raghuram Rajan, could appear too ambitious. At least two of the panel's 13 members have gone on record to express their apprehension over this deadline being met. Turn to Page 9 > Moots separate banks for low- income households, removal of farm loan subsidies By Jan 1, 2016 |All Indians above 18 years of age should have full- service bank accounts |Every Indian should have an electronic payment access point within 15 minutes of walk |Every district should have a credit- to- GDP ratio of 10% ( to go up to 50% by 2020) |Each district should have total- term- lifeinsurancesum- assuredtoGDP ratio of 30% ( to rise to 80% by 2020) Other recommendations |UIDAI to instruct banks to open accounts upon issuance of Aadhar numbers to all individuals above 18 years of age |Priority- sector lending target be raised from 40% to 50% |Features like minimum service available, hours of operations, etc, for rural branches |Non- deposit- taking NBFCs be allowed to act as business correspondents |Payment banks be createdwith arestriction to hold only up to ₹ 50,000 in deposits per customer; existing banks could have payment banks as subsidiaries |Banks disclose segment- wise loan concentration in financial statements |Banks buy portfolio- level protection against all forms of rainfall and commodity- price risks |Lenders be allowed to float subsidiaries exclusively for financial inclusion |Partial convergence of NBFCand bank regulations |Creation of loan- focused wholesale banks that cannot accept deposits of less than ₹ 5 crore TOWARDS FINANCIAL INCLUSION Key recommendations of the Nachiket Mor committee At present, 60% of Indian citizens do not have functional bank accounts FINANCE 6 > >Internal dissent on report >Redo NBFC classification >' At least 1 deposit product to offer positive real rate of return over CPI' |
| Government might revive SUUTI |
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New Delhi, 7 January Trying hard to shore up its revenues to meet the year's fiscal deficit target, the government is likely to revive Specified Undertaking of Unit Trust of India ( SUUTI). A proposal to this effect might come before the Cabinet later this week. The Cabinet Committee on Economic Affairs ( CCEA) might also discuss a proposal to increase the import duty on refined vegetable oils from the current 7.5 per cent to 10 per cent. And, the Cabinet is likely to consider the policy guidelines for television rating agencies. To revive SUUTI, the government will have to defer a decision of 2012 to wind up the company and transfer its assets and liabilities to a new one. It was earlier decided that the ₹ 40,000 crore of SUUTI assets ( through it, the government held stake in ITC, Larsen &Toubro and Axis Bank) would be transferred to an asset management company (AMC). The latter was to leverage the assets to raise resources for the government. Now, the government wants to revive SUUTI so that it can sell stakes in these private companies. The Budget had targeted to raise ₹ 14,000 crore through sale of stake in non- government companies, besides ₹ 40,000 crore through disinvestment in government ones. So far this financial year, the government has raised only about ₹ 3,000 crore from disinvestment. And, the fiscal deficit has already touched close to 94 per cent of the entire year's Budget Estimate in only eight months. Officials said the import duty on refined vegetable oils is being raised to boost domestic oilseed crushing and bring down unrestricted import. The guidelines for television rating agencies, mooted by the information & broadcasting ministry, said all TV rating agencies will have to be registered with it. For this, companies will have to pay a registration fee of ₹ 10 lakh and produce a bank guarantee of ₹ 1 crore. The minimum sample size for such surveys should be 20,000- 50,000 households, a senior official said. The proposal includes penal provisions for TV rating agencies. According to officials in the sector, the move could cost TAM Media Research, the only agency in India currently measuring viewership data, an additional ₹ 200- 300 crore. The agency spends about ₹ 2lakh per panel home. Television ratings often influence the content and programmes produced for viewers and their accuracy is important; it directly impacts resources allocated by broadcasters for producing content. Dwindling revenue from divestment prompts move, with Cabinet discussion possible this week; on TV rating guidelines too ON CABINET AGENDA SUTTI | Govt will have to defer 2012 Cabinet decision to wind up SUTTI |Revival of SUUTI will help govt sell stakes in ITC, L& T and Axis Bank |Earlier plan was to transfer ₹ 40,000- crore worth assets of SUTTI to an asset management company |Reviving SUTTI will help government bypass Cabinet nod to sell shares held by proposed AMC Vegetable oil |Higher import duty on refined vegetable oils to help increase domestic oilseed crushing |Bring down unrestricted imports TV rating agency |Agencies to registered with broadcasting ministry |Registration fee of ₹ 10 lakh and bank guarantee of ₹ 1 crore required |Minimum sample size of surveys 20,000 households |TV rating agencies to be penalised in case of wrongdoing |
| Govt bats for 50% foreign investment in e- commerce |
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New Delhi, 7 January In what would be great news for companies such as Amazon. com, eBay. com and Walmart. com, the government might allow 50 per cent foreign direct investment ( FDI) in ecommerce retail trading. In a discussion paper circulated on Tuesday by the Department of Industrial Policy and Promotion ( DIPP) under the Ministry of Commerce and Industry, the government has sought viewpoints from all stakeholders in permitting FDI in the business- to- consumer (B2C) sector. In the paper, the government has sought comments on whether 50 per cent FDI in ecommerce should be allowed without any prior approval from the government. It has also asked whether FDI in ecommerce should encompass goods, services and intellectual property. Apparently, while global players such as Amazon, eBay have been pushing the government to take the move, domestic players like Flipkart. com are opposed to the idea. While there are some like HomeShop18, OLX, Quickr and Snapdeal who want the decision to go through. Besides, retail giant WalMart has been planning to enter India with its e- commerce business, sources told Business Standard. Even if it allows FDI, the government may put in a mandatory 40 per cent sourcing clause from small and medium enterprises, something that could put off foreign players. "As regards domestic e- commerce companies, their views appear to be divided. This is on account of varying commercial considerations of entrepreneurs," DIPP said in the paper, adding that while some companies are open to allowing 100 per cent FDI in the sector, some want tough riders including 40 per cent local sourcing. Recently, Indian information technology industry body Nasscom had demanded mandatory local sourcing. According to Arvind Singhal of Technopak, the government should allow 100 per cent FDI in e- commerce and try to avoid putting mandatory sourcing clause, which might act as a major deterrent for foreign players to enter India. DIPP stated in the discussion paper, which has been put up in its website, that online retail is set for a major leap in the country thanks to several factors such as rising disposable income, rapid urbanisation, increasing usage of technology and cost of running brick- andmortar stores, among others. Enlisting some of the advantages in allowing FDI in this segment, DIPP said the move will boost infrastructure development by establishing robust supply chain, distribution system and warehousing. It also said this will give an impetus to the manufacturing sector, lead to reduced cost, and generate employment. For full reports, visit www. business- standard. com Seeks stakeholders' comments by Jan 30 on discussion paper Comments sought on whether 50 per cent FDI in e- commerce should be allowed without any prior approval from the government |
| Gas price hike not end of woes for Reliance Industries |
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SHINE JACOB New Delhi, 7 January Though the Cabinet Committee on Economic Affairs (CCEA) has decided to double the price of domestic gas to $ 8.4 amillion British thermal unit (mBtu), the Directorate General of Hydrocarbons ( DGH) is still considering the older rate — $4.2 an mBtu — for clearance of discoveries. On December 10, 2013, DGH had rejected two discoveries of the Mukesh Ambani- led Reliance Industries Ltd ( RIL) — D39 and D41 in the KG- DWN2003/ 1 block — that had made declarations of commerciality (DoCs) on the basis of the older gas price, calling those unviable. This was even as the government had on June 27 decided to double the domestic gas price. Besides, on December 19, it also cleared the decks for a higher rate for RIL, despite a shortfall in production from the company's KG- D6 fields, provided abank guarantee to cover the shortfall was furnished (unless it was proved there was an intentional hoarding of gas). A three- member committee is to monitor the quantum of production shortfall from the D1 and D3 fields and decide the amount of bank guarantee to be given by the company. A notification on this is likely to be made shortly. According to a source close to the development, DGH had stuck to its stand of January — that the D39 and D41 discoveries were unviable — and had not considered a review even after the CCEA decision to go for the Rangarajan pricing formula and double the gas price from April 2014. Based on a DoC filed by RIL in January 2013, DGH had said: " D39 and D41 generated negative net present value ( NPV) of $ 520 million, considering the incurred cost of $ 305 million." Also, it turns out, DGH decided not to review its stand even as the Planning Commission, in its half- yearly review of on the energy sector in September, batted for the new gas price as the basis for New Exploration Licensing Policy ( Nelp) fields' pricing. According to a source close to the development, the Planning Commission Member ( energy) had said: " Some of the Nelp fields that were not viable at the price of $ 4.2 an mBtu might be viable under the price recently announced by the government." RS Sharma, former ONGC chairman & chairman of Ficci's hydrocarbons committee, said: "As of today, no official channel can say the price is going to be $8.4 an mBtu. There is no notification in this regard to say the price will be exactly $ 8.4 an mBtu. They have gone on the basis of the current situation. No one wants to take a futuristic decision that might land one in trouble." PRICING DILEMMA |Jan 2013: DGH says D- 39 and D- 41 generated negative net present value of $ 520 million, given a sunk cost of $ 305 million |Jun 27: CCEA cleared the proposal to double the domestic gas price to $8.4 an mBtu from April 2014 |Dec 10: DGH maintains its January stand that the discoveries are unviable on the older price, despite the government going ahead with a new pricing |Dec 19: CCEA clears the higher gas price for RIL, provided it gives a bank guarantee for shortfall in production from KG- D6 |
| Cabinet likely to take up Bill on roads regulator soon New Delhi, January 7 The road sector, under stress due to lack of privatesector participation, is likely to get a regulator next month. The roads ministry is expected to present the Regulatory Authority for Highways in India Bill, 2013, before the Cabinet soon. The roads ministry has sent the Bill to other ministries concerned for comments, expected in the coming weeks. The setting up of an independent regulator, who is expected to resolve various contract disputes and renegotiate future contracts, is a long- standing demand of the industry. The expected timeline given by Union roads minister Oscar Fernandes, December 2013, has also passed. "We are awaiting recommendations from the ministries soon and then we are looking to take it to the Cabinet next month. Through an executive order, the regulator can be put in place and can start work soon. We can seek Parliament's approval after that, since it takes time for the Bill to be passed," a senior roads ministry official told Business Standard. The roads regulator is expected to find solutions to a number of road projects, which have been held up due to litigation and arbitration. Officials expect that projects worth ₹ 20,000 crore can be kick- started if the regulator has its way. The regulatory body will have adjudicatory powers across areas such as contract dispute resolution, renegotiation of future contracts and enforcement of contractual provisions. In his Budget speech last year, Finance Minister P Chidambaram had proposed an independent regulator for the roads sector, but the Planning Commission said there was no need for an industry regulator. However, some industry experts were skeptical of the move, pointing to the timing of the setting up of the regulator just before the term of the current government comes to end. "Setting up of a regulator takes time. Even if they get the Cabinet's approval, they will eventually have to pass it in Parliament and we will have to see if the next government agrees to the role of a regulator. The need for a regulator has been a long- standing demand of the industry", said M Murali, director- general of National Highway Builders Federation. India's road sector has been struggling for the past few years with the government managing to award only 500 km of road projects in 2013, largely due to lack of interest from the private sector. Privatesector companies have been staying away from road projects for the past year, citing a lack of funds. In addition, they have also been seeking a rescheduling of the premium that companies owe the National Highways Authority of India ( NHAI). The NHAI was forced to cancel six projects due to land acquisition hurdles in various states. Road developers led by GVK, GMR and L& T have been seeking a rescheduling of the premium payable to NHAI to free up funds to be made available for other projects in India. Private developers owe the government close to ₹ 1. 51 lakh crore to be paid over the next 20- 25 years. The roads sector has been bogged by several issues, including lack of interest from the private sector. |500 km - Length of road projects awarded in 2013 due to lack of interest from private sector |₹ 1.51 lakh crore - Premium private players have to pay government over 20- 25 years |₹ 20,000 crore - Worth of projects that can be started if regulator has its way The proposed regulator is expected to clear the roadblocks and... |... resolve contract disputes and renegotiate future contracts |.... find solutions to projects held up due to litigation and arbitration; ₹ 20,000 cr worth projects can start if regulator has its way |... have adjudicatory powers in enforcement of contractual provisions STRESS BUSTER
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| Derivatives trade: RBI eases banks' exposure norms | ||
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Mumbai, 7 January The Reserve Bank of India ( RBI) has said banks' exposure to qualified central counterparties for clearing activity ( pertaining to derivative products) will be kept outside the ceiling on the permitted amount of loans and credit lines to a single such entity. A central counterparty ( CCP) is an institution, acting in one or more securities or cash markets, that is interposed between two trading parties. It guarantees the underlying transaction by acting as a matching seller to the buyer and a matching buyer to the seller. At present, the ceiling on such exposure to a single counterparty is 15 per cent of capital funds. The recent financial crisis highlighted the need to promote a central clearing of standardised over- the- counter derivative products through a CCP, said RBI in a notification on Tuesday. As an interim measure, a bank's clearing exposure to a Qualifying CCP ( QCCP) will be kept outside of the exposure ceiling. Clearing exposure would include trade exposure and default fund exposure. RBI would consider a revised framework on banks' exposure to QCCPs as and when the Basel Committee on Banking Supervision finalises its proposal in this regard. Other exposures to QCCPs — such as loans, credit lines, investments in the capital of a CCP, liquidity facilities, etc — will continue to be within the existing exposure ceiling of 15 per cent of capital funds to asingle counterparty. Currently, there are four CCPs — Clearing Corporation of India ( CCIL), National Securities Clearing Corporation, Indian Clearing Corporation and MCX- SX Clearing Corporation. CCIL has been granted the status of a QCCP by the central bank. The other three have been granted this status by the Securities and Exchange Board of India. Banks are to report their clearing exposures to each QCCP to RBI within seven days of each succeeding month. In cases where a bank's exposure is considered high, RBI may tell it to reduce the exposure within acertain time period or maintain a higher level of capital on such exposure. A central counterparty ( CCP) is an institution, acting in one or more securities or cash markets, that is interposed between two trading parties. It guarantees the underlying transaction by acting as a matching seller to the buyer and a matching buyer to the seller | ||
| Redo NBFC classification | ||
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Mumbai, 7 January The Reserve Bank of India (RBI)' s panel on financial services for small business and lowincome households has advised replacing the multicategory classification of nonbanking financial companies (NBFCs) with a two- category structure. NBFCs should be classified as either core investment companies and another category for all others, says the committee on comprehensive financial services for small businesses and low- income households, headed by Nachiket Mor. It asked RBI to revisit priority sector lending ( PSL) definitions, to enable the gradual transition of NBFCs to wholesale consumer banks or wholesale investment banks or national banks. There should a provision in the Banking Regulation Act to allow this, it has said. Benefits such as tax sops or bank limits previously available to specific NBFC types ( such as asset finance or infrastructure finance units) should continue even after consolidation. The panel advocated regulatory convergence between banks and NBFCs on the principle of neutrality for classification of non- performing assets and using the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest ( Sarfaesi) Act. For addressing wholesale funding constraints faced by NBFCs, it said RBI and the Securities and Exchange Board of India should develop a framework for Qualified Institutional Buyers and Accredited Individual Investors to participate in debt market issuances. Regulators should allow external commercial borrowing (ECB) in rupees for all institutions. For ECB not in rupees, eligibility should be linked to size and capacity to absorb foreign exchange risk, it said. The nature of activity must be the criterion for availing refinance from agencies such as Nabard, Sidbi or NHB, and credit guarantee facilities. The current capitalisation slabs on foreign equity funding should be relaxed. The regulatory focus must be on total indebtedness and debt servicing capacity of the small borrower. The total borrowing limit for small borrowers could be raised to ₹ 100,000 across all lenders. On the PSL norms, it says there should be an active market for these assets. The related relevance in the rules on Statutory Liquidity Ratio and Cash Reserve Ratio should be reassessed. The proposed wholesale banks may be permitted only to accept deposits larger than ₹ 5 crore. As they will not take retail deposits, the minimum entry capital requirement should be eased to ₹ 50 crore, compared to ₹ 500 crore for full- service scheduled commercial banks. Institutions with 20 or fewer branches could be called Wholesale Investment Banks, while those with a larger branch network could be referred to as Wholesale Consumer Banks. The latter should be permitted to act as business correspondents for other full service banks. Suggests allowing wholesale investment and consumer banks, revist PSL rules 'At least 1 deposit product to offer positive real rate of return over CPI' The Nachiket Mor panel on financial services for small businesses and low income households says by January 1, 2016, at least one of the deposit products accessible to every resident through the payment access points, would offer a positive real rate of return over the Consumer Price Index. By January 1, 2016, the number and distribution of electronic payment access points would be such that every single resident would be within a fifteen minute walking distance from such a point anywhere in the country. BS REPORTER | ||
| Mibor use could get wider | ||
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Mumbai, 7 January The Mumbai Interbank Offer Rate ( Mibor) might have a wider use in the time to come, with the Reserve Bank of India ( RBI) issuing draft guidelines on financial benchmarks on Friday. According to experts, though this would take time to take effect, Mibor is set to have more standing, as it will be determined on the guidelines. Mibor is currently a polled benchmark. The Fixed Income Money Market and Derivatives Association of India and National Stock Exchange of India Limited ( NSEIL) joined hands in 2002 to publish the daily quotes. The polling process is conducted by NSEIL, where treasury officials of banks are called and asked to participate. Mibor is currently used for a majority of deals struck for interest rate swaps, forward rate agreements, floating rate debentures and term deposits. However its application is meagre when compared with the London Interbank Offer Rate ( Libor). The latter is aglobal benchmark for interest rates. It is used as the base for deciding interest rates on loans, savings and mortgages. It is also used as a base rate for many financial products, such as futures, options and swaps. "This is a right step towards evolving an efficient term money market, which will lead to effective monetary policy transmission. RBI has been concerned on lack of price pass- through on its rate actions, whereas such actions will have a mirror impact on an efficient term Mibor structure, with linkage to deposit and lending rates. It is a long way to go from here, given that even an overnight Mibor market is shallow, with flows driven into the Collateralised Borrowing and Lending Obligation market and the term Mibor market is non- existent. RBI should develop and evolve a term Mibor curve through deposit pricing and build linkage to credit pricing," said Moses Harding, group chief executive officer ( liability and treasury management) & chief economist, Srei Infrastructure Finance. The significance of these financial benchmarks emerged following the revelations on manipulation of several key global benchmark rates such as Libor, Euribor, Tibor, etc. Since Mibor will now be determined on RBI guidelines, its credibility is set to get a boost. " Mibor will now have more standing ( for ths reason). The term repo window is getting shaped, based on which the term curve has to come. If the term curve comes in the market, then Mibor will have a larger role. Over a period of time, inter- bank term money quotes will be based on the term curve. At that time, Mibor may also be used for pricing of money market instruments," said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank. Reserve Bank of India's move to get involved in its specification, if approved, would strengthen money market SNAPSHOT | Mibor is currently a polled benchmark |It is used for deals struck for interest rate swaps, forward rate agreements, floating rate debentures and term deposits |Application of Mibor is very meagre compared with Libor |Libor is used as a global benchmark for interest rates According to experts, Mibor is set to have more standing, as it will be determined on the guidelines | ||
| Soon, use Paytm to shop as well | ||
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New Delhi, 7 January Indian mobile commerce player Paytm on Tuesday launched Paytm Cash – a semi- closed wallet for online shopping. This will allow Paytm users to use Paytm Cash for paying postpaid mobile, landline, data card and utility bills. Also, Paytm will soon enable its customers to use this new wallet to shop on other websites as well. Primarily, there are three kinds of wallets in India. Closed, semi- closed and open. A closed wallet is issued by merchants for their own products and consumers. Open wallets are issued by banks. A semiclosed wallet, meanwhile, can be used across merchants or websites. Services such as Airtel Money and Itz Cash are other semi- closed wallets available in India. Speaking on Paytm Cash, Paytm Chief Executive Officer Harinder Takhar said, "This milestone should increase wallet adoption by our users to higher levels. It will increase the convenience offered to customers, and we are soon adding education fee payments and a host of other items." What makes Paytm Cash different? Now, any online merchant in the country would be able to accept Paytm Cash as a mode of payment. An online store will be able to refund your money instantly, and one can use it on any website that accepts Paytm Cash. | ||
| STT must for tax breaks on losses, says tribunal | ||
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Mumbai, 7 January The Mumbai Income- Tax Appellate Tribunal ( ITAT) has upheld a penalty on a foreign investing entity that had attempted to pay lower taxes by setting off long- term capital losses based on transactions on which it paid securities transaction tax ( STT) against long- term capital gains based on non- STT transactions. The ITAT said the tax authority's penalty imposed for concealment of income and providing incorrect information was valid, adding that tax on non- STT- based transactions cannot be reduced on account of losses on STTbased transactions. "… the moment there is a transfer… any income or loss arising there- from is irrelevant for the purpose of computation of total income, where the transaction attracts STT, being a precondition for the application of the said provision. The assessee's case, therefore, only needs to be stated to be rejected," said the order by the tribunal. The ruling was issued in the case of Asia Pacific Performance SICAV (' APP') on December 27. The fund is a Luxembourg- based entity registered with the Securities and Exchange Board of India (Sebi). A note from BMR Advisors said that the ruling was a significant one from the point of view of emphasising the need for sufficient technical backing to the positions that a taxpayer chooses to adopt as well as the action that can be taken by the revenue authorities. "The ruling is an important one as it brings out the finer nuances as regards the levy of penalty by revenue authorities as well as on some of the procedural aspects that must be followed by taxpayers when their case has been selected for scrutiny audit proceedings," it said. Suresh V Swamy, executive director, tax & regulatory services, at PricewaterhouseCoopers, said it reiterates an established position. " The Supreme Court of India has clarified this position on a number of occasions. Therefore, an exempt negative income ( that is, exempt loss) cannot be carried forward and set off against a taxable gain in anon- STT- paid transaction," he said. APP had appealed against the penalty with the first appellate authority, which had ruled in its favour. First appellate authority had ruled otherwise NO TAX BREAK, RULES ITAT |Luxembourg- based Asia Pacific Performance Fund claims tax break |It set off losses on STT- based transactions against gains through non- STT transactions |Tax authorities denied the tax break and imposed a penalty on the fund |It appealed against the same and won |Tax department appealed at a higher forum |Judgment went in tax department's favour |Ruling in line with previous SC judgment, say experts |
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