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ECONOMY AFFAIRS SEPTEMBER 2014
- SB I’s education loans now come with credit cards
State Bank of India is offering credit cards along with education loans to students to stay connected with them and to keep bad loans down. India’s largest bank is expecting the usage of the credit card and payment of dues by students to build up credit history, giving it a clue on the borrower’s credit behavior. The credit card has a credit limit of Rs 5,000 which is guaranteed by the parent. As at June-end 2014, SBI had an education loan portfolio of Rs 14,945 crore, up 7.21 per cent year-on-year. - PSBs need to raise Rs 2.2 lakh cr to meet Basel III norms: Moody’s2
Major public sector banks in India will need to raise Rs. 1.5-2.2 lakh crore in the next four-five years to meet Basel III norms, rating agency Moody’s said in a report. The public sector banks that it rates could need external capital, assuming a moderate recovery in GDP growth and a gradual decline in non-performing loans from the current levels, the agency said.
Moody’s rates 11 public sector banks, representing 62 per cent of net loans in the Indian banking system.
Banks may tap the equity markets to raise capital, but with still-low bank valuations they could struggle to raise the required amount. That’s even with the recent rally in Indian stock prices, the report highlighted.
Moody’s noted that a significant part of the required capital — around Rs. 80,000-90,000 crore could be in the form of Additional Tier 1 capital.
Basel III raises the minimum required capital levels for both Total Tier 1 to 7 per cent and Common Equity Tier 1 capital to 5.5 per cent. Besides, banks will also need to meet a Capital Conservation Buffer in order to pay dividends. That will put pressure on public sector banks, as low capital levels remain a key credit weakness, Moody’s said.
About basel-iii norms
Basel III or Basel 3 released in December, 2010 is the third in the series of Basel Accords. These accords deal with risk management aspects for the banking sector. In a nut shell we can say that Basel iii is the global regulatory standard (agreed upon by the members of the Basel Committee on Banking Supervision) on bank capital adequacy, stress testing and market liquidity risk. (Basel I and Basel II are the earlier versions of the same, and were less stringent) - Philips to split into 2 companies
Dutch electronics group Philips NV said 23rd Septemeber it would split itself into two companies, spinning off its iconic lighting business 123 years after making its first incandescent light bulb.
It's the latest in a series of restructuring moves for the Dutch conglomerate, amid consecutive profit warnings and criticism its cumbersome corporate structure is slowing it down. Philips said it would merge its health-care and consumer-electronics divisions into a single company, which will remain the core of Philips's business. At the same time, it plans to hive off its lighting business, and possibly spin that division off in an initial public offering as early as 2016.
Philips was founded in 1891 by Frederik Philips and his son Gerard in the southern Dutch town of Eindhoven. Initially a producer of light bulbs, Philips grew to become one of Europe's largest industrial companies in the 20th century. It is credited with innovations like the compact disc and the electric shaver. In the 1970s, it employed more than 400,000 people globally. - RBI Panel recommends 360-degree feed back
A report by a Reserve Bank of India (RBI) panel has said 360-degree feedback is important for a transparent and comprehensive performance assessment exercise, one that ensures adequate performance differentiation between employees.
In its report, the central bank’s committee on capacity building in banks and non-banking financial entities said posts of chief learning officer should be created in commercial banks, adding those appointed to such posts should develop a ‘learnability index’, a measure of an individual’s ability to learn. This would be applied as an input to judge “promotability”, disseminate knowledge across the organization and monitor and augment learning and sharing, it said.
Bankers will need to specialize in different business functions, while maintaining basic general competency. Banks need to identify five-six such tracks within which the staff can be groomed,” the report said.
The panel also suggested a stronger and more competitive human resource framework for the overall skill development of banks and non-banking financial entities regulated by RBI.
The committee was set up with the objective of implementing non-legislative recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) related to capacity building in banks and non-banking financial companies (NBFCs), streamlining training intervention and suggesting changes to address the increasing challenges in these sectors. The committee is chaired by G Gopalakrishna, former executive director of RBI.
The panel was also tasked with evolving an appropriate certification mechanism for training by examining possible incentives for undertaking certification programmes and covering all levels — from the lowest rung to the board-level.
The committee added banks must avoid transfers for the sake of preset norms. “Job rotation in banks especially public sector banks should not be done in a mechanical manner, but through well laid-down criteria,” it said.
It also suggested ways to address replacement of talent within banks. The panel said the lack of replacement talent was one of the biggest challenges, adding to address this, banks should develop an internal expert pool and allow free movement of talent within the organisation.
Key Points:- Create the position of “chief learning officer”, responsible for leadership development and collaborative learning in commercial banks
- Banks should Endeavour to expand enrolment of select internal employees as part-time faculty to provide internal support for training initiatives
- To deal with talent replacement, there should be free movement of talent within the organization for creation of a larger workforce of trained personnel
- Job rotation, especially in PSBs, should not be carried in a mechanical manner but through a well laid down criterion
- All banks may adopt e-learning methods and ensure that function-specific lessons are made available to its staff
- Conducting a common Banking Aptitude Test (BAT) at entry levels.
- Apex court scraps 214 of 218 coal blocks allotted since 1993
In a major blow to companies involved in coal mining, the Supreme Court on 24th September ordered the cancellation of 214 of the 218 coal blocks that were allocated between 1993 and 2011. It also imposed a penalty of Rs 295 per ton on the coal illegally extracted by 42 companies which had commenced production.
A three-judge Bench comprising Chief Justice RM Lodha and Justices Madan Lokur and Kurian Joseph rejected the argument made on behalf of the coal companies that the cancellation of the blocks would have a huge impact on the economy.
The order said though the allotment of 42 of 46 coal blocks were quashed, the cancellation would take effect only after six months, with effect from March 31, 2015.
According to the court, the estimated loss is Rs 295 per ton of coal and the compensatory payment on this basis should be made by the companies which had commenced extraction within three months and, in any case, on or before December 31, 2014. The coal extracted hereafter till March 31, 2015, will also attract the additional levy of Rs 295/tone.
The Government is expected to mop up Rs 8,000-10,000 crore through this compensatory payment. Acting on two public interest writ petitions, the court on August 25 held that the allotment of coal blocks made by the Screening Committee of the Government, as also those made through the Government dispensation route, were arbitrary and illegal.
Blocks allocated to Anil Ambani-run Reliance Power’s 3,950 MW Sasan Ultra Mega Power Project — Moher and Moher Amroli Extension — and one each belonging to Steel Authority of India (Tasra) and NTPC’s (Pakri Barwadih) were spared the de-allocation. The reason for exempting Reliance’s two coal blocks was that the Sasan project was awarded to Reliance Power through a tariff-based international competitive bidding process. The blocks awarded to NTPC and SAIL were not de-allocated because both are Central public sector undertakings eligible to mine under the Coal Mining Nationalization Act.
Chronology- July, 1992: The Coal Ministry orders setting up of a screening committee to consider proposals from private power companies for captive coal mining on first-cum-first-serve basis. Screening committee guidelines give preference to large projects of power and steel companies.
- July 14, 1992: Many coal blocks, which were not in the production plans of Coal India or the Singareni Collieries Company, were identified and a list of 143 blocks were prepared.
- 1993-2010: A total of 70 coal mines or blocks were allocated between 1993 and 2005, 53 in 2006, 52 in 2007, 24 in 2008, 16 in 2009 and 1 in 2010.
- In all, 216 blocks were given between 1993 and 2010. Of these, 24 were taken away at different points in time, effectively leaving the total number of coal permits at 194.
- March, 2012: A draft CAG report accuses the government of 'inefficient' allocation of blocks during 2004-2009; estimates windfall gains to allotters at Rs 10.7 lakh crore.
- May 29, 2012: Prime Minister Manmohan Singh offers to give up his public life if found guilty in the scam.
- May 31, 2012: The CVC, based on a complaint of two BJP MPs, Prakash Javadekar and Hansraj Ahir, directs a CBI inquiry.
- June, 2012: The Coal Ministry forms an inter-ministerial panel to review the process of allocation of blocks and to decide either on de-allocations or forfeiture of bank guarantees. Since then, the government has taken back about 80 coal fields while bank guarantees in 42 cases have been forfeited.
- August 2012: CAG's final report, tabled in Parliament, tones down loss to exchequer figure to Rs 1.86 lakh crore.
- August 25, 2012: The government claims CAG's presumptive loss theory flawed, no mining yet.
- August 27, 2012: PM says CAG flawed; "The observations of the CAG are clearly disputable."
- September 6, 2012: A PIL in the Supreme Court seeks cancellation of 194 coal block allotments. The apex court begins monitoring the CBI probe into the coal field allocations
- March 2013: The apex court asks CBI not to share probe details with the government.
- April 23, 2013: The Standing Committee on Coal and Steel in a report tabled in Parliament says coal blocks distributed between 1993-2008 done in unauthorised manner. Says allotment of mines where production not started should be cancelled
- April 26, 2013: CBI Director Ranjit Sinha submits affidavit saying investigation report shared with Law Minister Ashwani Kumar.
- May 10, 2013: Ashwani Kumar resigns.
- June 11, 2013: CBI registers first information report (FIR) against Naveen Jindal and Dasari Narayana Rao.
- October 16, 2013: CBI files an FIR against industrialist Kumar Mangalam Birla and former Cal Secretary P C Parakh.
- July 2014: The Supreme Court sets up a special CBI court to try all coal field allocation cases.
- August, 2014: The CBI decides to close its case against Birla and Parakh.
- August 25, 2014: The Supreme Court rules that coal blocks allocated by the government between 1993 and 2010 were illegal.
- ADB ups growth forecast to 6.3%
A revival of investment and improved growth in advanced economies is set to benefit the Indian economy, says an Asian Development Bank report. The Asian Development Outlook 2014, an annual publication by the ADB has maintained its forecast for India’s growth for FY15 at 5.5 percent but has upgraded its forecast for fiscal year ending 31 March 2016 (FY16) to 6.3 percent from 6 percent.
The Asian Development Bank is a regional development bank established on 22 August 1966 which is headquartered in Metro, Philippines to facilitate economic development of countries in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far East) and non-regional developed countries. From 31 members at its establishment, ADB now has 67 members - of which 48 are from within Asia and the Pacific and 19 outside - Industry lines up behind Modi’s pitch
Prime Minister Narendra Modi launched the ‘Make in India’ campaign at a high-profile event on 25th September, which captains of industry from India and abroad immediately joined by committing multi-crore investments and projects in the presence of Mr. Modi.
Unveiling the campaign logo earlier, Mr. Modi said “FDI should be understood as ‘First Develop India’ along with ‘Foreign Direct Investment’” while encouraging investors not to just look at India as merely a market but also as an opportunity.
The Prime Minister pointed out that it was crucial to increase the purchasing power of the common man to boost demand and thus spur development.
All about programme
The launch of Prime Minister Narendra Modi’s flagship ‘Make in India’ campaign was simultaneous at the national, State and global level in Indian missions abroad. The ‘Make in India’ initiative has its origin in the Prime Minister’s Independence Day speech where he called for the initiative coupled with a ‘Zero Defect Zero Effect’ policy.
Given the government’s intention to boost domestic manufacturing and create new jobs, its proposal to introduce a new policy for Micro, Small and Medium Enterprises (MSMEs)
India’s MSME sector has recorded more than 10 per cent growth in recent years despite the economic slowdown.
MSMEs contribute nearly eight per cent to the national GDP, employing over eight crore people in nearly four crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports from India. Thus, the focus of the government on MSMEs at this juncture is justified given their potential for providing growth and employment.
In view of the significance of the sector, the government had announced a number of measures in its first budget. Some of the significant initiatives were setting up of Rs.10,000 crore of venture capital fund and establishing a nationwide, district-level incubation and accelerator programme for encouraging entrepreneurship.
Other important budgetary announcements included establishing a network of Technology Centres; revising the definition of MSMEs for providing higher capital ceiling, friendly legal bankruptcy framework to enable easy exit, a programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery to be put in place, and launching the Skill India movement for youth with an emphasis on employability and entrepreneurship.
A committee was also proposed to examine the financial architecture with a view to removing bottlenecks and creating new rules and structures for the sector.
The government recently inaugurated a holistic, innovative and low-cost National Small Industries Corporation’s online e-commerce shopping portal for buying and selling of products produced by MSMEs.
MSMEs are mainly classified as manufacturing and service enterprises.
There is a specific stipulated limit on investment in plant and machinery for each of the respective micro, small and medium segments in manufacturing with a maximum limit of Rs.10 crore, and for equipment in service enterprises with a maximum limit of Rs.5 crore.
MSMEs with 94 per cent of units unregistered are highly diverse in terms of their size and the level of technology employed. The production in the sector ranges from output of grass-root village industries and auto components, to microprocessors, electronic components and electro-medical devices.
Since 1948, successive governments have been making intense efforts to encourage MSMEs but the sector continues to be under stress.
The office of Development Commissioner for MSMEs was set up in 1954 and a dedicated Ministry for MSMEs in 1999. The Small Industries Development Bank of India (SIDBI), established in 1990, is the principal financial institution for promotion, financing and development of the MSMEs in addition to commercial banks, State financial corporations, and State industrial development corporations.
Despite such efforts, some of the key problems faced by MSMEs continue to be related to availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty, imperfect competition and the skill level of the workforce. - ‘Made in China’ launched…..
The Chinese government launched a ‘Made in China’ campaign, with a host of tax concessions. China would encourage high-tech imports, research and development (R&D) to upgrade ‘Made in China’, a decision by the Chinese government said.
Under the new campaign, China will use tax breaks to encourage enterprises to upgrade their equipment and increase R&D efforts to improve the manufacturing industry. Companies that bought new R&D equipment and facilities after January 1 or possess minor fixed assets will have taxes reduced on the basis of value, the Cabinet, presided over by Premier Li Keqiang, has decided.
Imported high-tech equipment will also enjoy tax deductions in aviation, bio-medicine production, manufacturing of railway and ships, electronics production, including computer and telecommunications, instrument production and those used in making IT products and software, state-run Xinhua news agency reported on 25th September.
China’s new move aims to prompt technical improvement of companies, especially innovation of small and medium-sized enterprises, which in the past three decades propelled it to become the world’s second-largest economy and made it a powerhouse of the manufacturing industry.
China's manufacturing sector, a key driver of its economic growth, is regarded highly competitive in the global market. - Govt. to shut six ailing PSUs
The government on 25th September said it has begun the process of reviving five ailing PSUs and is working on one-time settlement involving voluntary retirement scheme entailing a cost of Rs 1,000 crore for employees of six state-run units not capable of revival. - Govt. trims borrowing target by Rs 8,000 crore
The Central Government on 26th September said it would borrow Rs.2.40 lakh crore from markets in the second half of the current fiscal, Rs.8,000 crore less than the annual estimate. With this, the borrowing by way of dated securities (G-secs) for the entire fiscal will total Rs.5.92 lakh crore as against the Budget Estimate (BE) of Rs.6 lakh crore. Borrowing calendar was finalized by the government in consultation with the Reserve Bank of India. - S & P’s rating upgrade to boost foreign investments
The global ratings agency Standard & Poor’s raised India’s sovereign outlook from “negative” to “stable.” The upgrade signals a greater margin of safety on creditworthiness and thus improves India’s attractiveness as an investment destination to foreign investors. The benefits further extend to Indian companies as overseas borrowing rates come down. The stable outlook augurs well for the rupee that has weakened in the past week. The S&P cited two reasons for the change in outlook. First, a stronger political mandate improves the government’s ability to implement reforms, spur growth and improve its fiscal performance. Then, India’s external account has improved.
With the S&P upgrade, all three major global credit agencies have now placed India’s sovereign rating at the lowest investment grade but with a stable outlook. S&P cut India’s rating to “BBB-minus” in April 2012.
Analysis- One of the significant reasons for the upward revision according to S&P was that “the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential. This is exactly what Mr. Modi appears eager to convey through his Make in India campaign, launched in New Delhi’s
- Prime Minister Modi struck pointed out how Indian companies were forced to consider investing outside the country due to policy flip-flops and delays in clearances. In that sense, his FDI — First Develop India — was a signal to companies that his government would create an enabling environment for investment, which he expected they would reciprocate by committing their energies and investments to the country.
- It is also significant that he thought it fit to point out India’s low ranking as regards the ease of doing business, assuring investors thereby that he was sensitising the bureaucracy to get its act together on this critical point.
- The jury will be out on this issue, going by the experience of the collapse of similar efforts to untangle red tape.
- Indeed, S&P has referred to the fiscal constraints in terms of the high subsidy burden on the government, observing that successive governments have been unable to either increase the revenue base or curb expenditure.
- The remarkable turnaround in the external finances of the country with the current account deficit at a low of 1.8 per cent has obviously been an important factor, along with political stability, for S&P’s outlook revision.
Standard & Poor's Financial Services LLC (S&P) is an American financial services company. It is a division of McGraw Hill Financial that publishes financial research and analysis on stocks and bonds. S&P is considered one of the Big Three credit-rating agencies, which also include Moody's Investor Service and Fitch Ratings. Its head office is located in New York City - ADB sells its 5.2% stake in Petronet
Asian Development Bank (ADB) sold its entire 5.2 per cent shareholding in Petronet LNG in a bulk deal on 26th September. ADB sold its 39 million shares for Rs 183.2 apiece. The total transaction size was Rs 714.48 crore. Some of the shares were bought by foreign institutional investor Citigroup Global Markets (Mauritius) Pvt Ltd, HDFC Top 200 Fund and HDFC Equity Fund.The promoter shareholders of PLL are Indian Oil Corporation, GAIL, ONGC and Bharat Petroleum Corporation, which hold 12.5 per cent each. - SEBI notified final rules for REITs and InvITs
Security Exchange Board of India on 26th September 2014 notified the final rules for setting up of Real Estate Investment Trusts (REITs) Regulations 2014 and Infrastructure Investment Trusts (InvITs) Regulations 2014. The notifications would help in attracting more funds in a transparent manner into the realty and infrastructure sectors.
The notification on REITs has been issued after SEBI in August 2014 said that the REITs should operate with an asset pool of at least 5 billion rupees (81.8 million dollars). It also said that the REITs should have an initial issue size of at least 2.5 billion rupees for shareholders.
About REITs and InvITs
The REITs and InvITs are listed entities that mainly invest in income-producing assets, the earnings of which are mostly distributed to their shareholders. They generally get special tax treatment. - SBI and Korea bank agreement
State Bank of India (SBI), on 26th September 2014 announced that it has signed a Line of Credit (LoC) of 500 million dollar with Export-Import Bank of Korea (Korea Eximbank). The LoC will be utilised to provide finance to SBI’s clients in India and neighbouring countries that have business relationships either by way of equity participation or regular trade with Korean companies globally, as well as joint ventures or subsidiaries of Korean companies. - SBI, ICICI allowed kids to operate bank accounts independently
State Bank of India (SBI) and Industrial Credit and Investment Corporation of India (ICICI) on 24 September 2014 allowed kids to operate bank accounts independently.
The bank account is available for all kids above 10 who can sign uniformly. A uniform signature is a prerequisite since the banks are not making any allowance in signature variation for children and cheques can be returned where signatures do not match. On 5 September 2014, SBI had launched new accounts Pehla Kadam and Pehli Udaan for kids.
Now, ICICI Bank has launched Smart Stars account and Federal Bank Limited has Young Champ Account for minors. Further, ICICI Bank has imposed a debit transaction limit of 50000 rupees annually for minor-operated accounts. If the account is operated with a guardian's consent, the annual limit is enhanced to 2 lakh rupees.
The banks are offering full-fledged services to minors, including photo debit cards and access to mobile and net banking.
These minor-operated accounts were allowed by the Reserve Bank of India in May 2014 to inculcate savings behavior among the young. The only condition was that minors should not be given any overdraft or credit facility. - Use technology to detect fraud, tax panel tells customs
The Tax Administration Reform Commission (TARC), headed by Parthasarathi Shome, has recommended that the Customs department shift its focus from traditional methods of processing trade documents to a risk-management system with greater reliance on technology.
While the Customs department has initiated a risk-based management system, it has not developed an enterprise risk management framework. The framework should facilitate legitimate trade while subjecting riskier transactions to closer scrutiny, the report said.
The report is the second in a series by the commission. The first report, filed in June, had recommended abolition of the post of revenue secretary and merging CBEC and the Central Board of Direct Taxes (CBDT). Such far-reaching recommendations were not part of the second report.
The commission said risk-based management included principles of self-assessment that the Customs department had already incorporated. However, the philosophy behind self-assessment had not been internalized in the department, particularly at the operational level. - Rs 20,000 cr boost for small units in capital goods sector
The Government on 15th September announced a Rs 20,000-crore scheme for enhancing competitiveness of small and medium enterprises in the capital goods sector. Under the scheme approved by the Cabinet, the first phase, with an outlay of Rs 930 crore, will focus on development of specified technologies.
Under phase-I, special centres for textile, machine tools and auto will be set up in Surat, Bangalore, and a city in Punjab respectively.
The outlay approved for phase-I was for two-and-a-half years. The Government will provide Rs 581.22 crore (80 per cent), while the remaining will be provided by the industry. The same mechanism will be applied for the entire scheme to be implemented over a period of time - Rs 4, 754-cr power transmission scheme for North-East approved
The government on 15th September approved a scheme for strengthening power transmission in Arunachal Pradesh and Sikkim at an estimated cost of Rs 4,754.42 crore. The Cabinet Committee on Economic Affairs approved this scheme. It is necessary to strengthen the power transmission for proper voltage management and lower distribution losses in both the states.
The project would be implemented by Power Grid Corporation with its consultancy fee of 12 per cent of the execution cost. After commissioning, the projects would be owned and maintained by state governments. The project is to be implemented within 48 months from the first fund release to Power Grid Corporation. - Economy poised to grow 5.7%: OECD
Sharply revising upwards its forecast, Paris-based think tank Organisation for Economic Cooperation and Development on Monday projected 5.7 per cent growth for the economy this year, even as global recovery continues at a moderate pace. Its latest estimate is way higher than the 4.9 per cent growth projection in May this year.
In its latest interim Economic Assessment report released, OECD said a moderate expansion is under way in most major advanced and emerging economies. However, growth remains weak in the euro area, which runs the risk of prolonged stagnation if further steps are not taken to boost demand, it added. - Capital goods sector scheme gets cabinet nod
Aiming to make the Indian capital goods sector globally competitive, the Cabinet Committee on Economic Affairs (CCEA) 15th September approved the "Scheme for Enhancement of Competitiveness of the Capital Goods Sector" to boost the Indian economy
The scheme will be implemented in the 12th Plan period and spill over to the 13th Plan period with an estimated outlay of Rs.930.96 crore. The gross budgetary support (GBS) from the government for the scheme would be Rs.581.22 crore and the balance Rs.349.74 crore would be contributed by the stakeholder industries
The capital goods value added contributes a fairly constant proportion of 9-12 percent of the total manufacturing value added. The apparent consumption of capital goods constitutes a constant share of 17-21 percent of the total gross domestic investment in the country.
The scheme has five components to achieve the desired result in pilot mode.- Firstly, creation of "Advanced Centres of Excellence" for research and develop
- ment and technology development with national centres of excellence in education and technology.
- Secondly, establishment of "Integrated Industrial Infrastructure Facilities" popularly known as Machine Tool Parks with a basic objective of making the machine tool sector more competitive by providing an ecosystem for production.
- Thirdly, "Common Engineering Facility Centre" for textile machinery will be be set up with active participation of the local industry and the industry association, which in turn would improve facilitation to the users along with visibility.
- Fourthly, "Testing and Certification Centre" for earth moving machineries in view of the fact that it is soon going to be made a mandatory requirement and at present there is no test facility to test earthmoving machinery like that in the automobile industry.
- And finally, the creation of a "Technology Acquisition Fund" under the Technology Acquisition Fund Programme in order to help the capital goods Industry to acquire and assimilate specific technologies, for achieving global standards and competitiveness within a short period of time
- SEBI accepts India Incorporations requests on corporate governance
Acceding to representations from market participants, companies and industry associations on practical difficulties in implementing the corporate governance norms, SEBI has amended them (requests or suggestions) even before they are scheduled to come into force from October 1.- Companies with share capital of less than Rs 10 crore and net worth of less than Rs 25 crore, besides those listed on the SME and SME’s institutional trading platforms (ITP), have been given the option of implementing SEBI’s corporate governance norms.
- The date of appointing a woman director on board has been postponed to the next fiscal (April 1, 2015).
- Independent directors should not have or have had any material pecuniary relationship with a company, its parent/ subsidiary/ associate/ promoters/ or directors during the last two financial years or during the current fiscal. The maximum tenure for independent would be according to the Companies Act 2013 as against the 10 years stipulated earlier.
- The Chairman of a company has been allowed to be a member of the nomination and remuneration committee (earlier he was not a part), but cannot chair these committees — the chairmanship would remain with an independent director, said SEBI.
- SEBI added the risk management committee of a company should have majority representation from the board, and has to be chaired by a board member, though senior executives may be inducted as members. Earlier, this was not specified.
- For related party transactions (RPT), SEBI has explained that a “transaction” with a related party shall be construed to include single transaction or a group of transactions in a contract. SEBI has substituted its definition of a related party by the one defined by the Companies Act 2013 and the applicable accounting standards.
- A material RPT is one that if a transaction exceeds 10 per cent of a company’s annual turnover. Earlier, it was the higher of 5 per cent of turnover or 20 per cent of net worth.
- The audit committee of the company has been allowed to grant omnibus approvals for proposed RPTs, provided the committee lays down a criteria for such approval.
- Cognizant to acquire us firm TriZetto for $2.7b
Cognizant announced on 15th September that it has entered into a definitive agreement to acquire TriZetto Corporation for $2.7 billion in cash, its largest acquisition ever, subject to customary adjustments. The deal is among the biggest technology buys in the world, which will catapult Cognizant into the league of the top five leading IT services providers for the healthcare segment across the globe.
Based in Englewood, Colorado in the US, privately held TriZetto is a provider of healthcare IT software and solutions with revenue of $676 million. TriZetto and its 3,700 employees will be a part of Cognizant’s existing heal-thcare business, which cu-rrently serves more than 200 clients, including 16 of the top 20 US health plans and four of the top five pharmacy benefit management companies. Healthcare represents ab-out 26 per cent of Cognizant’s revenue of $8.84 billion (2013). The company envisages over $1.5 billion of potential revenue synergies cumulatively over the next five years. - RBI suggests norms for reforming PSBs
In the wake of rising frauds and corporate governance issues in public sector banks, the central bank has recommended to the government certain norms for reforming public sector banks (PSBs). On recent reports about the government looking to pare its stake in public sector banks below 51 per cent following recommendations of the P. J. Nayak Committee (to review governance of boards of banks in India), Gandhi, Deputy Governor of RBI said the government had to take a view on how much they wanted to invest in these banks.
He also said that final guidelines for giving universal banking licences on-tap would be issued in the current financial year. On the liquidity coverage ratio norms, he said banks as of now were in compliance with the norms and would be able to achieve the target. - First set of defense sector FDI proposals gets FIPB nod
The Foreign Investment Promotion Board (FIPB) has given its nod to the first set of defense proposals. The Government had notified new norms allowing higher FDI in the defense sector on August 26. On 16th September FIPB cleared 21 of the 35 proposals brought for its consideration. The approved proposals are worth Rs 988 crore.
The 21 approved projects include those of Bharti Shipyard, Solar Industries and Kineco Kaman Composites India relating to the defense sector. Though another proposal, of Hats off Helicopter Training, came through the Civil Aviation Ministry, it involves the Defense Ministry. The board also gave its nod to two proposals, of IndusInd Bank and ANZ Capital, related to the financial sector. - Jan Dhan benefit to be extended
The RuPay debit card facility, with in-built accident insurance cover of Rs 1 lakh currently available only to Jan Dhan accountholders, will be extended to all existing bank account holders. The facility of overdraft of Rs 5,000 — after satisfactory operations in the account for some time — will also be extended to existing accountholders. Account holders can avail themselves of these benefits by submitting an application to the bank branch concerned - ADB to lend $63.3 million for urban services
The government has signed an agreement with the Asian Development Bank (ADB) for $63.3 million loan to improve urban municipal services in 14 towns in north Karnataka.
This is the fourth and the last tranche of loan under the North Karnataka Urban Sector Investment Programme to help upgrade infrastructure. The programme includes expansion of the potable water systems to provide continuous water supply with private sector participation in 12 towns, completion of sewerage networks in three towns and improvements to the road network in two towns.
The $270 million overall investment programme aims to improve basic urban services for at least 4.3 million people living in 25 North Karnataka towns by providing them with improved water supply, faster urban transportation, and other public facilities. - Nod for 21 FDI’s
The Foreign Investment Promotion Board (FIPB) has given its nod to the first set of defence proposals. The Government had notified new norms allowing higher FDI in the defence sector on August 26. On 14th 16th September FIPB cleared 21 proposals, including that of Bharti Shipyard, but turned down Sistema Shyam’s request to raise foreign holding.
The proposal of Bharti Shipyard — the shipbuilder has foreign direct investments through institutional investors and non-resident Indians — to undertake defence activities was cleared, sources said. Verizon Communications India’s proposal to increase foreign equity participation by its foreign parent from 74 per cent to 100 per cent was also approved.
Other cleared proposals included those of Kineco Kaman Composites India Ltd in the defence sector and ANZ Capital Ltd in the financial services sector.
FDI doubles to $3.5 billion in July
Foreign direct investment (FDI) flows into India more than doubled to $3.5 billion in July, the department of industrial policy and promotion said on 16th September. In July 2013, the country had received FDI of $1.65 billion. During April-July this financial year, foreign inflows grew 52 per cent to $10.7 billion, compared with $7.05 billion in the corresponding period last year.
Easy norms for equity shares under FDI
The Reserve Bank of India (RBI) has eased the guidelines for issue of shares or convertible debentures under the automatic route. According to the changed norms, companies can issue equity shares to a resident outside India against any type of fund, subject to certain riders. The central bank has permitted the issuance of equity shares against any fund payable by the investee company, the remittance of which does not require prior permission of the government or RBI.
The banking regulator said the equity shares should be issued in accordance with the extant foreign direct investment guidelines on sectoral caps, pricing guidelines etc.
Earlier, under the automatic route, an Indian company could issue shares or convertible debentures to a resident outside India against lump-sum technical know-how fee, royalty external commercial borrowings and import payables of capital goods by units in special economic zones.
The norms allow issuance of shares subject to conditions such as entry route, sectoral cap, pricing guidelines, and compliance with the applicable tax laws. - Bank credit growth falls below 10% after 5 years
For the fortnight ended September 5, annual credit growth in the banking system fell to 9.68 per cent, data released by the Reserve Bank of India (RBI) showed. This was the first time since October 2009 (9.01 per cent) that growth in bank credit fell below 10 per cent. - Gas panel submits report, recommends less than disputed price
A Committee of Secretaries (CoS) looking at the new gas pricing guidelines has submitted its report to the petroleum ministry. The exact recommendations of the panel on pricing have been kept under wraps. However, official sources said it has suggested a price less than what the Rangarajan panel had recommended — $8.4 per unit. The panel was constituted last month to review gas pricing guidelines of January 2014.
As per the guidelines, based on the recommendations of an earlier panel, headed by former chairman of Prime Minister’s Economic Advisory Council C Rangarajan, new doubled gas prices were to come into effect beginning April. But the implementation was postponed owing to the general elections in May. The government later deferred the announcement of the new price till September-end. However, a final decision on pricing might be delayed further due to Assembly polls in Maharashtra and Haryana in mid-October
Every dollar increase in gas price would raise urea production cost by Rs 1,370 per tonne, electricity tariff by 45 paise per unit, compressed natural gas prices by Rs 2.8 per kg and piped natural gas rates by Rs 1.8 per standard cubic meter. - Panel on accounting norms set up
The Corporate Affairs Ministry has constituted a National Advisory Committee on Accounting Standards under the chairmanship of Amarjit Chopra to advise the Central Government on the formulation and laying down of accounting policies and accounting standards. Besides Chopra, who is a former CA Institute President, the committee will have 12-other members including nominees of industry bodies — CII, FICCI and Assocham — and regulatory bodies such as RBI and SEBI. The panel Chairman and members will have a term of one year from September 18 or till the constitution of the National Financial Reporting Authority, whichever is earlier. - Tourism Ministry eyes 1% share in world tourist arrivals
The Ministry of Tourism aims to get 1 per cent share of world tourist arrivals, as against the current 0.64 per cent. In 2013, India received 69.7 lakh tourists and this year expectation is it to cross 73 lakh. The country witnessed 16.9 per cent growth in foreign tourist arrivals in August 2014 compared to the same month last year.
The Ministry has launched ‘Culinary Survey of India’ for identification, documentation and archiving of recipes across the country. It recently laid the foundation stone for the Indian Culinary Institute in Tirupati. The Ministry will soon launch a Cleanliness Index which will rank all tourist destinations in the country. - PFRDA panel to assess investment norms
Pension fund regulator PFRDA has set up an expert committee under the chairmanship of former Sebi chairman G N Bajpai to review investment guidelines for pension system, other than for government employees, and suggest changes to make the scheme more attractive.
The panel will, among other things, "review current investment guidelines for NPS schemes for private sector and recommend changes or new schemes," PFRDA said in a notification.
The six-member panel would also make recommendations on any other related issue which has a bearing on the investment pattern of New Pension System and will affect the interest of subscribers to the NPS such as active and passive management.
The penal which is expected to submit its report in six weeks would also look into the monitoring and supervision mechanism over pension fund manager investment portfolio.
Members of the panel are Deepak Satwalekar, former CEO and Managing Director at HDFC Standard Life Insurance Company; S B Mathur, former LIC Chairman; C R Murlidharan, former IRDA Member and Madhavi Das, Executive Director, PFRDA.
In 2010, the PFRDA had set up a committee headed by G N Bajpai and entrusted it with the task of analysing the fee structure and suggesting changes to the National Pension System (NPS).
The central government had introduced the New Pension System (NPS) in January 2004.
Initially, the New Pension System covered new entrants to central government services (excluding Armed Forces) and some state government services. From May 1, 2009, PFRDA has extended NPS to all citizens of India, including workers of the unorganised sector. NPS has garnered a total of 71 lakh subscribers by July 31, 2014 and is managing above Rs 58,000 crore of funds. - Power supply: Prabhu panel for state-specific models
The central government’s advisory group on power distribution reforms favors state-specific plans, instead of one model for the country. It has also pushed debt recovery, rate rationalization and addressing of distribution losses, which, in some states, are 45-80 per cent.
The Prabhu panel has already given reports on the coal sector and thermal power projects. It has asked the Union ministry of power, Power Finance Corporation and Rural Electrification Corporation to work out state-specific action plans.
According to panel, distribution reforms meant loss reduction, improving the reliability of supply and rate rationalizing. He said five states — Andhra Pradesh, Rajasthan, Madhya Pradesh, Tamil Nadu and Haryana — constituted 80 per cent of the total annual loss (of Rs 80,000 crore as on date) - Panel suggests eight mines be allocated to power sector
A government panel has recommended the Coal Ministry may consider allocating eight mines to the power sector under government dispensation route, amid Power Minister Piyush Goyal promising 24x7 power to all. The eight coal blocks are in the states like West Bengal, Odisha and Maharashtra, a source close to the development said.
The coal blocks includes, Burapahar mine in Ib valley of Odisha, Palasbani East and Dip side of Palasbani East mines in Talcher coalfields of Odisha, Kapasdanga-Bharkata mine in Birbhum coalfields of West Bengal and Hiwardhara-Sinwadona mine in Wardha valley coalfields in Maharashtra, source said.
Goyal had 8th September said the government is committed to bring about a transformative change in the power sector and ensure 24X7 power for all homes, industrial and commercial establishments and adequate power for all. He also said the government is striving to ensure adequate coal for power plants by targeting production of 1 billion tonnes by 2019.
The coal-based electricity generation from in the past three months grew by 21% over the corresponding period of last year. The coal production also grew by 9% in the last month as compared to August in 2013. The government is also consider auctioning 8 captive coal mines which have reserves of 1,773 million tones.
The Supreme Court had earlier held that all coal blocks since 1993 have been allocated illegally and arbitrarily, bringing uncertainty to the fate of 218 block allocations. - Jalan Panel suggests levy of user charges on govt services
The Union Government has asked Bimal Jalan headed Expenditure Management Commission to suggest an effective strategy for meeting reasonable proportion of expenditure on services through user charges. It has also asked the Jalan Panel to review the fiscal responsibility and budget management (FRBM) rules to suggest improvements for enforcing better fiscal discipline.
Also, the newly set up commission will have to review the major areas of Central Government expenditure and suggest ways for creating fiscal space required to meet developmental expenditure needs. This has to be done without comprising the commitment to fiscal discipline, the terms of reference of the Commission said.
Bimal Jalan, who has been conferred with the status of a Union Cabinet Minister, has been asked to design a framework to improve the operational efficiency of expenditures through focus on utilisation, targets and outcomes. The Jalan panel has also been asked to suggest measures to achieve reduction in financial costs through better cash management system.
Besides asking the Commission to suggest greater use of IT tools for expenditure management, the panel has also been asked to recommend improved financial reporting systems in terms of accounting and budgeting etc. The Commission, which will be headquartered in New Delhi, will have to submit an interim report before Budget 2015-16. - State Bank launches new travel card
State Bank of India (SBI) and MasterCard, on 8th September, announced the launch of Multi-Currency Foreign Travel Card through 100 selected branches of Mumbai, Delhi, Chennai and Bangalore circles.
The card, which is available in retail and corporate variants, will help consumers pay in dollar, pound settling, Euro and Singapore dollar initially and eventually be made available in all major currencies. - Centre set to revise GDP measurement next year
The Centre will soon revise the way it measures the gross domestic product to reflect under-represented and informal economic sectors, two government sources said, in an initiative that is expected to show the economy is larger than previously thought.
The government usually revises the method of calculating national accounts and other macro data every five years, bringing in a newer base year and adjusting for changes in the economy.
The Ministry now takes 2004-05 as the base. India’s informal economy and service sector accounts for over three-fifths of its $1.8 trillion economy. But precise data are unavailable for these segments, and the government relies on surveys and samples to calculate their growth. This is combined with actual output numbers for mainstream industry to produce the GDP data.
In March, 2010, when the government last revised the national accounts, annual economic growth estimates were upwardly adjusted by 0.8 to 1.7 percentage points for four years, allowing the previous government to take credit for the country’s highest-ever stretch of economic growth.
What is GDP?
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year.
Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports. - Upper age limit set for MDs and CEOs of Private Banks
The Reserve Bank of India (RBI) has allowed managing directors and chief executive officers of private banks (and any other whole-time director on the board) to hold office till the age of 70 (and not beyond). The move will erase doubts on the eligibility of Aditya Puri (HDFC Bank’s MD) and Romesh Sobti (IndusInd Bank’s MD and CEO) for re-appointments.
So far, a maximum age of 70 was stipulated for appointment or re-appointment of part-time directors in banks. For whole-time directors, including the MD and CEO, no maximum age was specified and decisions were taken case by case. The P J Nayak committee proposed a maximum age of 65 for bank CEOs. - Cabinet mooted disinvestment
The Union Cabinet on 10th September cleared a dilution of the government's stake in Oil and Natural Gas Corporation (ONGC), Coal India Ltd (CIL) and NHPC Ltd. At current market valuations, the amount of its holdings the Centre wants to offload in these companies could fetch it as much as Rs 45,796 crore - more than the Budget target of raising Rs 39,925 crore through disinvestment in public-sector undertakings.
The Cabinet Committee on Economic Affairs approved selling 10 per cent of the government's stake in CIL, five per cent in ONGC and 11.38 per cent in NHPC. By Wednesday's market value, these are worth Rs 23,613 crore, Rs 19,048 crore and Rs 3,135 crore, respectively.
The Centre's fiscal deficit in the first four months of the financial year has already exceeded 60 per cent of Budget estimates for full year. The stake sales are likely to help the government meet the Budget target of reining in fiscal deficit at 4.1 per cent of gross domestic product in 2014-15.
In addition to state-run companies, the government also plans to sell its residual stake in Hindustan Zinc and Balco which is expected to fetch Rs 15,000 crore. Also, Specified Undertaking of Unit Trust of India could bring the exchequer another Rs 6,500 crore. These together take the total disinvestment target for 2014-15 to Rs 58,425 crore - 269 per cent higher than the previous year's actual proceeds of Rs 15,819 crore.
The Cabinet had earlier given its approval to sale of five per cent stake in Steel Authority of India Ltd which might raise another Rs 1,700 crore. The steel company is likely to be the first state-run company to go for disinvestment later this month. All of these issues are likely to tap the market through the offer-for-sale (OFS) route, which is considered more convenient and less time-consuming than follow-on offerings.
What is disinvestment?
Disinvestment means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line. Disinvestment is sometimes described as the opposite of capital expenditures. Some people use the term divestiture, or to divest when discussing disinvestment.
Government adopted the 'Disinvestment Policy'. This was identified as an active tool to reduce the burden of financing the PSUs. The following main objectives of disinvestment were outlined:- To reduce the financial burden on the Government
- To improve public finances
- To introduce, competition and market discipline
- To fund growth
- To encourage wider share of ownership
- To depoliticise non-essential services
- Financing the increasing fiscal deficit
- Financing large-scale infrastructure development
- For investing in the economy to encourage spending
- For social programs like health and education
- India notified WTO of $56-bn farm support
India spent $56.1 billion on support for farmers in 2010-2011, it said in Report submitted to World Trade Organization (WTO) on 10th September, a document that will be pored over for evidence that it breached agreed limits on agricultural subsidies. The United States and other WTO members have strongly criticized saying India is almost a decade behind with notifications on farm support and for vetoing a WTO agreement; as it wanted more attention paid to its demand to be allowed to store food grains to ensure food security. - Overseas investments by India Inc. down 49% in August
Overseas direct investments by Indian firms declined 49% year-on-year to USD 1.25 billion in last month, as per RBI data. Investments abroad had amounted to USD 2.47 billion in August 2013. As for month-on-month, in July this year the Indian companies had spent USD 1.12 billion in overseas markets. The investments were a mix of issuance of guarantees (USD 742.80 million), loans (USD 303.48 million) and of equity (USD 207.39 million). - NABARD launches Rs. 5,000-cr fund
The National Bank of Agriculture and Rural Development (NABARD) on 11th September launched a Rs 5,000-crore rural credit fund aimed at increasing long-term credit in agriculture. Under the facility, first announced in the budget by Finance Minister Arun Jaitley, NABARD will be refinancing agricultural term loans extended by the cooperative banks and regions rural banks (RRB) to agriculturists.
The ultimate aim of the scheme will be to make credit for investment purposes cheaper and through that, motivate those engaged in agricultural activities to invest more. NABARD will provide refinance to the cooperatives and RRBs at an interest of 7.85 per cent with a repayment period of five years so that the borrowers can benefit.
NABARD
National Bank for Agriculture and Rural Development (NABARD) is the apex agricultural development bank in India headquartered in Mumbai and branches are all over the country. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the National Bank for Agriculture and Rural Development (NABARD). It was established on 12 July 1982 by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector - India 14th among 22 Asia-Pacific economies
India ranked 14th on a list of 24 economies on Creative Productivity Index, being launched on 12th September by the Asian Development Bank and Economist Intelligence Unit. The report carrying the ADB-EIU index said regulatory hurdles, red tape and corruption provide little incentive for the private sector to invest in innovation in India. The index is designed to give policymakers a tool to measure progress in fostering creativity and innovation in 22 Asia-Pacific economies (plus those of the US and Finland, for comparison purposes).- It measures the innovative and creative capacity of economies by relating creative inputs to outputs.
- On the input side, creative productivity is measured on three dimensions - the capacity to innovate, incentives to innovate and how conducive the environment is for innovation.
- The output side measures innovations by considering both conventional indicators such as the number of patents filed, as well as a broader set of measures on knowledge creation.
- While India is ranked lower on the input side at 15, compared to its overall rank, it has a relatively better score at 13 on the output side. This implies India is able to get a bit better of an output compared to its inputs.
- A commentary carried with the index says despite recent productivity gains, India still lags in terms of output, with a low score on agricultural productivity, showing the need for rural innovations.
- On the input side, India lags in the knowledge-skill base, showing the need for further investments in physical infrastructure and human capital, the report said.
- India is in 21st place for both competition and human capital. For human capital, the country scores well for the number of top-500 global universities but the overall ranking is dragged down by its low scores for rate of urbanization, mean years of schooling, and technical and vocational enrolment of students in secondary school.
- Nevertheless, on the whole, India has a solid pool of skilled, English-speaking graduates. This will continue to aid in expansion of the services sector, such as in information communication and technology. Elsewhere, larger productivity gains are needed in the agricultural sector.
- Though the country was ranked sixth in the index for ease of labor turnover, our labor laws are overlapping and cumbersome, and employers face difficulties in making workers redundant, the report said. Companies with more than 100 employees, for instance, are obliged to obtain government authorization to lay off workers or to close unprofitable business units.
- The report said, nevertheless, most of India's labour laws apply only to the (less productive) organized sector, which does not include small-scale manufacturing and services, agriculture and most construction work.
- It said establishment of the National Innovation Council in 2010 had shifted the policy focus towards "a decade of innovation" but India lagged emerging countries such as China.
- IMF data on real estate sector
According to International Monetary Fund's data in the real estate India is falling. IMF's calculation on the annual percentage change in property prices shows that prices in India fell by 9.1 per cent, the highest among major real estate markets.
The data shows that there is an overall improvement in the global real estate market as prices are going up in a majority of countries. Of the 52 countries for which data is available, 33 have witnessed increase in prices, while property has become cheaper in 19.
Among advanced economies, the US, Germany and UK witnessed an increase in prices whereas the property market seems to be slumping in France, Japan and Italy. Among larger emerging economies, China, Brazil and South Africa saw a rise in prices, while India and Russia face a sinking realty sector.
India's own National Housing Bank (NHB) Residex index shows a mixed trend in Q1 2014, with 13 of the 26 cities for which property price data was available witnessing an increase in prices and 13 registering declines. Global Property Guide's analysis of India says that because of high inflation, a comparison of house prices at nominal rates might give a misleading result. At inflation-adjusted rates prices, it says, prices have actually fallen in 21 of these 26 cities.
International Monetary Fund:
The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries
The IMF is a self-described "organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's objectives are stated in the Articles of Agreement [4] and can be summarized as: to promote international economic co-operation, international trade, employment, and exchange-rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C., United States - Sebi issued norms for sharing kyc details with financial regulators
The Securities and Exchange Board of India (SEBI) on 30 August 2014 allowed sharing of Know-your-Client details with entities regulated by other financial sector watchdogs. According to the new norms, the system of KRA may be connected with any central KYC registry authorized by the Union Government for the purpose of collation and sharing of the KYC information in the financial sector. These new norms are called as the Securities and Exchange Board of India KYC Registration Agency.
Under SEBI system, a client who has already done the KYC with any SEBI registered intermediary need not undergo the same process again when he approaches another intermediary.
Earlier, the facility of sharing of KYC information was available only among SEBI-registered intermediaries. Now the KYC information of investors in the capital markets is available on the centralised KRA (KYC registration agency) system of SEBI.
KYC:
KYC is an acronym for “Know your Customer”, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc which in turn helps the banks to manage their risks prudently. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.
KYC has two components - Identity and Address. While identity remains the same, the address may change and hence the banks are required to periodically update their records.
SEBI:
The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992 - RBI issues amendments to Basel 3 norms
The Reserve Bank of India has allowed banks to issue additional Tier 1 capital instruments, the principal amount of which would absorb losses, either through conversion into common shares or a write-down mechanism that allocates the losses to the instruments, either temporarily or permanently.
Unveiling a slew of amendments in the implementation of the Basel 3 regulations, the RBI said that banks must have a provision of Point of Non-Viability (PONV) for every non-equity instrument which, when triggered, would lead to a conversion to common shares (of the bank) or a permanent write-off.
The regulator has reduced the minimum tenor after which call options are permissible in perpetual debt instruments from 10 to five years. The minimum maturity of Tier 2 debt instruments has also been reduced from 10 to five years.
The limits on admissibility of excess additional Tier 1 and Tier 2 capital for computing and reporting Tier 1 capital and CRAR (capital adequacy ratio) have been withdrawn. Accordingly, a bank having met the minimum capital requirements may admit excess additional Tier 1 and Tier 2 capital for the purpose of reporting.
For exposure limits, capital funds is the sum of all eligible common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital, net of regulatory adjustments and deductions.
Banks have also been allowed to issue additional Tier 1 and Tier 2 debt capital instruments to retail investors, subject to their enhancing investor awareness and board approval.
For issuing Tier 2 capital, banks have to clearly explain to the investor the loss absorbency features of the instrument and get the investor’s confirmation that these features are clear to him.
Finally, banks need not pay coupons on perpetual debt instruments (PDI) if these are likely to result in a loss during the current year.
What are Basel-3 norms?
A comprehensive set of reform measures designed to improve the regulation, supervision and risk management within the banking sector. The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements. Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain capital requirements.
Basel III is part of the continuous effort made by the Basel Committee on Banking Supervision to enhance the banking regulatory framework. It builds on the Basel I and Basel II documents, and seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency. A focus of Basel III is to foster greater resilience at the individual bank level in order to reduce the risk of system wide shocks. - Government notifies new pension rules
In a step aimed at checking harassment of government employees in grant of pension, a head of office will now be responsible for any failure to ascertain non-qualifying service period and will undertake preparation of paper work one year before an employee is due to retire.
According to new pension rules notified by the government, retiring employees will not have to face any delay in determination of pension due to deficiency in application forms and authorities can go ahead with determining the amount of provisional pension and provisional retirement gratuity.
Till now, employees had to run from pillar to post in many cases to get their service record verified. As per new rules, every head of office shall undertake the work of preparation of pension papers in Form 7 one year before the date on which a government servant is due to retire on superannuation, or on the date on which he proceeds on leave preparatory to retirement, whichever is earlier. Earlier, the time period to undertake such work was two years.
Also, if any portion of service rendered by a government servant is not capable of being verified in the manner specified in rules, then the government servant shall be asked to file a written statement on plain paper within a month, stating that he had in fact rendered service for that period, and shall, at the foot of the statement, make and subscribe to a declaration as to the truth of that statement. - Current account deficit shrinks to 1.7% in q1
Rise in exports and a decline in imports helped sharply narrow the country’s current account deficit (CAD) to $7.8 billion in the April-June quarter of 2014-15 from $21.8 billion in the year-ago period, according to the Reserve Bank of India. As a percentage of GDP, the CAD was lower at 1.7 per cent in the reporting period as against 4.8 per cent in same period last year.
However, the CAD in the April-June quarter was higher than $1.2 billion (0.2 per cent of GDP) in the preceding January-March quarter, the RBI said.
CAD arises when a country’s total imports of goods, services and transfers are greater than exports. A higher CAD weakens the domestic currency. With India importing almost 80 per cent of its oil requirements, a weak currency could have an inflationary impact.
There was a net accretion of $11.2 billion to India’s foreign exchange reserves in the reporting period as against a drawdown of $0.3 billion in the year-ago period. - Threshold limit for goods, services tax proposed by states too low: fin min
The Rs 10-lakh threshold limit for imposition of Goods & Services Tax (GST) proposed by States is ‘too low’ for creating a business-friendly tax administration, according to the Finance Ministry.
The Empowered Committee on State Finance Ministers, in its meeting on August 20, agreed on setting a Rs 10-lakh threshold limit for general category States and Rs 5 lakh for special category and North Eastern States. Earlier, the proposed limit was Rs 25 lakh.
GST aims to subsume Central indirect taxes, such as excise duty and service tax, into a central GST (CGST) and various States levies, such as value-added tax and Central sales tax into State GST (SGST).
Efforts are on to build a consensus so that the Constitutional Amendment Bill for introduction of GST can be re-introduced during the Winter Session of Parliament. Once approved, the Bill would need to be endorsed by at least half of the State Assemblies before it becomes a law.
The Centre has also proposed bringing petroleum products within the GST framework with ‘nil’ rate, giving flexibility to both the Centre and States to impose duties over and above the GST. - 12 Indian firms in Forbes’ 50 best companies in Asia-pacific
Tata Consultancy Services (TCS), HCL Technologies and HDFC Bank are among the 50 best public companies in Asia-Pacific according to a compilation by Forbes, which ranked India second behind China as home to the "world's next growth engines". The Forbes 2014 'honour roll of the Fabulous 50' lists best of Asia-Pacific's biggest publicly traded companies.
China has 16 companies on the list, more than any other country, a distinction it has enjoyed for the last three years. However, the number of Chinese companies on the list has gone down from 20 last year on the back of slow economic growth in the country. India trails China with 12 companies on the list, the same number as last year.
The Indian companies on the list are Asian Paints, Axis Bank, HCL Technologies, HDFC Bank, Lupin, Mahindra and Mahindra, Mothersome Sumi Systems, Sun Pharma, TCS, Tata Motors,Tech Mahindra and Titan. HDFC Bank, India's second-largest private sector bank, has made the list eight times, more than any other company since Forbes started the compilation in 2005.
TCS makes it to the list for the seventh time while Tech Mahindra, the country's fifth-largest IT player, debuts on the list after net profits soared 112 per cent to touch $500 million. Indian conglomerate ITC failed to make it to the list this year.
Forbes said TCS, India's largest IT Company, boasts a market cap of $71.25 billion, bigger than the country's next 3 IT outfits combined. - Eco Clearance norms for mining projects eased further
In a bid to simplify the process of obtaining environment clearance for coal mining projects, the Ministry of Environment & Forests has agreed to do away with public hearings for capacity increase of coal mines with 20 million tone per annum capacity.
The Expert Appraisal Committee can exempt public hearing for one time capacity expansion proposals of existing coal mines with a 20 million tone a annum capacity. The ceiling on additional production has been kept at 6 million tone per annum, if the transportation of additional coal is done by means of conveyor or rail transport. The decision was communicated through an office memorandum - Changes made in MGNREGA
The Centre has directed all district-level functionaries to undertake 50 per cent of all works under the rural job guarantee scheme, MGNREGA, on water conservation works, such as check dam construction, de-silting of traditional water bodies, minor irrigation tanks and canals.
Rural Development Minister Nitin Gadkari said that this was being done to mitigate a drought-like situation as well as create more productive assets under the scheme.
Gadkari said as these works required a combination of wage labor and machinery, the percentage on skilled component had been increased up to 49 per cent.
The Minister said if States wished to retain the skilled proportion to 40 per cent, they were free to do so. He also directed the Ministry that all payments and fund transfers to States be made on e-payment platform and on a ‘just in time’ basis so that wage payments were not delayed beyond a week.
MGNREGA:
The National Rural Employment Guarantee Act 2005, also known as the "Mahatma Gandhi National Rural Employment Guarantee Act", and abbreviated to MGNREGA, is a labor law and social security measure that aims to guarantee the 'right to work' and ensure livelihood security in rural areas by providing at least 100 days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.
In 2005, to converge employment generation, infrastructure development and food security in rural areas, the government integrated SGRY and FWP into a new scheme called Mahatma Gandhi NREGA - RBI's Khan to head panel on unclaimed funds of PPF
Finance Minister Arun Jaitley has set up a committee under Reserve Bank Deputy Governor H R Khan to take stock of unclaimed deposits in the Public Provident Fund (PPF) and post office saving schemes and suggest how these funds can be utilized for the benefit of senior citizens.
The committee will also suggest whether the unclaimed deposits should come to the government or be kept in a separate account. The committee members include secretary (Department of Posts); joint secretary (law ministry and Budget division of finance ministry); State Bank of India deputy managing director; and executive director of Punjab National Bank, a notification said. The panel would suggest a procedure to bring unclaimed deposits to a common pool. The committee will submit its report by December 31.
A PPF is a 15-year investment scheme, which offers tax exemption. The minimum annual investment in PPF is Rs 500. The Budget proposed raising the upper limit of annual investment in PPF by Rs 50,000 to Rs 1.5 lakh. - India tumbles 11 places on competitiveness index
India’s ranking on a global competitiveness index fell 11 notches to 71 in 2014-15, against 60 a year earlier, pushing its position to the lowest among BRICS nations.
There were 144 countries ranked in the Global Competitiveness Report 2014-15 released by the World Economic Forum (WEF) on 3rd September.
The data came a few days after India’s economy grew at a two-year high of 5.7 per cent in the first quarter of the current financial year, bolstering spirits in the government as well as industry.
The country’s ranking in the global competitiveness index (GCI) was 48 in 2007-08 (three quarters of which fell in calendar year 2007) and it slipped to 50 a year later.
The report said as the poorest economies among emerging Asian countries — India and Myanmar — were transitioning away from agriculture and developing a manufacturing base they would need to create a sound and stable institutional framework for local and foreign investors and improve connectivity.
According to report manufacturing accounts for less than 15 per cent of India’s GDP. Agriculture represents 18 per cent of output and employs 47 per cent of the workforce. Low productivity in the sector means very low wages and a life of mere subsistence for many
The country’s rankings on specific yardsticks were somewhat peculiar. While it ranked higher on more complex areas of competitiveness — innovation (49th) and business sophistication (57th), on the basic drivers of competitiveness such as health and primary education, its performance was poor.
India had its lowest rank in technological readiness (121st). Despite mobile telephony being almost ubiquitous, India is one of the world’s least digitally connected countries. The report said despite its immense potential and promise, by many accounts, India continued to suffer from poverty.
A third of India’s population still lives in extreme poverty — possibly the highest incidence outside sub-Saharan Africa — and many people still lack access to basic services and opportunities, such as sanitation, health care, and quality schooling.
However, it said the overall business environment and market efficiency (95th, down 10 places) are undermined by protectionism, monopolies, and various distortionary measures, including subsidies and administrative barriers to entry and operation.
It quoted the World Bank’s data on ease of doing business to say that it took 12 procedures and almost a month to register a business in India. Besides, taxes for a typical registered firm amount, on average, to 63 per cent of profits. - RBI eases ECB norms
To provide more flexibility in structuring external commercial borrowings (ECBs), the Reserve Bank of India (RBI) has allowed recognised non-resident ECB lenders to extend loans in rupees, subject to riders.
The central bank said lender should mobilise rupees through swaps with a bank in India. Besides, the ECB contract should comply with all other conditions applicable to the automatic and approval routes, as is the case. The overall cost of such ECBs should be commensurate with prevailing market conditions, RBI said.
It added for rupee-denominated ECB swaps, the recognised ECB lender could set up a representative office in India by following the prescribed process in this regard.
What are ECB’s?
An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc - Half of India was below poverty line in 2010: ADB
The Asian Development Bank (ADB) has revised its poverty line to $1.51 per person a day compared to $1.25 by the World Bank, which would push the numbers of poor by 182 million to 584 million in 2010 compared to the WB's estimates of 402 million.
ADB's calculations imply almost half of India's population (47.7 per cent) was below the line in 2010. Both these estimates are based on the year 2005's purchasing power parity (PPP) rates.
A few days ago, the Centre for Global Development's (CGD) calculations suggested 102.3 million were poor in India in the same year. While poverty estimation is undoubtedly a complex exercise, such a sharp difference does raise the inevitable question of how many poor are there in the country. The difference in these poverty estimates is on account of two factors - where one draws the poverty line and the PPP estimates used in the process of estimation.
ADB's latest estimates are based on revising the poverty line upwards from $1.25 to $1.51 per person per day. Though the regional multilateral agency mainly uses income for calculating poverty, in India it is expenditure that defines the poverty line. India does not have any official estimates for income distribution.
This revision was carried out on the grounds that the original poverty line was inadequate and did not truly reflect the costs required to maintain a minimum standard of living. By their estimates, India's poverty rate rises by 15 percentage points to 584 million in 2010, if compared to the poverty line of $1.25.
Another poverty estimate comes from the Rangarajan committee, which estimated the poverty line for India at Rs 920 (weighted average of rural and urban areas) for 2009-10, estimating the poor at 454.6 million. At the latest 2011 PPP, this translates to a poverty line of $2.03 per person per day. While, if one takes Ravallion's estimate of a PI of 0.43, the poverty line stands at $1.53, remarkably close to that used by ADB.
ADB
The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 which is headquartered in Metro Manila, Philippines to facilitate economic development of countries in Asia. - SBI launches savings bank accounts for children
State Bank of India, the country’ largest lender, has now launched two new savings bank accounts for children — Pehla Kadam and Pehli Udaan.
This comes after the Reserve Bank of India in May this year allowed minors aged more than 10 years to open and operate savings bank accounts independently.
While Pehla Kadam is a savings bank account for minors of any age operated jointly with his/her parent/guardian, Pehli Udaan savings bank account can be operated independently by a minor aged 10 years and above. Customers opening these accounts will be given a cheque book, a passbook and an ATM Card.
Apart from this, account holders will also be allowed internet banking facilities which can be used for certain select transactions like bill payment, opening of fixed deposits, recurring deposits, etc. with a daily transaction limit of Rs 5,000. These features will also be available on mobile banking platforms with a daily transaction limit of Rs 2,000.
Auto sweep with a minimum threshold of Rs 20,000 and in multiple of Rs 1,000 with a minimum of Rs 10,000 will also be allowed in these accounts.
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