The Reserve Bank of India has today communicated that the applicable average base rate to be charged by Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) to their borrowers for the quarter beginning April 1, 2021 will be 7.81 per cent.
It may be recalled that the Reserve Bank had, in its circular dated February 7, 2014, issued to NBFC-MFIs regarding pricing of credit, stated that it will, on the last working day of every quarter, advise the average of the base rates of the five largest commercial banks for the purpose of arriving at the interest rates to be charged by NBFC-MFIs to their borrowers in the ensuing quarter.
From April 1, 2021, the Financial Year 2021-22 will begin. There are some big changes coming up next month that will have a significant impact on the financial circumstance. A spike in NPS fund manager’s charges, banking regulations due to merge of some banks, adjustments in LPG cylinder rates, a new salary system, and so on are only a few of the significant changes that will be in effect from tomorrow. Here are the most important adjustments that will have a significant influence on your financial status.
LPG Price
The price of LPG cylinder is announced by the central government on the first of every month. Although international oil prices are expected to increase in the coming month, the price of LPG cooking gas may spike further on April 1, 2021.
New Wage Code
The new wage code regulations are scheduled to be announced in accordance with the Code on Wages 2019 on April 1, the first day of the fiscal year 2021-22. The Wage Code Bill was approved by the government in Parliament in 2019. An adjustment in salary structure and working hours for a significant number of employees is projected as a result of this. Employers will be required to pay at least 50% of an employee’s CTC as basic pay under the new wage code, which will maximize contributions to other aspects such as provident fund and gratuity. Basic pay, house rent allowance (HRA), retirement benefits (PF, gratuity, and more), and tax allowances like LTC and so on all relate to an employee’s CTC. As a result, most employees’ take-home pay will be reduced, but retirement benefits are likely to be higher due to increased monthly contributions to the provident fund and gratuity.
Hike in NPS Fund Managers Charges
The Pension Fund Regulatory and Development Authority (PFRDA) has mandated pension fund managers (PFMs) to charge more for the next fiscal year 2021-22, which starts on April 1, 2021, in order to draw more foreign investment The pension regulator has permitted fund managers to charge higher than the current 0.01 percent because the PFRDA has abolished the 0.01 percent ceiling on AUM (Asset Under Management) charges, according to PFRDA. The overall limit has been set at 0.09 percent for AUM up to Rs 10,000 crore, according to the PFRDA. Charges of up to 0.06 percent will be allowed for PFMs with AUM of Rs 10,001 crore to Rs 50,000 crore. Charges of up to 0.05 percent will be required for those with AUM of Rs 50,001 crore to Rs 150,000 crore. Finally, PFMs with assets under management of more than Rs 150,000 crore will be permitted to charge a maximum fee of 0.03 percent.
Passbook and cheque book will be become non-functional
Your passbook and cheque book will become non-functional on April 1, 2021, if you have a bank account with any of these seven public sector banks: Dena Bank, Vijaya Bank, Corporation Bank, Andhra Bank, Oriental Bank of Commerce, United Bank of India, and Allahabad Bank. This will come as a part of the merging of these banks with other banks. As Dena Bank and Vijaya Bank is merged with Bank of Baroda, Oriental Bank of Commerce and United Bank of India with Punjab National Bank (PNB), Corporation Bank and Andhra Bank with Union Bank of India and Allahabad Bank merger with Indian Bank. Account holders of the other merged banks will be allowed to use their current cheque books and passbooks until March 31 (today). If a customer has an account with any of these seven banks, look for a new cheque book and IFSC code instantly. That being said, Syndicate Bank and Canara Bank’s current cheque books and passbooks will be valid until June 30, 2021.
New tax rule on EPF
The government declared a limitation on tax deduction on PF contributions in Budget 2021. An annual contribution limit of Rs 2.5 lakh has been introduced. Strictly speaking, if an employee’s statutory or voluntary contribution to the provident fund exceeds Rs 2.5 lakh a year, the interest received on that excess contribution is subject to taxation. The new law will take effect on April 1, 2021. The change is expected to affect individuals with high income and, as a result, high EPF contributions. And apart from high-income individuals, salaried employees who contribute more than the required 12 percent of basic pay in the Voluntary Provident Fund (VPF) will be affected.
Tax deducted at source (TDS)
In budget 2021, the finance minister proposed higher TDS (tax deducted at source) or TCS (tax collected at source) thresholds in order to enable more taxpayers to file income tax returns (ITR). The budget proposes adding new Sections 206AB and 206CCA to the Income Tax Act as a special allowance for the deduction of higher TDS and TCS thresholds for non-filers of an income tax return, respectively. Individuals who have not paid income tax returns yet have a TDS or TCS allowance of more than Rs 50,000 in the previous two years will be required to pay TDS or TCS at a rate of at least 5%.
LTC cash voucher scheme
In Budget 2021, the central government announced a tax deduction for cash allowance in favor of the Leave Travel Concession (LTC). Last year, the government proposed a scheme for people who were unable to receive their LTC tax advantage due to covid-related travel bans. This initiative is only valid until March 31, 2021, which means money must be spent by the stated date to avail the benefit.
Pre-filled ITR forms
Individual taxpayers will be issued pre-filled Income Tax Returns (ITR). Details of salary income, tax payments, TDS, and other records are now pre-filled with income tax returns to make compliance easier for the taxpayer. Specifics of capital gains from listed securities, dividend income, and interest from banks, post office, and other sources will be pre-filled to make filing returns much easier. The step is intended to make filing returns easier.
Senior citizens above the age of 75 are no longer required to file ITR
Individuals above the age of 75 are restricted from filing income tax returns, according to Finance Minister Nirmala Sitharaman, who announced the restriction while introducing Budget 2021. (ITR). Only senior citizens who have no other source of income and depend solely on their pension and interest from the bank that holds their pension account will be eligible for the provision.
New tax regime
On April 1, 2020, the new fiscal year will begin amid a nationwide lockdown. Despite the fact that the government has extended numerous tax-related deadlines, such as the filing of income tax returns for FY 2018-19, tax-saving for FY 2019-20, and linking of PAN with Aadhaar, some new tax-related rules will take effect on April 1. Last year, in Budget 2020, the government adopted the new tax regime. That being said, beginning on April 1, 2021, the practice of choosing one of the tax regimes for FY 2020-21 will be necessary. Taxpayers have a deadline until March 31, 2021 (today) to make tax-saving deductions, but they will be required to choose a tax regime while filing their tax returns for the fiscal year 2020-21. At the beginning of FY 2020-21, an individual can select the new tax regime and notify their employer. During the fiscal year, the employee is not allowed to change their preference. The adjustment, however, can be introduced when filing IT returns in July 2021. The deadline to pay tax for FY 2020-21 (AY 2021-22) is July 31, 2021. If an individual does not adopt the new tax regime at the outset of the fiscal year, the employer will subtract tax (TDS) in compliance with the current tax regime.
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The Indian rupee slumped 20 paise to 73.58 against the US dollar in opening trade on Wednesday, weighed down by the strength of the greenback and weak domestic equities.
At the interbank forex market, the domestic unit opened at 73.56 against the US dollar, then fell further to 73.58, registering a fall of 20 paise over its previous close.
On Tuesday, the rupee had settled at 73.38 against the American currency.
Most of the Asian currencies were weak this Wednesday morning and will weigh on sentiments, traders said.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, advanced 0.13 per cent to 93.41.
“The US dollar was flat to higher against the basket of currencies this Wednesday morning in Asian trade as investors bet that massive fiscal stimulus and aggressive vaccinations will help the US lead a global pandemic recovery,” Reliance Securities said in a research note.
On the data front, the government is likely to announce borrowing plan for April-September. Additionally, the government is scheduled to release April-February fiscal deficit data. RBI is also likely to release October-December current account data, the note added.
In the domestic equity market, the 30-share BSE benchmark Sensex was trading 422.74 points lower at 49,713.84, and the broader NSE Nifty fell 96.85 points to 14,748.25.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth ₹769.47 crore on Tuesday, according to exchange data.
Brent crude futures, the global oil benchmark, rose 0.48 per cent to $64.45 per barrel.
Public sector lender Punjab & Sind Bank on Tuesday said it has declared the account of IL&FS Transportation Network Ltd (ITNL) with total dues of Rs 149.98 crore as fraud.
The said account has been reported to the RBI.
It is informed that an NPA Account, viz IL&FS Transportation Network Limited (ITNL) with outstanding dues of Rs 149.98 crore has been declared as fraud and reported to the RBI as per regulatory requirement, Punjab & Sind Bank said in a filing.
Further, it said, the account has been fully provided for as per the existing RBI norms.
Banks roiled by the Archegos Capital fallout may see total losses in the range of $5 billion to $10 billion, according to JPMorgan.
Losses from trades unwinding related to Archegos will be “very material” in relation to lending exposure for a business that is mark-to-market and holds liquid collateral, analysts led by Kian Abouhossein wrote in a note. They added that Nomura Holdings Inc’s indication of potentially losing $2 billion and press speculation of a $3 billion to $4 billion loss at Credit Suisse AG is “not an unlikely outcome.”
Analysts and investors are trying to figure out the final losses to banks exposed to the Archegos implosion, with the task made harder by the opaque nature of the leveraged trading involved. JPMorgan had previously estimated losses in the range of $2 billion to $5 billion.
“We are still puzzled why Credit Suisse and Nomura have been unable to unwind all their positions at this point,” the analysts wrote, adding that they expect to see full disclosures from lenders by the end of this week.
Credit Suisse Girds for Billions in Losses From Archegos Hit
The analysts advised investors to keep an eye on credit agencies statements as they expect poor risk management to be an issue.
That’s an emerging theme at Credit Suisse, where executives are expecting the loss related to Archego to run into the billions, according to people with knowledge of the matter. March’s blowups may wipe out more than a year of profits for the bank and threaten its stock buyback plans, as well as adding to the reputational hit from other missteps.
The bank’s plans to buy back 1.5 billion Swiss francs ($1.6 billion) of shares are at risk, according to Berenberg analyst Eoin Mullany. He estimates the lender could face losses of $3 billion to $4 billion.
“The hits just keep coming for Credit Suisse,” he wrote in a note Mullany.
Preceding the Archegos losses were the liquidation of its supply-chain finance funds linked to collapsed financier Lex Greensill and a writedown on a stake in hedge fund York Capital Management taken in the fourth quarter.
The buyback programme resumed in January after having been suspended for nearly a year due to the pandemic.
UK’s Development financial institution, CDC Group has tied-up with Northern Arc to jointly structure a pooled bond issuance transaction by partial guarantee provided by Northern Arc.
CDC’s Rs 320 crore investment in a pool of senior secured NCDs will provide systemic liquidity to six leading microfinance companies: Annapurna Finance, Arohan Financial Services, ASA International, Asirvad Microfinance Limited, Chaitanya India and Fusion Microfinance.
The investment is expected to support MFIs in providing over 630,000 new micro-loans to low-income households. Srini Nagarajan, Managing Director and Head of Asia at CDC, said: “This exciting partnership with Northern Arc marks CDC’s first Pooled Bond Issuance in India, and comes at a time when systemic liquidity is critically needed to mitigate the impact of COVID-19 on vulnerable population in India. We are pleased that our investment will facilitate access for small businesses and will especially ensure that more women in India have improved access to finance, helping to uplift their livelihoods, households and communities.
The PBI product, developed by Northern Arc, pools together for one investor a set of debentures issued by diverse entities. These debentures are partially guaranteed by Northern Arc. For this transaction, Northern Arc worked with CDC through a virtual due-diligence process that covered all six entities, and to structure a product that meets the risk and return requirements of the investor.
Dr Kshama Fernandes, Chief Executive Officer of Northern Arc Capital said: “Northern Arc’s forte has been to introduce impact sectors to investors through its innovative products and structures. CDC’s first investment in a Pooled Bond Issuance in the microfinance sector in India is testament to this. The structure has enabled originators to efficiently access a global DFI and avail long tenor debt on their balance sheet. We see this as a beginning of a long-term partnership that will enable our clients to raise capital through cycles.”
The central government’s plan to borrow a massive Rs 12 lakh crore in 2021-22 and additional Rs 80,000 crore in fiscal 2021 from the market has spooked the bond market.
Bond investors are seeking higher yields as with the rise in demand the prices should rise.
They see RBI winding back its accommodative measures as the economy recovers from the pandemic. Traders, therefore, see few incentives to buy bonds.
Borrowing costs
However, RBI, the manager of government borrowing, has to keep costs low for the government and is therefore looking at pumping liquidity to ensure yields are capped.
To support the programme, the RBI will seek to buy more than Rs 3 lakh crore of debt while capping the benchmark yield at 6%.
However, the benchmark 10-year bond as its yield keeps breaching 6%, a level that’s seen as a line in the sand for the Reserve Bank of India.
The central bank typically raises funds from banks, financial institutions, mutual funds and foreign institutions. It recently allowed retail investors also in the bond market. Inflation woes
With the rising inflation, RBI, which operates the monetary policy, is mandated to raise rates to tame inflation. This brings in conflict with its role to keep borrowing costs low for the government.
Experts this conflict rising in the coming years as the government has guided that the fiscal deficit will higher for the next few years.
So how is RBI managing?
As long as inflation is low, the RBI steps in and purchases bonds, but when interest rates start rising, it will have to increase liquidity in the system and push down rates.
The central bank is already resorting to measures such as Operation Twist, or simultaneous buying and selling of bonds via open market operations (OMOs).
It has already conducted Rs 3 lakh crore of bond purchases under OMOs this year.
In Operation Twist, the central bank buys longer maturity papers and sells shorter maturity papers to keep liquidity neutral.
However, as corporates raise money at shorter yield, Operation Twist is crowding them out of the market.
The central bank has also undertaken measures such as long-term repo operations and targeted long-term repo operations to infuse liquidity into the system.
The hitch
However, the market is jittery over such a huge borrowing plan and it also sees certain RBI measures veering from the accommodative stance as inflation rises.
Already, the borrowing programme of the central government for this financial year till date has been of around Rs 13.17 lakh crore and those of state governments around Rs 7.17 lakh crore. All these purchases are reflecting losses on investor balance sheets.
The RBI which had cut cash reserve ratio (CRR) by 100 bps in March 2020 for a period of one year, has recently announced a phased restoration of CRR to 4 per cent from March 27, which is being seen as a move towards reversal of accommodative stance.
The RBI’s strategy of pursuing multiple objectives such as exchange rate management to stop the rupee from appreciation, inflation control and liquidity management has led to confusion in the market.
Due to this the yields remain elevated. The spread of 10-year government bond over the repo rate has remained widened as also the spread of 10-year bonds over 1 year T-bills has also widened.
Some relief
The recent rise in international oil prices may reduce upward pressure on the rupee, which may give RBI elbowroom to reduce dollar purchases and step up bond buys to ensure adequate liquidity in the local market, and help the government borrowing programme.
While the market remains unconvinced over RBI’s ability to manage the government’s borrowing programme, in February, RBI governor Shaktikanta Das had exuded confidence that it will able to manage the high quantum of government borrowings at Rs 12 lakh crore for the next fiscal in a “nondisruptive” manner.
However, banks and payment gateways are seeking additional time to comply with the RBI directive on automatic recurring payment.
On December 4, RBI had directed all banks including RRBs, NBFCs, and payment gateways that the processing of recurring transactions (domestic or cross-border) using cards or Prepaid Payment Instruments (PPIs) or Unified Payments Interface (UPI) under arrangements/practices not compliant with AFA would not be continued beyond March 31, 2021.
As part of risk mitigation measure, RBI announced this step to bolster safety and security of card transactions.
Non-readiness of some of the players could impact recurring payment such as of utility bills, recharge of phone, DTH and OTT, among others, post March 31.
Recently, RBI enhanced the limit for contactless card transactions and e-mandates for recurring transactions through cards (and UPI) from Rs 2,000 to Rs 5,000 from January 1, 2021 with a view to further the adoption of digital payments in a safe and secure manner.
Under the new norms, banks will be required to inform customers in advance about recurring payment due and transaction would be carried following nod from the customer. So the transaction would not be automatic but would be done after authentication from the customer.
For recurring payments above Rs 5,000, banks are required to send one-time password to customer as per the new guidelines.
“All the ecosystem players, be it banks and payment gateways, are guilty of not taking RBI directive seriously from 2019 and not being able to come on a single platform, which we should have done at least a couple of months back, so that there could have been a smooth transition to the new way of doing recurring transactions,” Payments Council Of India (PCI) Chairman Vishwas Patel said.
So, the Reserve Bank of India (RBI) requested to consider giving at least one month extension so that players meet RBI directives, Patel, who is executive director of Infibeam Avenues, said.
“Everybody has understood the seriousness of it because it is Rs 2,000 crore a month business, as per PCI estimates. We hope that the cycle is not broken and the end consumers and merchants are not inconvenienced,” he added.
A senior executive at an e-commerce company said the industry is not prepared to implement the e-mandate framework issued by RBI.
Starting April 1, customer e-mandate transactions will be declined by banks, if further extension is not granted by RBI, the official said, adding, this will cause major disruption to recurring transactions and will erode customer trust in digital payments.
The Bhubaneswar-based micro lender had a gross loan portfolio of Rs 4466 crore as of December 2020, making it the country’s seventh largest NBFC-MFI.
“Nuveen’s expertise and funding will help us meet our expansion plans and we look forward to working with them to develop our climate initiatives,” Annapurna managing director Gobinda Chandra Pattnaik said.
Unitus Capital advised Annapurna in the deal.
Nuveen, the investment manager of Teachers Insurance and Annuity Association of America Fund (TIAA), invested nearly $500 million in direct and indirect private equity capital across over 200 portfolio companies in alignment with the United Nations Sustainable Development Goals. It manages over $5.8 billion in public and private markets impact investing strategies.
Annapurna has microfinance operations in 313 districts across 18 states serving 1.8 million clients — of which the majority is women. About 85% of Annapurna’s borrowers operate their businesses in rural areas.
Small Industries Development Bank of India, Oman India Joint Investment Fund, Belgian Investment Organization, SIDBI Venture Capital, DCB Bank, Oikocredit, Women’s World banking and Bamboo Capital Partners are existing investors in Annapurna.
