Tag: finance ministry

India plans stimulus package for sectors worst affected by second wave, BFSI News, ET BFSI

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India is preparing a stimulus package for sectors worst affected by a deadly coronavirus wave, aiming to support an economy struggling with a slew of localized lockdowns, people familiar with the matter said.

The finance ministry is working on proposals to bolster the tourism, aviation and hospitality industries, along with small and medium-sized companies, the people said, asking not to be identified as the deliberations are private. The discussions are at an early stage and no timeline for an announcement has been decided, they said. A finance ministry spokesman declined to comment.

The latest wave of Covid-19 infections has made India the global hotspot for the pandemic and has decimated travel since the second wave picked up in March even though Prime Minister Narendra Modi has refused to implement a strict nationwide lockdown like last year’s. With high daily cases, many local governments — including Maharashtra and Tamil Nadu, India’s most industrialized states — have imposed curbs against the spread of the virus.

That’s prompted many economists to cut their forecasts for the financial year that began April 1, as rising unemployment and dwindling savings among consumers dim the chances for double-digit growth. While the International Monetary Fund expects India’s economy to expand 12.5% this year to March — and will be revisiting the forecast in July — the country’s central bank projects 10.5% growth.

Flagging growth prospects put the onus on policy makers to support activity, especially once the virus caseload eases. Finance Minister Nirmala Sitharaman, who said last month she’s monitoring the economy in a “very detailed fashion,” has held discussions with economists in recent days about a stimulus package, the people said.

In April, the finance ministry eased rules for capital expenditure by government departments to try to boost spending in the economy.

Pressure also is building on the central bank — which serves as the banking sector regulator — to ease loan repayment rules, especially for sectors badly hit by this virus wave.

–With assistance from Anirban Nag.



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PSBs may face more stress at govt focuses on Mudra loans, BFSI News, ET BFSI

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The government is banking on small borrowers to help lift credit demand and has asked banks to lenders to focus on Mudra loans.

It expects small borrowers to help pick up credit demand once the lockdowns in states are eased.

The government has asked banks to prioritise this segment and ensure timely sanctions and disbursals. Lenders have also been asked to regularly monitor asset quality for small-ticket loans including PMMY loans.

Loans disbursed by banks and microfinance institutions for non-corporate small borrowers and for income-generating activities in the non-farm segment are termed as Mudra loans under the Pradhan Mantri Mudra Yojana (PMMY), which was launched in 2015,

In fiscal 2021, banks had sanctioned loans worth Rs 2.79 lakh crore under the PMMY. Of these, loans of Rs 2.64 lakh crore were disbursed.

Interest subvention

The government is also considering extending the interest subvention of 2% on prompt repayment of Shishu loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY).

Under the PMMY, loans up to Rs 50,000 are termed Shishu loans. The subvention scheme is being implemented through the Small Industries Development Bank of India.

Last year in June, the government announced the interest subvention under the Atmanirbhar Bharat Abhiyan. It had noted that the move will help support small businesses to continue functioning during these times of crisis and have a positive impact on the economy and support its revival.

Loan losses

However, public sector banks (PSBs) have seen a sharp surge in the amount of Mudra loans turning into non-performing assets (NPAs) over the last three years. NPAs in Mudra loans had jumped to Rs 18,835 crore in 2019-20, from Rs 11,483 crore in 2018-19 and Rs 7,277 in 2017-18, according to the Finance Ministry data.

Mudra loan disbursements by state-owned banks rose to Rs 3.82 lakh crore in 2019-20, from Rs 3.05 lakh crore in 2018-19 and Rs 2.12 lakh crore in 2017-18. The Mudra loan NPAs as a percentage of total loans rose to 4.92 per cent in 2019-20 from 3.42 per cent in 2017-18.

Banks and financial institutions have sanctioned Rs 14.96 lakh crore to over 28.68 crore beneficiaries in the last six years. The average ticket size of the loans is about Rs 52,000, it said.

Under PMMY collateral-free loans of up to ₹10 Lakh are extended by Member Lending Institutions (MLIs) viz Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) etc.

The loans are given for income generating activities in manufacturing, trading and services sectors and for activities allied to agriculture.



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IBA reaches out to govt for refund of compound interest waiver by banks, BFSI News, ET BFSI

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The Indian Banks‘ Association (IBA) on behalf of lenders has approached the finance ministry to refund the burden fallen on their shoulders due to a recent Supreme Court judgment on the waiver of compound interest on all loan accounts which opted for moratorium during March-August 2020.

The March judgment of the apex court directed the banks to waive off compound interest on loans above Rs 2 crore availing moratorium as loans below this got blanket interest on interest waiver in November last year.

Compound interest support scheme for loan moratorium cost the government Rs 5,500 crore during 2020-21, and the scheme covered all borrowers including the prompt one who did not avail moratorium.

Various banks are at the different stages of executing the order.

Punjab & Sind Bank Managing Director S Krishnan said the burden on the bank due to waiver works out to be around Rs 30 crore.

The issue of reimbursement of the waiver amount by the government is being pursued by IBA on behalf of the banks, he said.

Asked if the finance ministry has responded to their request, he said, “So far, we have not heard anything positive on this.”

The apex court order this time is only limited to those who availed moratorium. So, the liability of the public sector bank should be less than Rs 2,000 crore as per rough calculations, sources had said.

The RBI on March 27 last year announced a loan moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic, later the same was extended to August 31.

The Supreme Court on March 23, 2021, directed that no compound or penal interest shall be charged from borrowers for the six-month loan moratorium period, which was announced last year amid the COVID-19 pandemic, and the amount already charged shall be refunded, credited or adjusted.

The apex court refused to interfere with the Centre and the Reserve Bank of India‘s (RBI) decision to not extend the loan moratorium beyond August 31 last year, saying it is a policy decision.

Rejecting pleas for a complete waiver on interest the court opined that such a move would have consequences on the economy. The bench also said that interest waiver would affect depositors. Along with this, the court also rejected pleas for further relief in the matter.

Soon after the order, the RBI asked banks and NBFCs to immediately put in place a board-approved policy to refund/ adjust the “interest on interest” charged to the borrowers during the six-month moratorium, in conformity with the Supreme Court judgment.

The central bank also asked lending institutions to disclose the aggregate amount to be refunded/ adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.



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Forex gains help RBI to give record Rs 99,122 crore dividend to govt, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) is paying a dividend of Rs 99,122 crore to the government, double than the Budgetary Estimates, which will help the government tide over the revenue losses from lockdowns and extend more support to the pandemic hit industries and the poor people.

Analysts had factored in a dividend of Rs 65,000 crore from the RBI, while the government’s budget estimates included Rs 45,000 crore surplus transfer by the central bank. In fiscal 2020, the RBI had paid only Rs 57,128 crore in dividend.

How the funds came

The higher payout followed the Bimal Jalan panel report that had set a new economic framework capital buffer for the central bank along with the contingency risk buffer at 5.5 per cent.

“In our view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank — the RBI recently allowed itself to book profits on its FX transactions from a weighted average cost perspective,” Barclays India said in a report.

This move could have helped the central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the central bank’s income for the year, the report authored by Barclays India chief economist Rahul Bajoria said.

The dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year. This could be particularly helpful in alleviating the impact of the second Covid wave, it said.

Fight against Covid

The record dividend payout will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal. This could be particularly helpful in alleviating the impact of the second wave, Bajoria added.

Aditi Nayar, the chief economist at Icra Ratings, said this considerably higher surplus transfer will offer the government a buffer to absorb the losses in indirect tax revenue that are anticipated in May-June due to the impact of the lockdowns on the level of consumption on discretionary items and contact-intensive services.

“Moreover, high commodity prices at a time when demand and pricing power are subdued will dent the margins of corporates in many sectors, compressing the growth in direct tax collections,” Nayar warned and said this higher dividend will help cushion some of this revenue shock.

After this dividend payout for the accounting period of nine months ending March 2021 (July 2020-March 2021), the RBI is left with a contingency risk buffer at 5.50 per cent of its capital.

Increased spending

Barclays said the government has flexibility now to increase support to the economy while maintaining its fiscal deficit estimate at 6.8% for FY21-22,

“So far, in response to the second Covid wave, the government has reinstated the free food distribution scheme, which should assist 80 crore people, and set aside a budgetary allocation of Rs 26,000 crore for incremental spending. Further, given the rising demand for the government’s rural job scheme, we see some likelihood that spending on the job guarantee scheme could increase further this year. Recent media reports also indicate that the finance ministry is likely working on further relief measures to support the economy,” it said.



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Securities & Appellate Tribunal says it can function without a technical member

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Can the Securities and Appellate Tribunal (SAT) hear matters in the absence of a technical member in the bench? In response to an objection raised by market regulator SEBI on SAT hearing cases without a technical member, the two member bench has ruled that it has the authority to run the tribunal.

In a rare instance, SAT has also marked its order copy to the Finance Ministry and the Supreme Court, and asked for it to be treated as a Public Interest Litigation (PIL) in the Apex court. SAT members were more amused when SEBI effectively questioned their ability to run the tribunal, lawyers present in the hearing said.

The members

SEBI questioned the current composition of SAT, which is currently presided by Justice Tarun Agarwala, the former Chief Justice of Meghalaya High Court, and Justice MT Joshi of the Bombay High Court.

Both Agarwala and Joshi have over three decades of experience of working with Indian judicial system. Third SAT member, CKG Nair who was the technical member retired earlier this year and SAT is awaiting another appointment in his place.

However, lawyers were of the view that in 2018, Nair was alone hearing matters for several years when appointment of the two legal members was delayed and then SEBI had no objections.

“In effect, the stand of SEBI, though it has not been stated in so many words, is that this tribunal should not hear appeals till such time technical member is appointed by the Central government. Similar assertion is being made by SEBI while filing their replies in other appeals and, therefore, it has become imminent to decide this issue,” the two member bench said.

SAT told SEBI that the the tribunals are established in aid of the constitutional courts and inclusion of technical members is only to bring specialised knowledge but that does not mean that it can substitute a judicial member nor can it mean that a judicial member does not possess specialised knowledge.

“SEBI has the option to take it in appeal to SC. SAT cannot remain defunct till the government appoints a technical member. If SAT had taken any other interpretation, it would have paralysed the appeal mechanism against SEBI Orders in India which is not desirable. It is perplexing why a regulator like SEBI had taken this stand while Depositories, Stock Exchanges, IRDAI, PFRDA did not talk like this,” said Sumit Agrawal, Founder, Regstreet Law Advisors.

Driven by rules

SAT observed that the contention of SEBI was driven by rules that state that every bench must have at least one technical member a mandatory provision and since the current bench are of judicial members, the constitution of the bench is defective and orders passed by this bench would be coram non judice (not before a judge)

“In light of section 15R of the SEBI Act, 1992, a temporary gap would not harm the quorum of the bench. In any case all the SC cases on tribunals deal with absence of a judicial member and that too, permanently. The tribunal must keep functioning with the current load of cases going up because of Covid,” said Sandeep Parekh, Finsec Law Advisors.

SAT said it would deal with the question of whether the vacancy in the SAT office of a technical member was fatal to the constitution of the tribunal?

Relying upon past SC orders and constitution of bench, the SAT observed that it had the right to hear the cases.

“The principle has been laid down by the SC that any proceedings taken before the tribunal cannot be questioned in any manner on the ground of any defect in the constitution of SAT. It protects the legality and validity of the orders passed by the Tribunal even if it is found that there was a defect in the constitution of the tribunal,” SAT said.

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RBI opposes IBC suspension even as demand from banks, industry grows, BFSI News, ET BFSI

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The Reserve Bank of India RBI is not in favour of a fresh suspension of the Insolvency and Bankruptcy Code (IBC) in view of the resurgence in Covid infections shutting down parts of the economy again.

The central bank is of the view that suspension will only show lower non-performing assets. While the government has to take a final decision, the widespread distress after the restrictions may weigh on its mind.

Officials feel the demand was being amplified by a section of the industry that was facing stress even before the pandemic hit India. Besides, by all accounts, the corporate performance has been encouraging up to the March quarter and the assessment is that the recovery this time will be faster than last year, given that businesses have not completely shut down and supply chains remain open.

Growing clamour

Lenders, however, want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks were planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

The Indian hotel industry has taken a hit of over Rs 1.30 lakh crore in revenue for the fiscal year 2020-21 due to the impact of the COVID-19 pandemic, the Federation of Hotel & Restaurant Associations of India (FHRAI) said on Sunday.

The apex industry body said it has submitted representation to the Prime Minister and a few other union ministers urging immediate support from the government to save the hospitality sector from imminent collapse and has requested for several fiscal measures for this.



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Govt appoints Vandita Kaul as nominee director on board of Bank of India, BFSI News, ET BFSI

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State-owned Bank of India (BOI) on Friday said the government has appointed Vandita Kaul, additional secretary in the Finance Ministry, to its board as nominee director.

The bank said it has received the communication from the Finance Ministry about Kaul’s nomination on May 13, 2021.

The government has nominated Vandita Kaul, Additional Secretary, Ministry of Finance, Department of Financial Services as government nominee director on the board of directors of Bank of India with immediate effect, the lender said in a regulatory filing.

Bank of India has a total of eight members on its board, including the MD and CEO Atanu Kumar Das, its four executive directors, one nominee director each from the government and the RBI and one shareholder director.



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PSU banks keep vigil over Cairn Energy raid on its overseas accounts, BFSI News, ET BFSI

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With UK’s Cairn Energy Plc looking to seize Indian assets to recover USD 1.2 billion it was awarded by an international arbitration tribunal, the Indian government has dug in heels and put banks on vigil for any such action.

Cairn Energy has said it taking necessary actions to access the USD 1.7 billion it was awarded by an international arbitration tribunal after overturning a retroactive tax demand slapped by the Indian government.

The Department of Financial Services has asked public sector banks to appoint a nodal officer amid increasing concerns that overseas assets or deposits of these lenders could be attached.

The department wrote a letter to public sector bank chiefs suggesting they immediately inform Sanjay Kumar, director – banking operations, if they receive ‘any intimation/notice/letter’ from Cairn Energy Plc and its subsidiary Cairn UK Holdings.

“Banks are advised to appoint a nodal officer in the case for any future correspondence, and share the name, designation and contact details of the official with us,” Jnanatosh Roy, under secretary, department of nancial services, nance ministry, wrote in the letter.

Cairn Energy and the government are locked in a legal battle over an arbitration order that requires India to pay $1.2 billion.

Withdraw funds

Last week, the central government has asked public sector banks to withdraw funds from their foreign currency accounts abroad, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.

A guidance was sent to state-run banks to withdraw funds from their nostro accounts.

A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction. Such accounts are used for international trade and to settle other foreign exchange transactions.

While the Indian government has filed an appeal, the London-listed firm has started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement, which Cairn says it is still pursuing.

The company has registered its claim against India in courts in the United States, Britain, France, the Netherlands, Singapore and Quebec, moves that could make it easier to seize assets and enforce the arbitration award.

The government was concerned courts abroad could order funds in their jurisdiction be remitted to Cairn.

Cairn said in February it was discussing several proposals with the government to find a solution.

India’s stand

Finance Minister Nirmala Sitharaman has earlier said that an international arbitration ruling on India’s sovereign right to taxation sets the wrong precedent, but said the government is looking at how best it can sort out the issue arising out of New Delhi being ordered to return $1.2 billion plus interest and cost to UK’s Cairn Energy Plc.

The government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague based tribunal’s ruling asking the government to return the value of shares expropriated and liquidated, tax refunds withheld and dividend seized to recover a wrongly levied retroactive tax demand.

“We don’t believe in retrospective taxation,” she had said. “However, when issues are taken at arbitration… which question India’s sovereign right to taxation, we are worried that it sets a wrong precedent.” The Indian government argues that tax levied by a sovereign power should not be subject to private arbitration. Cairn had previously said the award is binding and it can enforce it by seizing overseas Indian assets.

Sitharaman, however, added that the government is looking to sort out the issue.

“I want to see how we can best sort this out,” she said, without elaborating.

The award

Cairn was awarded damages of more than $1.2 billion-plus interest and costs in December in a long-drawn-out tussle with the Indian government over its retrospective tax claims.

The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006, it listed its Indian assets on the BSE.

Five years after that, the government passed retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.

The state then expropriated and liquidated Cairn’s remaining shares in the Indian entity, seized dividends and withheld tax refunds to recover a part of the demand.

Cairn challenged the move before an arbitration tribunal in The Hague, which in December awarded it $1.2 billion (over Rs 8,800 crore) plus costs and interest, which totals USD 1.725 billion (Rs 12,600 crore) as of December 2020.

The company has since then been in talks with the finance ministry to get the government to pay the award.



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Finmin pitches PM Jeevan Jyoti Bima Yojana again

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The Finance Ministry has re-energised its effort to get more people, especially from lower-income group and vulnerable sections, to enrol under the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), a low-cost life insurance scheme. But bankers are not very enthused about this effort.

“In these testing times, let’s take a step towards security. Subscribe to PMJJBY and secure the safety of your loved ones. Available to people in the age group 18 to 50 years with a bank account who give their consent to join/enable auto-debit of premium,” the Financial Services Department (DFS) said in a tweet.

Meanwhile, bankers are not very excited with the renewed thrust on the scheme as they feel this will put additional pressure on already overworked staff. Also, this could lead to crowding in bank branches.

“The government issues advisory, but it soon becomes a kind of important task for bank management. Who will have to work extra now? Besides, the staff available is in limited number as positive cases are here too,” a senior public sector bank official said on condition of anonymity. Another bank official was equally critical, saying how can one expect any additional work by bank staff at this moment.

Launched on May 9, 2015, the scheme offers a renewable one-year term life cover of ₹2 lakh to all subscribing bank account holders in the age group of 18 to 50 years. It covers death due to any reason, including suicide and murder. The rate of annual premium is ₹330 per subscriber. Life Insurance Corporation (LIC) administers the scheme. Anyone with a bank account in a Scheduled Commercial Bank can enrol for the scheme. She/he needs to give instructions regarding auto debit before May 31 every year. Cover is available for the period starting June 1 and ending on May 31.

 

Fear target pressure

Another bank official expressed fears that soon some target might be out and the need to achieve it in a given period of time.

“Our worst fear is crowding in any branch. Given security concerns, many people are still not very comfortable with using online banking and they prefer to visit the branch for any banking requirement. This could be so in the case of people willing to subscribe to a new insurance scheme,” he said.

As on April 28, the total number of subscribers under the scheme was 10.32 crore. The Finance Ministry also claimed that over 2.39 lakh claims have been settled since the inception of the scheme.

However, data as on March 31 shows that weekly enrolment has come down. For example, during the week starting March 17 and ending March 24, total enrolment was 4.91 lakh, which dropped to 3.60 lakh during the March 24-31 week.

However, Finance Ministry officials believe it that it is a temporary phase and things will improve.

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RBI modifies norms for undertaking govt business by private banks, BFSI News, ET BFSI

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The Reserve Bank on Monday came out with modified guidelines that allow sound private sector banks to undertake government business, whether at the Centre or in states. According to the modified norms, scheduled private sector banks, which are not under the Prompt Corrective Action (PCA) framework of the RBI, can undertake government business after executing an agreement with the central bank.

“Scheduled private sector banks, not having agency banking agreement with RBI, but intend to handle government agency business, may be appointed as agents of RBI upon execution of an agreement with RBI.

“This will be subject to the condition that the concerned bank is not under PCA framework or moratorium at the time of making the application or signing of the agreement with RBI,” the central bank said in a notification.

It may be mentioned that the Finance Ministry in February 2021 had lifted the embargo imposed in September 2012 on further allocation of government business to private sector banks.

In view of the lifting of the embargo, the RBI has decided to revise the framework for authorising Scheduled Private Sector Banks as agency banks of RBI for conduct of government business.

The notification further said existing private Sector agency bank with whom RBI already has agency banking agreement and who are authorised to do government agency business may continue to do these government agency businesses for Central and/or State Governments without taking any fresh approval from the central bank.

It also said once RBI authorises a bank for any government business, separate approval from RBI with regard to mode (physical or e-mode) and area of operations is not required and the same will be decided by the CGA (for Central Government) or the Finance Department of the State Government, keeping the RBI informed in the matter.



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