Banks stage protest as govt unveils merging of PSBs

New Delhi: Members of the All India Bank Employees’ Association on Saturday staged a protest in Delhi against the Centre’s decision to merge 10 public sector banks into four entities.

The government on Friday unveiled a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as it looks to boost economic growth from an over six-year low.

Employees of all public and private sector banks wore black badges to work as a mark of protest to the government’s decision.

The Association’s General Secretary, CH Venkatachalam said the government’s move was “ill timed” and needs a review.

A rally opposing it was also planned by the Association, Venkatachalam told. He alleged the merger of public sector banks would mean closure of six banks.

The BJP government at the Centre had on Friday unveiled a mega plan to merge 10 public sector banks into four, to create fewer and stronger global-sized bankers as it looks to revive economic growth.

“Government may call it a merger.. six banks which have been built up over the years will disappear from banking scenario”, Venkatachalam said. He recalled that when the financial recession was experienced world over in 2008, the domestic banking system was safe because of public sector banks. On further course of action, he said the Union would meet in New Delhi on 11 September to decide on going on strike.

PNB to hold meeting on 5 Sept to consider merger with OBC, UBI

Punjab National Bank (PNB) on Saturday said a board meeting will be held on 5 September to consider amalgamation of Oriental Bank of Commerce and United Bank of India with itself.

PNB has received a communication from the Ministry of Finance that the Alternative Mechanism (AM), after consultation with Reserve Bank of India (RBI), has decided that Punjab National Bank, Oriental Bank of Commerce (OBC) and United Bank of India may consider amalgamation, it said in a regulatory filing.

“Accordingly, a meeting of board of directors to consider the amalgamation will be convened by the bank shortly,” PNB said.

Meanwhile, Corporation Bank, which is going to be merged with Union Bank of India along with Andhra Bank, too said a board meeting will be held to consider the merger.

In a stock exchange filing, it said “a meeting of the Board of Directors of the Bank to consider the amalgamation will be convened by the Bank in due course”.

Finance Minister Nirmala Sitharaman, who had last week announced tax sops and measures for sectors such as auto, announced four new sets of mergers — Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation’s second-largest lender; Canara Bank and Syndicate Bank will merge; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will merge with Allahabad Bank.

The exercise, seen together with the previous two rounds of bank consolidation, will bring down the number of nationalised public sector banks to 12 from 27 in 2017. This, the government feels, will make bank balance sheet stronger with greater capacity to lend.


Banks: 27 burdens on taxpayers merged, reduced to 12

New Delhi: In the biggest consolidation exercise in the banking space, the government on Friday announced four major mergers of public sector banks, bringing down their total number to 12 from 27 in 2017, a move aimed at making State-owned lenders global sized banks.

United Bank of India and Oriental Bank of Commerce will be merged with Punjab National Bank, making the proposed entity the second largest public sector bank (PSB). Making the announcements, Finance Minister Nirmala Sitharaman said Syndicate Bank will be merged with Canara Bank, while Allahabad Bank will be amalgamated with Indian Bank.

Similarly, Andhra Bank and Corporation Bank will be consolidated with Union Bank of India. In place of fragmented lending capacity with 27 PSBs in 2017, now there will be only 12 State-run banks post-consolidation, Sitharaman said. The finance minister also said banks will be provided adequate capital.

Last week, she had announced that the Rs 70,000 crore capital infusion for PSBs for the current fiscal would be front-loaded. Financial Services Secretary Rajiv Kumar, who was also present at the press conference, said there was no retrenchment in the past consolidations, including of SBI, and service conditions of employees improved.”Employees will only benefit with the mergers,” he added.

Earlier this year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the State Bank of India. Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank will continue to function as earlier as they have strong “regional focus”, Sitharaman added.

Post the consolidation announced on Friday, Punjab National Bank will have a business size of Rs 17.94 lakh crore, becoming the second-largest PSB after SBI with a business of Rs 52.05 lakh crore. The consolidated Canara Bank will be the fourth-largest bank with a business of Rs 15.2 lakh crore, followed by Union Bank of India at Rs 14.59 lakh crore.

After subsuming Allahabad Bank, Indian Bank will be the seventh-largest State-lender with business size of Rs 8.08 lakh crore. Bank of Baroda, after the merger with Vijaya Bank and Dena Bank, had become the country’s third-largest bank. It has a business of Rs 16.13 lakh crore.


Chamber of commerce optimistic Budget 2019 will work

New Delhi: Through a press release, the Indian Chamber of Commerce has hailed the Union Budget proposals presented in Parliament on Friday. The industry body welcomed the reduction in the corporate tax to 25% for firms with an annual turnover of up to Rs 400 crore. It said this would help to create a level playing field for most firms, as India’s corporate tax rate is still higher than the Asia average.

The body of Indian business persons believes the Budget helps in enhancing liquidity, as the public sector bank (PSB) recapitalisation with Rs 70,000 crore of public money for the purchase of high-rated pooled assets of financially sound NBFCs amounting to a total of Rs 1 lakh crore will improve the credit scenario in the country.

The industrial body cited from the speech of Finance Minister Nirmala Sitharaman to say that the government would provide a one-time six-month partial credit guarantee to PSBs for the first loss up to 10%.

The chamber of commerce appreciates the budgetary proposal of investment by FIIs and FDIs in debt securities in infrastructure debt funds.

The chamber has appreciated the fact that the minimum public shareholding in listed companies has been increased from 25% to 35%. This would, it said, address the liquidity crunch in the economy, foster SME growth and bring in greater foreign funds needed for infrastructure growth.

About the MSME sector, the press release hailed even the government act of pampering businessmen where the state would extend pension benefits to 3 crore retail traders and shopkeepers who have revenue of less than Rs 1.5 crore. The government, it said, would further create a payment platform for MSMEs to enable them to pay bills, and save time. The chamber welcomes this move and expects some more initiatives on market creation for the sector.

The chamber is upbeat also about labour laws getting streamlined into four basic labour codes. It says 10 million youth would take up industry-relevant skill training under the Kaushal Vikas Yojana to help increase employment and employability in the country.

In the real estate sector, tax relief up to Rs 3.5 lakh on interest paid on affordable housing including tax deduction of Rs 1.5 lakh is available also on interest paid on housing loans for self-occupied house owners. 1.95 crore houses are proposed to be provided under PMAY Grameen by 2021, the release noted. This will boost the real estate sector in the economy.

About start-ups, the chamber said those that file declarations would not be subjected to scrutiny in valuation. This, it hopes, will resolve the angel tax issue.

The chamber noted that the government had granted an extension of the exemption of capital gains arising from the sale of residential houses for investment in start-ups to 31 March 2021. The listing of social enterprises and voluntary organisations working for social welfare objectives in social stock exchanges has been welcomed, too. These measures, the chamber claims, would augment the ease of doing business and ease of financing for the start-up community.

The chamber appreciated also the fact that customs duty had been exempted on certain parts of electric vehicles. An additional income tax deduction of Rs 1.5 lakh is being awarded on the interest paid on loans for EVs, it noted. The chamber feels this will go a long way in promoting a zero carbon footprint economy for India.

The chamber welcomed also 100% FDI for insurance intermediaries, zero-budget farming, push for digital payments, restructuring of the national highway programme, greater investment for Railways’ infrastructure.

The “One Nation, One Grid” for power availability to States at affordable rates is a major reform for power distribution, the press release said.


CBDT urges IT dept to tighten noose on defaulters

New Delhi: The CBDT has directed the Income Tax (I-T) Department to share in “public interest” details of assets and accounts of all such loan defaulters against whom a public sector bank has made a plea to it.

The policy move is aimed to tighten the noose on such entities and extract recovery of public money.

The tax department, as per the latest CBDT order, will cull out this information from the Income Tax Return (ITR) of an assessee.

Central Board of Direct Taxes, which is the policy maker for the I-T department, has issued an order in this context to all its field offices on Wednesday.

It said the order has been issued in public interest after a number of such requests were received by it from public sector banks (PSBs) seeking information of immovable assets of a loan defaulter to effect recovery from them.

“In this context, Board (CBDT) is of the view that sharing of information with PSBs in respect of assets held by defaulters of loans, so as to enable recovery of loans from such defaulters, is in public interest and hence, can be furnished.”

“Besides statement of assets, if requested, information such as details of bank account, sundry debtors of the loan defaulter which may aid recovery of loan by the PSB from the loan defaulter, can also be provided,” the CBDT order, accessed by PTI, said.

This sharing of vital and classified data of an assessee, who is identified as a bank loan defaulter, will be done under section 138 (1)(b) of the I-T Act which states that if a prescribed application is made to the jurisdictional Principal Chief Commissioner or Principal Commissioner of I-T, he or she can furnish the information if they are satisfied that this sharing will public interest.

The order said the department possesses such information by way of ITR of an individual or Hindu Undivided Family (HUF), having total income in excess of Rs 50 lakh per annum, and is supposed to furnish particulars of assets and corresponding liabilities to the taxman every year under the direct taxes (I-T) law.

It, however, added that the taxman can furnish this data to the banks in respect of the “borrower, mortgager and guarantor only.”

“At the time of supply of such information a confidentiality clause may be included specifying that such information be used only for the purpose of recovery of loan and will not be shared with any other person or agency,” the CBDT said.
An undertaking to this effect shall be obtained from the bank and an officer not below the rank of the branch Manager should sign the document, it said.

The order states that “tax dues” of such a defaulter should also be kept in mind and before the taxman shares such an information with the bank, an undertaking should be obtained from them that they will obtain a no objection certificate (NOC) from the I-T officer “before appropriation of the surplus amount recovered from sale of immovable or movable assets of the defaulter.”

A number of high-value bank loan frauds have come to fore in the recent past including prominent ones like the Rs 13,000 crore Nirav Modi and Mehul Choksi PNB fraud, the Sterling Biotech case, one involving businessman and liquor baron Vijay Mallya among others.


Business as usual at Nirav Modi’s store in Singapore

Singapore: It is business as usual at Nirav Modi’s high-class store in Singapore’s Marina Bay Sands complex despite all the headlines on the fraud-tainted fugitive jeweller back home.

The outlet in the casino-convention-exhibition complex is operating as an international brand of Nirav Modi.

The store has attracted more attention from Indian tourists and persons of Indian origin since the allegation of bank-linked frauds surfaced last month.

“Persons of Indian-origin are walking in and taking photos,” said a sales executive of another brand outlet in the complex.

The up-market foreign shoppers are not aware of the ongoing scandal linked to Modi, who is allegedly the key person behind the Rs 12,700 crore scam at the Punjab National Bank.

Modi, his associates and related companies are under the regulatory scanner.

“We are here to buy jewellery that is legally available.

There is nothing wrong with buying something from our own hard earned money,” said a shopper.

Some shoppers believe the Nirav Modi International brand is operating according to local laws here.

Banking frauds happen as part of ‘black sheep’ operatives. But Nirav Modi-PNB scandal has hit India very hard just as the government is trying to recapitalise financially- strapped PSBs in the country, said a banking source.

The Nirav Modi outlet sells a simple ring for 2,400 Singapore dollars and a basic diamond-studded necklace could cost a shopper 330,000 dollars.

Marina Bay Sands (MBS) shops host the world’s leading brands.

MBS shops are rated way above the fashionable outlets in the hotel-belt of Orchard Road, Singapore’s most premium shopping centre.



IMF calls for faster resolution of NPAs

Washington: The IMF has said that the recapitalisation of public sector banks (PSBs) should be part of a broader package of financial reforms to speed up the resolution of non-performing assets (NPAs), which has attracted more attention in view of the Nirav Modi case.

In the view of the International Monetary Fund, recent policy reforms to address vulnerabilities in the banking and corporate sectors in India have been significant, IMF Deputy Managing Director Tao Zhang said ahead of his visit to India.

The asset quality review, initiated by the Reserve Bank of India (RBI) in December 2015, prompted banks to take steps to recognise all nonperforming assets and ensure appropriately provisioned balance sheets by March 2017. Other important steps include the new Insolvency and Bankruptcy Code, adopted in May 2016; and more recently, the announcement of a major recapitalisation of India’s PSBs, he said.

According to a recent Assocham-Crisil study, India’s banking sector will be saddled with gross non-performing assets (GNPAs) worth a staggering Rs 9.5 lakh crore by March-end, up from Rs 8 lakh crore in the year-ago period.

“While all are welcome steps, we think the PSB recapitalisation should be part of a broader package of financial reforms to speed up the resolution of NPAs, improve PSB governance, reduce the role of the public sector in the financial system, and enhance bank lending capacity and practices,” Zhang told PTI in an interview.

Zhang, however, did not respond to a specific question related to the case of Indian diamond merchants Nirav Modi and his uncle Mehul Choksi, who are being investigated for their alleged $2 billion swindling of money from the Punjab National Bank.

“We have seen the reports. As a matter of practice, we do not comment on the operations of individual financial institutions. In general, terms, what I can say is that we support the authorities’ ongoing efforts to strengthen the soundness and resilience of India’s financial system,” he said.

A team of experts recently conducted an assessment in the context of India’s participation in the IMF/World Bank Financial System Stability Assessment Program (FSAP), he noted.

“The experts found that the RBI has made progress in strengthening banking supervision since the previous assessment in 2011. For instance, a risk-based supervisory approach has been introduced and Basel III norms have been implemented, as is now increasingly common around the world,” Zhang said.

“Nevertheless, the experts recommended legal changes to enable the RBI to extend all the powers currently exercised over private sector banks to public sector ones; in particular, regarding Board member dismissals, mergers, and license revocation,” he said.

“Having said that, banks’ operational risk management, risk culture, internal control frameworks and external audit function should typically play a central role in preventing fraud,” Zhang said in response to a question.



9,063 wilful defaulters owe Rs 1.10 lakh crore to PSBs

New Delhi: The number of wilful defaulters, who did not repay loans to public sector banks (PSBs) despite the capacity to do so, rose by 1.66% to 9,063 in the April-December period of the current fiscal, the government said today.

“The amount involved for PSBs is reported as Rs 1,10,050 crore,” Minister of State for Finance Shiv Pratap Shukla said in a written reply in the Lok Sabha.

The number of wilful defaulters was 9,063, which represents a marginal increase of 1.66% during the nine months of the current financial year, he said.

There are provisions for penal measures and criminal action against wilful defaulters as per the guidelines of Reserve Bank of India.

Besides, Shukla said, market regulator Sebi has issued regulations barring companies with wilful defaulters as promoters/directors from accessing capital markets to raise funds.

Amendment has been affected by the Insolvency and Bankruptcy Code, 2016 for barring wilful defaulters from participating in the resolution process, he added.

“PSBs, as on 31 December 2017, have registered 2,108 FIRs against wilful defaulters, filed 8,462 suits for recovery from wilful defaulters and initiated action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of 6,962 cases of wilful defaulters,” Shukla said.

In reply to a separate question, he said Rs 2,30,287 crore has been written off by PSBs for five year period ended March 2016.

“Writing-off of non-performing assets is a regular exercise conducted by banks to clean up their balance sheet and achieving taxation efficiency. Writing-off of loans is done for tax benefit and capital optimisation. Borrowers of such written off loans continue to be liable for repayment,” he said.

The Reserve Bank has recently revised the stressed assets resolution process that needs to be implemented within 180 days.

Shukla said state-owned banks have committed to ensuring for clean lending, strict segregation of roles for appraisal, monitoring and recovery, online processing of loans, clean consortium lending arrangements, stressed assets management verticals for stringent recovery and clean post sanction follow-up for loans above Rs 250 crore.


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Bank Scam: UPA Guilty, NDA Clueless

The latest PNB scandal is just an example out of innumerable cases of default that led to India’s NPA crisis, which is mainly a contribution of PSBs; if you still insist an Indian bank must be state-sponsored, do not cry foul when the next Nirav Modi or Vijay Mallya surfaces

The scandal of jewellery designer Nirav Modi absconding with people’s money after cheating the Punjab National Bank (PNB) of more than Rs 11,000 crore, which shocked the nation on 15 February, has unravelled the country’s sickening socialist economy, which suited the Indian National Congress (INC) and which Narendra Modi does not have the courage to reform. If not after realising that the scams of the era of United Progressive Alliance (UPA) government had given his party a wonderful electoral plank, the prime minister should have set out to privatise as many nationalised banks as he could when, following his Australia visit, the State Bank of India granted to Gautam Adani a handsome loan. This is not to buy the conspiracy theory that Adani is a dubious business operator or that the prime minister has some truck with the industrialist. We are making a simple point that public sector banks (PSB) are prone to cronyism regardless of the fact whether a certain deal smacks of a deliberate favour extended to the business house by the government of the day. The merits of the Ambani-Adani rhetoric are irrelevant, but this is as much a political point as an economic one, which the politician Modi can appreciate.

Alas, the prime minister’s assurance before getting elected in 2014, “the government has no business to be in business,” was sacrificed at the altar of electoral politics after the Bharatiya Janata Party received a drubbing in the hands of two hardcore socialist groups — the Aam Aadmi Party and the Janata Dal (United)-Rashtriya Janata Dal alliance. This, even as both Modi and Union Finance Minister Arun Jaitley had assured the nation following the defeat in Bihar that “reforms” would go on unaffected by the election results. If, drawing wrong lessons from the Atal Bihari Vajpayee government’s defeat in 2004, the current dispensation has come to the conclusion that the electorate is by and large incorrigibly socialist, why did Modi not make use of his gift of the gab and terrific mass connect to explain to the poor how socialism does nothing for them except concentrate discretionary powers to a handful of bureaucrats whose job security and guaranteed salaries leave them with no reason to serve the people? If he could issue sermons on how to raise the girl child and how to keep the cities clean, he could have well spared a few speeches on radio, on the occasion of the Independence Day or during an election rally, for sharing some vital lessons of economics. Or, rather than (uselessly) boasting of being the world’s largest political party, BJP president Amit Shah could have asked a few hundred from the 11 crore party members to volunteer to visit villages and poor urban pockets to explain to the have-nots how socialism drains them out and why the country must move towards a free-er market.

Since the fourth year of a government’s tenure is too late for reforms, let’s see how the crooks executed their plan in the case of PNB, exploiting the loopholes of the system, with the hope that the next government — of the BJP or of the parties that now make the opposition — start privatising the banks right after the swearing-in ceremony of 2019.

A letter of undertaking (LoU) is a banking service where the bank guarantees that the customer is obliged to repay a certain amount to a third party, bound by the provisions of a contract. Nirav Modi would secure these LoUs from the PNB, show it to other banks in the country or abroad, and get credit from those banks based on the assurance from the second-largest public sector Indian bank. In the country, Union Bank of India, Allahabad Bank and Axis Bank fell for it. An exhaustive list of the banks Nirav duped overseas is yet to be made. Three other jewellers, Gitanjali, Ginni, and Nakshatra followed a similar modus operandi with various banks and also while using the borrowed money. The largest bank in the country has its own share of black sheep among its customers even though Nirav Modi spared it the horror.

As our editorial on the issue has explained, this culture of fraudulence developed under the UPA regime. As suspected by several economic observers in 2014, what Narendra Modi noticed on coming to power were statistics so scary that, if revealed, would make international investors flee the country as they would lose faith in its economic fidelity. When UPA retained power in 2009, an interesting phenomenon was observed in the banking sector. PSBs gradually overtook private banks in NPA score. It seems, mistakenly assured of a long stint in power without scrutiny, thanks to a considerable increase in the number of Lok Sabha seats of the INC and PSBs recording a profit of 16,856 crore by 2008-09, the Manmohan Singh government asked the PSBs to relax the rules of their assets departments. And they turned desperate by March 2014 when a change in government became imminent.

Farm loans were not only waived with gay abandon, but there were scams in the waivers too. The crisis aggravated as India had to repay $172 billion worth of debt by March 2014. The assertion, which some media houses make, that the percentage, as well as absolute amount of NPA, is higher now, misses the point that the defaulters are the same. Essar Steel, Lanco Infratech, Bhushan Steel, Bhushan Power and Steel, Alok Industries, Monnet Ispat, Era Infra Engineering, ABG Shipyard, Jaypee Infratech, Electrosteel Steel, Amtek Auto, Jyoti Structures, etc — most of which are about to declare they are bankrupt — had all started borrowing indiscriminately from the PSBs under the UPA rule. The NDA government is guilty of not being able to deny life-saving oxygen to the basic metals, cement, textiles, automobiles, construction, paper products, food processing, mining, engineering, gems and jewellery, chemicals and rubber industries.

Narendra Modi inherited a legacy of eight PSBs suffering bad loans out of the 10 in that category. It has become nine out of 10 with the further passage of time. PSBs hold 90% of the total NPAs now. But if Winsome Diamonds is considered, it becomes a case of criminal negligence of duty by the Central Bureau of Investigation that could not conclude its probe into the group’s bank dealings in the three years since the National Democratic Alliance (NDA) government ordered the inquiry.

The prime minister who gave the country the mantra of self-employment through schemes such as Mudra and Stand-Up India should be rather disconcerted. Juxtapose the provisions of Credit Information Bureau (India) Limited (CIBIL) and the situation of non-performing assets (NPA) of the banks, and an irony unfolds. Law-abiding loan applicants are harassed with citations of their faulty CIBIL scores and Mudra does not reach the needy entrepreneur because the bank manager is wary of creating more NPA while the filthy rich swindle away taxpayers’ money with impunity.

That the class of needy applicants is not responsible for the NPA mess accentuates the mordancy. Furthermore, there is a mini-scandal in the claim the present government makes about Mudra. A substantial chunk of the amount said to have been disbursed is nothing but pre-existing loans now masquerading as Mudra loans. Is this why, while the prime minister organises a meeting with the beneficiaries of Ujjwala, there is no (publicised) meeting yet with young men and women who have their rags-to-riches stories to share?

Among the major economies, India (9.6%) is second only to Italy (16.4%) in the volume of stressed assets held by lending institutions. During the first year of this government, media reports had pointed out this situation had suffered irreparable damage in the previous 13 years, which is to say that the rogues had started their operations towards the fag end of the Vajpayee regime and were brazening it out under the Sonia Gandhi-Manmohan Singh reign. However, since the industry could not be brought to a standstill, PSBs allowed the bad loans to increase from Rs.1,55,890 crores in 2013 to Rs.6,41,057 crores in 2017 — an increase by 311.22%.

Studying Anil Ambani’s part of Reliance would be in order to explain why or how bad banking decisions continue to be accepted. More than 10 banks refused loans to the younger brother’s Reliance Communications (RCom) owing to his poor record in repayment. By May 2016, the part of Reliance that is with Anil owed Rs 1,21,000 crore to several banks. Now, letting these companies shut shop would mean not only a collapse of the networks they have built, affecting lakhs of customers but also thousands of employees the companies offer a livelihood to. Keynesian that our governments are, they believe pumping state money into the market revitalises it. PSBs come in handy when this is the state policy.

bank scamPrivate banks would flatly deny the loans saying that keeping other companies running is no obligation of theirs. But in order to continue playing the socialist game, where the government is ‘by the people’, the Indian state owns 75% of the country’s banking assets, surpassing a ‘communist’ China that keeps a much less 51% with the state.

A comparison with Mukesh Ambani’s companies would explain why neither is Mudra working nor are the established industries offering lakhs of jobs. His enterprises are much healthier and are, hence, offered loans, but they don’t quite need borrowed money for sustenance or expansion drives. It’s thus the same old vicious cycle: be rich to be eligible for a loan, but if you are rich, why would you need a loan in the first place? And if government money is not energising the market, what’s the point pouring more of it in?

It will be grossly unfair, however, of a commentator to infer that the Modi government has been sitting pretty on the investigation files for about four years. It is not just the past 24 hours when raids galore have been conducted on the dubious Nirav Modi. If the fraud the jewellery designer committed is worth Rs 11,500 crore, the law enforcement agencies have seized about Rs 6,000 crore worth of his properties from different search operations already. This has also been an unsparing, unrelenting government chasing black money.

Narendra Modi’s problem lies in a terrible shortage of innovative ideas in economic policy and unquestioned reliance on the system built by the British and nurtured by the longest ruling party, the INC. Central Board of Direct Taxes officials confide in journalists these days that their powers to harass taxpayers have risen to monstrous levels under the current regime. To what avail? Instead of ensuring that every taxpayer in a country of low per capita income pays about 30% of all that he earns — income and consumption taxes included — the Union government could have reduced the tax burden so drastically that compliance increased and it attracted foreign investors as well as those who have stashed Indian money abroad back to this country.

The law on corporate social responsibility could be altered to make private companies build the infrastructure that is so far built poorly and inadequately on the revenue collected by government. That would be a quantum leap from the concept of public-private partnerships. The business corridors that the prime minister sought to build during the initial period of his tenure could be built by prevailing upon all BJP-ruled States to make their economic laws uniform to save the investor from the eccentricity of the Indian market. The vagaries of operations businesses suffer when they try to work nationwide were never limited to the provincially collected taxes that have vanished due to the goods and services tax (while increasing accounting hassles). The indigenous and foreign businessmen would together create the jobs needed, make Indians richer as well as tax-compliant.

What did the NDA government try? The Financial Resolution and Deposit Insurance Bill, the institution of the Insolvency and Bankruptcy Code, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, and the Recovery of Debts due to Banks and Financial Institutions! These methods have failed wherever these were tried. While the amount recovered by auctioning seized properties hardly recovers the money lost on bad loans, the RBI is unhappy about the board of the Resolution Corporation’s composition. Six members from the Union government out of 11 make it the decision maker in a domain that belonged to the central bank earlier. Next, the reader will realise that this does nothing to address a PNB-like issue.

It is not feasible for any government to keep track of Nirav Modi’s kind of transactions unless some bank officials raise an alarm, which they did recently. Nirav used to approach the PNB for LoUs. Some of the 10 officers who have been suspended would use the Society for Worldwide Interbank Financial Telecommunication (SWIFT) procedure to process the request. This would not reflect in the record books. SWIFT would be used to seek a letter of credit (LC) from a bank overseas in lieu of the LoU. The amount obtained would go to the suppliers of Nirav in cash. These suppliers were mostly sister concerns of the indebted. However, if Nirav did not pay when the LC matures, it should have triggered a Nostro account, which is PNB’s account held in a foreign country, denominated in the currency of that country. This account could hold PNB liable for the payment. It attracted the attention of some scrupulous employees of the bank eventually, who blew the lid off Nirav’s cover. At the same time, those in cahoots with the jeweller had ensured for a long time that the Nostro account did not trigger off. And they could get away with it because PNB had no concrete mechanism to keep a tab on the messages some of its employees exchanged through SWIFT.

If the PNB management was responsible for ignoring the capital inadequacy to entertain a customer like Nirav, the Reserve Bank (RBI) was equally callous towards regulation. How could the central bank permit some bank employees’ free access to SWIFT?

To elucidate the whole affair, let’s strip further commentary of all jargon. Why are private banks not suffering so badly from NPA? Because the authority that sanctions large credits is limited to a handful of employees, sometimes just to one officer. Any hanky-panky at his or her desk alerts the bank owner immediately. In a sector where a well-paid job is lost at the drop of a hat — and the news of unethical conduct spreads like wildfire in the industry, pre-empting another job — few attempt a misadventure. On the other hand, in a bid to make the process ‘democratic’, the authority is distributed in a PSB. These bankers with discretionary powers entered a nexus in PNB.

The absolutely uninitiated reader must be told, when a private bank loses money, it is the loss of the individual who owns the bank. When a PSB loses it, it is your and my money. The notion that one’s money is always secure with government had suffered a rude jolt when the Unit Trust of India scam unfolded. And when a government finds itself incapable of recovering your money, it takes more money from you to ‘restructure’ the bad loans; it is also unable to reduce your tax burden even if it wants to. If you still believe a whole lot of banks in India should stay nationalised, do not cry foul when the next Nirav Modi or Vijay Mallya surfaces.


This Budget Is Transformational

[dropcap]T[/dropcap]he Union Budget presented on 29 February in Parliament has focused on 3 sectors:

  • Boosting of agriculture and farm sector
  • Boosting rural economy and generate employment opportunities
  • Improving social sector and providing better healthcare and education facilities

The move is expected to increase rural demand, a segment that has been languishing for the past 3 years due to inadequate monsoon. The focus on rural and social sectors will pay rich political dividends, too.

The single biggest positive signal from the Budget is the decision to stick to the fiscal deficit target as provided under India’s Fiscal Responsibility and Budget Management Act, 2003. Fiscal deficit in the year 2015-16 and 2016-17 stood at 3.9% and 3.5% of GDP respectively. This provided immediate relief to India’s bond market, enabling the government to contain its borrowing programme for 2016-17.

Three key moves on infrastructure projects under PPP scheme suggested in the Budget are:

  1. New Bill on resolving disputes: Public Utility (Resolution of Disputes) will be introduced
  2. Guidelines will be framed on renegotiation of PPP concession agreements so as to revive stalled projects
  3. Introduction of a new credit rating system, keeping in view the special characteristics and risks of infrastructure projects

The total expenditure on roads and railways the fiscal year 2016-17 will sees a massive infusion of Rs 2,180 billion ($31.84 billion). The economy will receive a huge boost.

Some other steps proposed in the Union Budget include:

  • Amendment of the Motor Vehicles Act to open up the road transport sector in the passenger segment
  • Offer calibrated marketing freedom to incentivize natural gas production from deep water and difficult areas
  • Revive unserved and underserved airports in collaboration with State Governments

Attracting foreign investment

The National Stock Exchange

The government will amend the Companies Act 2013 to facilitate ‘ease of doing business’. This will remove the difficulties and impediments. The Bill would also improve the enabling environment for start-ups. The registration of companies will also be done in one day.

The Foreign Direct Investment (FDI) policy has been eased in areas of insurance and pensions, asset reconstruction companies and stock exchanges. 100% FDI will be allowed through the FIPB route in marketing food products produced and manufactured in India.

Improving tax administration

In order to reduce litigation and create a transparent and trustworthy taxation regime, a new Dispute Resolution Scheme (DRS) is being launched. This will allow the following options:

  • One-time scheme of dispute resolution for past cases ongoing under retrospective amendment– allowing settlement of the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived. This is subject to agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA. Pending cases on Vodafone and Cairn Inc will benefit from this provision.
  • A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) to settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of Income-tax cases with disputed tax up to Rs. 10 lakh will be levied. Cases with disputed tax exceeding Rs. 10 lakhs will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty.
  • Identifying that levy of heavy penalty as a cause of large number of disputes, the government proposed to modify the scheme of penalty by providing different categories of misdemeanour with graded penalty, thereby substantially reducing the discretionary power of the tax officers. The penalty rates will now be 50% of tax in case of underreporting of income and 200% of the tax where there is misreporting of facts. Remission of penalty is also proposed where taxes are paid and appeal is not filed.
  • The government has taken steps to reduce the cargo release time and transaction costs of EXIM trade. The Budget also proposed to amend the Customs Act so as to provide for deferred payment of customs duties for importers and exporters with proven track record. Indian customs single window project would be implemented at major ports and airports starting from beginning of next financial year.

Financial sector reforms

The government plans to enact a comprehensive code on resolution of financial firms. Together with the bankruptcy and insolvency law, this will fill a major systemic vacuum. This is a major reform measure. New derivative products will be developed by SEBI in the commodity derivatives market. The statutory basis for this will be provided for a monetary policy framework and a monetary policy committee through the Finance Bill, 2016.

Indian currency of denomination 500

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is to be amended to strengthen asset reconstruction companies. This will help in dealing with stressed assets of banks. In the plan for revamping of public sector banks (PSB), the Budget has announced:

  • Allocation of Rs 25,000 crore towards recapitalisation of PSBs; roadmap for consolidation of PSBs to be created;
  • Debt Recovery Tribunals (DRTs) to be strengthened with computerised processing of court cases.
  • The General Insurance Company owned by the government will be listed in the stock exchanges.
  • To provide better access to financial services, especially in rural areas, the government will undertake a massive nationwide rollout of ATMs and Micro ATMs in post offices over the next three years, Jaitley announced.

He further said that guidelines for strategic disinvestment have been approved and will be spelt out. Individual units of CPSEs can be disinvested to raise resources for investment in new projects. We will encourage CPSEs to divest individual assets like land, manufacturing units, etc. to release their assets value for making investment in new projects. The NITI Aayog will identify the CPSEs for strategic sale, he said.


On the whole, the Budget is expected to be non-inflationary, prompting the Reserve Bank to reduce its policy rates sooner than later. Both politically and economically the Budget has been prudent especially given the headwind the Indian economy has been facing from the global economic problems. The Budget is seen as a boost for the domestic economy, demand and new job creation.


Bank capitalisation a process of four years

New Delhi — Finance Minister Arun Jaitley said yesterday that the government has laid down a long term four year plan for bank capitalisation. He added that it is a long overdue step.

Government in the past has talked about it, but this time government is actually implementing it, Jaitley said. This will gave a boost for investment and growth in the country, he believes.

The minister was speaking in connection with the supplementary demand for grants of 2015-16 being laid in Parliament today, in which Rs 12,000 crore has been provided for bank capitalization. The government also proposes to make available Rs 70,000 crores out of budgetary allocations for four years.

Public Sector Banks (PSBs) play an important role in the economy of India.  Of late, because of variety of legacy issues including the delay caused in various approvals as well as land acquisition etc, and also because of low global and domestic demand, many large projects are strained.

PSBs, which have got predominant share of infrastructure financing, have been affected by this phenomenon. It has resulted in lower profitability of these banks, mainly due to provisioning for the restructured projects as well as for gross NPAs.

As of now, the PSBs are adequately capitalised, meeting all the Basel III and RBI norms.  However, the government wants to adequately capitalise all the banks to keep a safe buffer over and above the minimum norms of Basel III.

Finance Minister Arun Jaitley

“We have, therefore, estimated how much capital will be required this year and in the next three years till FY 2019.  If we exclude the internal profit generation which is going to be available to PSBs (based on the estimate of average profit of the last three years), the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs 1,80,000 crore,” the minister said.

“This estimate is based on credit growth rate of 12% for the current year and 12 to 15% for the next three years depending on the size of the bank and their growth ability. We are also presuming that the emphasis on Public Sector Bank’s financing will reduce over the years by development of vibrant corporate debt market and by greater participation of private sector banks,” Jaitley said.

Out of the total requirement, the government proposes to make available Rs 70,000 crores out of budgetary allocations for four years as per the figures given below:


(i) Financial Year 2015 -16 Rs. 25,000 crore 
(ii) Financial Year 2016-17 Rs. 25,000 crore 
(iii) Financial Year 2017-18 Rs. 10,000 crore 
(iv) Financial Year 2018-19 Rs. 10,000 crore 
Total   Rs. 70,000 crore 

“We estimate that PSB’s market valuations will improve significantly due to (i) far-reaching governance reforms; (ii) tight NPA management and risk controls; (iii) significant operating improvements; and (iv) capital allocation from the government. Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs 110,000 crore from the market. However, the government is committed to making extra budgetary provisions in FY 18 and FY 19, to ensure that PSBs remain adequately capitalized to support economic growth,” said Jaitley.

In the supplementary demand presented today, an amount of Rs 12,000 crore has been provided, in addition to Rs 7940 crores already provided in the budget of FY 2015-16. The remaining Rs 5,000 crore would be provided in the second supplementary later this year. The Rs 25,000 crore capital this year will be allocated through three tranches to meet three different objectives.

Tranche 1: About 40% of this amount will be given to those banks which require support, and every single PSB will be brought to the level of at least 7.5% by Financial Year 2016.

Tranche 2: 40% capital will be allocated to the top six big banks viz. SBI, BOB, BOI, PNB, Canara Bank, and IDBI Bank in order to strengthen them to play a vital role in the economy.

Tranche 3: The remaining portion of 20% will be allocated to the banks based on their performance during the three quarters in the current year judged on the basis of certain performance.  This will incentivise them to improve their performance in the current year.