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Tax Query: How to save real estate capital gain?

November 13, 2021 root Personal Finance

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I have a house and a flat, and the same are declared in my IT returns every year. Last financial year, I have sold a plot (purchased during 2004-05) at a profit. I have opened a capital gains account and invested the entire proceeds in the capital gains account. Out of the sale proceeds, I have used about 85 per cent for booking a flat in Bangalore. The new flat is not yet registered. The balance amount in capital gains account is equal to my plot’s original cost. I need guidance on the following:

(A) Can I claim exemption from tax on capital gains, since I have used the proceeds from sale for purchase of property (booking advance)? Is capital gains tax applicable for my sale transaction since I have used the proceeds from sale for purchase of property (booking advance)? (B) I understand that I have to pay capital gains tax since I have two properties in my name, as per prevailing IT rules. But it is to be noted that the third property (new flat) is not yet registered. If capital gains tax is applicable, can I gift the property to my wife by making settlement deed before filing IT return for FY 2020-21, so that I remain a owner of only two properties (including new one)? (C) Also, please suggest whether I can remit back the amount withdrawn from the capital gain accounts and avoid capital gains tax?

Satyanarayana KS

A) Capital gain (CG) tax provisions shall apply on sale of plot under Income tax Act, 1961 (the Act). You are eligible to claim the tax deduction under section 54F of the Act from the capital gains earned, by investing the net sale consideration in buying the residential house property, provided you don’t own more than one residential house property (excluding the new property) on the date of transfer of the plot. As you own more than one residential house property (house and flat) on the date of sale of plot of land, you may not be eligible to claim this exemption. We would also like to add that you may still claim the deduction under section 54EC of the Act upon investing making investment in specified bonds (including National Highway Authority of India (NHAI) or Rural Electrification Corporation Limited bonds) up to ₹50 lakh. Such investment should be made within six months from the date of transfer of such capital asset and the lock-in period is five years. The option of depositing the capital gains in CGAS is not available for exemption in this category.

B) There are two transactions here. One is sale of plot and the other is gifting of property. Gifting of immovable property to your spouse is exempt under section 56 (1) (x) of the Act. Your spouse is not required to pay tax on such gifts. In order to claim exemption under Sec. 54F, as mentioned earlier, the crucial point is the date of sale. If on the date of transfer of the plot you own more than one house property then, you will not be eligible to claim exemption.

C) LTCG could be deposited in Capital Gain Account Scheme (CGAS) for the purpose of utilising the money in making the requisite investments. However, such deposits should be made on or before the due date of filing the tax return. There are specific conditions for transferring / withdrawing the amount from CGAS account or closure of such account whereby you are required to complete certain formalities with your banker. Further, if the amount remains unutilised after expiry of prescribed period of time, then the amount not so utilised shall be charged as capital gains of the year in which the prescribed period expires.

The writer is Partner, Deloitte India

Send your queries to taxtalk@thehindu.co.in

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Should you invest in crypto deposits, crypto SIPs?

November 13, 2021 root Personal Finance

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In an attempt to popularise cryptos, platforms focussing on India have come out with various products with cryptocurrencies as the underlying. The attempt is to mainstream cryptos by marketing these products as ‘investment options’. This has meant that crypto deposits, crypto SIPs, and managed crypto portfolios etc. have come to the fore. Investors who are exposed to traditional investment avenues such as deposits, mutual funds and curated portfolios, but do not have the conviction of boarding the crypto bandwagon just yet, may be tempted by these alluring crypto schemes. But, things are seldom as rosy as they appear to be. Here we discuss these new-fangled crypto schemes in detail.

Crypto deposits

Sold as crypto ‘fixed deposits’ or ‘savings accounts’, platforms offer an annual percentage yield (APY) of upto 14 per cent depending on the type of cryptos you keep. There are 30-40 types of cryptos usually accepted such as Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Ripple (XRP), USD Coin (USDC), Uniswap (UNI), Binance USD (BUSD), Chainlink (LINK), Polygon (MATIC), etc. In comparison, the annual interest rates (not APY) on conventional bank savings accounts are 3-4 per cent and on bank FDs is 5-6 per cent. The high reward goes hand in hand with high risk in the case of cryptos. When you deposit crypto assets into a crypto deposit/savings account, the platform lends your holdings to others for various purposes for 7-90 days. The platform takes a small cut, while passing on the rest of the interest to users. For the depositor, the tenure can be open-term (withdraw any time) or fixed-term (penalty applies on early withdrawal).

Crypto deposits/savings account exposes investors to several risks. One, the risk of hacks is omnipresent. The possibility of a hack greatly depends on the platform and the safety protocols it uses. Platforms that store your tokens in a hot wallet are more vulnerable to attack. Two, when you give your cryptos the ultimate borrower could potentially default. One would hope platforms have stringent requirements for borrowers and robust lending standards. If not, it is a major cause for concern. Since neither cryptocurrencies or crypto platforms are regulated, in case of a default you won’t be able to press any charges on anybody. Ideally, we would ask you to do careful research on any platform you’re considering and learn about its security features, policies and track record of breaches or defaults. But, being an unregulated space, crypto platforms are under no legal binding to share any information with you or with the authorities.

Crypto SIPs

If you are aware of mutual funds, you may know that Systematic Investment Plans (SIPs) allow users to do rupee-cost averaging by investing a fixed amount amount at frequent intervals. Irrespective of the returns of mutual funds or the prevailing market sentiment, SIP users put in the decided sum over a long period of time to average their cost of investment in stocks, fixed income securities or gold. In the mutual SIP arena, long-term returns of large-cap funds historically have been 10-15 per cent CAGR over 15-year period. But in the world of crypto SIPs, the advertised returns are much greater and often outlandish. For instance, one platform claimed that crypto SIP can give 1800 per cent. Another platform talked about an ‘RoI’ (return on investment) of 60-1400 per cent! The modus of operandi is the same as a mutual fund SIP, but the underlying asset is volatile cryptos. So, investors should take any indicated RoI or historical rate of return with a pinch of salt. The same risks that you encounter while buying cryptos directly are also present while doing crypto SIPs. Platforms often compare MF SIPs with crypto SIPs, but market fluctuations are not wild in mutual funds. To sweeten the deal, crypto SIPs come with zero expense ratio, but there are other charges that hit returns. For instance, per SIP transaction trade fees (0.25 per cent in some platforms) i.e. each transaction and each redemption can be a costly affair if you invest or redeem crypto SIPs multiple times.

Managed crypto portfolios

Given the technical nature and the lack of understanding about cryptos, platforms have come up with ways for you to invest money but the portfolio management will be done by ‘skilled’ traders. As an investor someone with no time or skill buys a ‘token’ i.e. passes on their portfolio to a trader and lets them manage it. In return, the trader takes a portion (20-25 per cent ) of the profit. Investors can sell the tokens, i.e. units of the managed portfolio, as their value increases and enjoy supposedly hands-free wealth creation. Some platforms claim they have a stringent process to ensure only best crypto traders manage others’ money. They do full KYC, review previous trades, portfolio sizes etc. to assess the quality of the trader.

As an idea, managed crypto portfolios are great. But, practical experience has exposed many problems. Some of the largest crypto platforms have witnessed huge number of complaints from distraught investors.

The platforms waited for sometime, hoping investors would recover some losses. But, ultimately they pulled the plug. Given the young nature of crypto as an asset, the high volatility and lack of actually skilled traders/portfolio managers, managed crypto portfolios is another signal of why you should be extremely careful while dealing with such assets. Every day some unknown crypto goes up by 1000-2000 per cent, but there are also some who fall by 90-95 per cent in a day. With such volatility and lack of real-world use of cryptos, be very sure before trying such offerings.

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3 important things to note about NPS annuity

November 13, 2021 root Personal Finance

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The National Pension System (NPS) is one of the preferred retirement options, thanks to its low cost structure and tax advantage. But one thing that concerns investors is the mandatory requirement to lock into an annuity product on exit. The requirement to purchase an annuity is for providing a monthly pension after retirement. If you are planning to enter the NPS or are an existing subscriber reaching your retirement age, here are some of the important factors to know about the annuity product.

Under all citizens model, for subscribers on turning 60, it is mandatory to buy an annuity plan with at least 40 percent of the NPS corpus (unless subscriber decides to defer the exit). The balance 60 per cent is paid as lump sum to the subscriber. If the subscriber chooses to prematurely exit from the NPS before the retirement age, at least 80 per cent of the accumulated corpus has to be utilised for the purchase of annuity.

The four main variants of annuities include — Annuity for life (annuity for life time and on death of the subscriber, annuity ceases); Annuity for life with return of purchase price (on death, annuity ceases & 100 per cent of the purchase price is returned to the nominee); Joint life, last survivor without return of purchase price (annuity for life time and on death of the subscriber, annuity will be payable to the spouse for life time. On death of the spouse, annuity ceases); and Joint life, last survivor with return of purchase price (same as earlier, but purchase price will be returned to the nominees on death of the spouse). There’s one more option – ‘NPS – Family Income’, a dedicated annuity option offered only to government employees.

Currently, there are 13 life insurance companies empanelled with the Pension Fund Regulatory & Development Authority (PFRDA), from whom you can select the annuity product. One can use the link – https://cra-nsdl.com/CRAOnline/aspQuote.html – to compare the annuity rates for different annuity variants provided by the all service providers.

Return on investment

When you purchase an annuity, you get a fixed income at the annuity rate throughout life irrespective of interest rate movements. Since the annuity pays you for life-time, it also reduces the risk of re-investment of capital. These benefits come at a cost, though, which get accounted for in the annuity rate.

Currently, the annuity rates for products with the return of purchase price (ROP) are in the range of 5.5-6.6 per cent for an individual of 60 years for an annuity purchase of ₹40 lakh. Though not a perfect comparison, we can look at the return on the ROP annuity products versus that on non-cumulative bank deposits and the Pradhan Mantri Vaya Vandana Yojana (PMVVY). Today, banks are offering 6-6.5 per cent on their ten-year FDs. The PMVVY – with a limit of ₹15 lakh for a single account and a lock-in of ten years – is offering an assured pension of 7.40 per cent per annum payable monthly for all the policies purchased till 31st March, 2022.

There are no investment products that can be compared with the annuity products with no ROP, which pays higher annuity than those with the ROP option. The internal rate of return (IRR), which is an effective way of calculating the return on investment in this case, increases as the subscriber goes on to live longer. For instance, a 60-year old purchases an annuity with annual fixed income of ₹80,000 for ₹10 lakh today. If she lives to 80, her IRR would be just five per cent. But if she lives till 100, then her return jumps to 7.6 per cent.

Annuity products with no ROP can be opted by those with no dependents or liabilities. Note that the income you receive from your annuity plan is taxable at your income tax slab rate.

To overcome the low rates on annuities, PFRDA appears to be working on an option in which the corpus would continue to be managed by pension fund managers but subscriber gets to have periodic payouts, similar to systematic withdrawal plans of mutual funds.

Deferment of annuity

While annuity providers reset the annuity rates periodically, the rate prevalent at the time when you purchase the annuity is applicable to all future annuity pay-outs. Since we are in the low interest rate environment, rates are expected to inch up. Thus, if you are an existing NPS subscriber who is close to retirement and does not need a periodical annuity income, you can defer buying annuity. Also, the longer you defer the purchase of annuity, higher the pension you will get as the number of years over which the insurance company has to pay the annuity comes down. As per NPS rules, one can defer the annuity purchase by 3 years from the time the subscriber exercises the option to withdraw the non-annuity portion (60 per cent, or 80 per cent of the corpus in case of pre-mature withdrawal).

Less scope to alter annuities

Subscribers under all citizen and private sectors can choose from monthly, quarterly, half yearly or yearly payment frequencies (only monthly for government employees). Once an annuity is purchased, the option of cancellation or reinvestment with another annuity service provider or in another annuity scheme is not allowed after the free look period. Surrendering the policy, too, is restricted only to special circumstances such as a critical illness. This would be available only for the annuity option with ROP, however, at high charges.

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IDFC First Bank leases Citibank’s erstwhile HQ tower in Mumbai’s BKC from Mindspace REIT, BFSI News, ET BFSI

November 13, 2021 root Banking & Finance

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Mindspace Business Parks REIT has leased out an entire commercial building–Citibank India’s erstwhile headquarters in Mumbai’s business district Bandra-Kurla Complex (BKC)–to IDFC First Bank for a nine-year term, people aware of the development said.

K Raheja Corp and Blackstone Group-backed listed Mindspace REIT had acquired the building, The Square BKC, a marquee structure, from Citibank in 2019 for around Rs 400 crore.

IDFC First Bank has leased the 10-storey property spread over nearly 1.30 lakh sq ft at a monthly rental of Rs 280 per sq ft, taking the annual payout to Rs 44 crore. The agreement includes a rental rest clause with 15% escalation every three years, taking the total lease value to over Rs 450 crore over the nine-year term.

“The Square BKC (the erstwhile Citibank building) now stands fully leased,” Mindspace REIT said in its July-September earnings statement on Friday.

The deal is another sign of the recovery in office leasing, not only in peripheral but also in prime business districts following the aggressive vaccinations and the gradual return of employees to offices.

“We continue to witness strong leasing activity across our portfolio with over 2.1 million sq ft leased in the first half of this financial year,” said Vinod Rohira, CEO of Mindspace Business Parks REIT. “We remain increasingly confident of the commercial market outlook, buoyed by record tech hiring and growth trends, improved GCC prospects, vaccination coverage in our gateway cities as employees return to office. We are excited about the robust demand cycle re-emerging.”

However, he declined to elaborate on the BKC lease transaction.

ET’s email query to IDFC First Bank remained unanswered.

The REIT has recorded a robust gross leasing of 9 lakh sq ft, with an average rent of Rs 88 per sq ft a month across 11 deals concluded during the quarter. It has also concluded another build-to-suit lease of 5 lakh sq ft at Mindspace Juinagar in Mumbai Region. Over the last two quarters, it has leased 2.1 million sq ft in total.

Mindspace REIT has continued to collect over 99% of its gross contracted rentals and has reported net operating income of Rs 359.2 crore, up by 6.7% from a year ago.

The REIT has declared distribution of Rs 272.8 crore or Rs 4.60 per unit for the quarter, taking its annualised distribution yield to 6.7% on the issue price of Rs 275 per unit.

The record date for the distribution is November 18, payment of the distribution will be processed on or before November 27.

The REIT has raised around Rs 400 crore through issue of debentures at project level at 6.1%, helping the reduction in average cost of debt further by 15 basis points to 6.9% as on September-end.

The July-September quarter has already witnessed a sharp uptick in absorption of office spaces, led by leasing activity in the information technology and IT-enabled services sectors.

Lease transactions for large office spaces are being registered across key property markets, led by steady economic recovery, an aggressive vaccination drive across the country, and increasing number of corporates planning return of their workforce to office.

The IT, ITeS sectors are among the prime drivers of overall leasing activity in the top cities, and bulk hiring by these firms is expected to influence the demand for large quality office spaces.

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Restrictions put on Laxmi Coop Bank, Solapur; Rs 1,000 cap on withdrawals, BFSI News, ET BFSI

November 13, 2021 root Banking & Finance

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The Reserve Bank of India (RBI) on Firday imposed several restrictions on Laxmi Cooperative Bank Ltd, Solapur, including Rs 1,000 cap on withdrawals for customers, due to deteroriation in its financial position.

The restrictions imposed under the Banking Regulation Act, 1949, shall remain in force for six months from the close of business on November 12, 2021, and are subject to review, the RBI said in a statement.

As per the directions, the bank shall not, without the prior approval of the RBI, grant or renew any loans and advances, make any investment, incur any liability, and disburse or agree to disburse any payment.

“In particular, a sum not exceeding Rs 1,000 of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn,” the RBI said.

It further said the issue of the directions by the RBI should not per se be construed as cancellation of the banking licence.

“The bank will continue to undertake banking business with restrictions till its financial position improves,” the Reserve Bank of India said.

On Monday also, the RBI had imposed similar restrictions on Babaji Date Mahila Sahakari Bank, Yavatmal, Maharashtra.

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ONGC reports highest ever net profit by any corporate at Rs 18,347 cr in Q2, BFSI News, ET BFSI

November 13, 2021 root Personal Finance

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New Delhi, Nov 12 (PTI) State-owned Oil and Natural Gas Corporation (ONGC) on Friday reported the highest ever quarterly net profit by any Indian firm of over Rs 18,347 crore as it made a one-time tax gain on opting for a lower rate regime. Net profit in July-September period at Rs 18,347.73 crore is compared with Rs 2,757.77 crore net profit in the same period a year back, according to the company’s filing to the stock exchanges.

The profit in the quarter is compared with Rs 11,246.44 crore net profit ONGC had earned in full 2020-21 fiscal year (April 2020 to March 2021).

This is the highest ever quarterly net profit by any company in the country.

Prior to this, Indian Oil Corporation (IOC) held the distinction of posting the highest ever quarterly profit when it reported a net earning of Rs 14,512.81 crore in January-March 2013.

IOC’s net profit in the fourth quarter of 2012-13 fiscal was abnormally high because of receipt of fuel subsidy for the full year in one quarter. Its annual profit that fiscal was Rs 5,005.17 crore as it had posted losses in the previous quarter on failing to get fuel subsidy support.

ONGC, in the first half (April-September) of the current fiscal earned Rs 22,682.48 crore net profit as against Rs 3,254.35 crore a year back.

The profit in the second quarter (July-September) was aided by higher oil prices and the one-time tax gain of Rs 8,541 crore.

ONGC said the company has an option to pay corporate income tax at the rate of 22 per cent plus applicable surcharge and cess (lower rate) as against the earlier rate of 30 per cent plus applicable surcharge and cess, subject to certain conditions.

“Considering all the provisions under said section 115BAA of the Income Tax Act, 1961, during the quarter the company has decided to avail the option of lower rate with effect from the financial year 2020-21.

“Accordingly, the company has recognized provision for tax expenses in the financial results for the quarter and half year ended September 30, 2021, and re-measured its net Deferred Tax liabilities on the basis of the provision prescribed in the said section,” it said.

The net impact due to availing of the option has resulted in a decrease in deferred tax by Rs 8,541 crore and a decrease in current tax by Rs 1,304 crore (including relating to earlier years).

Also aiding the profit was a surge in oil prices, it added.

ONGC got USD 69.36 for every barrel of crude oil it produced from fields under its operation as against USD 41.38 per barrel realisation in July-September 2020.

Revenue soared 44 per cent to Rs 24,353 crore.

The higher price offset lower production.

ONGC produced almost 4 per cent less crude oil at 5.471 million tonne while gas output fell 7 per cent to 5.467 billion cubic meters.

“The production of crude oil and gas has declined during current year mainly due to restrictive conditions created by cyclone Tauktae and due to Covid impact,” the firm later said in a press statement.

Also, delay in mobilization of mobile processing unit to WO-16 Cluster project in the western offshore also impacted production from this field. The board approved interim dividend of 110 per cent (Rs 5.50 on each equity share of Rs 5). Total payout on this account will be Rs 6,919 crore.

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Buy This Large Cap Stock For A Return of 45.3% In 1 Year Says Kotak Securities

November 13, 2021 root Personal Finance

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Q2 FY’22 results of the company

In the second quarter of FY’22, SAIL reported a consolidated net profit of Rs 4339 crore. According to SAIL’s performance in Q2 FY’22, Crude Steel Production totaled 4.468 million tonnes, Saleable Steel Sales remained 4.280 million tonnes, and Gross Borrowings were Rs 22,478 crore as of 30 September 2021, down from Rs 35,350 crore as of 31 March 2021, a reduction of Rs 12,872 crore during H1 FY’22. The company’s board of directors has declared an interim dividend of Rs 4 per share to shareholders for FY’22.

Date: 29.10.2021	Standalone	In Rs (Cr)	In Rs (Cr)	In Rs (Cr)	Consolidated	In Rs (Cr)	In Rs (Cr)	In Rs (Cr)
	Q1 FY’22	Q2 FY’22	H1 FY’22	H1 FY’21	Q1 FY’22	Q2 FY’22	H1 FY’22	H1 FY’21
Revenue from Operations	20642	26827	47469	25991	20643	26828	47471	25993
EBITDA	6674	7248	13921	1973	6741	7290	14031	2078
PBT	5145	5753	10898	-1374	5212	5795	11007	-1270
PAT	3850	4304	8154	-877	3897	4339	8236	-790
Source: sail.co.in

Buy Steel Authority of India (SAIL) with a target price of Rs 170 says Kotak Securities

Kotak Securities has said “SAIL’s EBITDA/ton increased 18% QoQ to a record high of Rs19,728/ton on higher steel prices. SAIL’s expansion projects are at the last stage of completion, we conservatively build +7% YoY volume in FY22E versus guidance of 11%. We expect SAIL’s EBITDA to grow at 10% CAGR over FY21-24E.”

The brokerage has claimed in its research report that “SAIL reduced net debt by Rs4200 cr in 1QFY22, aided by strong operational cash flows and measured CAPEX. We estimate net debt to reduce further to Rs19500 cr as of FY22E, aided by strong margins. We estimate that SAIL’s future growth CAPEX would be funded by Operating Cash Flow assuming mid-cycle margins from FY2023E and net debt/EBITDA to remain below 1X.”

Disclaimer

This stock is picked from the brokerage report of Kotak Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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Integrated ombudsman scheme to help redress customer grievances: Experts

November 13, 2021 root Banking & Finance

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The Reserve Bank – Integrated Ombudsman Scheme is being seen as a customer-friendly move, which experts said will help address grievances in a hassle-free manner.

Anjana Potti, Partner, J Sagar Associates, saidthat while the banking ombudsman has been in place since 1995, the system was always viewed askance by consumers.

“One of the primary concerns was the lack of maintainable grounds on which the consumer could challenge the actions of a regulated entity at the ombudsman or a rejection of the complaint on technical grounds, resulting in a preference for the consumer court notwithstanding the extended timelines for redressal,” Potti said.

The scheme was launched in virtual mode by Prime Minister Narendra Modi on Friday.

“‘One nation one ombudsman’ is an excellent example of how RBI is adopting technology and digital capabilities for championing consumers’ interests and their financial protection. With this one move, RBI has changed the concept from ‘pillar to post’ feeling of the consumers to ‘click to post’ complaints,” said Srinath Sridharan, senior corporate leader and Member of Governing Council – Fintech Association for Consumer Empowerment.

Financial inclusion

It will also enhance consumer confidence in the formal financial products and to add depth to financial inclusion, he said.

Anand Kumar Bajaj, Founder, Managing Director and CEO, PayNearby, said it puts in place a robust mechanism driving simplicity and transparency for complaints, redressal and dispute resolution.

“The Ombudsman scheme will go a long way in enhancing customer confidence,” he said.

It will ensure availability of grievance redressal mechanism for effective resolution of customer complaints related to regulated entities, said Chandrajit Banerjee, Director General, Confederation of Indian Industry.

RBI Governor Shaktikanta Das said the scheme will reinforce confidence and trust in the financial system.

Significantly, the scheme not only integrates the three existing Ombudsman Schemes, but will now also include under its ambit Non-Scheduled Primary Co-operative Banks with a deposit size of ₹50 crore and above.

The scheme seeks to provide cost-free redress of customer complaints involving deficiency in services rendered by entities regulated by RBI, if not resolved to the satisfaction of the customers or not replied within a period of 30 days by the regulated entity.

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Retail investors can put money in govt securities, T-Bills, Sovereign Gold Bond

November 13, 2021 root Banking & Finance

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Retail investors can invest a minimum of ₹10,000 and in multiples thereof in Central Government Securities (CG), State Government Securities (SG) and Treasury Bills (T-Bills) under the Reserve Bank of India’s ‘Retail Direct Scheme’, a web-based investment platform, which was launched on Friday.

In the case of Sovereign Gold Bond (SGB), the minimum investment unit is 1 gram.

The maximum limit per bid specified by RBI is ₹2 crore for CG/T-Bill and 1 percent for SG. The scheme to bring G-Secs within easy reach of the common man, allows one active bid per retail client in the non-competitive portion for respective Security.

Online platform

Under the Scheme, which was launched in virtual mode by Prime Minister Narendra Modi, retail individual investors can invest in G-Secs using the online portal (https://rbiretaildirect.org.in) by opening a Retail Direct Gilt (RDG) account with RBI.

Retail investors can make investments via two routes — primary issuance of G-Secs and secondary market.

Under primary issuance of G-Secs, investors can place bid as per the non-competitive scheme for participation in primary auction of G-Secs and procedural guidelines for Sovereign Gold Bond (SGB) issuance.

For secondary market investment, investors can buy and sell G-Secs on Negotiated Dealing System – Order Matching (‘Odd Lot’ and ‘Request for Quotes’ segments).

Primary dealers will be providing buy-sell quotes for investors wanting to buy or sell G-Secs. No fee will be charged for opening and maintaining RDG account with RBI. Further, no fee will be charged by the aggregator (Clearing Corporation of India Ltd) for submitting bids in the primary auctions. Fee for payment gateway etc., as applicable, will be borne by the registered investor.

Payments for transactions can be done using saving bank account through internet-banking or Unified Payments Interface (UPI).

Investor support

The RBI said investors can get help on the portal itself and also through a toll-free telephone number 1800–267-7955 (10am to 7pm) and email.

Investor services include provisions for transaction and balance statements, nomination facility, pledge or lien of securities and gift transactions. No fees will be charged for facilities provided under the scheme.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that awareness needs to be created to attract retail investors into the G-Sec market. Retail investor should be well informed how the G-Sec market works.

Nitin Shanbhag, Senior Executive Group VP, Motilal Oswal Private Wealth, observed that the Government Securities (G-Sec) market is dominated by Institutional investors such as Banks, Insurance companies, Mutual Funds, etc. with lot sizes of ₹5 crore and higher.

Hence this segment was largely inaccessible to retail participants. G-Sec market records highest volumes within the fixed income market since they offer a risk-free rate, hence no credit risk.

Shanbhag said: “Retail investors could thus far participate in G-Secs only through Debt Mutual Funds, although with limited options. Further, in Debt funds, investors have to invest with a minimum 3-year investment horizon through the Growth option to qualify for long term capital gains at the rate of 20 per cent with indexation benefit.”

The RBI Retail Direct Scheme will enable retail investors to invest in G-Secs across various tenors with flexible investment horizons and with the ability to get regular cash flows through risk-free coupons, he added.

Bal Krishna Piparaiya, Principal Director, Brickwork Ratings, noted that the Retail Direct Scheme in G-Sec for individual buyers is a much-awaited positive reform and will forge a paradigm shift in the bond market, spiking up demand for government bonds and lowering the cost of the government borrowing (which has so far been higher than banks’ deposit rates), going forward.

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RBI asks lenders to clearly specify due date/repayment date for loans

November 13, 2021 root Banking & Finance

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The Reserve Bank of India (RBI) has asked lenders to clearly specify the exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, among others, in the loan agreement.

Further, they also have to give examples of special mention account (SMA) and non-performing account (NPA) classification dates.

The central bank said the borrower should be apprised of the aforementioned dates at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms or loan agreement till full repayment of the loan.

In cases of loan facilities with moratorium on payment of principal and/or interest, RBI emphasised that the exact date of commencement of repayment should also be specified in the loan agreements.

Scope for different interpretations

The aforementioned instructions should be complied with at the earliest, but not later than December 31, 2021, in respect of fresh loans.

In case of existing loans, however, compliance to these instructions should necessarily be ensured as and when such loans become due for renewal/review.

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This RBI clarification comes as it has observed that due dates for repayments are sometimes not specifically mentioned in the loan agreements and instead a description of due dates is mentioned, leaving scope for different interpretations.

Consumer education

With a view to increasing awareness among the borrowers, lending institutions have been asked to place consumer education literature on their websites explaining with examples, the concepts of date of overdue, SMA and NPA classification and upgradation, with specific reference to day-end process.

RBI said lending institutions may also consider displaying such consumer education literature in their branches by means of posters and/or other appropriate media. Further, it shall also be ensured that their front-line officers educate borrowers about all these concepts with respect to loans availed by them at the time of sanction/disbursal/renewal of loans.

SMA classification

The basis for classification of Special Mention Accounts/SMA (which show incipient stress) in the case of loans other than revolving facilities will be: SMA-0 (when principal or interest payment or any other amount wholly or partly overdue up to 30 days); SMA-1 (more than 30 days and upto 60 days); and SMA-2 (more than 60 days and upto 90 days).

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The basis for classification of SMA in the case of loans in the nature of revolving facilities like cash credit/overdraft will be: SMA-1 (when principal or interest payment or any other amount wholly or partly overdue for more than 30 days and upto 60 days); and SMA-2 (more than 60 days and upto 90 days).

In the above context, the RBI clarified that borrower accounts should be flagged as overdue by the lending institutions as part of their day-end processes for the due date, irrespective of the time of running such processes.

Day-end process

Similarly, classification of borrower accounts as SMA as well as NPA should be done as part of day-end process for the relevant date and the SMA or NPA classification date should be the calendar date for which the day end process is run. In other words, the date of SMA/NPA should reflect the asset classification status of an account at the day-end of that calendar date.

RBI said the instructions on SMA classification of borrower accounts are applicable to all loans2, including retail loans, irrespective of size of exposure of the lending institution.

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Cash credit/Overdraft (CC/OD) account will be treated as “out of order if the outstanding balance in the account remains continuously in excess of the sanctioned limit/drawing power for 90 days”.

Further, such an account will be treated as “out of order if the outstanding balance in the account is less than the sanctioned limit/ drawing power but there are no credits continuously for 90 days, or the outstanding balance in the account is less than the sanctioned limit/ drawing power but credits are not enough to cover the interest debited during the previous 90 days period”.

Term loans

In case of interest payments in respect of term loans, an account will be classified as NPA if the interest applied at specified rests remains overdue for more than 90 days. RBI said these instructions shall be effective from March 31, 2022.

Upgradation of loan accounts

RBI said loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower.

The RBI issued the aforementioned directive as it has come across some lending institutions upgrading accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc.

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