RBI release new outsourcing norms for NBFCs

RBI has issued fresh directions on managing risks and code of conduct in outsourcing of financial services by NBFCs. These norms have to be complied with in the next two months.

Non-banking financial companies (NBFCs) cannot outsource core management functions like internal audit, strategic and compliance functions for know your customer (KYC) norms, sanction of loans and management of investment portfolio.

Access to customer information by staff of the service provider shall be on ‘need to know’ basis i.e., limited to those areas where the information is required in order to perform the outsourced function.

NBFCs also have been asked to constitute a grievance redressal machinery with the name and contact details of the redressal officer displayed prominently at their branches. It shall be clearly indicated that NBFCs’ grievance redressal machinery will also deal with the issue relating to services provided by the outsourced agency.

NBFCs would also be responsible for making currency transaction reports and suspicious transactions reports to the financial intelligence unit for activities carried out by the service providers.

Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license.

These institutions typically are restricted from taking deposits from the public depending on the jurisdiction. Nonetheless, operations of these institutions are often still covered under a country’s banking regulations.

NBFC cannot accept demand deposits.

NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.

Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

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Government Doubles Import Duty on Wheat to 20 Percent

The government doubled the import duty on wheat to 20 percent to curb cheap shipments and give positive price signal to farmers in the ongoing Rabi season.

It also imposed an import duty of 50 percent on peas to check cheaper shipments from countries like Canada.

The Central Board of Excise and Customs (CBEC) in a notification said that it seeks “to (i) increase rate of basic customs duty on Peas, (Pisum sativum) from present Nil rate to 50%. (ii) increase rate of basic customs duty on wheat from 10% to 20%.”

In March, the government had imposed 10 percent import duty on wheat to contain sharp fall in local prices in view of a bumper crop of 98.38 million tonnes in 2016-17 crop year (July-June).

As farmers have started planting of rabi (winter) wheat crop, the government wants to give positive price signal and encourage farmers to grow wheat in more area.

The government does not want wheat growers to follow the way of pulses farmers who shifted to other crops this kharif season as prices remained low just before the sowing period owing to a bumper crop last year.

India produced a record 22 million tonnes of pulses in 2016-17 crop year which led to a fall in domestic prices, even below the MSP.

Moreover, the country also imported about 5 million tonnes of pulses last fiscal.

The import duty on peas has been imposed to curb shipments and boost domestic prices.

Recently, the government had also imposed quantitative restrictions on the import of other pulses like tur.

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Composition scheme for GST

The advisory group set up to suggest changes to the GST Act recently deliberated on how to expand the scope of the composition scheme as well as rationalise the reverse charge mechanism process.

About the Composition scheme:


The composition scheme is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs 1 crore-Rs 50 lakh in the case of eight north-eastern states and the hilly state of Himachal Pradesh.

The objective behind it is to bring simplicity and reduce the compliance cost for small taxpayers.

While a regular taxpayer has to pay taxes on a monthly basis, a composition supplier is required to file only one return and pay taxes on a quarterly basis.

Also, a composition taxpayer is not required to keep detailed records that a normal taxpayer is supposed to maintain.

Key facts:

  • The scheme is optional under which manufacturers other than those of ice cream, pan masala and tobacco products have to pay a 2% tax on their annual turnover. The tax rate is 5% for restaurant services and 1% for traders.
  • As per the Central GST Act, businesses are eligible to opt for the composition scheme if a person is not engaged in any inter-state outward supplies of goods and not into making any supply of goods through an electronic commerce operator who is required to collect tax at source.
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India slips to 7th position in business optimism ranking: Grant Thornton survey

India has slipped to the 7th position this quarter in business optimism ranking in Grant Thornton’s International Business Report (IBR) survey. Last quarter, India was ranked second in the survey.

The survey was conducted in September before the government had announced its major reforms like bank recapitalization and infrastructure investments among others. The sample size of the survey is 2,500 businesses spread across 37 economies.

India has also slipped from its 1st position last quarter to 8th position this time in terms of revenue expectations. Businesses have expressed low confidence over expected revenue in the next twelve months with 75 percent respondents hoping for an increase in the revenue.

In terms of profitability, confidence has dropped with only 54 percent respondents showing optimism as against 69 percent in the last quarter.
Besides these, slight fall was also visible in expectation for an increase in selling prices and exports. The confidence for selling prices to increase has dropped to 5th position from the 4th, with only 47 percent businesses showing optimism. The optimism for exports to increase has dropped to 8th from the 6th, with only 31 percent confident about the increase in exports.

The survey said that India’s biggest growth constraints are citing regulations, red tape and lack of Information and communication technology (ICT) infrastructure. For Indian businesses shortage of finance and lack of skilled labour are the major disadvantages.

 

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Grahak Sadak Koyla Vitaran App

Shri Piyush Goyal, Union Minister of Railways & Coal has launched ‘Grahak Sadak Koyla Vitaran App’ benefitting customers of Coal India Limited (CIL) lifting coal through road mode.

The customer-friendly app, launched recently in Kolkata on CIL’s Foundation Day, helps achieve transparency in despatch operations, as a tool to monitor, whether the despatches are made on the fair principle of ‘First in First Out’ and keeps track of all the activities from issuance of Sale Order to physical delivery of coal by road.

The main benefits of the App for the customers, against the Sale Orders issued, include easy accessibility of the information at the click of the button, apart from transparency in the system of loading programme and despatch. The app also helps in logistics planning for the lifting of coal in tune with the loading programmes. It further helps in improved planning of procurement, production and stock management by the customers.

The main features of the app are that it provides date-wise, truck-wise quantity of coal delivered against the Sale Orders and information related to Scheme-wise, Colliery-wise, Grade-wise, customer-wise details of Sale Orders issued during a period.

In terms of loading it provides allotment verses lifting status in details from different sources truck by truck and summary of the despatch.

Coal India is addressing its customer needs in a big way and made ‘ease of doing business’ a major consumer commitment. The launching of the app is also one of the initiatives of CIL towards achieving the much cherished goal of ‘Digital India’ and transparency.

It may be recalled that CIL in a move to rush more coal to power stations, coal supplies to plants located in shorter distances have been offered through road mode from available pithead stock. As a result, power plants located within 50 Kms to 60 Kms from the mines may take as much coal from the nearest mines as they can.

During 2016-17 despatch of coal through road mode had been about 140 Million Tonnes (MTs) out of the total despatch of 542 MTs by CIL accounting for 26%. The impetus given in the current fiscal has improved movement of coal through road considerably. As of end of October 2017 the movement of coal through road mode at a little over 93 MTs accounted for 29% of the total coal despatch of 317 MTs.The road despatch during the current fiscal till October 2017 went up by 12 MTs compared to same period last fiscal.

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IBBI tightens rules on rescue plan approvals

Insolvency and Bankruptcy Board of India (IBBI) has amended its Corporate Insolvency Resolution Process Regulations to ensure that as part of due diligence, prior to approval of a Resolution Plan, the antecedents, creditworthiness and credibility of a Resolution Applicant, including promoters, are taken into account by the Committee of Creditors.

This move is aimed at ensuring that the Corporate Insolvency Resolution Process results in a credible and viable Resolution Plan.

About IBBI:

Insolvency and Bankruptcy Board of India was set up on 1st October 2016 under the Insolvency and Bankruptcy Code, 2016 (Code). It is a unique regulator: regulates a profession as well as transactions.

Functions:

It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities.

It writes and enforces rules for transactions, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.

It is a key pillar of the ecosystem responsible for implementation of the Code that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals.

This is done in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.

The organizational structure of IBBI:

The IBBI has a ten-member board including a Chairman. It has:

  • One Chairperson.
  • Three members of Central Government offices not below the rank of Joint Secretary or equivalent.
  • One nominated member from the RBI.
  • Five members nominated by the Central Government; of these, three shall be whole-time members.
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Public credit registry to speed up digitisation

Reserve Bank deputy governor N.S.Vishwanathan on Monday said the introduction of a public credit registry will further speed up digitisation that has already changed the way banking is done in the country.

He said digitisation can help the country leapfrog over the developed countries and “we are in a sweet spot on digitisation.”

On the mushrooming of payments banks, which now act as banking channels of regular lenders, he said they can revolutionise banking services.

Already, many institutions have come together to provide financial services, reducing the need for intermediation, the RBI deputy governor said.

About Public Credit Registry:

The PCR will be an extensive database of credit information for India that is accessible to all stakeholders. The idea is to capture all relevant information in one large database on the borrower and, in particular, the borrower’s entire set of borrowing contracts and outcomes.

Management of PCR:

Generally, a PCR is managed by a public authority like the central bank or the banking supervisor, and reporting of loan details to the PCR by lenders and/or borrowers is mandated by law. The contractual terms and outcomes covered and the threshold above which the contracts are to be reported vary in different jurisdictions, but the idea is to capture all relevant information in one large database on the borrower, in particular, the borrower’s entire set of borrowing contracts and outcomes.

Benefits of having a PCR:

A PCR can potentially help banks in credit assessment and pricing of credit as well as in making risk-based, dynamic and counter-cyclical provisioning.
The PCR can also help the RBI in understanding if transmission of monetary policy is working, and if not, where are the bottlenecks.

Further, it can help supervisors, regulators and banks in early intervention and effective restructuring of stressed bank credits.

A PCR will also help banks and regulators as credit information is a ‘public good’ and its utility is to the credit market at large and to society in general.

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Crypto currencies now come under SEBI lens

The rising popularity of crypto currencies and the increasing number of entities looking at raising funds through Initial Coin Offerings (ICO) has caught the attention of the capital market regulator.

The Securities and Exchange Board of India (SEBI) is mulling whether an ICO can be regulated under the existing legal framework or certain amendments would be required.

Crypto currencies like bitcoin, ethereum and such offerings have been under government radar for long and discussions have been held between various bodies, including SEBI and the Reserve Bank of India (RBI), on the possible ways in which this segment can be regulated.

The central bank is of the view that these instruments are securities and so SEBI should be the regulating body.

Bitcoins are neither ‘commodities derivatives’ nor ‘securities’ under Securities Contracts (Regulation) Act, 1956.

An ICO, like an equity initial public offer (IPO), is an issuance of digital tokens that can be converted into crypto currencies and are mostly used to raise funds by start-up firms dealing in block chain technology and virtual currencies like bitcoins and ethereum.

Unlike an IPO, which is governed by SEBI regulations, there is no regulatory body for ICOs in India.

China recently banned such offerings after its central bank said that ICOs are “illegal public finance” mechanism used for issue of securities and money laundering.

Start-ups like Zebpay, Unocoin, Coinsecure, Searchtrade, Belfrics and Bitxoxo are some of the well-known players in the bitcoin and blockchain segment in India.

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India hits 100 in ease of doing business

India jumped up 30 notches into the top 100 rankings on the World Bank’s ‘ease of doing business’ index, thanks to major improvements in indicators such as resolving insolvency, paying taxes, protecting minority investors and getting credit.

“The significant jump this year is a result of the Indian government’s consistent efforts over the past few years and India’s endeavour to strengthen its position as a preferred place to do business,” said Annette Dixon, Vice President, South Asia region at the release of ‘Doing Business 2018: Reforming to Create Jobs’ on Tuesday.

India’s fastest single-year jump in the World Bank’s Ease of Doing Business ranking has been a meticulously planned exercise. It began with the World Bank agreeing with the government that the survey (that underlies the ranking) should be conducted in two cities (Mumbai and Delhi) unlike the pre-2016 methodology of ranking reflecting the perception of business in Mumbai alone.

GST will improve rank

There is significant improvement in many criteria such as protecting minority investors, availability of credit and getting an electricity connection. On the taxation index, India had vaulted up 53 places; once the impact of the GST is factored in, the ranking will improve further. The cut-off for the rankings was June 1.

An improvement in the rankings will help not only foreign investments but also domestic investors.

India is among the top ten improvers this year, with improved ranking in six of the ten indicators, while its performance in absolute terms improved in nine. The six areas of improved ranking include dealing with construction permits and enforcing contracts.

Where India slipped

In the category of starting a business, though, the need for local entrepreneurs to go through 12 procedures to start a business, as opposed to five in high-income countries, worsened India’s ranking in the category to 156 from 155 last year.

There was also a major slip in ranking in the category of registering property — from 138 last year to 154 this year — due to increase in time taken, cost and number of procedures for registration.

Bhutan, in 75th place, is South Asia’s highest-ranked economy, followed by India (at 100) and Nepal (at 105).

This year, the report recognised eight areas in which reforms were implemented in Delhi and Mumbai, as opposed to just four last year.

India’s corporate law and securities regulations were recognised as highly advanced, placing it in fourth place in the global ranking on protecting minority investors. The time taken to obtain an electricity connection in Delhi reduced from 138 days four years back to 45 days now, against a 78-day average in OECD high-income economies, the report observed. This put India in 29th place in the category.

India still lags in areas such as starting a business, enforcing contracts and dealing with construction permits. It takes longer to enforce a contract today, at 1,445 days, than 15 years ago (1,420 days).

Further Reading:

Ease of Doing Business Report

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Govt sets up Arun Jaitley-panel to oversee PSU bank mergers

In another significant move to revive PSU banks weighed down by bad loans, the government on Monday set up a ministerial panel, led by finance minister Arun Jaitley, to consider and oversee mergers among the country’s 21 state-run banks.

Members of the panel on PSU bank consolidation include railway and coal minister Piyush Goyal, and defence minister Nirmala Sitharaman, PTI reported.

The decision comes less than a week after the government announced a Rs2.11 trillion bank recapitalisation plan for public sector banks weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.
The constitution of an Alternative Mechanism is a move in that direction. The Union cabinet in August had decided to set up an Alternative Mechanism to fast-track PSU bank consolidation.

The consolidation of struggling state-run banks, which have a market share of about 70% and account for over 80% of bad loans in the Indian banking system, is aimed at building scale and bolstering their risk-taking ability.

The idea of bank mergers has been around since at least 1991, when former Reserve Bank of India (RBI) governor M. Narasimham recommended the government merge banks into a three-tiered structure, with three large banks with an international presence at the top.

In 2014, the P. J. Nayak panel suggested that the government either merge or privatize state-owned banks. The government hopes that state-owned banks will achieve economies of scale and operational efficiency, while managing risks in a better way after merging.

Consolidation is also likely to help them deal better with their credit portfolio, including stressed assets. Consolidation prevents multiplicity of resources being spent in the same area and strengthens banks to deal with shocks, Jaitley had said in August. According to experts, the consolidation plan along with measures such as capital infusions in weak banks will trigger a revival.

The State Bank of India merged operations of five of its associate banks and Bharatiya Mahila Bank with itself earlier this year, marking the first consolidation move in the sector following the bad loan crisis. The merger has reduced the number of state-controlled banks to 21 from 26.

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