391st Issue BOM Banking News 08th To 14th December 2014 by Vasant Ponkshe Secretary AIBOA

391st Issue Banking News 08th to 14th December 2014 By Vasant Ponkshe,
Secretary AIBOA Pune
Year 8. Issue 27
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SINCE 20.06.07 ISSUE NO-
391
BANK OF MAHARASHTRA OFFICERS ASSOCIATION

(AFFILIATED TO AIBOA)
Mumbai Office: Jiva Devashi Niwas, Ranade Rd, Dadar, Mumbai 029.
Pune Office: 1501, Lokmangal, Shivajinagar, Pune 005.
BY VASANT PONKSHE
SECRETARY AIBOA
CHAIRMAN BOMOA
BANKING NEWS
08th to 14th December 2014
India can achieve 8-9% growth rate: Manmohan Singh
India can achieve a growth rate of 8-9 per cent provided there is a "national consensus" on methods to
take advantage of globalised world, said former Prime Minister Manmohan Singh, whose tenure saw
the economy registering three years of 9-plus growth rate. "I think that even though many other
emerging economies are not doing too well, India has an opportunity to move towards a growth rate of
6-7 per cent and thereafter to 8 per cent," Singh said while delivering a lecture at Ficci. He said the
country is poised to take advantage of globalisation and engage in trade to finance its imports through
exports. "Today we cannot grow in isolation... India is well placed to take advantage of this situation
provided we evolve a meaningful national consensus to move ahead," he said. Except for India, other
emerging economies -- like Brazil, Russia and South Africa -- are not doing well, Singh said, adding
the country is posed for a 8-9 per cent growth. "We are working towards a growth rate of 8-9 per cent.
There are opportunities, there are risks. India is currently at least poised to create a milieu in which the
growth story of India can be another worthwhile chapter in the evolving global economies," he said.
Indian economy was growing at over 9 per cent for three years before it was impacted by the global
financial crisis of 2008. The growth rate fell to sub-5 per cent in two consecutive fiscals -- 2012-13 and
2013-14. In the current fiscal, the government estimates the growth to be between 5.4-5.9 per cent.
Singh said a meaningful solution to India's problems of poverty, ignorance and diseases can be found
only in the framework of rapidly expanding economy. "There is a broad consensus that we need a
growth rate of 8-9 per cent to create 10-12 million jobs every year if we have to conquer
unemployment within our life-time," he said.
Rajan believes 'glide path' towards lower inflation fits India well
Reserve Bank of India (RBI) Governor Raghuram Rajan believes an Urjit Patel glide path fits the
country well for ensuring moderate growth even while the economy disinflates. A Volker-like
disinflation was never on the cards in India, but an Urjit Patel glide path fits us very well, ensuring
moderate growth even while we disinflate. Going forward, we will discuss with the government an
appropriate timeline within which the economy should move to the centre of the medium-term inflation
band of 2-6%, said Rajan at the Bharat Ram Memorial Lecture in New Delhi. A committee headed by
RBI Deputy Governor Urjit Patel had earlier recommended a glide path to disinflation. RBI will be
looking to reduce headline retail inflation to 6% by March 2015. The core recommendation of the
central bank panel was to ultimately bring the retail inflation rate down to 4% (plus or minus 2%). In its
fifth bi-monthly monetary policy review earlier this month, RBI had kept the repo rate unchanged at
8%, while Rajan had highlighted that risks to the January 2016 target of 6% retail inflation appeared
evenly balanced under the current policy stance. Rajan reiterated that the central banks focus on
primarily keeping inflation low and stable would ensure the best conditions for growth. In reacting to
developments, however, the central bank has to recognise that emerging markets are not as resilient
as industrial economies. So, the path of disinflation cannot be as steep as in an industrial economy,
because an emerging market is more fragile, and peoples buffers and safety nets are thinner, said
Rajan. November data for the Consumer Price Index (CPI)-based inflation are expected later on
Friday; most expect it to ease below 5%. The inflation rate had risen to 5.52% the previous month.
demand-led growth is notoriously difficult to manage, and typically leads to excess.
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Therefore, we need to strengthen domestic macroeconomic institutions, so that we can foster
sustainable and stable growth. At the same time, we cannot let foreign markets shrink further, and we
have to take up the fight for an open global system, Rajan said.
RBI Governor: Need more tax breaks to encourage domestic savings
India needs to provide more tax breaks to individuals so as to encourage savings, RBI Governor
Raghuram Rajan has said. More tax benefits need to be given to encourage savings as the "real
value of the financial benefits given (in recent years) has eroded," Rajan said in his Bharat Ram
Memorial lecture here on Friday. Rajan's remarks are significant as it comes at a time when Finance
Ministry has begun work for the upcoming budget in February next year. The erstwhile UPA regime
--while being too business friendly--had not been liberal in providing tax breaks to encourage savings.
Thanks to the runaway inflation in last two to three years of the UPA regime, savings rate in the
country has sharply declined to about 31 per cent from level of 38 per cent some years back.
Insurance bill: Cabinet nod to 49% foreign equity cap
A much-awaited Bill to raise the composite foreign equity cap in the insurance sector from 26 per cent
to 49 per cent is likely to sail through in Parliament this session, following the Cabinet on Wednesday
approving amendments to the Bill after the government got support from the Congress in this regard.
The amendments were recommended by a parliamentary select committee, without a dissent note
from the main opposition party. The committee, chaired by Bharatiya Janata Party (BJP) Rajya Sabha
member Chandan Mitra, also favoured the issuance of fresh equity for increasing stake, though it
didnt recommend making this mandatory. The Cabinet approved the incorporation of amendments
suggested by a parliamentary select panel in the Insurance Laws (Amendment) Bill, 2008, sources
said. They added the Rajya Sabha was likely to take up the Bill next week. The select committee
opposed a cut in the minimum paid-up requirement for health insurers from the current Rs. 100 Cr. but
suggested such a reduction for cooperatives in insurance segments. It also sought a specific definition
of control and ownership in insurance companies be incorporated in the Bill, expected to provide a
much-needed boost to the governments reforms agenda. The National Democratic Alliance is short of
a majority in the Rajya Sabha and requires opposition support for the Bill to be passed. With the
backing of the Congress, it is expected the government wont find it difficult to see the Bill through. The
only dissent against the Bill was from the Left, which is ideologically opposed to foreign direct
investment (FDI) in the sector, as well as from the Trinamool Congress, the Janata Dal (United) and
the Samajwadi Party. Replying to a debate on supplementary demand for grants in Parliament,
Finance Minister Arun Jaitley said, We are ready to open the door in insurance sector; large
investment is waiting to come. Earlier, many were divided over whether the committee would
recommend a 49 per cent cap on FDI alone or include foreign portfolio investors as well. The
committee recommends the composite cap of 49 per cent should be inclusive of all forms of foreign
direct investment and foreign portfolio investments, the panel suggested in a report, given to
Parliament on Wednesday. Sanjay Tripathy, senior executive vice-president (marketing, product, digital
and e-commerce), HDFC Life, said insurers would wait for the finer details of the Bill before taking any
decision. He added smaller insurance players could see more investment from foreign partners, as
these entities were in need of capital.
Tarun Chugh, managing director and chief executive, PNB MetLife, said, At this stage, the sector
needed long-term capital for growth and expansion, and this was possible only through FDI. Not only
does FDI bring in capital and foreign exchange immediately into the economy, it also enables
companies to invest further in managerial ability, technical knowledge, administrative organisation, and
innovations in products and processes. Through a press note earlier this year, the government had
included foreign institutional investors (FIIs) in the 26 per cent foreign equity cap in the insurance
sector. The category of foreign portfolio investors includes FIIs. The norms regulating listing of
insurance firms are stringent and foreign portfolio investors can come into the sector only if these firms
go public. Deepak Mittal, chief executive of Edelweiss Tokio Life Insurance Company, said large
players in the sector were interested to increase stake to 49 per cent, adding activity in the initial
public offering segment would begin only after players decided whether they required FDI, foreign
investment or both. Rajesh Sud, chief executive and managing director, Max Life
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Insurance, said, The select committees recommendations on the Insurance Amendment Bill, tabled
in Rajya Sabha on Wednesday, is a welcome development and concludes a long-standing debate. It
also indicates the Centre is acting quickly on important policy decisions. The recommendation on the
increase in foreign capital to 49 per cent through foreign investors, including FDI and portfolio
investors, will open capital coming into the country. Depending on each companys stage of
development and capital requirement, it will now have multiple options available. For some of the more
established players, it opens up the possibilities of IPOs, as well as capital for acquisitions, which will
allow consolidation in the sector. A senior executive from the sector said, Some large players are
interested in an IPO. However, several factors such as FIPB (Foreign Investment Promotion Board)
approval or automatic approval, apart from clarity in Indian management control, will be sought before
taking a decision.
Amid a debate on whether equity should be raised only through issuance of fresh shares, the
committee said, Incremental equity should ideally be used for expansion of capital base so as to
actually strengthen the insurance sector. As such, it didnt make fresh equity mandatory for raising the
cap, but said this was the ideal route. One of the arguments of the dissent notes by P. Rajeeve
(Communist Party of India-Marxist), Derek OBrien (Trinamool Congress), Ram Gopal Yadav
(Samajwadi Party) and K C Tyagi (Janata Dal United) was Indian companies would dilute their
stake in favour of foreign investment, which wouldnt increase the capital base of these companies.
There is widespread apprehension that the proposed increase in FDI will allow Indian entities to
liquidate a portion of their stake and earn profits that would be several multiples of their original
investment, without any fresh capital flowing into the insurance sector, OBrien said. Earlier, there was
speculation the committee might recommend a cut in the minimum paid-up capital requirement in the
health insurance segment. However, it suggested retaining the requirement at Rs. 100 Cr. on a par
with other insurance segments, saying any reduction would encourage non-serious players to enter
the field. The panel, however, recommended slashing this requirement for cooperatives so that these
entities could access a market segment that hasnt been accessed by large insurance companies.
For retaining control and ownership in Indian companies, the panel favoured including their
definitions in the Bill. The term control shall include the right to appoint majority of the directors or to
control the management or policy decisions, including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements, it said.
SELECT PANEL RECOMMENDATIONS
Retain minimum paid-up capital requirements of health insurance companies at Rs. 100 Cr.
Include definition of ownership and control in the Bill
Govt should amend the General Insurance Business (Nationalisation) Act to allow public
general insurers to raise money from markets
Penalties on insurance companies to be linked to seriousness of offences committed by agents
Irda should mull allowing multiple corporate agents in insurance
Cabinet nod to cut govt stake in PSBs to 52%
Public sector banks (PSBs) will be able to raise up to Rs. 1.6 lakh-crore from markets as the Union
Cabinet on Wednesday allowed the dilution of government equity in these lenders up to 52 per cent.
This would enable these banks to partly meet Basel III requirements by March 31, 2019. The Cabinet
Committee on Economic Affairs approved putting in place a new ethanol blending policy under which
the price of ethanol would be fixed according to the distance of sugar factory from the depots of oil
marketing companies. Under the ethanol blending programme, 5 per cent ethanol is doped with petrol.
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| 4 much-awaited amendments to the Electricity Act were cleared, opening the gates for reforms in
power transmission and distribution. The amendments are likely to come up in the ongoing session of
Parliament. If the PSBs are permitted to bring down government holding to 52 per cent in a phased
manner, they can raise up to Rs. 1,60,825 Cr. from the market, said an official statement, issued after
the Cabinet meeting. This means that the government would require to give almost Rs. 79,000 Cr. (for
common tier-I equity) during 2015-19, which will maintain its holding at 52 per cent. However, as the
government is likely to receive an amount of Rs. 34,500 Cr. from PSBs as dividend, the net outgo will
only be Rs. 44,395 Cr. On ethanol blending, CCEA approved a proposal to fix the delivered price of
Ethanol would be fixed in the range of Rs. 48.50 per litre to Rs. 49.50 per litre, depending upon the
distance of sugar mill from the depot/installation of the OMCs. Till 100 km distance ethanol would be
priced at Rs. 48.50. Between 101 and 300 km, it would be Rs. 49 and for over 300 km, Rs. 49.50. The
rates proposed would be delivered price at depot location and inclusive of all central and state taxes,
transportation costs, etc which would be borne by the ethanol suppliers.
OTHER DECISIONS
Debt recovery tribunals: Debt recovery tribunals to be set up in Chandigarh, Bengaluru, Ernakulam,
Dehradun, Siliguri and Hyderabad to expedite cases pertaining to bad loans
Lokpal and Lokayuktas Act: Cabinet approves amending the Lokpal and Lokayuktas Act, 2013; the
Act will be amended to state 'Leader of Opposition' will also mean 'Leader of the Largest Party in
Opposition of the Government' in the Lok Sabha
Solar plants in defence sector: Green signal given to install solar power plants in defence and
paramilitary establishments
Solar parks: 25 solar parks of 500 Mw capacity each to be set up; financial support of Rs. 4,050 Cr.
needed; Cabinet Committee on Economic Affairs also approves scheme for setting up 1,000-Mw grid
connected solar power projects by PSUs and central government organisations
Capital to remain a challenge for PSU banks: Fitch
MUMBAI/SINGAPORE: The government's plans to reduce its stake in state-owned banks to 52% by
2019 will enable these banks to exercise greater flexibility in raising capital in the equity market - by
allowing the dilution of government holdings for the purpose of raising core equity, said Fitch Ratings.
There is no indication as yet that the government has planned this decision as part of a broader
privatisation initiative in the banking sector, and Fitch believes that the government's stakes in stateowned banks is unlikely to go below 51% in the medium term. Fitch expects access to core equity to
remain challenging, however, with state banks largely trading below book value. As such, state-owned
banks will likely have to continue relying on Additional Tier 1 (AT1) hybrid instruments to strengthen
capitalisation in the short term, despite the government's planned sell-downs. Thus far, state banks
have been slow in issuing AT1 capital, with only two issues of Rs. 2500 Cr. each - Bank of India in
August 2014 and IDBI bank in October 2014. Combined, these two issues constitute roughly 5% of the
Fitch estimated total AT1 requirement through to 2016; affirming Fitch's view of the uncertainty
regarding the ability of the domestic market on its own to fulfil the AT1 requirement of banks. Fitch
estimates the banks to have large Basel III capital needs totalling $200 bn up to 2019, of which stateowned banks will account for around 85%. However, progress to strengthen capital has been slow,
due to a low internal rate of capital accretion and limited access to core equity - owing to below-book
valuations for many banks. Asset quality and earnings continue to remain stressed for most state
banks notwithstanding some signs of early recovery. However, progress to strengthen capital has
been slow, due to a low internal rate of capital accretion and limited access to core equity - owing to
below-book valuations for many banks. Asset quality and earnings continue to remain stressed for
most state banks notwithstanding some signs of early recovery. Expectations of higher restructuring in
2HFY15 and muted credit growth could further mean that earnings (and valuations) recovery will be
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| 5 and protracted. As such, the plan to reduce government stakes may have to wait until there is a
meaningful recovery in earnings and, therefore, equity valuations. State banks account for nearly 75%
of total banking system assets but hold 90% of the system's stressed loans, with the stress on midsized state banks being particularly acute. By comparison, private banks are in a significantly stronger
position than their state-owned peers in terms of capital and asset quality. A cyclical recovery in FY16
should help ease the level of stressed assets, which Fitch expects to peak by March 2015, although
we maintain that private banks' superior credit profiles puts them in a better position to take advantage
of a cyclical upturn. Nonetheless, a recovery should provide an environment for greater stability in
bank Viability Ratings heading into the new fiscal year.
Govt cutting stake in banks will lead to sectoral reforms: SBI Chief
State Bank of India Chairman Arundhati Bhattacharya on Thursday said the Cabinets decision to pare
stake in state-owned banks will lead to a fresh round of banking reforms, and force these financial
institutions to be more competitive. Bhattacharya also said the government should allow public sector
banks (PSBs) to look at different alternatives to raise funds to meet Basel-III norms, including issuing
shares with differential voting rights. The news that the government has allowed PSBs to bring down
govt stake to 52 per cent kicks off the next round of reforms because for the first time there is a very
clear signal that banks can pick up funds from the market, Bhattacharya said at the concluding day of
the Delhi Economics Conclave. The big daddy back there is not going to be around to give them
capital as and when they need and if they need to be competitive and want to grow, they definitely
need to look at other places for more capital, she said. Finance Minister Arun Jaitley had said in his
Budget speech that to be in line with Basel-III norms there is a requirement to infuse Rs. 2.4 lakh-crore
into the banking system as equity by 2018. To meet this huge capital requirement, we need to raise
additional resources to fulfil this obligation, he had said. Bhattacharya said apart from paring stake,
the Centre also has to create a clear roadmap on how much the banks need to do to meet the BaselIII norms. The writing on the wall is very clear. There has to come a time where they have to think of
differential voting rights and banks have the freedom to raise equity. It is time to lay out some kind of
road map on how much the banks need to do and how much support they would get.
Speaking on consolidating and merging of banks, Bhattacharya said: It is extremely important for
India to have three or four major banks. We should allow the banks to come together and talk among
themselves. She cautioned, however, that such mergers should not be forced by the government, and
that the banks should have the freedom to choose their own partners. Mergers must necessarily be
amongst consenting people and people who can see strength in each other rather than somebody
being a rescuer of the bad banks. Bhattacharya said apart from long-term financing for infrastructure
projects, banks should also make short-term investments in equity and bond markets. She also said
that a lot of outdated securities and financial sector laws needed to be abolished or changed to reflect
the current times. She also spoke about improving the quality of banks boards and strengthening
whistle-blower policies.
Rate cut if inflation remains under control, says RBI Deputy Governor
The Reserve Bank of India (RBI) might look at a possible rate cut if factors leading to lower inflation
continue to persist, its Deputy Governor, SS Mundra, said here on Wednesday. According to him, the
latest monetary policy indicated that deflation at this point will be quite encouraging because of
global factors such as low oil and commodity prices and softening of food prices. So, that is why we
indicated that if all of these remain same, then there will be room for softening of policy stance, he
told reporters on the sidelines of a seminar organised by the Confederation of Indian Industry (CII).
The comments come ahead of consumer inflation data (for November) due on Friday (December 12).
Inflation based on the consumer price index (CPI) fell to 5.52 per cent in October. The RBI held
interest rates steady earlier this month, but said it could ease monetary policy early next year.
Licences
According to Mundra, the central bank is likely to grant payments bank licences to applicants by
or April 2015. He did not, however, say how many licences the RBI was going to offer.
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Payments banks are expected to help expand financial inclusion footprints. The RBI had detailed the
final guidelines for payments bank licences on November 27, and January 16 is the deadline for
licence applications. Mundra said there is no cap on the number of licences that it will offer. On
offering more universal banking licences, Mundra said the regulator was working towards a policy of
granting such licences on-tap basis. So far, bank licences have been given during a particular time
frame. Before April 2014, when Bandhan and IDFC were given in-principal approval, , the last banking
licences were given to Kotak Mahindra Bank and Yes Bank in 2004.
Non-executive chairmen and separate managing directors for PSU banks from current financial
year
NEW DELHI: Public sector banks are set to have non-executive chairmen and separate managing
directors from the current financial year as the government tries to rework the structure on the lines of
private banks to improve corporate governance standards. The decision comes as seven of the 10
candidates shortlisted by an appointment board have received a green light from the Central Vigilance
Commission. Sources said those who have received vigilance clearance include P Srinivas and B. B.
Joshi, executive directors at Bank of Baroda, Arun Srivastava and P. Koteeswaran of Bank of India,
Animesh Chauhan of Central Bank of India, K. K. Sansi of Punjab & Sind Bank and Rakesh Sethi of
Union Bank of India. Sources said the decision to split the post of chairman and managing director,
which is peculiar to the nationalized banks, has already been taken and the finance ministry is
undertaking the exercise to hunt for at least eight non-executive chairmen along with an equal number
of MDs. While the decision was communicated a few days ago, the finance ministry is yet to go ahead
with their appointments, possibly due to its decision to split the post of chairman and managing
director. The top post in the state-owned banks was to be split from the next year but the decision has
been advanced despite candidates being interviewed for post of CMDs. This year the government has
to appoint eight bank chiefs including at some of the top public sector players such as Bank of Baroda,
Punjab National Bank and Canara Bank. The move to have non-executive chairmen was first
suggested by a committee headed by former Axis Bank chief PJ Nayak. Although the panel's other
recommendations were ignored, the one to split the post has been accepted. It is not clear how the
chairmen will be selected.
Government sources said while appointing the new MDs,
recommendations of a committee under expenditure secretary Ratan P. Watal will be factored in and
those who have had long stints in Group A banks will considered assignments in PNB, BoB and
Canara.
Dont replace Gandhiji with other leaders on banknotes: RBI
A Reserve Bank of India panel has decided against the inclusion of any other national leaders image
on banknotes, saying that no other personality could better represent the ethos of India than Mahatma
Gandhi.
Design panel
On the advice of the Government, the RBI had, in October 2010, constituted a Committee to design
future currency notes, Finance Minister Arun Jaitley said in a written reply to the Lok Sabha. He said
the Committee, inter alia, deliberated on the issue of changing the existing image of Mahatma Gandhi
and inclusion of certain other personalities in the new design of banknotes. After due consideration,
the Committee decided that no other personality could better represent the ethos of India than
Mahatma Gandhi, Jaitley said. In reply to a question, Jaitley said during the last three years the RBI
had received 21 complaints about the circulation of fake currency through automated teller machines
(ATMs) installed by various public/private banks. The RBI seeks a report upon receiving a complaint
in this regard and takes such action as deemed fit based on the report, including issue of advisory to
the concerned bank..., he said.
Genuine notes
The RBI has issued instructions to banks that banknotes in denominations of 100 and above should
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| 7re-issued by banks over their counters or through ATMs only if these banknotes are duly checked
for authenticity/genuineness and fitness by machines.
RBI Deputy Governor Khan proposes novel PPP model to drive financial inclusion agenda
India should adopt a PPP model for driving its financial inclusion agenda, RBI Deputy Governor HR
Khan has said. Financial inclusion efforts should be tested against the Plan, Pursue and Pause
framework to ensure better outcomes, Khan said at the Inclusive Finance India Summit 2014 in the
capital on Monday. There is a need to plan well, pursue what has been planned and ensure there is
a pause to see if it is working well. Adoption of such a PPP approach could mean better results,
Khan said.
Not public-private model
This PPP model is different from the commonly-known public-private partnership that the Government
is looking to encourage in various economic activities. Later, Tarun Chugh, Managing Director and
Chief Executive Officer, PNB MetLife India Insurance, told Press that India's financial inclusion efforts
are still at a pilot stage and more needs to be done to improve access to basic banking facilities,
expanding mobile banking and increasing financial capability. Financial inclusion is just not about
opening bank accounts but providing access to the breadth of financial products needed by all people,
he said.
SBI chief proposes differential voting rights to meet Basel-III norms
With the government indicating that it wont continue to fund public sector banks (PSBs), SBI
chairperson Arundhati Bhattacharya today said they could look at issuing shares with differential voting
rights to raise funds for meeting the Basel-III capital adequacy norms. The writing on the wall is very
clear...they (PSBs) have to think of differential voting rights. It is time to lay out some kind of roadmap
on how much the banks need to do and how much support it would get, she said, while talking to
reporters on the sidelines of a conference. The government had yesterday allowed PSBs to raise up
to Rs. 1.6 lakh Cr. from markets by diluting the government holding to 52 per cent in phases to meet
Basel III norms.
Consolidation
Pitching for consolidation in the banking sector, Bhattacharya said that it was important to have three
to four major banks. It is extremely important for India to have 3-4 major banks. ... We should allow
the banks to come together and talk among themselves. In the past also, we have seen government
has forced some mergers...it is very important for the banks to determine who should be their correct
partners, she added. According to Bhattacharya, it is better to merge good banks with good banks.
Stake dilution
She further said the government has shown its intent to continue with reforms in the banking sector by
deciding to bring down its stake to 52 per cent. The news that the government has allowed PSBs to
bring down government stake to 52 per cent kicks off the next round of reforms... because for the first
time clear signal has been given (to PSBs) to source capital from the market. The big daddy back
there is not going to be around to give them capital as and when they need. If they need to be
competitive and want to grow, then they definitely need to look at other places for more capital,
Bhattacharya added. Out of 27 PSBs, the Government of India controls 22 through majority holding.
In the remaining five, state-run SBI holds majority stake.
Basel III norms
The Basel III norms, which will come into effect from March 31, 2019, were put in place following the
financial crisis triggered by the fall of Lehman Brothers. The norms are aimed at improving
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risk management and governance, while raising the banking sectors ability to absorb financial and
economic stress. As per Basel-III norms, the minimum capital level for Tier-1 has to be 7 per cent.
CST compensation: Centre to release Rs. 11,000 cr in FY15 to states - Jaitley
Finance Minister Arun Jaitley said on Wednesday, a day before a crucial meeting with state finance
ministers on the proposed Goods and Services Tax (GST), that the ministry would release Rs. 11,000
Cr. to states towards Central Sales Tax (CST) in FY15. "Despite a difficult and challenging (fiscal)
situation, I propose to release about Rs. 11,000 Cr. a third (of the total CST compensation of Rs.
34,000 Cr. sought by states), this year as part-payment of CST compensation to the states. This will
take care of the amounts from 2010-11 onwards. The balance of the amount, I will start paying from
the next financial year onwards," Jaitley said, while replying to the debate on the Supplementary
Demand for Grants for 2014-15. The Lok Sabha passed the supplementary demands for an additional
expenditure of Rs. 12,500 Cr. However, the actual cash outgo would be Rs. 500 Cr. The government is
working towards rolling out GST from April 1, 2016, and is in discussion with states to insulate their
revenues from the impact of GST. GST will subsume indirect taxes such as excise duty and service
tax at the central level and value-added tax (VAT) and local levies on the states' front. Although the
Centre seems firm on its decision to subsume petroleum and entry taxes in GST, with a provision for
first tranche of CST compensation, Jaitley is likely to assure the states on Thursday's meeting that the
government will compensate them for three years' losses under GST as well, even though there is no
provision for that in the Constitution. "A major impediment in the implementation of the GST has been
the trust deficit between the states and the Centre. One of the major reasons for the trust deficit is
non-payment of the CST compensation to the states, from the year 2010 onwards. In my meeting with
the empowered committee of the state finance ministers in July 2014, I had committed that partial
payment of outstanding CST compensation will be released this year. I stand by this commitment
given by me," said Jaitley. Speaking on the Centre's growth forecasts, Jaitley said there were
challenges but hoped it would be within the projected range of 5.4-5.9 per cent in 2014-15 and cross
six per cent in the next financial year. He also said he was "determined to maintain" fiscal deficit at 4.1
per cent of the gross domestic product. "Don't underestimate the challenges I have If we don't
maintain that figure, the world and the global investors look at us, our ratings depend on that, and a lot
depends on how the world views you," he said, adding that economic growth falling to below-five per
cent levels in 2012-13 and 2013-14 had an impact on revenue collection, fiscal deficit, and
government's expenditure on developmental works.
FINANCE MINISTER'S TAKE ON ISSUES
INTEREST RATES: We favour bringing down rates, authorities (RBI) are seized of the view
MGNREGA: Myth that govt slashed MGNREGA allocation; Rs. 33,000 cr allocated last year
and Rs. 34,000 Cr. this year, of which nearly Rs. 26,000 cr disbursed
PATENTS ACT: Myth that govt changing patents Act
LPG SUBSIDY: Poor entitled to subsidies, not rich. Leakages will be plugged
DISINVESTMENT: Easy to oppose the idea but what do we do with loss-making units?
PLANNING COMMISSION: Govt stands by cooperative federalism; all CMs, including the
Congress ones, favoured dismantling the Plan panel
INSURANCE: Large investments waiting to come in the sector
Page RBI
| 9 to nudge foreign banks for subsidiarisation post review of PSL norms
The Reserve Bank of India (RBI) will nudge foreign banks in the country to opt for the subsidiarisation
route after it reviews the priority sector lending (PSL) norms set for them. Foreign banks expressed to
us some concerns on the kind of obligations they would have if they move into the wholly-owned
subsidiary (WOS) structure... We are in the process, at the request of the ministry, of reviewing the
priority sector norms. When that process is finished after consultation with the government, we will be
able to communicate those norms. Once we do that, we can nudge the foreign banks to move into the
wholly-owned structure, RBI governor Raghuram Rajan said post the central banks board meeting in
Kolkata on Thursday. The central banks initial efforts to convince foreign lenders to create subsidiaries
in India had failed. After taking feedback from bankers, RBI in November last year released a new
framework for setting up WOS by foreign banks in India. It promised foreign lenders near-national
treatment in branch expansion and permission to acquire local private banks if they choose to create
subsidiaries here. Capital gains tax and tax duty have also been waived for conversion of foreign
banks India branches into WOS. Many of them believe that they do not have the required expertise
and risk management framework to meet stiff PSL targets. RBI had said the PSL requirement for WOS
of foreign banks will be 40 per cent, just like their Indian rivals. Out of this, 18 per cent of loans have to
be offered to the farm sector. While RBI has not made the WOS structure mandatory for existing
foreign banks (which commenced banking business in India before August, 2010), it said foreign
lenders that do not provide adequate disclosure in their home jurisdiction, have complex structures or
are not widely held will have to set up subsidiaries in India. Also, foreign banks that entered India after
August, 2010 will have to mandatorily convert their branches into WOS.
Rajan clarified new foreign banks that are entering India now will have to set up WOS. Also, RBI will
continue to allow branch expansion of existing foreign banks. Ultimately, we are worried about
systemic risks stemming from large foreign banks in India. Many of those have been in India for many
years. We have to be explicit about the costs and benefits. Otherwise, it will be a retrospective
regulation...If they apply (for branch licence), it goes through normal process. We have not stopped
giving branch licences, he said. Separately, the governor said while current account deficit has
widened it still remains at a comfortable level. Current account deficit (at 2.1 per cent of gross
domestic product) is still comfortable. The direction is something that we will be watching closely.
There are risks to the current account. (But) at this point, while we are certainly vigilant, but I won't say
we are apprehensive, Rajan said. He added that the fall in global oil prices has provided a cushion to
the current account and persuaded RBI to experiment with liberalising restrictions on gold imports. "It
will be hard to maintain the kind of restrictions that we had for a long period. At some point we have to
start taking off some of the restrictions. The oil prices are falling. It gives us some cushion on the
current account. It is a good time to see what happens if we take off the restrictions (on gold imports),"
Rajan said.
Bank of Maharashtra cuts minimum lending rate to 10.25%
Staterun Bank of Maharashtra today announced a cut of 0.15 percentage point in its minimum
lending rate or base rate to 10.25 per cent, a move which will make its housing and auto loans
cheaper. The bank has decided to revise the banks base rate from 10.40 per cent per annum to
10.25 per cent per annum with effect from December 15, 2014, Bank of Maharashtra (BoM) said in a
filing to the BSE. BoM is the first bank that has lowered lending rates after RBI Governor Raghuram
Rajan made a case for lowering lending rates by banks earlier this month. Some easing of monetary
conditions has already taken place... However, these interest rate impulses have yet to be transmitted
by banks into lower lending rates, Rajan had said during the monetary policy review. Helped by
softening prices of food items, retail or consumer price index (CPI) based inflation declined to 5.52 per
cent in October. The wholesale price index (WPI) based inflation fell to 1.77 per cent during the month.
Shares of Bank of Maharashtra were trading at Rs. 43.20 per piece on the BSE, up 1.29 per cent from
previous close.
Soon, get one account for all financial assets soon, say RBI, Sebi, Irda
Financial regulators, including RBI, Sebi and IRDA, are working on creating a common account
facility, which may allow people to get details of all their financial assets in one place. This
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may include bank accounts, stocks, bonds, insurance and mutual funds, among various financial
assets, even if they are managed by institutions under jurisdiction of different regulators. A suggestion
in this regard made by an Inter-Regulatory Technical Group (IRTG) was discussed here today by the
Sub-Committee of Financial Stability and Development Council (FSDC), which met here today. The
members of this sub-committee include chiefs of various regulators including RBI, Sebi, IRDA, PFRDA
and FMC, as also representatives of the Finance Ministry. After the meeting, RBI Governor Raghuram
Rajan said the FSDC Sub-Committee has decided to create a common platform for people to see their
accounts across regulatory bodies. We have discussed the possibility of creating a platform for
people to see their accounts across regulatory bodies, Rajan told reporters after the meeting. He said
that that it was decided to create such a structure going forward. The regulators also discussed other
issues of mutual interest, Rajan said. RBI Deputy Governor H R Khan said that deepening of the
currency futures market and risks facing the financial system were also discussed.
Need to look into finer details, say companies about Insurance Bill
The finer details of the Insurance Laws (Amendment) Bill, 2008, will be studied closely before the
companies take a decision on increasing stake of foreign partners or infusion of fresh capital. Clarity
will be sought on what route the foreign investment would come through, apart from the exact
meaning of Indian management control, which has not been explicitly defined. Sanjay Tripathy, senior
executive vice-president, marketing, product, digital and e-commerce, HDFC Life, said insurers would
wait for the finer details of the Bill before taking any decision. He added that smaller insurance players
could see further investment from foreign partners, since they are in need of capital. The issue of
Indian ownership and control as recommended by the Rajya Sabha Select Committee on the Bill has
been defined in the Bill with control, including the right to appoint the majority of directors or to
control the management or policy decisions, including by virtue of their shareholding or management
rights or shareholder agreements or voting agreements. However, it is not clear whether voting rights
of the foreign partner would be restricted or not and if foreigners can be appointed in the top
management in insurance companies. This would include positions like chief executive, managing
director and chief financial officer, apart from the appointed actuary. Deepak Mittal, managing director
and chief executive officer, Edelweiss Tokio Life Insurance Company, said there is a strong interest
from large players in the industry to increase stake to 49 per cent, though he added that IPO activity
would begin only after players decide upon whether they require foreign direct investment, foreign
institutional investors, or both. If fresh capital is brought in, insurers can get additional funds from their
foreign joint venture partners as well as newer entities. Estimates said that the sector would gain an
additional ~7500-8000 Cr. if FDI is raised. Fresh equity would mean immediate capital to expand the
insurance business by offering additional products and services, along with branch expansion. Some
areas of business, especially health and motor insurance are considered to be money guzzlers since a
significant portion of revenues go in paying claims. Hence, fresh equity would help those companies
who have not been very active in these spaces to increase investment in these fields.
While the insurance regulator had earlier envisaged that large insurers would list on the stock market,
industry players are of the view that they would not do so immediately. Some large players are
interested in an IPO. However, several factors like FIPB approval or automatic approval, apart from
clarity in Indian management control would be sought before taking a decision, said a senior
insurance executive. Many players have already agreed that FDI hike would lead to a hike in foreign
partners stake. Anoop Pabby, Managing Director and CEO, DHFL Pramerica Life Insurance said
partnership agreement between DHFL and Prudential stipulates explicitly the situation where the FDI
cap is lifted. Prudential has a long-standing desire to bring up its share to the percentage allowed
under the regulation and the agreement provides for this. We will follow our agreement between
partners, subject to regulatory changes, he said. He added that the approval on the much awaited
insurance Bill which increases the cap on foreign investors from 26 per cent to 49 per cent is likely to
bring another wave of growth in the insurance industry. With the companies focusing on growth and
expansion, the penetration of insurance will increase and the security of insurance could be availed by
many more in India. It will also give the industry the much needed stability and the ability to focus on
investing more on technology to revamp the back-end operations for smoother and better customer
service, he said.
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RBI set to allow FIIs, banks to trade in commodity market
The Reserve Bank of India (RBI) is set to give in-principle approval for foreign institutional investors
(FIIs) and banks to participate in commodity markets, say sources in the know. The matter is in the
final stage of internal review and an in-principle approval is just a matter of time, said a source. The
development comes at a time when the countrys commodity exchanges (commexes) are suffering a
heavy drop in turnover. According to a report by news agency Press Trust of India on Wednesday, the
combined turnover of Indias commexes in April-November declined 48 per cent from the year-ago
period to Rs. 39.88 lakh Cr. mainly due to poor trading volumes. According to Forward Markets
Commission (FMC) data, these exchanges had generated a business of Rs. 76.78 lakh Cr. in AprilNovember last year. In May, a five-member committee had said high-cost transactions in commodity
futures caused a hindrance to the market. And, suggested this could be reduced if banks and FIIs
were allowed to participate in the commodity market. The panel, headed by senior economic advisor in
the finance ministry, D. S. Kolamkar, had on April 28 this year given a report on Steps to fulfil the
objectives of price discovery and risk management of the commodity derivatives market. The
committee had told the government in the report that high transaction costs in the futures market were
an impediment to arbitrage. These, the panel had said, could be reduced by allowing banks and
financial institutions, including FIIs, to participate in commodity futures trading. The panel had as
members Institute of Company Secretaries of India (ICSI) Secretary M. S. Sahoo, finance ministry
advisor C K G Nair, Indira Gandhi Institute of Development Research professor Susan Thomas and
Forward Markets Commission economic advisor Usha Suresh. Policy and regulatory hurdles currently
restrict banks and financial institutions from participating in the commodity market. Banks are also
restricted under the Banking regulation Act. The committee suggested these needed to be removed, to
widen participation. The existing system of limits on open interest and risk management provides
adequate safeguards against the risk of allowing foreign participation in Indian markets, it said. The
report also said commexes should explore the idea of extending trading hours that overlap with Asian
and Australian markets, to improve their international competitiveness. At present, trading hours in
India overlap with the European markets, but have little or no overlap with Australia and Asia, a large
trading base that remains untapped. The committee also advised the government exempt arbitrageurs
from restrictions on holding inventory. It strongly objected to abrupt suspension of trading in
commodities and recommended the commodity markets regulator voluntarily adopt regulatory
governance rules from the draft Indian Financial Code, to reduce legal and regulatory risks in the eyes
of financial firms.
SBI launches first homegrown economic index
For the first time, a domestic bank will start giving a forward-looking economic index. The State Bank
of India, the countrys largest lender, will use its loan book to give indicators on the domestic
manufacturing activity from the New Year. The SBI Composite Index will have both monthly and yearly
indices. The short-term report, to be released in the first week of every month, will forecast the state of
the economy two months down the line. The annual index will make year-on-year forward predictions.
Similar economic forecasts published by British lender HSBC, with global business survey compiler
Markit, are the HSBC India Services Purchasing Managers Index (PMI), HSBC India Manufacturing
PMI and the Markit India Business Outlook. Soumya Kanti Ghosh, Chief Economic Advisor at SBIs
economic research department, said SBIs figures are not intended to rival HSBCs numbers.
However, during the eight years of back-testing (2007-2014), the SBI index accurately predicted
economic direction 72 per cent of the time while the PMI had a 50 per cent strike rate. Arundhati
Bhattacharya, Chairperson and Managing Director, SBI, said the index will take into account the credit
demand and other indicators of economic activity like consumer spending, mining activity, interest
rates, inflation, exchange rate and other thematic indices and service and manufacturing activities.
We are there across the country. Our loan portfolio is well distributed across all segments. That is one
of our strengths. As we are a pan-India bank, we dont have any segment or geographical bias, she
said. The SBI will also use public data on industrial production, international trade, commodity prices
and current and futures prices in the stock markets to forecast possible expansion or contraction of the
economy. To represent the manufacturing sector, SBI will use the monthly Index of Industrial
Production data rather than GDP figures, which are released ever quarter. The SBI index is built to be
yet robust in its forecast. On the other hand, the HSBC manufacturing index is based
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on data compiled from replies to questionnaires sent out to purchasing executives in around 500
manufacturing companies, covering factors such as new orders, purchases, output and delivery time.
Like the HSBC indices, the SBI index is built on a scale of 0 to 100, with a number above 50 indicating
growth over the corresponding pervious period and a number below 50 suggesting contraction.
Hard to spot genuine farm loan seekers
Distinguishing between willful defaulters and genuine loan-seekers among small and marginal farmers
is one of the challenges banks face in India, said experts, who wanted the Government to do more on
this front. While we have almost 1,800 feet (people) on the street, we have a lot of difficulty in
identifying potential beneficiaries. Digitisation of standard appraisal records is also negligible, said
Sarat Yadav, Deputy General Manager (Rural and Inclusive Banking), ICICI Bank, at a panel
discussion during the Inclusive Finance India summit, organised by Metlife Foundation here on
Monday. Here, banking sector representatives agreed that to bring in almost 80 million unbanked
small and marginal farmers, there was need to find out how to identify genuine loan-seekers. Arindom
Datta, Senior Director and Head of Rural and Development Banking, Rabo Bank India, said domestic
lenders did not have a clear picture of agricultural value-chains.
Cautious
This, he argued, led to good farmers being left out since banks inevitably became cautious when farm
loan defaults rose. He added that the system needed to be weaned off subsidies since it gave farmers
an incentive to not repay loans. The bankers also said that the loan waiver scheme for debt up to
50,000 announced recently by Andhra Pradesh and Telangana could adversely impact rural banking,
with less farm credit availability and furthering of a subsidy culture.
New central fund
IIM-Bangalore Professor Trilochan Sastry, who is also associated with the Association for Democratic
Reforms and Centre for Collective Development, advocated the creation of a separate central fund,
like the one provided for Operation Flood in the 1970s, to make agricultural profitable. Unless farming
becomes profitable, rural banking wont succeed. Small farmers today cant get equity, so a separate
social fund must be created. The Government needs to think agricultural in terms of a business
model, he added.
Collectivisation
Sastry said collectivisation of farmers could see the cost of services going down and linkages
improved. He said banks did not want to lend to farmers due to a combination of low interest rates
and abysmal repayment rates. Cooperatives can help improve this problem; all the ones under us are
profitable today. We were ruthless with willful defaulters but sympathetic with the genuine cases, he
said.
Lending rate cuts on the horizon: SBI Chief
The recent spate of downward revision in deposit rates by banks is an indication that lending rate cuts
are on the horizon, according to State Bank of India chairperson Arundhati Bhattacharya. Over the
last week ICICI Bank, HDFC Bank and SBI have cut their retail term deposit rates by 25-50 basis
points on select maturity buckets. Obviously the fact that we are adjusting rates on the deposit-taking
side means that going forward all of us are seeing a lending rate cut. That is absolutely clear. But
exactly when it will happen is not really something that I can tell you right now, she said. The SBI chief
elaborated that banks are waiting for signs of credit pick up. When we cut lending rates, income
comes down. We need some other ways of making up that income in order to keep paying the
depositors their interest. That can always happen if the credit growth is quite robust and volumes pick
up, she explained. On whether a repo rate (interest rate at which banks borrow short-term funds from
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13 central bank) cut could trigger a lending rate cut, the SBI chief pointed out that banks are flush with
liquidity and they are hardly taking anything from the repo window. Repo rate is a signal (for
downward movement in interest rates). So, a 25 or a 50 basis points cut in repo rate doesnt really
make all that great a difference, she said.
ICICI Bank raises $200 million overseas
The countrys largest private sector lender ICICI Bank on Monday said it will upsize the issuance of
dollar-denominated senior unsecured notes by $200 million (about Rs. 1,200 Cr.) for five-and-half-year
maturity. The upsized tap offering has the same terms and conditions as the existing notes, which will
be consolidated with the bank's existing $500 million 3.50 per cent notes due 2020, 176 basis points
over and above the US 5-year bond. Moody's Investors Service has maintained its Baa2 rating on the
dollar-denominated senior unsecured notes. Standard and Poors also maintained its 'BBB-' long-term
issue rating for the Dubai Branch's notes, following the announcement of a tap bond offering on its
existing $500 million notes issued in September 2014. An ICICI Bank spokesperson declined to
comment. The bank received a coupon rate which was better than the previous 3.50 per cent, a
person in the know of the development said. The ICICI Bank's reopening was indicated to be at 3.35
per cent, about 167 basis points over the 5-year US Bonds The BAA2 senior unsecured debt rating
is anchored on ICICI Bank's BAA3 baseline credit assessment (BCA) and the high likelihood of
systemic support in the event of a crisis. The BAA2 rating is at the same level as the foreign currency
debt ceiling for India. Moodys said, ICICI Bank's BCA is underpinned by the bank's solid franchise as
India's largest private sector bank by assets, as well as its strong capitalisation, liquidity, and earnings
profile. It also takes into consideration, among others, the bank's high borrower concentration in the
form of its mandatory Government securities portfolio; its improving but still weak asset quality when
compared to its global peers; and the challenging domestic operating environment. The notes will
constitute direct, unconditional, unsecured, and unsubordinated obligations of ICICI Bank. They shall
at all times rank at par among themselves and with all other unsecured obligations of the bank. The
rating on the notes is subject to our review of the final issuance documentation, S&P said.
Tight spread
Reuters adds: According to a banker, the $200 million raised by ICICI in an opportunistic tap of its
$500-million 3.5% March 2020s at 165bp over Treasuries was the tightest spread for an Indian bank
deal since 2007. The issue broke the record of Axis Bank, which sold $500 million of 3.25% 2020
bonds last month priced at 170bp over Treasuries. While investors have turned a tad cautious over
the country's high-yield sector due to complicated structures and more restrictive RBI guidelines for
foreign borrowings, the appetite for quality investment-grade names out of the country remains robust,
investors say. With a further boost from the strong November non-farm payroll growth in the US, the
largest private-sector lender decided to do the opportunistic tap, which raised the total outstanding on
the existing issue to $700 million. The tap offered a negligible new-issue premium as its existing
2020s were indicated at 163bp over Treasuries prior to the reopening. The tap came with a lower all-in
yield of 3.356%, versus a yield 3.57% on the existing notes. The leads also referenced Axis Bank's
2020s, quoted at G-spread of 169bp. Yet, the ICICI tap priced through that on the back of strong
demand from investors outside Asia. Axis Bank's stressed asset ratio as of September 30 stood at 4
per cent, compared with 6 per cent for ICICI. The distribution of the Reg S tap, with ICICI's Dubai
branch as the issuer, defied the typical 70/30 split between investors from Asia and elsewhere for
Asian deals. West Asian investors showed enormous appetite for ICICI, buying 39 per cent of the
notes. European investors also bought an impressive 32 per cent, while Asia took the remainder. "The
distribution speaks volumes about how well-known ICICI is among global investors," said a banker on
the deal. "That's why the tap went for a Reg S-only format versus the 144A/Reg S format for the initial
issue."
Meanwhile, the country's private-sector banks were likely to lead the improvement on asset quality in
the near future, said Nomura. Against a narrowing fiscal deficit, declining inflation and rising GDP
growth in India, "we expect the asset quality cycle to bottom out over the next two to three quarters,
led by private sector banks and large public sector banks," analysts at Nomura wrote in a research
note on December 5. The analysts, however, expects the recovery to be gradual during 2015-2016
with Indian banking system's non-performing loans ratio and total stressed assets ratio to remain
unchanged at around mid-4% and 10-11 per cent, respectively. The ICICI reopening was
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indicated a tad wider at bid-167 over Treasuries.
Court tells RBI to get tough with banks
The Supreme Court has asked the Reserve Bank of India (RBI) to demand responsible behaviour
from banks while communicating with customers. Especially so, while making transactions in rural
areas or when dealing with the poor, who may have little knowledge of what they are signing up for.
Right to Information (RTI) activist S. Dheenadhayalan says the customer can now look forward to a
level-playing field. A top RBI official is on record as saying that a great threat arises from the
asymmetry between information and power between FIs and poor consumers. The official said, This
means that there is a real potential for negative outcomes arising out of institutional abuses or illinformed client decisions. An RBI Master Circular, issued on July 1 this year, asked banks to ensure
entry of correct and legible particulars in the pass-books and statement of accounts.
Electronic clearing
In the case of electronic clearing and electronic fund transfer, banks do not provide details. This is in
spite of the particulars provided by the receiving bank. In some cases, computerised entries use codes
which just cannot be deciphered, the RBI said. It added that banks ensure that brief, intelligible
particulars are entered in passbooks/statement of account. This was followed by a Supreme Court
clarification recently on admissibility of computer records but subject to stringent conditions. Generally,
the loan accounts bear a foot-note saying any discrepancy in this statement has to be brought to the
notice of the bank within a period of seven days. But now a bank will be required to ensure that the
statement of account is in conformity with section 65 (B) (2) of the Evidence Act, Dheenadhayalan
said.
Same page
It will need to be in congruity with the ledger folio and with the contractual rights and obligations,
followed by the disclaimer about discrepancies, if any. For instance, bank computers charge interest
regularly on a loan account and then issue internal systemic vouchers for these entries every month.
But these are not shared with customers who may not be tracking their accounts. The customers are
charged a normal interest, which shows up in the loan accounts. But, as RTI documents show, they
are unaware of the actual amount, which could vary from month to month.
RBI norms to extend 5/25 lending structure soon
KOLKATA: Reserve Bank of India said it would issue operational guidelines to extend the 5/25 lending
rule for existing infrastructure projects this week to enable easy repayment and loan restructuring after
every five years. A 5/25 structure allows banks to lend to a project for 25 years, with an option of
rewriting the terms of the loan or transferring it to another bank or financial institution after five years
"We will issue the guidelines in a day or two," RBI deputy governor SS Munda said in Kolkata
Wednesday. Such restructuring of loans would enable loan repayment to be co-terminus with cash
flows from the projects. It will also improve debt-servicing capacity and viability of the operational
projects. Banks face major asset liability mismatches in long term project financing. The 5/25 rule
encourages banks to extend long-term loans to infrastructure sector with flexible structuring to absorb
potential adverse contingencies. On the liability side, banks are allowed to raise long term funds for
lending to infrastructure sector with minimum regulatory pre-emption such as cash reserve ratio,
statutory liquidity ratio and priority sector lending targets. Mundra also said that promoters need to
bring in "real equity" instead of "perceived equity" to make a project viable. "Projects with thin equity is
like walking on thin ice," he said at a CII event.
L&T Finance, Muthoot evince interest for banking licence
MUMBAI: Within a day of the RBI issuing the final guidelines for payments banks and small finance
banks, L&T Finance and Muthoot Finance today evinced initial interest in applying for such banking
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"We are examining that (for both payment and small finance bank) and will then take a
decision whether to apply or not," L&T Finance's chairman YM Deosthalee said today. L&T Finance
will be joining its peers like Muthoot Finance and Shriram Capital, who have also shown interest in
applying for banking licence. "We are surely interested and our board members are studying the new
directives of RBI and will undertake a decision on it soon," Muthoot Finance MD George Alexander
Muthoot said today. After the release of the guidelines last evening, Shriram Capital's GS
Sundararajan had also said the group will be interested in the small finance bank segment and
evaluate the guidelines. Meanwhile, BSE CEO & MD Ashish Chauhan said, "Currently, we have no
such plans. We are not pursuing any banking license as of now." There were media reports last week
that the BSE and its larger rival NSE, which witness transactions of thousands of Cr. every session,
are eyeing setting up of small banks. The introduction of the two new types of banks is the first step
towards having a differentiated banking in the country. The small finance banks have been designed
to serve the marginalised by small lending and accepting deposits, while the payments banks will be
for garnering small savings and facilitating remittances.
PSU bankers paid very poorly, rues SBI chief
SBI chief Arundhati Bhattacharya today said that bankers are paid very poorly in India, especially at
public sector banks. Bankers are paid poorly in India as compared to their counterparts
elsewhere in the world, SBI chief Arundhati Bhattacharya. (PTI) Lamenting that bankers are paid
very poorly in India, especially at public sector banks, SBI chief Arundhati Bhattacharya today said
there is an urgent need to provide better remuneration to attract good talent. Bankers are paid poorly
in India as compared to their counterparts elsewhere in the world, she said. Let me start with income
of banking professionals in India. Here, 70 per cent of the banks are in public sector and they are paid
very poorly compared to market, she said at Delhi Economic Conclave here. The SBI chief said there
is urgent need to improve quality of board members by providing them suitable remuneration so that
the overall efficiency improves. We are very blessed in that. SBI has invariably had very good quality
board. But that may not be true across (other banks) board. One of the reasons is very low
remuneration that is given to the board directors, she said. If you are trying to attract best in the field,
they have to be remunerated accordingly. We must insist on people who are coming into the board
having sufficient hands on experience in both planning and execution in their respective areas, she
said. So, this is something that government can easily implemented and should be done, she added.
The comments come about a week after PSU bank employee unions went to a four-day relay strike to
press for early revision of wages. With regard to governance, she said P J Nayak Committee has very
clearly laid out certain roadmap as to how governance can be taken forward. I believe the
government is looking at it. While they do look at it, I believe there are very some low-hanging fruits
and those could be easily implemented within a short period of time, she added. Talking about
changing regulation in tune with the present system, Bhattacharya said India has over 60 Acts and
multiple rules and regulations that govern the financial system at the moment. Many of the laws are
from 1950s and 1960s. The banking regulations themselves they were established before ATMs, credit
cards, internet banking, investment advisory, private banking, mutual funds, whole lot of other
things, she said.
These acts have been amended from time to time to keep pace with changing reality but the legal
foundations have remain more or less static and as the result the framework is very complex and
inconsistent, she said. Occasionally, it is also open to regulatory arbitrage. So, we need to look at
these things also holistically and move the laws to be in tandem with the times, she added. With
regard to improving governance, Bhattacharya also pitched for a good Whistle Blower policy with the
objective to protect innocent and punish guilty. In the area of governance, its very important
especially in the public sector banks to nurture and have a good Whistle Blower policy to ensure that
people who actually give right information are properly rewarded and those who actually misuse the
system they are penalised, she said. We must free the public sector from the disgruntled and
weapons of anonymous and superfluous complaints that they use. These complaints very often
contain allegations that are totally full of lies but a lot of resources get tied up in looking into these
things, she added. Good people who have taken strong decision should not be unnecessary
on account of false allegations, she said.
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India has potential to be reinsurance hub for SE Asia: IRDA
NEW DELHI: Given its talent pool, India has the potential to become reinsurance hub for South Asian
market, IRDA Chairman TS Vijayan said today. "Today we have only one reinsurance company in
India, GIC RE... They are doing very well... India has the possibility to become a hub of all the reinsurance activities in east and South East Asia," he said at industry body Ficci's Health Insurance
Conference. "Reinsurance hub is possible because even in a city like Singapore large number of
Indian people are doing the analytics job, accounts jobs, legal jobs," he said. Therefore, India has got
enough eco-system to support them educate them, he said, adding that "we can create certain entity
here, which is world leader in reinsurance". Besides, Vijayan also said the government could think of
launching a 'Jan Bima Yojna' similar to Jan Dhan Yojana for banking sector to increase awareness and
deepen insurance penetration. It is time for launching a 'Jan Bima Yojna' because if telecom sector
can penetrate to remotest place in the country then why can't insurance industry, he said. Industry
should think on this and learn from the success of the telecom industry, he added. The Narendra
Modi-led government launched the 'Jan Dhan Yojana' in August this year with an aim to have at least
one account per household in the country. Just like banking, the country is under-covered from an
insurance point of view.
Let banks decide on consolidation: SBI chief
The Centre must leave it to the public sector banks (PSBs) to decide on the consolidation candidates,
State Bank of India Chairperson Arundhati Bhattacharya has said. It is important to start
conversations among banks as to who should merge with whom, she said at the Delhi Economics
Conclave 2014 here on Thursday, adding that it is important for PSBs to decide for themselves on the
right partner. The SBI chief also said India must work towards three-four large banks through
consolidation. Bhattacharyas remark is in line with the previous UPA regimes stance of allowing
banks to come up with their own proposals for consolidation. As on date, the Narendra Modi
Government has no stated policy on bank consolidation. Indications are that the upcoming Budget will
spell out the new dispensations policy stance and may even come up with some big ticket
announcements on the merger front. Reacting to the Union Cabinets nod on Wednesday for whittling
down the Centres holding in public sector banks to 52 per cent, the SBI chief said this will kick-off the
next round of reforms. Public sector banks are being given a clear signal that they have to source
capital from the market, she said, adding that to raise capital PSBs have to be seen as efficient. The
big daddy back there is not going to be around to give them (the PSBs) capital as and when they
need. If they (the PSBs) need to be competitive and want to grow, they definitely need to look at other
places for more capital, she added. Bhattacharya also suggested that the Department of Financial
Services come out with a framework for PSBs to issue shares with differential voting rights.
RuPay issuer retains insurance clause; government unhappy
MUMBAI: In a direct confrontation with the government, the issuer of RuPay cards - NPCI - has
retained a clause on insurance the government is unhappy with, while inviting insurers to provide
cover for active debit cards. As of now, general insurer HDFC Ergo provides Rs. 1 lakh personal
accident cover to RuPay cardholders, which is up for review at the end of this fiscal year. The
government is disappointed with one of the terms of the agreement between HDFC Ergo and NPCI
that said the card holder can make a claim only if the card is swiped at least 45 days prior to an
unfortunate event. The government feared that some citizens may not get full benefit of the cover
because of this clause. Since NPCI had already signed the agreement with HDFC Ergo, the
government roped in Life Insurance Corporation (LIC) to provide Rs. 30,000 life cover along with
personal accident cover on the RuPay card. Incidentally, the new request for proposals floated by
NPCI also says the card holder has to do at least one transaction 45 days before the date of the
accident to be eligible for insurance. "The government is not comfortable with the condition of at least
one transaction in 45 days," AP Hota, MD and CEO of NPCI. "But if we waive it, the card holders may
not have any compulsion to keep card active. Ultimately, we want to ensure that people do
transactions," he said. RuPay Card gained prominence with the launch of Jan Dhan Yojana, a
initiative to provide banking service to the lower income group in unbanked areas. Every
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citizen who opens a bank account under this scheme is offered a free RuPay card with Rs. 1 lakh
personal accident cover and Rs. 30,000 life insurance cover. As of now, NPCI has issued 6.5 Cr. cards
and is expected to issue another 6 Cr. by the end of this fiscal. "Government wants us to drop the
condition. If the government is willing to subsidise the premium, we are willing to waive the condition.
But as things stand, we have not received any firm commitment from the government on this yet," said
Hota. Currently, NPCI bears a premium cost. It pays a premium of little less than 50 paise per card.
NPCI has Rs. 2 lakh personal accident called for cover for premium card and Rs. 1 lakh cover for nonpremium cards.
RBI's net dollar purchases almost double in October
The Reserve Bank of India (RBI)s net dollar purchases from the market almost doubled in October to
$2.7 billion compared with $1.44 billion the previous month. The activities of the central bank in the
foreign exchange market also went up in October. RBI bought $14.26 billion while it sold $11.55 billion.
The intention has been to absorb the capital flows to build reserves. Latest data shows that RBIs
foreign exchange reserves rose by $1.43 billion for the week ending November 28 to $316.31 billion.
RBIs net forward purchases rose in October to $10.22 billion, from a net forward purchase of $8.4
billion in September. NRI deposits rose by $1.3 billion in October taking the kitty of outstanding
deposits of overseas Indian to $110.01 billion. NRI deposits saw a flow of $7.58 billion during AprilOctober 2014, down from $18.98 billion in April-October 2013. Meanwhile, the rupee breached the 62
mark again on Wednesday due to dollar demand from oil marketing companies. The rupee ended at
62.02 compared with previous close of 61.89 per dollar. During intra-day trades the rupee touched a
low of 62.05.
New scheme takes banking to customers
Why do people go to moneylenders for loans, even though they have to pay exorbitant interest rates?
Most of the time, its because they get a hassle-free loan. Ashok Reddy, Chairman of the Karnataka
Vikas Grammena Bank, found this out for himself on a visit to rural areas. In many cases the loan was
as small as 5,000, which was ignored by banks. Sensing an opportunity here, in January this year
the bank launched a scheme called Vikas Janashakti to serve customers at their doorsteps. Reddy,
who was in Mangaluru recently, told Press that loan repayment under this scheme is linked to the daily
deposit scheme (also known as pigmy deposit scheme in some banks). Under this, an agent of the
bank collects small deposits from customers at their doorsteps every day. A rural youth may want to
open a petty shop in his village or a small motor winding business. Generally, the requirement is less
50,000. But the lack of access to small loans either drives them to moneylenders or spells the end of
their entrepreneurialaims. This is where Vikas Janashakti can make a difference, he said. Till now,
we have reached more than 20,000 beneficiaries, and disbursed around 120 Cr. under the scheme,
he said. The bank lends 5,000-50,000 under the scheme. The interest rate charged by the bank is
around 14.5 per cent a year. While that may seem a trifle high, he pointed out that some of the
microfinance institutions charge around 24-26 per cent a year. This model also ensures smooth
repayment. As the loan is linked to the daily deposit scheme, the bank recovers the loan amount from
the deposit scheme, every month, through a standing instruction. Those who find it difficult to pay a
lump-sum amount at the end of the month are also benefited by this model. In the days to come,
Vikas Janashakti will be the flagship product of our bank, Reddy said.
ING Vysya staff want Kotaks assurance on job security
In a bid to ensure that their jobs are secured and wages protected, the staff of ING Vysya Bank want a
tripartite agreement with the Kotak Mahindra Bank and their current employers. Last month Kotak
Mahindra Bank announced the acquisition of the Bengaluru-headquartered ING Vysya Bank in a
15,000-crore ($2.4 billion) deal. We are insisting that Kotak Mahindra Bank come up with
assurances in writing on the job safety aspect of all employees through a tripartite agreement, said
SA Sridhar, General Secretary of the All India ING Vysya Bank Officers Association. ING Vysya has a
staff strength of 10,590. We want all the jobs and wages of all stakeholders to be protected, Sridhar
said. The association is planning to create awareness by educating the employees across India. At
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18 recently held Central Committee Meeting of the All India ING Vysya Bank Officers Association,
concerns were raised on the issue of job safety, Sridhar said. They have to consider retaining all the
employees. The merger should not be one sided, he added. Announcing the acquisition last month,
Kotak Mahindra had said after the merger all ING Vysya branches and employees will become Kotak
branches and employees.
Bank credit up 11% annually: RBI data
Credit in the banking system continues to grow at a tepid pace despite the festival offers extended by
lenders. Data from the Reserve Bank of India suggests that in the period between November 14-28,
bank credit increased marginally by 0.5 per cent. However, in the past one year credit growth was up
by 11 per cent to Rs. 62,84,396 Cr. Credit growth in the previous fortnight had slipped marginally.
However, bankers believe that credit growth in the system has started picking up, gradually. There is
some demand coming for loan from new projects in commercial real estate and renewable energy
segment. The year-on credit growth till November-end was about 10 per cent for the countrys largest
lender, said Arundhati Bhattacharya, chairman, State Bank of India. Even deposits increased
marginally by 0.76 per cent in the same period. In the past one year, deposits swelled by 11.7 per cent
to Rs. 83,17,049 Cr. from Rs. 74,45 544 Cr. in the same period a year ago.
Government not to implement Banking Transaction Tax
DELHI: The government is not considering implementing Banking Transaction Tax to replace all taxes
in the country, Parliament was informed today. Banking Cash Transaction Tax (BCTT) was introduced
in June 2005 to track unaccounted money and trace its source and destination, but was withdrawn in
April 2009. "There is no proposal to implement Banking Transaction Tax to replace all taxes in the
country," Minister of State for Finance Jayant Sinha said in a written reply to the Lok Sabha. Earlier
this month, a high level official panel had proposed levying of banking transaction tax on withdrawal of
cash beyond a specified limit in a day to check black money. The report of Tax Administration and
Reform Commission (TARC), headed by Parthasarathi Shome, said there was no instrument at
present that captures details of cash withdrawals from bank accounts. It said such information would
help the I-T department widen its information base on the use of black money.
ICICI Bank, American Express launch transparent credit card
MUMBAI: Private sector lender ICICI Bank today launched India's first credit card with a transparent
design. The card, part of ICICI Bank's 'Gemstone Collection', has been launched in association with
American Express. The 'ICICI Bank Coral American Express Credit Card' will provide benefits on the
lifestyle front, including an introductory extended credit period offer and bonus reward points on online
transactions, ICICI Bank Executive Director Rajeev Sabharwal said here. "The card combines the
strengths and capabilities of both organisations and offers an exciting new payment choice to
customers," American Express President (South Asia) Sanjay Rishi said. Plastic credit cards are
generally opaque in nature, having details like the card holders' name, photograph, signature and bar
code, among others. This card has all these features, but without the opacity. Its features include an
extended period for repaying of retail purchases for the first two bill cycles by paying the minimum
amount due. Other offers include complimentary movie tickets, access to certain lounges at Mumbai
and Delhi airports, minimum 15 per cent discount on bills at leading restaurants across the country
and no surcharge on fuel transactions at HPCLBSE -1.41 % outlets, among others.
Life insurer LIC digitises all policy records
DELHI: The largest life insurer LIC has digitised all of its policy records and has put all policies issued
by it in electronic form or dematerialised form. "Life Insurance Corporation (LIC) has been digitising all
its policy records and as on date all of LIC policy records have been digitised," an official statement
said. The Insurance Regulatory and Development Authority (Irda) in 2011 issued guidelines asking
companies to keep policies in electronic form for efficiency, transparency and cost reduction in
maintaining insurance policy data. For the purpose of keeping data in digital form, five insurance
repositories (IRs) have been granted permission to maintain such electronic policies. To protect
interest of the policyholders in keeping data in electronic format, Irda has formulated strict norms for
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19 repositories. "The guidelines provide for various means to protect the interests of the customers
by having strict norms for licensing, fit and proper criteria for the CEOs of the repositories and a two
stage licensing process," the statement said. Also, there are explicit norms for policyholders servicing,
issuance of electronic policies, norms for opening and maintenance of electronic insurance accounts
and operation of minors accounts. Further, it also has provisions for grievance redressal, rights of
policyholders to opt out and obligation to insurers.
NEWS OF THE WEEK

5 reasons why falling oil prices is bad news for Indian oil giants
The Indian oil companies including ONGC, BPCL, Oil India, and RIL had gone on an energy asset
buying spree overseas in the last few years with crude oil hovering at above $100 a barrel. But with
Brent crude now falling 35% and at its 5-year low of $66 a barrel, the valuation of these assets have
fallen sharply by as much as 25%, say analysts. Here are few reasons why falling oil prices will haunt
these companies in 2015:
No takers: With valuation of all energy assets falling across the world, many Indian companies
including Reliance has put its shale gas assets on the block. RIL is, in fact, expecting $4.5 billion for its
45% in a shale gas JV with Pioneer Natural Resources of USA. The only problem is that there are no
takers. If the deal indeed takes place, analysts say, the valuation will be far lower than the
expectations.
Uneconomical fields: Last year, the government-owned ONGC and Oil India took over 10% stake in
Mozambique gas field for $2.5 billion from Videocon. Since then, the valuation of the field is down by
as much as 25% say analysts. This means, BPCL, Oil India and ONGC are sitting on an asset whose
valuation will continue to fall from its dizzying high of $25 billion of last year.
Falling Cash flow: With the oil assets requiring massive dose of investments to keep the wells
flowing, falling oil prices would mean lower cash flows. This will impact the cash flows of the
companies. Imperial Energy, a company taken over by ONGC is worse off as the $2.1 billion
acquisition of Russia-focused Imperial Energys oil reserves turned out to be way below projections
made prior to the purchase. Falling oil prices will just make matters worse for the company.
Foreign loans: As most of these acquisitions abroad have been done via debt taken abroad, any fall
in oil prices will make the takeovers more expensive. The rupee is expected to fall against the US
Dollar in 2015 to around Rs. 65 to a dollar. This means Indian companies will have to pay more if the
loans are to be paid from the cash flows of local companies. But if these companies have hedged
their currency risk, then the risk is not that high.
Faster consolidation: The last oil fall in the 90s led to a consolidation in the global oil and gas
industry with the bigger fish gobbling up smaller ones. While small oil companies will need cash to
expand and big ones will need money to prop up their reserves, the Indian companies can either buy
out smaller companies at a lower valuation or wait for the tide to turn. In either case, they will need
cash to remain in the business.
INTERVIEW OF THE WEEK

Vaya has sufficient capital for small bank licence: Vikram Akula
Vikram Akula, founder and former chairperson of SKS Microfinance, has decided to buy 26 per cent
stake in financial inclusion start-up Vaya Finserv, where he has also assumed the role of chairman.
Akula, in an interview with Somasroy Chakraborty, shares the reasons for his return to the segment
after three years. Edited excerpts:
What prompted you to re-enter the financial inclusion space? :I had a non-compete agreement
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20 SKS that prevented me from entering this space for three years. That agreement got over in
November. Financial inclusion is something very close to my heart. I always wanted to come back to
financial inclusion once the non-compete period ended.
What made you choose Vaya? :Three things stood out for me. Vaya has a great team, its managing
director, Surya Kumar, was a colleague at SKS where he headed the technology division. The core
team, of first 50 staff, is also from SKS. These are people with whom I have worked. I have seen their
work and that gives me a lot of confidence. Second, Vayas mission to work in under-banked districts
of India is in line with my own goal. Also, it uses next-generation technology platform, which is unique
and will become the future of financial inclusion.
You have been appointed as the chairman. Will you play active role in day-to-day
functioning? :No, I will be non-executive chairman. I will be like a mentor and my role will be more of
strategic in nature. The team will be led by Surya Kumar.
Why did you acquire 26 per cent stake (in the start-up)? Can you offer some details on the
pricing? : I wanted to have a meaningful stake in the company. I believe in this company and felt it
should reflect in more than words. I am not in a position to comment on the pricing. All I can say is I
will have 26 per cent stake. SKS Trusts owns 65 per cent stake. The remaining nine per cent is with
employees and high net worth investors.
Will Vaya apply for a licence to set up small finance bank? : We are keen on creating a small
finance bank. Vaya now works a business correspondent which facilitates savings and loans for selfhelp groups of women on behalf of banks. If we are fortunate to get a licence, we can offer the same
services on our own. The only caveat is we are also interested in payments bank licence. As things
stand, we are leaning more towards small finance bank.
Small finance banks will need to have minimum paid-up equity capital of Rs. 100 Cr. Will Vaya
need to raise money to meet this criterion ?: Vaya currently has sufficient capital to meet the
regulatory requirement. In fact, I dont think there is a need for the company to raise capital in the
medium-term.
Do you plan to increase your stake in VAYA? : I guess it is possible but there is no immediate plan.
Can you share some details on VAYA's future plans? : VAYA opened its first branch in July, and
now has 23 branches with 183 employees across six districts of eastern Maharashtra and northern
Karnataka. For financial inclusion it is necessary to have a critical mass. So, the company will expand
its footprint to as many under-banked districts as possible over a period of time. Also, eventually our
aspiration is to offer the full range of financial products and services including pension and insurance,
not just savings and loan products.
NPA reporting in India is not watertight: Abhijit Banerjee
Abhijit Banerjee is Ford Foundation International Professor of Economics at the Massachusetts
Institute of Technology, and one of the experts entrusted with updating the Millennium Development
Goals by the United Nations. Banerjee, earlier a Guggenheim Fellow, an Alfred P Sloan Fellow and
who won the Infosys Prize in 2009, was at the Delhi Economics Conclave to address a session on
banking-sector reforms. He spoke to Arup Roychoudhury on the side lines. Edited excerpts:
The Cabinet has decided to pare stake in state-owned banks to 52 per cent. What impact would
it have on the banks' functioning and their ability to raise capital?: I think the banks will have to
work themselves to get capital from the market. The fact that they are not guaranteed a honeypot to
drink will send a certain kind of signal to the market. Certain things will have to change. The banks
don't live in the modern world. Beyond that, I don't know how much will change. As an example, most
banks don't give strong incentives to loan officers. Even private sector banks don't. I don't think that
will change anytime soon.
the high levels of non-performing assets (NPAs), there are many accounts that haven't
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gone bad but are at the threshold. How can the banking system quantify these and deal with
the issue? : Other than provisioning for such a situation, in the Budget maybe, we can't do much. We
should start provisioning for this; maybe we can set aside some mechanism for this. But the problem
is that they are not NPA. You just can't have the regulators checking on every bad loan. That is just not
possible. We need to force banks to be much more upfront about reporting NPAs. There are too many
mechanisms for hiding NPAs.
Do you think the reporting of NPAs in India is less watertight compared to some other
economies? :I think in India it is not very watertight.
What is your view of the first six months of the Narendra Modi government in terms of its
policy measures? What remains to be done? : A lot needs to be done. To be fair, in six months,
there is only so much you can do. I don't believe that it is useless to articulate sentiments, and the
sentiment has been positive so far. But now the real work needs to be done. Everything, every little
thing, needs to be changed one-by-one. That will take a long time and a lot of manpower.
INTERESTING TO KNOW THIS WEEK

Family agreement vs will: Which one holds?
The sibling dispute between the Shroff brothers - Shardul and Cyril - who together run the country's
largest law firm, Amarchand & Mangaldas & Suresh A Shroff & Co, has put the spotlight on the legal
status of a will vis--vis a "family settlement agreement". The two brothers are fighting over the
ownership of the company, of which their late mother Bharti Shroff's will bequeaths 22 per cent to
Shardul. However, a family agreement singed in 2001, entailed equal distribution of Bharti Shroff's
interest in the firm between the brothers. Without going into the merit of the case which is sub-judice,
Press explains the legal position that a will and a family settlement agreement enjoy, along with the
limits and obligations that come with them.
Legally enforceable
A will and a family agreement are legally enforceable documents provided that the requirements under
law for their execution are met. A will has been statutorily defined under Section 2 (h) of the Indian
Succession Act, 1925, to mean the legal declaration of the intention of a testator, or the person making
the will, on how he or she wants his or her property to be treated after his or her death. A person can
only will away a property that he or she owns or has the power to dispose of at the time of death. "A
will has to stand the test of law," says Anupam Srivastava of The Chambers of Law, a Delhi-based law
firm. While a court generally does not get into the merits of a will, the document could get nullified if it
is proved in a court of law to have been made under suspicious circumstances, adds Srivastava. In
the absence of a will, the legal heirs are governed by the personal laws of the faith that the deceased
professed.
A family agreement or arrangement has not been defined statutorily under Indian laws, points out
Aakanksha Joshi, associate partner at law firm Economic Laws Practice. However, Joshi says that
Halsbury's Laws of England defines it as an agreement among members of the same family, intended
to be generally and reasonably for the benefit of the family, either by compromising doubtful or
disputed rights or by preserving the family property or the peace and security of the family by avoiding
litigation or by saving its honour. In other words, it is an arrangement - whether written or verbal - by
which members of a family settle their inter se ("among themselves") rights in relation to a property to
avoid disputes. As Jeevesh Nagrath, a lawyer in law firm Nagrath & Nagrath, says, "The purpose of a
family agreement is to resolve a dispute or avert a future dispute, and to maintain peace and harmony
in the family."
Legal experts explain that a family agreement is a valid, legally-binding and enforceable contract,
applicable to all the signatories of the agreement. "Since consideration for a promise is essential,
an agreement, unlike a will, is found on some consideration," points out senior advocate
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Ashwini Kumar Mata. While a will relates to a bequest of an estate, a family agreement provides for an
arrangement by which some rights are created or declared (or assigned/ extinguished) whether in
present or in future, he adds.
Equal rights
On its own, neither a family agreement nor a will is superior or of greater legal character than the
other, says Mata. However, legal experts point out that it is the cast and terms of the family agreement
that will determine if there are any bequeathable assets or titles that can become the subject of a will.
"Since both a family agreement and a will operate on different time planes, no occasion arises for
conflict or preponderance of one over the other," says Mata. But legal opinion appears divided on this
point. "Even if there is a family agreement, a portion to be transferred on a future date is not a valid
contract for reasons of uncertainty, and at best should be seen as a desire, which one is entitled to
change whenever one wants to," contends Srivastav. Indian courts seem to give greater legal sanctity
to a family agreement. Courts have upheld family arrangements that also include those who are not
members of a joint family, or those whose entitlement to inheriting a property is doubtful. "Courts lean
in favour of upholding a family arrangement instead of disturbing the same on technical or trivial
grounds even if they suffer from a legal lacunae or a formal defect," says Joshi of Economic Laws
Practice. Experts point out that the courts have applied the rule of estoppel - a legal bar to alleging or
denying a fact because of one's own previous actions or words to the contrary - to prevent the
unsettling of a family agreement. "The Supreme Court has held that there are special equities
attached to such agreements, and courts should always lean in favour of giving full effect to them,"
says Nagrath. In sharp contrast, there are strict requirements under law for the making of a will and for
its subsequent execution.
Safeguards for a family agreement
According to Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and
Wealth Management, Indian School of Business, there are two dimensions to any family agreement.
One, a legally binding shareholders agreement, and second, a set of policies, rules and restrictions
that provide clarity on what is acceptable and what is not. The trouble is that most families have
piecemeal awareness about a family agreement, shareholder agreement, family constitution or a will,
says Ramachandran. To ensure the preponderance of a family agreement, the makers should
specifically mention that it is superior to a will, says Ramachandran. His contention is that in the
normal course, a legally signed family agreement should supersede a will, irrespective of whether the
will was written prior to or after the family agreement. Legal experts also say that any family
agreement must clearly state how the asset or title is to be divided and that each person to the
settlement is absolutely entitled to the same. "If it is intended that the property is to be held jointly, the
family arrangement should clearly specify this and mention that the property is held as joint property
and whether it is intended for the heirs of any members to succeed to their share or not," says Joshi.
Mata adds that it is important to appropriately structure a family agreement so as not to leave any
disposable residuary bequeathable title or asset with the transferor that can become the subject
matter of a will. At the end of the day, it is, of course, harmony among family members that is perhaps
the best safeguard for the proper execution of a family agreement.
INTERNATIONAL NEWS THIS WEEK

UK proposes to get tough on senior managers of foreign banks
Senior managers at Indian bank branches and non-banking finance companies in the UK will need to
brace themselves for tighter regulation that are likely to be brought in next year. The proposed
regulatory regime, as outlined in a joint consultation paper by Bank of Englands Prudential Regulation
Authority and the Financial Conduct Authority, is designed to make senior management of banks more
responsible and accountable in the UK. According to the paper, if someone is in a senior management
role, that person will be responsible for any regulatory violation, which occurs in their firm, unless the
person can demonstrate that they took steps to avoid the violation. The bank/ non-banking finance
company must certify that its employees are not likely cause significant harm to the firm or its
Among the Indian banks that operate in the UK are Bank of Baroda, Bank of India, State
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Bank of India and Syndicate Bank. These banks largely cater to the large Indian diaspora. SBI has the
largest operations in the UK, functioning since 1921. Four Indian banks operate as subsidiaries
Punjab National Bank, Union Bank of India, ICICI Bank and Axis Bank. The Indian non-banking
finance companies operating in the UK include Exim Bank and IIFCL (UK).
Consultation stage
According to the Bank of England, there are about 150 branches of international banks operating in
Britain, accounting for 31 per cent (2.4 trillion) of the total assets of the banking system. Still in the
consultation phase, the proposed regulation is required to be passed through legislation and the
implementation date is yet to be decided. According to a senior Union Bank of India official, the
proposed regulatory regime is quite controversial and individual banks are worried as to how the UK
regulator is going to use it. If implemented, the regime could lead to criminal sanctions, and the fines
and prohibitions will be at an individual level. Bank of England has restricted retail business for
branches of all foreign banks as it is worried about the credit controls, credit risk management and
viability of the business model of banks. In September this year, the PRA laid out norms that required
banks from outside the European Economic Area to offer only minimal retail services. The authorities
say they are comfortable with foreign banks in the UK to do more wholesale business but want want
subsidiaries to do retail business as well.
China deflation risk deepens signalling room for easing
China's factory-gate deflation deepened and consumer prices climbed at the slowest pace since 2009,
signalling room for further monetary easing. The producer-price index dropped 2.7 per cent in
November from a year earlier, a record 33rd-straight decline and the biggest fall since mid-last year.
Consumer prices rose 1.4 per cent, compared with the 1.6 per cent increase in October. Falling oil and
metals prices have cut costs for China's factories, leading to lower export prices and adding to disinflation threats across the world. The rising risk of deflation drives up real borrowing costs, making it
harder for China's indebted companies to service debts and increasing pressure on the central bank to
follow up last month's surprise interest-rate cut with further monetary easing. "China has entered into a
rapid dis-inflation process, and faces the risk of deflation," said Liu Li-Gang, chief Greater China
economist at Australia & New Zealand Banking Group Ltd in Hong Kong. "As the PBOC has
exhausted its newly invented and ineffective policy tools, we believe the next move will have to be a
RRR cut in order to regain policy effectiveness and credibility." Factory-gate prices of coal products fell
11.6 per cent from a year earlier, oil and gas products slumped 13 per cent and ferrous metal products
declined 16.6 per cent, according to a statement on the National Bureau of Statistics website. "The
major driver of the recent decline in headline inflation readings is the slump of global oil and other
major commodity prices," said Lu Ting, Bank of America Corp's head of Greater China economics in
Hong Kong.
Oil slump
Oil's slide also helped push China's trade surplus to a record in November after an unexpected decline
in imports. Lower oil prices could boost economic growth and help keep inflation slow enough to give
scope for further easing after last month's surprise interest-rate cut. "The risk of deflation in China has
risen significantly," China International Capital Corp. economists Liang Hong and Bian Quanshui wrote
in a note. It will "lift the level of real interest rates, further curbing aggregate demand and in turn
reinforcing deflation expectations." As such, the People's Bank of China needs to relax monetary
policy, including cuts in interest rates and banks' RRR, they wrote. China is forecast to lower banks'
required reserve ratio to 19.5 percent in the first quarter of 2015 and to 19 per cent in the second
quarter, according to a survey by Bloomberg News.
Global risk
As lower commodity costs fuel the drop in factory prices, that's in turn pushing down China's export
feeding deflation risks globally. While most major central banks view inflation of about 2 per
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cent as the yardstick for price stability, more than one-fourth of 90 economies monitored by researcher
Capital Economics Ltd are below 1 per cent, the most since 2009. Almost half of those are already in
deflation. The moderation in China's consumer prices reflects tepid domestic demand. Non-food
inflation was 1 percent from a year earlier, while food prices increased 2.3 per cent. "Without a
question, deflation has become the main risk of prices," Xu Gao, chief economist at Everbright
Securities Co in Beijing, wrote in a note. "The root cause of this is the weak real economy." The job
market is showing signs of stress that may trigger a second wave of economic weakness next year
driven by slowing consumption, wrote Standard Chartered Plc economists led by Shanghai-based Li
Wei in a note.
Wages freeze?
"While the manufacturing sector has been losing jobs for three years, until recently growth in services
jobs was enough to offset this," wrote the economists. "This has now changed. More worryingly, our
recent discussions with companies suggest that many plan to freeze wages in 2015 as a result of the
slowing economy and already-squeezed profit margins." China's top leaders started a meeting on
Tuesday to map out economic plans for 2015. Economists expect the government to lower next year's
economic growth target to 7 per cent from about 7.5 per cent this year as it adapts to the "new normal"
of a slower expansion pace. "In the near future, the PBOC will likely remain at the forefront of the
global central banks' battle against 'low-flation'," said Morgan Stanley analysts led by Helen Qiao in a
note ahead of Wednesday's release. The analysts said they expect more flexibility in combining
interest rate and reserve requirement cuts with targeted easing measures to maintain macro stability
and address structural imbalances.
With new capital rule, Fed nudges big banks to shrink
The Federal Reserve, fearing complacency six years after the financial crisis, moved on Tuesday to
preserve the efforts that have strengthened large banks. The Fed proposed a rule that would increase
capital requirements for the nation's eight largest banks, including JPMorgan Chase and Goldman
Sachs. By increasing the requirements, the Fed aims to make large banks more resilient to shocks. A
bank with higher capital depends less on borrowed money, which may cease to be available in times
of stress. The Fed's push to increase capital may also reduce the chances that a large bank's
problems may weigh on the wider economy. Some economists have said that the size of some banks
has made them "too big to fail."
PUSH FOR STABILITY
US Federal Reserve has proposed a rule that would increase capital requirements for the
nations eight largest banks, including JPMorgan Chase and Goldman Sachs
The banks would have to raise a total of $21 bn in additional capital
Fed aims to make large banks more resilient to shocks
Janet L Yellen, the Feds chairwoman, said the proposed rule might persuade banks to shrink
Most of the affected banks have raised billions of dollars of new capital since the crisis, so they
will most likely not find the proposed rule onerous to comply with
Janet L Yellen, the Fed's chairwoman, said on Tuesday that the proposed rule might persuade banks
to shrink. The rule, she said in a statement, "would encourage such firms to reduce their systemic
footprint and lessen the threat that their failure could pose to overall financial stability." Most of the
affected banks have raised billions of dollars of new capital since the crisis, so they will most likely not
find the proposed rule onerous to comply with. Fed officials estimated that nearly all of the eight banks
would already meet the new requirements outlined on Tuesday. They added during a phone call with
reporters that the eight banks would have to raise a total of $21 billion in additional capital but declined
to provide specific figures for individual banks. JPMorgan, however, may account for most or all of that
Page | sum.
25 At a public Federal Reserve Board meeting on Tuesday, Stanley Fischer, the central bank's vicechairman, made comments that implied that JPMorgan would be hardest hit by the regulation.
JPMorgan's capital, calculated under the method that the new rule requires, currently amounts to $163
billion, which is equivalent to 10.1 per cent of one measure of its assets. The Fed officials said that the
highest requirement under the proposed rule would lead to a bank having capital equivalent to 11.5
per cent of its assets. Increasing JPMorgan's ratio to that level would in theory require adding just over
$20 billion in capital. "The whole shortfall looks to be tied to JPMorgan," Jason Goldberg, a bank
analyst at Barclays, said. "While we're still reviewing the Fed's proposal, we are well capitalised and
intend to meet their requirements and time frames while continuing to deliver strong returns for our
shareholders," Andrew Gray, a JPMorgan spokesman, said. Banks would have to be in full compliance
with the rule by the beginning of 2019. Other banks subject to the new regulation would include State
Street, Morgan Stanley, Bank of New York Mellon, Bank of America, Wells Fargo and Citigroup.
The Fed's proposal aims to create a more stringent version of an international rule formulated by the
Basel Committee on Banking Supervision, a global bank regulation body. Under the current Basel
rules, large banks are subject to a base requirement that says their capital must be equivalent to 7 per
cent of their assets, measured according to their perceived riskiness. Like the Basel approach, the
Fed's proposal adds "surcharges" to that 7 per cent requirement based on a bank's size and the
nature of its activities. But the Fed's surcharges are bigger than Basel's. Noting that, industry
representatives said the Fed's proposed rule could harm the competitiveness of American banks.
"Holding US banks to a more stringent capital framework than our global competitors could be a
misguided economic decision," Richard Foster, a vice president of the Financial Services Roundtable,
said in a statement. Under the Fed's rule, a very large bank that operates in many countries and
focuses on complex businesses that can be fragile during market routs would face the highest capital
requirements. JPMorgan and Citigroup are examples of such banks. Conversely, the proposal would
be much more lenient for a bank that is in relatively stable and simple businesses and operates
primarily in the United States. Wells Fargo, which has only a small presence on Wall Street, would fit
that description. Critics of large banks said the Fed may not have gone far enough. "This is an
important step in the right direction," Senator Sherrod Brown, Democrat of Ohio, said in a statement.
"But we must do more to ensure that banks have adequate capital to cover their losses." The big
question is whether the rule will cause banks to shrink. A bank that has to have higher capital must get
more of its funding - the money it uses for lending and trading - from shareholders. But if the financial
return on the higher capital disappoints shareholders, the bank's shares could underperform. The
bank's management might then decide to pare back its businesses - and even shrink - to bolster its
returns.
"The penalty for being big and complex might be going up," said Mike Mayo, a bank analyst at the
brokerage firm CLSA. In his estimation, shareholders of a large bank expect its annual earnings to be
equivalent to at least 10 per cent of its capital. "If it is not in excess of that, there will be major
questions about the business model," he said. Unlike the Basel rule, the Fed's proposal takes direct
aim at Wall Street firms that borrow large sums for short periods in the debt markets. This type of
borrowing evaporated in the 2008 financial crisis, depriving large banks of the money they needed to
keep going and prompting the Fed to bail out the banks with emergency loans. According to the Fed's
proposal, a bank that relies heavily on short-term market borrowing would have to hold more capital
than one that gets most of its funding from deposits. "Reliance on short-term wholesale funding is
among the more important determinants of the potential impact of the distress or failure of a
systemically important financial firm on the broader financial system," Daniel K. Tarullo, the Fed
governor who spearheaded the central bank's proposal, said in a statement.
Russian bank to provide up to $1 b credit to Essar Group
Russian bank VTB will provide up to $1 billion credit to Essar Group for its corporate and project
needs. The agreement to this effect was signed by Essar co-founder Shashi Ruia and VTB Chairman
Andrey Kostin in presence of Prime Minister Narendra Modi and Russian President Vladmir Putin here
today. The MoU envisages finance arrangement of $1 billion to Essar by VTB for general corporate
purpose, an official statement said here. The deal is intended to finance the continued consolidation
of certain assets in Essar Groups investment portfolio and the strengthening of their capital structure.
Page | This
26 financing follows the successful $1.2 billion transaction arranged in 1H 2014 by VTB Capital
which acted as financial adviser and financier for the company in taking its key assets private, which
were listed on the London Stock Exchange, VTB said in a statement.
NY banking regulator probing Barclays, Deutsche Bank FX algorithm
The New York banking regulator is investigating if Deutsche Bank and Barclays Plc used algorithms
on their trading platforms to manipulate foreign exchange rates, a source with direct knowledge of the
matter told Reuters. Benjamin Lawsky, the head of New York's Department of Financial Services
(DFS), has ordered a monitor to be installed at Deutsche Bank and already has one in place at
Barclays - a move that will allow him to collect greater evidence of alleged manipulation, said the
source who did not want to be named. Deutsche Bank spokeswoman Renee Calabro declined to
comment but cited an earlier statement on the probes. "Deutsche Bank has received requests for
information from regulatory authorities that are investigating trading in the foreign exchange market.
The Bank is cooperating with those investigations," Calabro said, quoting the earlier statement.
Representatives at Barclays did not immediately respond to an email seeking comment outside
regular business hours. A DFS spokesman declined to comment. Last month, regulators fined six
major banks a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign
exchange market, following a yearlong global investigation. Deutsche Bank and Barclays were not
among the six banks. Lawsky, who started his probe into possible manipulation of currency markets in
February, chose not to coordinate a settlement with other regulators because he viewed those deals
as too weak, a source told Reuters last month, an indication he's likely to go after the banks later and
demand larger penalties. Reuters reported last month that the civil settlements struck between six
global banks and US and UK authorities set the stage for negotiations over related ongoing probes
that could bear much more severe consequences.
RBI THIS WEEK

RBI Central Board meets at Kolkata
The Central Board of Directors of the Reserve Bank of India met today at Kolkata. Dr. Raghuram
Rajan, Governor, Reserve Bank of India chaired the meeting. Directors, Dr. Anil Kakodkar, Shri Kiran
Karnik, Dr. Nachiket Mor, Shri Y.H. Malegam, Prof. Dipankar Gupta, Shri G. M. Rao, Ms. Ela Bhatt, Dr.
Indira Rajaraman, Shri Y.C. Deveshwar, and Prof. Damodar Acharya attended the meeting. The
meeting was also attended by the Government nominee director on the Central Board, Shri Rajiv
Mehrishi, Secretary, Department of Economic Affairs. Deputy Governors Shri Harun R. Khan, Dr.Urjit
Patel, Shri R. Gandhi and Shri S.S. Mundra were present. The Board reviewed the functioning of the
Reserve Bank as well as the current economic situation and global and domestic challenges and
policy responses. The Central Board meets at least once every quarter and the meeting in December
every year is traditionally held in Kolkata. Apart from this, one meeting each is held in Chennai,
Mumbai, and New Delhi which is typically held after the Union Budget and is addressed by the
Finance Minister. The rest of the meetings are held in other state capitals by rotation. The main
function of the Central Board of Directors of the Reserve Bank is to provide overall direction to the
Reserve Banks affairs. On December 10, 2014, the Governor and Deputy Governors met the Chiefs
of Eastern Sector banks and among others, took stock of the implementation of Pradhan Mantri Jan
Dhan Yojana (PMDJY) and credit scenario in the state and discussed other region specific issues.
RBI to post on its Website Clarifications on Guidelines on Licensing of Small Finance Banks
and Payments Banks
The Reserve Bank of India has been receiving queries from intending applicants seeking clarifications
on the guidelines on licensing of small finance banks and payments banks. The guidelines were
issued on November 27, 2014. Considering that the clarifications sought would be of wider interest
and use for all intending applicants, the Reserve Bank has decided to post the clarifications on its
website. The identity of those who raise queries would be kept confidential. The queries may be sent
by December 15, 2014 to Chief General Manager, Department of Banking Regulation, Reserve Bank
Page | of
27India, 13th Floor, Central Office Building, Fort, Mumbai400 001 through mail or email.
Supervisory College for State Bank of India
The second Supervisory College for State Bank of India was held in Mumbai on December 08, 2014.
Shri S.S. Mundra, Deputy Governor, Reserve Bank of India inaugurated the supervisory college. In his
address, Shri Mundra briefly touched upon the set-up of Supervisory Colleges and then presented a
birds eye view of the banking system in India and the tools for the supervision of commercial banks by
RBI. He mentioned that though none of the Indian banks qualify as a global systemically important
bank (G-SIB), some of the larger ones are systemically important for us and SBI being the largest
Indian bank plays a critical role in our banking system. The Deputy Governor concluded by saying that
todays meeting is only an initiation. Interaction amongst the college members and the banking group
should be on a continuous basis for evolving a much better supervisory environment.
Shri P.R. Ravi Mohan, Chief General Manager-in-Charge, Department of Banking Supervision,
Reserve Bank of India highlighted the recent initiatives taken by the Reserve Bank on Risk Based
Supervision (RBS), Automated Data Flow and Central Repository of Information on Large Credits
(CRILC) while Shri Sudarshan Sen, Chief General Manager in-Charge of the Department of Banking
Regulation updated the members on the latest regulatory changes. Smt Arundhati Bhattacharya,
Chairperson, State Bank of India made a presentation to the College about the bank, including its
international operations and responded to various queries from the host supervisors.
During the day-long event, the host and home supervisors deliberated on many issues of mutual
concern and the host supervisors shared their views on the presence and operations of State Bank of
India in their respective countries. Twenty three supervisors from fourteen overseas jurisdictions
participated in the College for State Bank of India. Representatives from Securities and Exchange
Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) & Pension Fund
Regulatory and Development Authority (PFRDA) also participated in the College.
The Reserve Bank of India has set up, as part of supervision of cross border operations of Indian
banks abroad, Supervisory Colleges for banks which have good international presence. The main
objectives of Supervisory College are to enhance information exchange and cooperation among
supervisors, to improve understanding of the risk profile of the banking group and thereby facilitate
more effective supervision of internationally active banks. The Reserve Bank had, in December 2012,
set up the first Supervisory Colleges for State Bank of India and ICICI Bank Ltd. The Colleges for Bank
of Baroda, Bank of India and Axis Bank Ltd were set up in February and September 2014,
respectively. It is expected that the Colleges would enhance the mutual trust and co-operation among
the supervisors.
Supervisory College for Punjab National Bank
The Reserve Bank of India set up the Supervisory College for Punjab National Bank on December 09,
2014 in Mumbai. Shri Chandan Sinha, Executive Director, Reserve Bank of India inaugurated the
College. Shri Chandan Sinha in his address stated that the regulatory framework is getting
synchronised across jurisdictions on the lines of the Basel framework and regulators are also learning
from each-other about the best practices. He further emphasised that supervisory colleges provide a
suitable platform for face-to-face interaction and sharing of valuable experiences across multiple
supervisors. Shri Sinha also referred to mechanism of collaboration and information sharing with host
regulators through mutually agreed Memorandum of Understanding (MoUs) that was progressing well.
During the day-long event, the host supervisors shared their views on the presence and operations of
Punjab National Bank in their respective countries with the Reserve Bank. The top management of
Punjab National Bank, led by Shri Gauri Shankar, Executive Director, made a presentation to the
College about the bank in general and its international presence in particular and took questions from
the host supervisors. Seven supervisors from three overseas jurisdictions participated in the meeting
of the Supervisory College for Punjab National Bank. Representatives from Securities and Exchange
Page | Board
28 of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) were also present.
Foreign Direct Investment (FDI) in India Review of FDI policy Sector Specific conditions
Attention of Authorised Dealer Category I (AD Category-I) banks is invited to Annex B of Schedule 1
to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside
India) Regulations, 2000(the Principal Regulations) notified by the Reserve Bank vide Notification No.
FEMA. 20/2000-RB dated 3rd May 2000, as amended from time to time whereby description of
sectors/activities wherein the entry norms, sectoral cap and other conditions for sectors/activities in
which FDI is permitted under Government route and Automatic route are specified. Attention of
Authorised Dealer Category I (AD Category-I) banks is also invited to Annex to A.P. (DIR Series)
Circular No. 44 dated September 13, 2013.
2. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India has been updating/notifying the FDI policy through issue of Consolidated FDI
Policy Circular. Accordingly, Government has notified the latest FDI policy changes vide Consolidated
FDI Policy Circular of 2014 dated April 17, 2014 and the same is available at Government website
www.dipp.gov.in. In order to bring uniformity in the sectoral classification/conditionalities for FDI/foreign
investment as notified under the Consolidated FDI Policy Circular with the FEMA Regulations, the
position on Annex B of Schedule 1 to Notification No. FEMA. 20/2000-RB dated 3rd May 2000, as
amended from time to time, has been suitably revised by amending the notification.
3. Reserve Bank has since amended the Principal Regulations through the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India) (Tenth Amendment)
Regulations, 2014 notified vide Notification No. FEMA. 312/2014-RB dated July 2, 2014, c.f. G.S.R.
No. 798(E) dated November 13, 2014.
4. Authorised Dealer banks may bring the contents of this circular to the notice of their constituents
and customers concerned.
5. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the
Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /
approvals, if any, required under any other law.
Foreign Direct Investment (FDI) in India Review of FDI policy Sector Specific conditionsDefence
Attention of Authorised Dealer Category I (AD Category-I) banks is invited to Regulation 14 and
Annex B of Schedule 1 to the Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB
dated May 3, 2000, as amended from time to time. In terms of Schedule 1 to the Notification ibid,
Foreign Direct Investment (FDI) up to 26 per cent is permitted under Government route in Defence
industry subject to license under the Industries (Development & Regulation) Act, 1951. Proposals for
FDI above 26 per cent would be subject to approval of Cabinet Committee on Security on case to
case basis, wherever it is likely to result in access to modern and state-of-art technology in the
country.
2. The extant FDI policy for defence sector has since been reviewed. Department of Industrial Policy
and Promotion (DIPP) has now provided a list of defence items as finalised by Department of Defence
Production, Ministry of Defence and has clarified that items not in the list would not require industrial
license for defence purposes. Dual use items, having military as well as civilian applications, other
than those specially mentioned in the list, would also not require Industrial License from Defence
angle. Department of Defence Production, Ministry of Defence, has finalised the Security Manual for
Licensed Defence Industry.
3. Further, on a review, effective from August 26, 2014, foreign investment i.e. FDI, FIIs, RFPIs, NRIs,
and QFIs upto 49% under government route shall be permitted in defence sector subject to the
Page | FVCIs
29
conditions specified in the Press Note 7 (2014 Series) dated August 26, 2014. Portfolio investment
(RFPI/FII/NRI/QFI) and FVCI investment will not exceed 24% of the total equity of the investee
company. Portfolio investment will be under automatic route.
4. The listed investee company engaged in defence sector, in accordance with the guidance provided
by the Press Note 7 (2014 Series) , shall immediately allocate limits for portfolio investment for RFPI
(including QFI and FII), NRI (not exceeding 10%) and FVCI within the default portfolio investment limit
of 24% being permitted now and approach Reserve Bank, Central Office, Foreign Investment Division,
Mumbai so that allocated limits can be monitored by the Reserve Bank.
5. A copy each of Press Note No.3 , No.6, No. 7 (2014 Series) dated June 26, 2014, July 8, 2014 and
August 26, 2014 respectively issued in this regard by DIPP, Ministry of Commerce & Industry,
Government of India are enclosed.
Management (Transfer or Issue of Security by a Person Resident outside India) (Thirteenth
Amendment) Regulations, 2014 notified vide Notification No. FEMA. 319/2014-RB dated September 5,
2014, c.f. G.S.R. No. 799(E) dated November 13, 2014.
Foreign Direct Investment (FDI) in India Review of FDI policy Sector Specific conditionsRailway Infrastructure
Attention of Authorised Dealer Category I (AD Category-I) banks is invited to Annex A and Annex B
of Schedule 1 to the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May
3, 2000, as amended from time to time. In terms of Annex A of Schedule 1 to the Notification ibid,
Foreign Direct Investment (FDI) is prohibited in activities / sectors not open to private sector
investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).
2. The extant Foreign Direct Investment (FDI) policy for railways sector has since been reviewed.
Department of Industrial Policy and Promotion (DIPP) has now permitted 100% FDI in railway
Infrastructure sector under automatic route subject to conditions. Accordingly, it has been decided to
permit FDI in the following activities of the Railway Transport sector:
Construction, operation and maintenance of the following: (i) Suburban corridor projects through PPP,
(ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and
locomotives/coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi)
Signaling systems, (vii) Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial
park pertaining to railway line/sidings including electrified railway lines and connectivities to main
railway line and (x) Mass Rapid Transport Systems. Further, FDI beyond 49 of the equity of the
investee company in sensitive areas from security point of view will be brought before the Cabinet
Committee on Security (CCS) for consideration on a case to case basis.
3. A copy of Press Note No. 8 (2014 Series) dated August 27, 2014 issued in this regard by DIPP,
Ministry of Commerce & Industry, Government of India is enclosed.
Management (Transfer or Issue of Security by a Person Resident outside India) (Fourteenth
Amendment) Regulations, 2014 notified vide Notification No. FEMA.320/2014-RB dated September 5,
Page | 2014,
30 c.f. G.S.R. No. 800(E) dated November 13, 2014.
Introduction of Digital Life Certificates for Pensioners
As per the present scheme for payment of government pension, pensioners are required to furnish a
life certificate in November every year to the bank concerned for continued receipt of pension without
interruption. Even though this requirement has been liberalised to enable pensioners to submit their
life certificate at any branch of the pension disbursing bank, several pensioners find it difficult to submit
the certificates in time for various reasons.
2. In order to alleviate the hardship caused to pensioners, the Government of India has since launched
Jeevan Pramaan, a digital life certificate based on Aadhaar Biometric Authentication, aimed at further
simplifying the process of submission of life certificate and facilitating accuracy and timeliness in
disbursal of pensions. In order to facilitate implementation of Jeevan Pramaan, a web portal
(jeevanpramaan.gov.in) was launched by the Honble Prime Minister on November 10, 2014. Copy of
a brochure on Jeevan Pramaan brought out by the Ministry of Communications and Information
Technology of the Government of India, explaining the details of the scheme and its benefits, is
enclosed for your information.
3. To facilitate introduction of Jeevan Pramaan, the Central Pension Accounting Office, Ministry of
Finance, Government of India (CPAO) has amended the Scheme of Payment of Pensions to Central
Government Civil Pensioners. A copy of the relative Office Memorandum dated November 14, 2014,
issued by the CPAO, enclosing Correction Slip no. 22 dated November 10, 2014, and the process for
getting digital life certificates by the pensioners, is attached. Copies of the memorandum has already
been sent by CPAO to all banks and to the governments of all States and Union Territories. Similar
amendments to their respective pension regulations have also been made by different Central
Government Ministries (e.g., Ministry of Railways and Department of Posts). The Indian Banks
Association has also issued a circular dated November 22, 2014, in this regard to their member banks.
4. Once fully implemented, agency bank branches will be able to obtain information about the digital
life certificate of their pensioner customers by logging on to the website of Jeevan Pramaan and
searching for the certificate or by downloading through their Core Banking Systems. Pensioners will
also be able to forward to their bank branches the relative link to their digital life certificate by
email/sms.
5. All agency banks disbursing government pension may take necessary action to implement and
benefit from the scheme and issue necessary instructions to all their branches concerned and dealing
staff. Banks may, in addition, work towards creating awareness about this facility among their
pensioner customers through their branches, websites and other means. Banks may also suitably
amend the FAQs on pension payments posted on their websites, and provide a link to the website of
Jeevan Pramaan.
National Rural livelihoods Mission (NRLM) Aajeevika - Interest Subvention Scheme
Please refer to our circular RPCD.GSSD.CO.BC.No.57/09.01.03/2013-14 dated November 19, 2013
on Interest Subvention Scheme under National Rural Livelihoods Mission (NRLM).
2. The revised guidelines for the year 2014-15 on Interest Subvention Scheme under NRLM, as
received from the Ministry of Rural Development, Government of India, are annexed for
implementation by banks.
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Interest subvention scheme for Women SHGs - Year 2014-15
I. Interest subvention scheme on Credit to Women SHG during the year 2014-15 for all
Commercial Banks (only Public Sector Banks, Private Sector Banks and Regional Rural Banks)
and Co-operative banks in 150 districts
i. All women SHGs will be eligible for interest subvention on credit upto Rs. 3 lakhs at 7% per annum.
SHG availing capital subsidy under SGSY in their existing credit outstanding will not be eligible for
benefit under this scheme.
ii. The Commercial Banks and Cooperative Banks will lend to all the women SHGs at the rate of 7% in
the 150 districts. Annexure I provide the names of the 150 districts.
iii. All Commercial Bank (excluding RRBs) will be subvented to the extent of difference between the
Weighted Average Interest Charged (WAIC as specified by Department of Financial Services, Ministry
of Finance for the year 2014-15 Annexure II) and 7% subject to the maximum limit of 5.5% for the
year 2014-15. This subvention will be available to all the Banks on the condition that they make SHG
credit available at 7% p.a. in the 150 districts.
iv. RRBs and Cooperative Banks will be subvented to the extent of difference between the maximum
lending rates (as specified by NABARD) and 7% subject to the maximum limit of 5.5% for the year
2014-15. This subvention will be available to all RRBs and Cooperative Banks on the condition that
they make SHG credit available at 7% p.a. in the 150 districts. RRBs and Cooperative Banks will also
get concessional refinance from NABARD. Detailed guidelines for RRBs and Cooperative Banks will
be issued by NABARD.
v. Further, the SHGs will be provided with an additional 3% subvention on the prompt repayment of
loans. For the purpose of Interest Subvention of additional 3% on prompt repayment, an SHG account
will be considered prompt payee if it satisfies the following criterion as specified by Reserve Bank of
India (RBI).
a. For Cash Credit Limit:
i.
ii.
iii.
Outstanding balance shall not have remained in excess of the limit/drawing power continuously
for more than 30 days.
There should be regular credit and debits in the accounts. In any case there shall be at least
one customer induced credit during a month.
Customer induced credit should be sufficient to cover the interest debited during the month.
b. For the Term loans: A term loan account where all of the interest payments and/or instalments of
principal were paid within 30 days of the due date during the tenure of the loan, would be considered
as an account having prompt payment
The prompt payment guidelines would continue to be guided by RBI guidelines on the subject in the
future.
All prompt payee SHG accounts as on the end of the reporting quarter will be eligible for the additional
interest subvention of 3%. The banks should credit the amount of 3% interest subvention to the eligible
SHG loan accounts and thereafter seek the reimbursement.
vi. The Interest Subvention scheme shall be implemented for all commercial banks (excluding RRBs)
through a Nodal Bank selected by the Ministry of Rural Development. The Nodal Bank will
the scheme through a web-based platform, as advised by MoRD. For the FY14-15,
Page | operationalize
32
Canara Bank is nominated as the Nodal Bank by MoRD.
vii. For the RRBs and Cooperative Banks the scheme will be operationalized by NABARD similar to
the short term crop loan scheme.
viii. All Commercial Banks (including the PSBs, Private Banks and RRBs) who are operating on the
Core Banking Solutions (CBS) can avail the interest subvention under the scheme.
ix. In order to avail the Interest Subvention on credit extended to the SHGs @ 7%, regular subvention,
all commercial banks (excluding RRBs) are required to upload the SHG loan account information on
the Nodal Banks portal as per the required technical specification. Banks must submit the claims for
3% additional subvention on the same portal. All Commercial banks (excluding RRBs) are required to
submit their claims, regular as well as additional claims to the Nodal bank on a quarterly basis as at
June 30, 2014, September 30, 2014, December 31, 2014 and March 31, 2014 by last week of the
subsequent month.
x. The claims submitted by bank should be accompanied by a Statutory Auditors certificate (in
original) certifying the claims for subvention as true and correct. The claims of any Bank for the quarter
ending March 2015 will be settled by MoRD only on receipt of the Statutory Audited certificate for the
complete FY14-15 by the Bank.
xi. In order to avail the Interest Subvention on credit extended to the SHGs @ 7%, all RRBs and
Cooperative Banks are required to submit their claims to respective NABARD - Regional Offices on a
quarterly basis as at June 30, 2014, September 30, 2014, December 31, 2014 and March 31, 2014.
The claims for the last quarter ending March 2015 should be accompanied with a Statutory Auditors
certificate certifying the claims for the FY 14-15 as true and correct. The claims of any Bank for the
quarter ending March 2015 will be settled by MoRD only on receipt of the Statutory Audited certificate
for the complete FY14-15 by the Bank.
xii. RRBs and Cooperative Banks may submit their consolidated claims pertaining to the 3% additional
subvention on disbursements made during the entire year 2014-15 to respective NABARD - Regional
Offices latest by June 30, 2015, duly audited by Statutory Auditors certifying the correctness.
xiii. Any remaining claim pertaining to the disbursements made during the year 2014-15 and not
included during the year, may be consolidated separately and marked as an 'Additional Claim' and
submitted to Nodal Bank (for all Commercial banks except RRBs) and NABARD Regional Offices (for
all RRBs and Cooperative Banks) latest by June 30, 2015, duly audited by Statutory Auditors certifying
the correctness.
xiv. Any corrections in claims by PSBs and Pvt. Sector Banks shall be adjusted from later claims
based on auditors certificate. The corrections must be made on the Nodal Banks portal accordingly.
xv. For process of submission of claims by RRBs and Cooperative Banks, detailed guidelines will be
issued by NABARD.
II. Interest subvention scheme for Category II Districts (Other than 150 districts).
For category II districts, comprising of districts other than the above 150 districts, all women S.H.Gs
under N.R.L.M will continue to be eligible for interest subvention to avail the loan facility at an interest
rate of 7%. The funding for this subvention will be provided to the State Rural Livelihoods Missions
(S.R.L.Ms). The State-wise distribution of the provision under this budget head would be determined
each year. In the Category II districts, Banks will charge the SHGs as per their respective lending
norms and the difference between the lending rates and 7% subjected to a maximum limit of 5.5% for
the year 14-15 will be subvented in the loan accounts of the SHGs by the SRLM. In pursuance of the
above, the salient features and the operational guidelines in respect of the interest subvention for the
II districts, for the year 2014-15, are as follows:
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33
(A) Role of the Banks:
All banks who are operating on the Core Banking Solution (CBS) are required to furnish the details of
the Credit disbursement and Credit outstanding of the SHGs across all districts in the desired format
as suggested by the MoRD, directly from the CBS platform, to the Ministry of Rural Development
(through FTP) and to the SRLMs. The information should be provided on a monthly basis to facilitate
the calculation and disbursement of the Interest Subvention amount to SHGs.
(B) Role of the State Governments:
i. All women SHGs, comprising of more than 70% BPL or rural poor members (rural poor as per the
Participatory Identification Process) are regarded as SHGs under NRLM. Such SHGs, comprising of
rural poor members from the intended NRLM target group will be eligible for interest subvention on
credit up to Rs. 3 lakhs at the rate of 7% per annum on prompt repayment.
ii. This scheme will be implemented by the State Rural Livelihood Missions (SRLMs). SRLMs will
provide interest subvention to the eligible SHGs who have accessed loan from Commercial and
Cooperative Banks. The funding for this subvention will be met out of the Central Allocation: State
Contribution in the ratio of 75:25.
iii. The SHGs will be subvented with the extent of difference between the lending Rate of the banks
and 7% subjected to a maximum limit of 5.5% for the year 2014-15 by the SRLMs, directly on a
monthly/quarterly basis. An e-transfer of the subvention amount will be made by the SRLM to the loan
accounts of the SHGs who have repaid promptly.
iv. For the purpose of the Interest Subvention, an account will be considered as prompt payee if it
satisfies the following criterion as specified by RBI:
a. For Cash Credit Limit:
1. Outstanding balance shall not have remained in excess of the limit/drawing power continuously
for more than 30 days.
2. There should be regular credit and debits in the accounts. In any case there shall be at least
one customer induced credit during a month.
3. Customer induced credit should be sufficient to cover the interest debited during the month.
b. For the Term loans: A term loan account where all of the interest payments and/or instalments of
principal were paid within 30 days of the due date during the tenure of the loan, would be considered
as an account having prompt payment.
The prompt payment guidelines would continue to be guided by RBI guidelines on the subject in the
future.
v. Women SHGs who have availed capital subsidy under SGSY in their existing loans, will not be
eligible for benefit of Interest Subvention for their subsisting loan under this scheme.
vi. SRLMs should submit Quarterly Utilization Certificate indicating subvention amounts transferred to
the Loan accounts of the eligible SHGs.
III. The States with state specific interest subvention schemes are advised to harmonize their
guidelines with the Central scheme.
Investments by Alternative Investment Funds (AIF)
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34
Attention of the Authorised Dealer (AD - Category I) banks is invited to Regulation 26 of Notification
No. FEMA.120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any
Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time
and the provisions under A.P.(DIR Series) Circulars No. 49 and 50 dated April 30, 2007 and May 04,
2007 respectively.
2. On a review, it has been decided to permit an Indian Alternative Investment Fund (AIF), registered
with Securities and Exchange Board of India (SEBI), to invest overseas in terms of the provisions
issued under the A.P. (DIR Series) Circulars No. 49 and 50 dated April 30, 2007 and May 04, 2007
respectively.
3. Necessary amendments to the Notification ibid has been issued vide Notification No.
FEMA.326/RB-2014 dated November 12, 2014 (copy enclosed) and effective from the date of
publication in the Gazette i.e. November 21, 2014.
4. AD - Category I banks may bring the contents of this circular to the notice of their constituents and
customers concerned.
5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the
Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to
permissions/approvals, if any, required under any other law.
Inflation Indexed National Savings Securities- Cumulative, 2013 - Early repayment/redemption
Please refer to our circular DGBA.CDD.No.3688/13.01.999/2013-2014 dated December 19, 2013
regarding the issuance of Inflation Indexed National Savings Securities-Cumulative (IINSS-C), 2013.
In terms of Para 15(ii) of the circular, an investor can seek early repayment/premature redemption,
i.
ii.
after one year of holding if he/she is a senior citizen (over 65 years of age)
after 3 years of holding in all other cases,
subject to deduction of penalty at the rate of 50% of the last coupon payable. The early redemption is
allowed only on coupon date.
2. In this regard, please find enclosed the process flow of early repayment/pre-mature redemption
before the maturity date of the security on e-kuber Portal. The early repayment/pre-mature redemption
report will be available in the My Downloads option under the member bank users login.
3. The function will be available from December 23, 2014 on e-kuber portal. Kindly revert in case of
any clarifications and mark a copy of your email.
Levy of Penal Charges on Non-maintenance of Minimum Balances in Savings Bank Accounts
Please refer to UBD circular UBD.PCB.Cir.No.15/12.05.001/2008-09 dated September 18, 2008 on
Display of information relating to interest rate and service charges and RPCD Circular RPCD.CO.
RCB. BC. No. 36/07.51.010/2014-15 dated October 22, 2014 on Customer Service in State /District
Central Co-operative Banks advising Primary (Urban) Cooperative Banks and State and Central Cooperative Banks to display information relating to interest rates and service charges including
minimum balance in savings bank account in a prescribed format in their premises as well as
websites.
2. In this connection, a reference is invited to paragraph 30 of Part B of First Bi-monthly Monetary
Policy Statement, 2014-15 announced on April 1, 2014, regarding 'Developmental and Regulatory
Policies' proposing certain measures towards consumer protection. One of the proposals contained
was that banks should not take undue advantage of customer difficulty or inattention. Instead
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35
of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts,
banks should limit services available on such accounts to those available to Basic Savings Bank
Deposit Accounts and restore the services when the balances improve to the minimum required level.
A reference is also invited to the recommendations of Damodaran Committee on customer service in
banks which, inter-alia, recommended that 'banks should inform the customer immediately on the
balance in the account breaching minimum balance and the applicable penal charges for not
maintaining the balance by SMS / Email / letter. Further, the penal charges levied should be in
proportion to the shortfall observed'.
3. Taking into consideration the recommendations of Damodaran Committee and in the interest of
customers, it has been decided that while levying charges for non-maintenance of minimum balance in
savings bank account, Primary (Urban) Cooperative Banks and State and Central Co-operative Banks
shall adhere to the additional guidelines given in the Annex. The guidelines will come into effect from
April 1, 2015.
4. These guidelines should be brought to the notice of all customers apart from being disclosed on the
bank's website.
5. In the meantime, all banks are advised to take immediate steps to update customer information so
as to facilitate sending alerts through electronic modes (SMSs / emails etc) for effective
implementation of the guidelines.
Special Deposit Scheme 1975 Payment of interest for the calendar year 2014
Please refer to our letter DGBA.CDD. No. 3622 /15.01.001 / 2013-14 December 18, 2013 on the
captioned subject.
2. In this connection, we advise that interest for the calendar year 2014 may be promptly disbursed to
the SDS account holders @ 8.7% per annum from January 01, 2014 to December 31, 2014 through
electronic mode such as ECS/NECS/ NEFT/RTGS or by way of account payee cheques on January
01, 2015 itself, subject to instructions, as applicable, contained in paragraphs 3 and 4 of our circular
CO.DT.No.15.01.001/H-3527/2003-04 dated December 30, 2003.
3. Please issue suitable instructions to all your Deposit Offices and acknowledge the receipt.
FINMIN THIS WEEK

RELEVANT PORTIONS OF THE SECOND REPORT OF THE SPECIAL INVESTIGATION TEAM
(SIT) ON BLACK MONEY RELEASED; ON THE DIRECTIONS OF SIT, CBDT DIRECTS VARIOUS
ASSESSING OFFICERS TO FINALIZE THE ASSESSMENTS FOR ALL ACTIONABLE CASES
(427), WHOSE NAMES ARE APPEARING IN THE HSBC LIST RECEIVED BY THE DEPARTMENT
Placed below are the relevant portions of the Second Report of the Special Investigation Team (SIT)
on Black Money which was recently submitted by the SIT to the Honble Supreme Court:
I. In response to the directions issued by the SIT, CBDT has directed various Assessing Officers to
finalize the assessments for all actionable cases (427), whose names are appearing in the HSBC list
received by the Department. As per the information received from France, there are in all 628
persons/entities (except in 2 cases where the same names have appeared twice). Out of these 628
persons/entities, amounts/balances are shown against 339 persons and no amounts/ balances are
shown against 289 persons/entities. In respect of the latter category also, further investigations and
assessments are being taken to logical end. Out of the said 628 persons, 201 are either non
residents or nontraceable, leaving 427 persons cases as actionable cases.
The amount involved in these cases as per details available in the information received, is about
Crs approximately ($ converted @ Rs.45). Out of these, Department has finalized
Page | Rs.4,479
36
assessment of 79 assessees (involving more than 300 assessments). An amount of Rs.2,926 Crs
has been brought to tax towards the undisclosed balances in the accounts relating to these persons.
For the said amount, these assessees have been levied tax and interest at the appropriate rates.
Penalty proceedings under Section 271 (1)(c) of the Income Tax Act, 1961 (I.T. Act) have been initiated
in 46 cases. Such penalties have been levied in 3 cases so far. With regard to the other assessees,
proceedings are pending.
Further, prosecutions have been initiated in 6 cases u/s. 276C (1) of the Income Tax (I.T.) Act for
willful attempt to evade taxes and in 5 cases, proceedings have been initiated u/s. 276D of the I.T.
Act on account of willfull failure to furnish information in response to the notices issued by the Income
Tax Department.
Show Cause Notices for filing prosecution have been issued in 10 more cases and further action
would be taken at the earliest. In other cases, necessary action is being expedited and substantial
progress is expected in coming months.
II. Apart from HSBC list, further actions taken by various agencies on the basis of directions given by
SIT:1. Directorate of Revenue Intelligence:
a) Details have been furnished in respect of 31 cases of iron ore export cases.
In 11 cases, the concerned parties have admitted the undervaluation and before issuance of
show cause notices, paid Rs.116.73 Cr.s. Further action would be taken, in accordance with law.
In 10 cases, show cause notices have been issued. Preparation of show cause notice is in progress
after completion of investigation in other cases.
b) In respect of other categories of trades, investigation is pending in 33 cases. In some cases,
references have been made to Financial Intelligence Unit India (FIUIND), ED and CBDT.
According to the agency, the total amount involved could be Rs. 14957.95 Cr.s.
2. Directorate of Enforcement:
a) From the details furnished by Directorate of Enforcement in relation to mining cases, on the basis of
previous illegal mining of iron ore reports relating to Orissa, Goa and Karnataka, action has been
taken. In one case of Orissa, accused persons were taken into custody by the Enforcement
Directorate and properties worth more than Rs. 400 Crs have already been identified and are
under process of attachment. Regarding other cases, the efforts are on to get the data from the
Director of Intelligence Bureau and State Government.
b) In respect of Karnataka, 3 attachment orders have been passed attaching deposits in bank
worth Rs.54.84 Crs, properties (Rs.37 Crs) and shares (Rs.904.13 Crs) and the orders have been
confirmed by the adjudicating authority.
c) Further efforts have been made to ascertain whether any other proceeds of crime exist so that they
can be provisionally attached. In respect of Goa and Jharkhand, the preliminary scrutiny and
investigation is in progress.
d) It has been pointed out that because of stay order passed by the Honble Kolkata High Court, the
Directorate is facing difficulty in taking coercive action in Ponzi/chit fund scheme cases.
e) In respect of certain other cases, prosecution complaints have been filed. In case of one group
case in Jharkhand, provisional attachment orders attaching properties worth Rs. 452.43 Cr.s
were passed and adjudicating authority has confirmed attachment of properties worth Rs.
263.73 Crs.
f) 5 Letters Rogatories (LRs) have been issued by the PMLA Court. Replies to 4 LRs are pending
while 1 LR has been returned and effort is being made to issue fresh LR.
g) In another mining case in Karnataka, provisional attachment for Rs.884.13 Cr.s have been
issued and confirmed by the adjudicating authority. Appeals are pending. h) In respect of another
group cases of Andhra Pradesh, provisional attachment orders for Rs.1093.10 Cr.s have been
confirmed by the adjudicating authority. It is directed that necessary steps be taken immediately for
of the amounts involved.
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37
In respect of most of the above noted cases, the CBDT has reported about the actions taken by the
assessing officers.
SUGGESTIONS AND RECOMMENDATIONS FOR TAKING ACTION TO CONTROL BLACK
MONEY
1. Suggestion made by Financial Action Task Force (FATF) on TBML in its report, as quoted above,
that Data Analysis & Research for Trade Transparency System adopted by USA requires to be
adopted and accepted, as it would control over/under invoicing to some extent. There should be
institutional mechanism through a dedicated set up which examines mismatch between export/import
data with corresponding import/export data of other countries on at least a quarterly, if not a monthly
basis.
2. It is established since years that over invoicing or under invoicing is known method for stashing
black money outside the country. Main question is how to control this malady. If there is proper
vigilance to a large extent by the Customs Department, misinvoicing can be controlled because,
nowadays, price of various goods/machineries is known in the international markets. For this, data
is also published and is available on computer at any point of time. Hence, it was suggested that in a
Bill of Export/shipping Bills, an entry should be included, namely, what is the international market price
of the goods/machineries which were sought to be exported. The said suggestion is under
consideration and is likely to be implemented within short time.
3. Further, it is of utmost necessity to curb the creation of fake/bogus bills. One important step which
can be taken to curb this menace is to make declaring of PAN number mandatory for all sales, where
payment is in cash or through bank, above a value of Rs. One lakh. The purchaser would also be
under obligation to ensure that the invoices he gets have the PAN number of the seller. Further,
considering the fact that at present, purchase or sale of goods/services by cash is rampant, which
undoubtedly utilizes/generates unaccounted money in the society. For this purpose, a suitable rule is
required to be brought under I.T. Rule 114 B made under Section 139 A (5) of the IT Act. By such
amendment, purchaser is required to disclose his identity either by PAN number or UID (Aadhar card)
or any other centrally recognized documents of identity. Transactions relating to purchase and sale of
goods, provision of services of any nature where the payment/consideration is Rs. One lakh or above,
either by cash or cheque, may be covered under this rule.
4. It is suggested that for regulating the possession and transportation of cash, particularly putting a
limitation on cash holdings for private use and including provisions for confiscation of cash held
beyond prescribed limits, provision in the Act should be made. It is to be stated that a number of
European countries bar any cash transaction above a particular limit. This can be done in India too.
Again, while implementing the suggestions, to ensure that small transactions, which make a bulk of
common mans daily transactions, are not affected and for that, a threshold limit could be kept.
Further, for holding of cash/currency notes also, there should be a limit, by prescribing a reasonable
threshold, may be Rs.10 lacs or Rs.15 lacs. This would control holding of unaccounted money to a
large extent. This would also control transfer of unaccounted cash from one destination to other, which
at present is rampant, may be by Angadias or by other means.
5. The aforesaid suggestion is also in conformity with the observations in the case of Rajendran
Chingaravelu vs. UoI, in CA No.7914 of 2009; ORDER DATED November 24, 2009 (320 ITR 1)) by
the Honble Supreme Court. Therein, it had been observed that The nation is facing terrorist threats.
Transportation of large sums of money is associated with distribution of funds for terrorist activities,
illegal pay offs, etc. There is also rampant circulation of unaccounted black money destroying the
economy of the country.
This is known to all concerned and, therefore, suggestion made above, be implemented.
6. Financial Action Task Force (FATF) on Money laundering recommends tax crimes to be made a
offence so that action can be taken under Prevention of Money Laundering Act, 2002. There
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38
are more than 25 countries in the world which have made tax crimes as a predicate offence. The
Government needs to seriously examine the issue and take steps to make tax crimes as a predicate
offence. To prevent any hardship to salaried or small tax payer, a high threshold of say, more than
Rs.50 lakh of tax evasion could be considered as being a predicate offence.
7. Foreign Exchange Management Act, 1999 (FEMA) provides for confiscation of any property held
abroad, if found to be held in violation of Section 4 of the Act. For various reasons, it is difficult to
proceed against property held abroad. To strengthen the provisions, S. 13 and S. 37 need to be
amended to provide for seizure and confiscation of property of equivalent value within the country, if it
is held that property held abroad is in violation of Section 4 of FEMA.
8. FIU is uniquely positioned as the national center for receiving, analyzing and disseminating
information related to suspected cases of money laundering. Its unique architecture connects it to the
entire financial sector on one hand to law enforcement authorities and on the other through an
electronic network that makes it possible for information to flow freely in a secure environment.
Further, FIU is also connected to the other FIUs of the world through the Egmont Secure Web which
makes it possible to access information in foreign jurisdictions. This unique architecture can be
harnessed to exchange actionable intelligence on proceeds of crime. Some recommended measures
are as follows:a. FIU should be given access to law enforcement information (i.e. information about perpetrators of
crime) that can be shared with the reporting entities to locate proceeds of crime laundered in the
financial system. This will be in line with the FATF standards which require that FIU should have
access to widest possible range of financial, administrative and law enforcement information.
b. The latest amendments to the PML Rules (2013) have introduced a new report to be furnished to
FIU every month i.e. Cross Border Wire Transfer Report in respect of all transactions of more than Rs.
Five lakh whose origin or destination is in India. As FIU builds this database over a period of time, the
information could be used, in conjunction with information available with other relevant agencies, to
analyze suspected cases of cross border illicit financial flows, which have been identified by the OECD
and other global bodies as a major area of concern, especially as they relate to significant transfer of
funds from developing countries.
c. FIUs international network (Egmont Group) should be fully harnessed to exchange
information/intelligence on proceeds of crime transferred abroad. However, for this to be successful,
utmost importance should be given to following protocol for international exchange of information so
that it is done in a sustainable and credible manner.
d. The law enforcement authorities, through the FIU, invest in improving reporting entities capacity to
identify and report suspicious transactions. Substantial proceeds of crime may be laundered in the
domestic financial system but the reporting entities may be constrained by lack of access to
information on perpetrators of crime. Facilitating access to such information, through FIU, and sharing
red flag indicators for suspected proceeds of crime would lead to better quality, actionable
intelligence/information from the reporting entities.
e. Post investigation, feedback should be shared jointly with FIU and reporting entities in order to
develop better understanding of money laundering trends and typologies, which in turn will improve
capacity to identify and report suspicious transactions. There should be a more dynamic interaction
among between the stakeholders, i.e., reporting entities, FIU and the law enforcement authorities,
which are part of the same value chain.
9. Malady of present enforcement system may be organic problem which leads to increase in
corruption and that corruption money is always unaccounted. On occasions, officers fear to take
appropriate action for various reasons. These can be controlled only by appropriate directions by the
concerned Ministry that in a case where a person is involved in offence relating to taxation or money
laundering, evasion of duty and levies, then in such cases, higher officers should not intervene in
Page | midst
39 of investigations.
10. It appears that for one or other reasons, Enforcement Directorate attaches the property of a
defaulting assessee, then income tax department is not in position to recover the income tax dues, as
it is contended that the property is attached by ED. This appears to be unreasonable. Income tax dues
are also amount payable to the Central Government and this problem can be sorted out easily by
mentioning in the attachment order passed by the E.D. that it would be open for the Income Tax
Department to recover its dues in respect of the attached property. There can not be any conflict of
interest between two Departments of Central Government. For this, even statutory rule can be
made, if required.
11. It appears that, in number of cases, income tax dues or other duty recoveries are stayed
without referring to the law laid down by the Honble Court; namely Siliguri Municipality Vs.
Amulandu Das, AIR 1984 SC 653, Somariyas Trading Co. Pvt. Ltd. Vs. S. Samuel AIR 1985 SC 61,
Asstt. Collector Vs. Dunlop India Ltd., (1985) 19 ELT 22 and Benara Valves Ltd. Vs. Commissioner
Central Excise, (2006) (204 ELT) 513. It is also noticed that in many cases, even at the show
cause notice stage, stay orders are passed staying further proceedings which delay the entire
process. Hence, it is submitted that the aforesaid ratio of the judgments may be reiterated.
12. At present, for entering into financial/business transactions, persons have option to quote their
PAN or UID or Passport number or driving license or any other proof of identity. However, there is no
mechanism/system at present to connect the data available with each of these independent proofs of
ID. It is suggested that these data bases be interconnected. This would assist in identifying multiple
transactions by one person with different IDs. A central KYC Registry should be established with all
law enforcement agencies, Registrar of Companies and financial institutions having access to its
database.
13. As suggested in first report, at least 5 Additional Chief Judicial Magistrates Courts in
Mumbai are required to be established for deciding approx. 5000 pending IT prosecution cases.
It appears that without direction by the Honble Court, it would be difficult to establish 5 Courts as
suggested. For the establishment of 5 courts, Central Government shall bear the entire cost.
Finally, we submit that appropriate directions may be issued to the Central Government for
implementation of suggestions/recommendations made above so that substantive result could be
achieved in curbing the menace of black money and stashing thereof in foreign tax havens.
MR. JUSTICE M. B. SHAH (RETD.)
CHAIRMAN
DR. JUSTICE ARIJIT PASAYAT (RETD.)
VICECHAIRMAN
STRUCTURAL REFORMS NEEDED TO CREATE AT LEAST FIVE MILLION JOBS EVERY YEAR
ALONG WITH HIGH GROWTH RATE OF 7-8%; GROWTH TO BE NON-INFLATIONARY, JOB
ORIENTED, SUSTAINABLE AND ALL INCLUSIVE: JAYANT SINHA, MOS (FINANCE)
The Minister of State for Finance, Shri Jayant Sinha said that India has a huge unexploited potential
for growth which can make it a US $5 trillion economy in the next ten years. Shri Sinha said that we
need deep structural reforms to create at least five million jobs every year as well as to ensure 7-8%
economic growth as job creation and growth go hand-in-hand. He said that India needs to develop
alternative model of growth based on mix of policies including market driven entrepreneurship
innovations, scope for larger private investment and free market economy in democratic polity among
others. Shri Sinha was delivering the Inaugural Address after inaugurating the two day Delhi Economic
Conclave 2014 here today. The theme of the two day Conclave is Structural Reforms and Growth in
India. Shri Sinha said that the world economy is passing through a critical time and needs higher
growth. . He said that we need growth which is sustainable, all inclusive, anti-inflationary and joboriented. He said that it is to be ensured that environmental and ecological carrying capacity is also
increased along with higher growth.
Page | 40
Giving details about the kind of structural reforms required, the Minister of State for Finance Shri Sinha
said that we believe in supply-side revolution with high productive capacity. He said that structural
reforms must result into macro-economic stability, world class infrastructure, unlocking of
entrepreneurship and innovations, and world class social security system. The Minister also focused
on growth in agriculture especially in providing irrigation facilities and power to every field in the
country so that agriculture productivity goes much higher. Stressing on the non-inflationary, inclusive
and sustainable growth, Shri Sinha said that structural reforms shall keep taking place at gradual
intervals as being done by the present Government so that as overall net result, these gradual reforms
lead to transformation of India into an economy with a sustainable growth of 7-8% and inflation in the
range of 4-6%.
Delivering the Key Note Address on this occasion, Mr. Tharman Shanmugaratnam, Deputy Prime
Minister and Finance Minister, Singapore said that it is true that Indias economy is having one
amongst the largest unrealized potential yet there are huge obstacles in exploiting the same including
legacy of incremental change and mind set for opposing the change as such among others. The
Deputy Prime Minister said that India does not have time on its side and will have to race against
competitive countries, intelligent machines among others. He said that demographic dividend may not
be sufficient enough if it is not substantiated with skills and high quality education. He said that India
has very highly talented people including scientists, IT experts, academicians, entrepreneurs, but there
is a gap at the middle and lower level in comparison with other competitive countries like China. The
Deputy Prime Minister focused on need for supply side transformation for increasing competitive
capacity, social mobility, high quality export oriented manufacturing of goods, production to meet
demands of both external and internal market. He said that it is important to focus on high technology
and innovative progress so that high value added products are produced in order to generate and
meet the demands of other parts of the world.
Shri Piyush Goyal, Minister of State (IC), Power, Coal and NRE, as the Lead Speaker in the First
Plenary Session on Infrastructure and Growth said that there is need for change of mind set of policy
makers, policy implementers, stakeholders including private entrepreneurs among others to achieve
the goal of high and sustainable growth. He said that the present Government is focusing on bringing
transparency and honesty in allocation of natural resources including coal blocks, iron ore and other
minerals as well in time to come. The Minister specifically mentioned about e-auction of coal blocks
which will bring more transparency, competitiveness and efficiency in the system.
The Power Minister Shri Goyal focused on the root cause analysis so that the problems and issues at
principal base level are first addressed which will automatically take care of the individual ones. He
assured that there will be no increase in power tariff post e-auction of coal mines and the focus would
be outcome oriented. Shri Goyal said that the present Government has delivered in six months which
could not be achieved by many previous Governments. He specifically mentioned about Deen Dayal
Upadhayay Gram Jyoti Yojana for feeder separation to augment power supply to rural areas, which
was announced by the Finance Minister in his Budget Speech on 10th July, 2014. Shri Goyal said that
it was taken for Cabinet approval within four months. The Power Minister said that new Electricity
Amendment Bill would also be introduced soon in the Parliament. He focused on innovative financing,
monitoring and accountability. The Minister concluded that the present Government believes in good
governance so that people at large get best possible services at most reasonable prices in an efficient
and transparent manner. He said that there would be focus on monitoring and accountability.
Among those present on the occasion included Shri Rajiv Mehrishi, Finance Secretary, Dr. Arvind
Subramanian, Chief Economic Adviser, Ministry of Finance, Shri Shaktikanta Das, Revenue Secretary
and Dr. Hasmukh Adhia, Secretary, Department of Financial Services along with officers of the Ministry
of Finance, economists, foreign delegates and, private entrepreneurs among others.
INDIA SIGNS CREDIT AGREEMENT WITH INTERNATIONAL FUND FOR AGRICULTURAL
DEVELOPMENT (IFAD) FOR US$ 50 MILLION FOR THE MEGHALAYA LIVELIHOOD AND
ACCESS TO MARKETS PROJECTS (MEGHA-LAMP)
A financing agreement for a credit amount of US$ 50 million from International Fund for Agricultural
(IFAD) was signed here today by Shri Tarun Bajaj, Joint Secretary, Department of
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41
Economic Affairs, Ministry of Finance on behalf of Government of India for the Meghalaya Livelihood
and Access to Markets Projects (Megha-LAMP). Similarly a project agreement for implementation of
the said Project has been signed by Shri R.M. Mishra, Principal Secretary, the Government of
Meghalaya on behalf of the State Government. The Objective of the project is to adapt expanded and
sustainable livelihood opportunities to the hill environment and to the effects of climate change. The
project size is US $ 169.7 million, of which US $ 50.00 million will come in the form of IFAD credit. The
remaining amount will be mobilized through State Government contributions, commercial Banks,
complementary government programmes and participating households. It is expected to benefit more
than 147,000 households, comprising of about 827,000 people. The Megha-LAMP Project will close in
December 2022.
FINANCE MINISTER HOPEFUL THAT THERE WOULD BE INSURANCE MARKET EXPANSION
ONCE THE INSURANCE AMENDMENT BILL IS PASSED BY THE PARLIAMENT; INSURANCE,
BANKS, MUTUAL FUNDS AND SECURITIES ARE AMONG THE AREAS OF COOPERATION
BETWEEN INDIA AND UK
The Union Finance Minister Shri Arun Jaitley said that he is hopeful that the Insurance Market
expansion would take place once the Insurance Amendment Bill is passed by the Parliament. The
Finance Minister Shri Jaitley expressed his sense of satisfaction over the recommendations made by
the Parliamentary Select Committee with regard to the Insurance Amendment Bill referred to it. The
Finance Minister Shri Jaitley was speaking when Mr. Jerry Gimstone, Chairman, Standard Life, UK
and Shri Uday Kotak, Executive VC and MD , Kotak Mahindra Bank , both Co-Chair of India UK
Financial Partnership called on the Finance Minister in his office here today. The Finance Minister
further said that insurance, banks, mutual funds and securities are among the areas of cooperation
between India and UK. Mr. Gimstone Chairman, Standard Life and co chair for the India UK Financial
Partnership said that there is great potential for foreign investment in India in various sectors including
infrastructure, insurance and pension sectors among others. He said that it is UK which is the largest
investor in India. He said that UK corporate sector will play an important role in making the Prime
Ministers Make in India programme a reality and success.
Mr. Uday Kotak , co-chair appointed by the Government of India for the India UK Financial Partnership
said that he is highly enthused by the Finance Minister 's initiative to form the India UK Financial
Partnership. He said that we see tremendous opportunity in the areas of cross border finance and
investments and learning from the UK experience in the financial sector. Earlier the India-UK Financial
Partnership was launched by the Chancellor of the Exchequer and the Finance Minister of India to
deepen financial services links between India and the UK and strengthen co-operation between
London and Mumbai, two of the worlds leading financial centers. The industry leaders who will cochair this Partnership are Mr. Uday Kotak, Executive Vice Chairman and Managing Director of Kotak
Mahindra Bank and Sir Gerry Grimstone, Chairman of Standard Life and The City UK, which
represents the UK-based financial and related professional services industry.
The Partnership will focus on the following work-streams.
Development of corporate bond market, Mutual sharing of expertise on financial sector & market
regulation
Enhancing financial training and qualification
Financial inclusion
Cross-border provision of financial and insurance services
Pensions
Internationalization of the Rupee
Infrastructure funding
The partnership is about deepening the links between the two countries financial services industries.
The financial services industry, underpins real economy and enables growth. Its objective is to identify
specific and executable areas to deepen co-operation, provide mutual learnings and sharing of
expertise across the industry from regulation to product development and training
Page | WORLD
42
BANK THIS WEEK
Staying the Course on Structural Reforms

China's effort to rebalance its economy - transitioning from investment-to consumption-based growth,
reducing air pollution and improving social services - has inevitably led to a "new normal" of slowing
growth. While it is tempting to focus on short-term growth targets, Chinese policymakers may want to
consider the benefits of staying the course on structural reforms, which could help the country sustain
robust economic growth in the long run. In recent years, China has carried out policies that have put
the economy on a more sustainable footing at an impressive pace. The government, for example, has
taken steps to rein in credit growth, enacted environmental legislation and reduced excess capacity in
the economy. These measures have moderated economic growth, expected to come in at 7.4 percent
this year and 7.2 percent in 2015, according to our (World Bank) most recent projections. These
growth rates are still consistent with the growth target for the 12th Five-Year Plan (2011-15) period and
would be the envy of any other country. But for China, the current growth performance represents a
paradigm shift relative to the high growth of the last 30 years which has helped China lift more than
500 million people out of poverty. In an effort to sustain growth in the short-term at current levels, the
government has taken actions aimed at boosting demand and short-term growth in sectors such as
real estate. The central bank, for example, recently lowered interest rates on both deposits and loans,
the first rate cut since the summer of 2012. The government also cut mortgage rates and relaxed
lending standards. The key to Beijing's continued success, we believe, will be the government's ability
to strike a balance between achieving short-term targets and promoting longer-term, sustainable
growth. In the short term, for example, the government has the option of focusing on strengthening
market discipline in the financial sector. It could implement policies to facilitate the reallocation of
resources from less productive sectors, including State-owned enterprises, to those with high growth
potential. This would mean that China can deleverage while maintaining growth by using credit better.
For example, the government could gradually remove implicit State guarantees and let market forces
decide whether companies succeed or not. Doing so could generate efficiency gains for the economy.
In the medium term, China's primary challenge is carrying out reforms that will transform the economy
into a more efficient one. That depends on the success of structural reforms in land, labour and capital
markets. Good progress is already being made but more needs to be done. For example, to integrate
migrant workers more fully into urban life, the government has announced plans of gradual
adjustments in the hukou (household registration) system, which would lead to more efficient use of
labour. It has also introduced a comprehensive reform plan to improve China's public finances, which
would remove the incentives for wasteful real estate development and inefficient urban sprawl. These
transformational reforms, which call for a carefully coordinated approach, will move China in the right
direction and lay the foundation for higher economic growth in the long run. But they will not reverse a
trend of moderating growth over the next decade. The extent of moderating growth will therefore in
large part be determined by the government's ability to implement the necessary policy actions. As the
global economy continues to struggle, especially the economies of Japan and European Union, the
world relies on China's growth engine more than ever - in 2013 it accounted for 30 percent of global
growth (37 percent at purchasing power parity) compared with 22 percent of the United States (10
percent at PPP) and less than 1 percent for the EU (PPP). While the moderation of growth in China
may somewhat soften global demand, it will enhance prospects of the world's second-largest economy
transitioning to a more sustainable and efficient growth path.
IMF THIS WEEK

Statement by IMF Managing Director Christine Lagarde on IMF Quota and Governance Reforms
Press Release No.14/568
December 12, 2014
Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), made the
following statement today: The IMFs membership has been calling on and was expecting the United
States to approve the IMFs 2010 Quota and Governance Reforms by year end. Adoption of the
reforms remains critical to strengthen the Funds credibility, legitimacy, and effectiveness, and to
it has sufficient permanent resources to meet its members needs. I have now been informed
Page | ensure
43
by the U.S. Administration that the reforms are not included in the budget legislation currently before
the U.S. Congress. I have expressed my disappointment to the U.S authorities and hope that they
continue to work toward speedy ratification. As requested by our membership, we will now proceed to
discuss alternative options for advancing quota and governance reforms and ensuring that the Fund
has adequate resources, starting with an Executive Board meeting in January 2015.
BASLE THIS WEEK

Correlations across Asia-Pacific bond markets and the impact of capital flow measures
by Pornpinun Chantapacdepong and Ilhyock Shim
Working Papers No 472
December 2014
Using a novel database on capital flow measures in Asia over 20042013, we investigate the impact
of bond inflow measures on the cross-market correlations of weekly bond fund flows and of daily bond
returns in 12 Asia-Pacific economies, after controlling for global, regional and local factors. We find
that a bond inflow measure taken by a country tends to increase the correlation of bond flows into the
country with those into other countries in the region. In particular, a country's policy actions to loosen
(ie increase) bond inflows significantly increase bond flow correlations, but policy actions to tighten (ie
decrease) bond inflows have no significant impact. We also find that bond inflow measures increase
bond return correlations in the long run. These results can be explained by the signalling hypothesis,
under which global investors expect that when a country takes a bond inflow measure other countries
to take similar actions, so that they increase or decrease their investment in the region at the same
time.
Revisions to the securitisation framework
December 2014
The Basel Committee on Banking Supervision's revisions to the securitisation framework aim to
address a number of shortcomings in the Basel II securitisation framework and to strengthen the
capital standards for securitisation exposures held in the banking book. This framework, which will
come into effect in January 2018, forms part of the Committee's broader Basel III agenda to reform
regulatory standards for banks in response to the global financial crisis and thus contributes to a more
resilient banking sector. The crisis highlighted several weaknesses in the Basel II securitisation
framework, including mechanistic reliance on external ratings, lack of risk sensitivity, cliff effects and
insufficient capital for certain exposures. The Committee has revised the securitisation framework to
address these issues.
The most significant revisions with respect to the Basel II securitisation framework relate to changes in
(i) the hierarchy of approaches; (ii) the risk drivers used in each approach; and (iii) the amount of
regulatory capital banks must hold for exposures to securitisations (i. e the framework's calibration).
The revised hierarchy of approaches reduces reliance on external ratings. It also simplifies and limits
the number of approaches. At the top of this hierarchy is the Internal Ratings-Based Approach, which
banks may use if their supervisors have approved their use of internal models. This is followed by the
External Ratings-Based Approach - where credit ratings are permitted to be used in the jurisdiction -
and the Standardised Approach. Additional risk drivers, notably an explicit adjustment to take account
of the maturity of a securitisation's tranche, have been introduced in order to address weaknesses in
the Basel II framework, which resulted in under-capitalisation of certain exposures. The final
requirements have incorporated feedback from two rounds of consultation (in December 2012 and
December 2013) as well as two quantitative impact studies that helped inform the policy deliberations.
for identifying simple, transparent and comparable securitisations
Page | Criteria
44
December 2014
The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities
Commissions (IOSCO) released today a consultative document on Criteria for identifying simple,
transparent and comparable securitisations. The purpose of these criteria is to identify - and to assist
the financial industry's development of - simple, transparent and comparable securitisations structures,
as well as to help parties involved in a securitisation transaction evaluate the risks of a particular
securitisation as part of their due diligence on securitisations. Criteria promoting simplicity refer to
the homogeneity of underlying assets with simple characteristics, and a transaction structure that is
not overly complex. Criteria on transparency provide investors with sufficient information on the
underlying assets, the structure of the transaction and the parties involved in the transaction, thereby
promoting a more comprehensive and thorough understanding of the risks involved. The manner in
which the information is available should not hinder transparency, but instead it should support
investors in their assessment.
Criteria promoting comparability could assist investors in their understanding of such investments
and enable more straightforward comparison across between securitisation products within an asset
class. The proposed criteria have been mapped to key types of risk in the securitisation process:
(i) generic criteria relating to the underlying asset pool (asset risk); (ii) transparency around the
securitisation structure (structural risk); and (iii) governance of key parties to the securitisation process
(fiduciary and servicer risk). The proposed approach is a modular one. The criteria published today
may be supplemented or expanded (eg with criteria related to credit risk of the underlying securitised
assets) based on specific needs and applications, such as investor mandates, regulatory applications
or central bank collateral frameworks. The implementation of such criteria, including its potential
impact on regulation, is not within the scope of this consultation. Comments on the proposals should
be provided by Friday 13 February 2015, uploading them through the following BCBS link, or by email to IOSCO's Consultation-2014-10@iosco.org. All comments will be published on the websites of
the Bank for International Settlements and the International Organization of Securities Commissions
unless a respondent specifically requests confidential treatment.
14/12/2014
COMPILED AND EDITED BY
VASANT PONKSHE
SECRETARY AIBOA
CHAIRMAN BOMOA
9422319827

391st Issue BOM Banking News 08th To 14th December 2014 by Vasant Ponkshe Secretary AIBOA

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391st Issue Banking News 08th to 14th December 2014 By Vasant Ponkshe,

Secretary AIBOA Pune

SINCE 20.06.07 ISSUE NO-

BANK OF MAHARASHTRA OFFICERS ASSOCIATION

Include definition of ownership and control in the Bill

Penalties on insurance companies to be linked to seriousness of offences committed by agents

Irda should mull allowing multiple corporate agents in insurance

Cabinet nod to cut govt stake in PSBs to 52%

PATENTS ACT: Myth that govt changing patents Act

INSURANCE: Large investments waiting to come in the sector

NEWS OF THE WEEK

INTERVIEW OF THE WEEK

INTERESTING TO KNOW THIS WEEK

INTERNATIONAL NEWS THIS WEEK

Fed aims to make large banks more resilient to shocks

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BANK THIS WEEK

Staying the Course on Structural Reforms

IMF THIS WEEK

BASLE THIS WEEK

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