BANK NPA CRISIS: HERE’S WHAT IS CRUCIALLY MISSING

RBI Governor Raghuram Rajan will be remembered for his relentless pursuit of India’s monetary policy reforms, controlling inflation and advocating a stable policy framework. His precise diagnosis and direction for “deep surgery” for the chronic NPA problems of the banking sector, especially in public sector banks, is also noteworthy. He minced no words when he said that routine “band-aid” would not clean up the balance-sheet mess and put them back on a healthy trajectory.

RBI has been issuing master circulars from time to time, encompassing entire aspects of ensuring true and fair financial statements of banks. RBI has insisted that the new restructured loans, where the borrower has renegotiated the terms of repayment, must be classified as non-performing assets (NPA) from April 1, 2015, with provisioning of 15% of the outstanding instead of 5% for restructured loans, so that banks can take early recovery action or sell NPAs to asset restructuring companies (a loan turns into an NPA when interest repayments remain due on the 91st day).

Financial audit of banks are done by statutory central auditors (SCAs) and statutory branch auditors (SBAs). On the basis of prescribed eligibility criteria determined by RBI, the CAG prepares graded panel for empanelment and selection of eligible SCAs and the The Institute of Chartered Accountants of India (ICAI) prepares a panel for eligible SBAs in PSBs and send the panels for RBI’s scrutiny before finalisation of the lists. RBI has prescribed the number of SCAs and SCBs to be appointed to audit large, medium and small PSBs, and for audit of their branches.

The government had delegated selection and appointment of SCAs and SCBs to individual PSBs from 2014-15 from the eligible list of firms, giving enough freedom to choose the auditors of their liking. Banks are free to select statutory auditors from the list with the approval of the Audit Committee of Board (ACB). The selection of audit firms as SCAs and SBAs is subject to RBI approval. The independence of auditors/audit firms is ensured by appointments of SCAs for a continuous period of three years, subject to satisfying the eligibility norms by the firms each year; PSBs cannot remove audit firms during the above period without the prior approval of RBI.

The option to consider whether concurrent audit should be done by bank’s own staff or external auditors is left to the discretion of individual banks. A critical issue is that auditors should be experienced, well-trained and, most importantly, adhere to applicable accounting and auditing standards, mandatory guidelines and the ethical code of conduct. Auditors must be able to function independently with professional autonomy and judgement. Adequate facilities and the requisite records must be made available to auditors with initial and periodical familiarisation of the process. Relevant internal guidelines or circulars or important references including the circulars issued by RBI and/or Sebi and other regulating bodies must be made available to the concurrent auditors.

Remuneration of auditors may be fixed by banks following the broad guidelines framed by the ACB, taking into account coverage of areas, quality of work expected, number of people required for the job, number of hours to be spent on the job, etc. Banks may devise a proper reporting system and periodicity of various check-list items as per risk assessment. Serious irregularities pointed out by the audit should be straight away reported to the controlling offices or head offices for immediate action. The findings of the concurrent audit must be placed before the ACB. An annual appraisal or report of the audit system should also be placed before the ACB.

Whenever fraudulent transactions are detected, they should immediately be reported to the inspection and audit department, and the chief vigilance officer and controlling officers. Follow-up action on the concurrent audit reports must be done promptly by the controlling office and inspection and audit department. When RBI has been insisting on true and fair financial statements by banks through various notifications, master circulars, guidelines and directions time and again, why has the banking sector, especially PSBs, been pursuing window dressing so consistently for years till the position reached the current imbroglio? Statutory auditors finally certify the accounts true and fair. Whenever any falsification of accounts on the part of the borrowers is observed by the banks or financial institutions, the auditors are responsible to bring it to the notice of the management. Auditors must have to follow auditing standards, applicable accounting standards, rules and the professional code of ethics. Being the regulator of chartered accountants, ICAI is duty bound to fix accountability of auditors if they are found lacking in professionalism and ethics.

There should be disciplinary action by ICAI. In fact, ICAI, RBI, the Department of Banking Supervision and Indian Banks’ Association are mandated to circulate the names of guilty chartered accountant firms. RBI is required to share such information with other financial sector regulators, ministry of corporate affairs and CAG. The lenders can obtain a specific certification from the borrowers’ auditors regarding diversion/siphoning of funds by the borrower. The rules also specify that banks and financial institutions may ensure incorporation of appropriate covenants in the loan agreements to facilitate such certification by auditors. RBI stipulates that lenders may engage their own auditors for such specific certification purpose without relying on certification given by borrowers’ auditors for ensuring proper end-use of funds and preventing diversion/siphoning of funds by the borrowers. Bank must invariably exercise basic minimum own diligence in the matter.

Master directions issued by RBI in January 2016 consolidate all regulatory matters under various Acts and are put on the RBI website. Proper medicine is prescribed for chronic NPA infection, but what is missing is strict implementation. Creating more rules, regulators and watchdogs may lead to overlaps, confusion and would prove to be counterproductive. If prompt administration of extant rules is taken care of and due diligence is exercised by regulators, bank management, auditors, audit committee and the board of directors, the NPA crisis can be resolved.

Courtesy The Financial Express. 

By: KP Shashidharan The author, a former director-general in the office of CAG, is working as advisor and consultant to the Institute of Public Auditors of India

BREXIT: IS IT DEFECT OF LOGIC AND STATISTICS?

The people of Britain voted for a British exit, or Brexit, from the EU in a historic referendum on Thursday, June 23. From hindsight perceptive, if you analyze this entire Brexit, you may have to comprehend that it is extensively more complex than what is looks like at the surface.

The UK leaving the European Union will have an impact on all industrial sectors and on the whole economy of UK as well as the definite trivial impact on other countries. Let’s first see—

What was battle about..? 

I think, the fight was about following 5 points.

1.    Migration Policy –Principal assessment is that it was about UK’s losing control over its own migration policies as it has to support an EU framework for immigration within EU

2.    Job Market —Another significant part is job market inside the UK. Immigrants with EU framework are getting “white” and “blue collar” jobs which are impacting job prospects of UK citizens

3.    Contribution/It’s about money — UK’s contribution to EU is around 13.5billion in 2015. They got specific concession from paying 18 billion. From 1973, they paid around 500Billion to the EU and on average they pay around 8.5Billion per year. EU pays back by helping poor farmers in the UK and few other areas. How much the UK got back last year..? Around 6.5Billion and may be more indirectly as companies invested in the UK due to EU framework. This payment made by the UK to EU  not a loss as numbers tend to suggest.

4.    Trade and travel – UK is regarded as the gateway to Europe and all EU countries have free trade with the UK, and this actually benefits the UK economy and was a principal point on the agenda of the people who voted to stay within EU.

5.    Battle of classes and age –groups – It was broadly argued that it was a battle of age groups. People with old age wanted to leave the EU where the old wanted to stay, but we cannot count on this trend as this is not consistent across the UK states. Few leaders managed to paint this as “Rich and Poor” battle. Was it really a rich and poor battle? Well this can be debated at length and cannot be concluded in the absence of data.

Is it a Defeat of logic and statistics? 

This battle was fought with enormous passion, aggression and both sides made an attempt generate fear in the minds of people. The team which conceded passionate and ambitious leadership and created a populous framework has won. The Vote difference is around 3.8% which is not great. If you look at the arguments that were presented on the battlefield, only one side had numbers with them and they believed that they need to “Stay In.” The reason is economy was well accustomed to EU framework, and there was a future vision offered aligning the EU frame.

The other side which has said “Yes” for Brexit had a lot of emotions and fewer numbers in hand and masses got carried away with passionate leadership. If you look at all Brexit movement, nobody still doesn’t know, how will it impact Britain economy…? Nobody has substantial statistics in hand. This is a very complicated process and only time will articulate if Brexit is serving Britain?. Hence I feel this could be a probable defeat of logic and statistics at the hands of passionate leadership with more emotions in hand than figures.

Let’s look at few hardcore facts which support that Brexit is a very convoluted scenario in the absence of any projected actualities.

1.       UK out of EU means EU may not allow the UK to have free trade, and it means the UK no longer a gateway to Europe. So in layman’s term if I manufacture a car in the UK and want to sell in Germany I will have pay tax as well as few other service tax which means additional cost to customer and loss of competitive advantage.  If I am an Indian manufacturer, the best solution to me is moving my headquarters to Germany or France and evade taxes in 27 countries and open a small separate company for the UK which will manufacture and sell in the UK only and hopefully the law will permit it. Which companies will choose this option and how much impact it will have, cannot be projected at this stage.

2.       All the USA and EU companies who had invested in the UK due to EU rules may start reevaluating their decisions due to new trade law as that EU may set forth and this may be a potential loss of investment to the UK.

3.       UK’s automobile industry and manufacturing sector and all others have major outside players in it, and all might get impacted.

4.       Does this mean Britain is giving anti-migrant and isolated market message instead of the open market, and this is not right from branding perceptive?

5.       Travel agencies of UK will get major hit with all free Europe package will have to start from Paris (France) and Frankfort ( Germany) instead of London. If I ask Europe tour from London, it may cost 1000GBP but from Paris, it may cost 800GBP as UK has lost EU status.

6.       Indian students may perhaps benefit as EU student and Indian student may be treated likewise as Britain is a no-longer member of EU.

If you look at above points, which companies and investors will select which scenario and how they will baseline their decisions is very uncertain. Hence, nobody has any numbers around Brexit here as well.!

Britain – Searching for Greatness via Brexit 

Well, if you want to make Britain’s situation resilient subsequently to Brexit, you will have limited options in hand. Hang onto to the “Open Market” concept.  Keep all the possibilities open for Immigration laws within EU. This way, you will not pay around 13 Billion per year to EU however still succeed to attract investment. Nevertheless, what about trade framework..? Germany and France are not going lose this advantage and treat the UK as an Asian country to make more benefits as everybody mean business.

Now, to bring this discussion to a conclusion, it’s an open secret that UK wants to move out of EU and keep trade and travel and tax framework as it is..? Will EU countries permit it? Germany and France know few companies moving headquarters to their country means paying tax in their country instead of UK for free access to EU. Also, start using Frankfurt or Paris as a gateway to EU instead of London.

During the exit period, UK will negotiate to enjoy same trade and access to EU without being a member? This is million dollar question! Which privileges will go off? Perhaps EU will make the UK pay more for similar rights as it’s not member, who knows..?

Only time will tell…if the UK is able to rise to the occasion and its leadership deliveries the excellent on the negotiating table and find an amicable solution to maintain trade and investment in the UK.

For me, receiving voting for Brexit was just one step and negotiating with EU without having an impact on trade is a real challenge which hasn’t started as yet. The real battle is ahead and what we saw is just a promo.

Wait and watch and hope this is indeed an upsurge of new Great Britain which is more accessible and beneficial to India.! Hopefully, we will get precise numbers by 2018-19, and we can have a genuine conversation about Brexit.

Virendra  Dafane

Author is an IITB alumnus and working in software Industry can be reached on virendra.dafane@hotmail.com

Courtesy The Financial Express

INDIA OPENS FDI FLOODGATES; APPLE TO QATAR AIRWAYS GAIN, BUT GREY AREAS REMAIN

In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors. Showing scant signs of legacy inhibitions, it virtually paved the way for even foreign airlines to acquire their Indian counterparts, removed the condition of domestic access to state-of-the-art technology for 100% FDI in the defence sector and put in abeyance the fractious 30% local sourcing norm for FDI in single-brand retail of advanced-technology products.

Despite the local pharma industry’s oft-expressed fear of being swamped by Big Pharma, foreign firms can now take majority (up to 74%) ownership in Indian drugmakers via the automatic route, which could again catalyse big-ticket M&A activity in the sector.

With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an India airline company by working in concert with a related party, according to some analysts. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation’s sovereign wealth fund, Qatar Investment Authority.

Analysts, however, said the government seems to have tightened the sourcing rule in single-brand retailing, instead of giving a blanket exemption from such a rule for entities having “cutting-edge” technology, as was the case earlier. For instance, Apple will be exempted from the local sourcing rule for three years and have a relaxed sourcing regime for another five years if it wants to set up its own retail store, as its technology has already been described as “cutting edge” by a government panel. However, the company will still have to start local sourcing from the fourth year itself, thanks to the insistence of the finance ministry, which wanted that the Make in Indiaprogramme get a boost. Similarly, Chinese company LeEco will be subjected to the same conditions if its claim of having “cutting edge” technology is endorsed by the panel headed by department of industrial policy and promotion secretary Ramesh Abhishek. However, another Chinese smartphone maker, Xiaomi, which recently withdrew its application for such a waiver, will have to comply with the mandatory 30% sourcing rule from the beginning should it wish to set up its own retail store.

Commenting on the new FDI policy for airlines, Amber Dubey, partner and India head of aerospace and defence at KPMG in India, said: “The avoidable controversies on settling ‘ownership and control’ issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.”

“The likely increase in competition will bring down prices and enhance air penetration in India, both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” he added.

Calling the new norms a “bit tricky”, Amrit Pandurangi, senior director, Deloitte Touche Tohmatsu India, said, “Foreign airline investment is restricted to 49% and FDI investment in this sector has been opened up to 100%, so if the beyond the portion of the equity is by a related entity, then that needs to be tested.”

Among domestic airlines, the Rahul Bhatia-controlled Interglobe Enterprises holds close to 43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet and Naresh Goyal holds 51% in Jet Airways. While Tata Sons holds 51% in both Vistara Airlines and AirAsia India, GoAir is wholly owned by the Wadia Group.

In defence, the decision to scrap the condition of access to “state-of-the-art technology” for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. Already, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its joint venture with a local partner to make the Gripen aircraft in India.

The government’s move to allow 100% FDI through the automatic route (earlier it was up to just 49%) in the broadcast carriage industry, comprising teleports, cable, direct-to-home (DTH) players, HITS (head-end-in-the sky) and mobile TV operators will provide a breather to the cable industry which has been struggling with the process of digitalisation of cable TV. The government has also allowed 74% FDI (49% under automatic route and through government approval beyond this ceiling) in private security agencies. Earlier, only 49% of FDI through government route was allowed.

Also allowed now is 100% FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture under the automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

“For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted,” a PMO statement said..

Monday’s is the second largest FDI liberalisation initiative by the Modi government, after the steps taken in November 2015. Prime Minister Narendra Modi tweeted: “In two years, Govt brings major FDI policy reforms in several key sectors… India now the most open economy in the world for FDI; most sectors under automatic approval route.” He added: “Today’s FDI reforms will give a boost to employment, job creation & benefit the economy.”

In what seemed to indicate that the government’s intention was indeed to let foreign airlines acquire Indian firms and thereby augment their capital and fleet strength for the benefit of air travellers, economic affairs secretary Shaktikanta Das said that Monday’s reforms in the sector were a “game changer”.

India’s FDI inflows increased to $55.5 billion in FY16 from $36 billion in FY14. Net FDI inflows stood at $36 billion in FY16 compared with $32.6 billion in FY15.

Commerce and industry minister Nirmala Sitharaman, however, rejected assumptions that the government decided to announce so many FDI policy reforms in one go to divert public attention from RBI governor Raghuram Rajan’s decision to not continue at the central bank after his current tenure ends on September 4. The reforms are a result of months of deliberations among various departments and are not announced in a hurry to divert attention, she affirmed.

 Courtesy The Financial Express

‘‘BREXIT’ COULD SEND SHOCK WAVES ACROSS US AND GLOBAL ECONOMY

Britain’s exit from the EU could send shock waves across the global economy and threaten more than a trillion dollars in investment and trade with the United States, a leading American newspaper reported today.

The dangers of a British exit from the political and economic alliance that has united Europe for the past four decades carries hefty consequences for American businesses, which employ more than a million people in Britain, the Washington Post reported.

The United States is the largest single investor in Britain, and many firms consider it the gateway to free trade with the 28 nations that make up the European Union.

A Brexit would jeopardise their access to those markets, potentially reducing revenue and forcing some firms to consider relocating their European operations elsewhere. That has put corporate America onto the front lines of the campaign to keep the union together, with several of Wall Street’s biggest names donating substantial sums to the effort.

A Brexit would be “bad for the U.K., it would be bad for Europe, it would be bad for the world, including the United States,” Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said.

“You already have enough uncertainty in the world today. We don’t need more,” the paper quoted Gurria as saying.

The International Monetary Fund on Friday issued one of the most dire forecasts to date, calling the impact of Britain’s departure from the EU “negative and substantial.”

The fund predicted that a Brexit could reduce economic growth by up to 5.6 per cent over the next three years in its worst-case scenario.

Those concerns were echoed by policymakers around the world last week.

In Washington, Federal Reserve Board Chair Janet Yellen said the threat of a Brexit factored into its decision to remain cautious and keep its benchmark interest rate unchanged last week.

While financial markets would bear the brunt of the immediate impact of a Brexit, the referendum raises deeper questions for businesses on both sides of the Atlantic.

If Britain votes to leave, it would spend at least two years working out the terms of its departure, with all signs pointing to an acrimonious negotiation. Britain would also need to procure trade agreements with countries around the world, including the US, a process that could take years. Businesses say the protracted debate would leave them stuck in limbo, the report said.

The US exported USD 56 billion worth of goods to Britain last year, but that number is dwarfed by the USD 588 billion in US investment there, in sectors ranging from banking to manufacturing to real estate.

Likewise, Britain has plowed nearly half a trillion dollars into the US and employs more than a million workers here. Those deep ties mean that trouble on one side of the Atlantic easily can migrate to the other shore.

 Courtesy The Financial Express

RBI GOVERNOR RAGHURAM RAJAN SENDS SHOCK WAVES BY OPTING TO RETURN TO ACADEMIA

MUMBAI: Reserve Bank of India governor Raghuram Rajan sent shock waves through the investing community and industry on Saturday by opting to return to academia at the end of his term in September amid signals of differences with the government.

The Chicago University professor, who is seen as one of the most influential economists, said the RBI has achieved more than what it planned during his term and there is an unfinished agenda.

The decision comes amid the ruckus created by BJP MP Subramanian Swamy, who said Rajan's interest rate policies held back India's economic growth and he was not "mentally Indian" to frame policies for its benefit.

In an open letter to RBI staff, Rajan indicated he was prepared to have a second term to fix the financial sector and

ake the monetary policy framework to its logical conclusion, but the consultations with the government did not go the way that would have made him stay back on Mint Street.

"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4," Rajan wrote. "I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my threeyear term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished."

Rajan's decision would leave a hole in the central banking policymaking till the government comes up with a successor. Finance minister Arun Jaitley said the government would find a successor soon. Even then, it might be difficult to fill Rajan's shoes in terms of convincing investors about continuing prudent monetary policies, and having a tough approach on cleaning up banks.

This is a sad day," Rajiv Lall, chairman of IDFC Bank, tweeted. "Can we transform the nation and lose our best people?'' When Rajan took charge in September 2013, Indian economy was collapsing, with the currency plunging to new lows which led to his announcing a special US dollar deposit scheme that brought in about $30 billion.

He also raised the amount of bonds that foreigners could hold in India, leading to higher portfolio inflows. Those deposits are maturing in the next few months and the central bank says it is prepared to face it.

"The currency stabilised after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013," said Rajan. "Today, we are the fastest growing large economy in the world. ..

Inflation targeting as a monetary policy framework, a strict no-no in the political circles, was made possible during his term, which elevated India's credibility among international investors. But the Monetary Policy Framework is yet to be put in place. "Rajan is a person of very high calibre, who has built ably on the reputation of our central bank and given it a very large measure of credibility," said Arundhati Bhattacharya, chairman, State Bank of India.

The Modi administration has been unappreciative of merit, say rivals. "I am not surprised at all," said former finance minister P Chidambaram, who was instrumental in appointing Rajan. "The government had invited this development through a craftily planned campaign of insinuations, baseless allegations and puerile attacks on a distinguished academic and economist. As I had said, this government did not deserve Dr Rajan. Nevertheless, India is the loser."

 Coutesy The Economic Times

Kerala Minister Thomas Issac breaks away to back GST

Three days after the meeting on GST of state finance ministers with Union MinisterArun Jaitley, Kerala’s Finance Minister Thomas Issac, a member of the CPM Central Committee, distanced himself from the Congress’s demand of a cap of 18 per cent on the GST rate.

He said he “did not know what made them (the Congress) make such an amendment” and added that he “did not find any reason to stand in the way of the GST”.

Issac said his state stands to gain from the Goods and Services Tax and added that the CPM will not accept the Congress’s proposed amendment on the GST ceiling rate. The Bill is stuck in Rajya Sabha where the ruling coalition lacks numbers.

Courtesy The Indian Express

Top bank executives ask CVC, CBI to make loan probe process transparent

MUMBAI: Top bank executives urged the Central Vigilance Commission and Central Bureau of Investigation to evolve a transparent process to deal with issues at banks in order to remove the fear of probe, which is preventing them from making decisions. The demand comes at a time when public sector banks are struggling to recover from huge losses that they posted in 2015-16 due to rising provisions for dud loans.

It is unfair to compare a past decision with present circumstances, they said during a meeting with CVC and CBI officials, as the circumstances and the state of the economy might have changed after a loan was given.

A similar stance was taken by Reserve Bank Governor Raghuram Rajan in April when he said: "We must look at what were the conditions under which loans were given by the banks, given the information that was known then and be careful about hindsight being 20-20."
During the meeting, bankers said also there could be procedures for the purchase of furniture and computers, and sanctioning of loans, but when it comes to settling for less with a defaulter, there is no "one-size-fits-all" approach as scores of subjective factors like ability, securities pledged, the current value of assets and so on have to be computed.

Speaking to ET, State Bank of India Chairman Arundhati Bhattacharya indicated that it is important to ensure the CVC-related matters are "process driven" and each case has to be dealt with differently. "You can't have anything absolutely cast in stone because every individual case is different. Therefore even the solutions will be different. There has to be a commercial basis to all of this and that has to be recognised and on the basis of that should be respected," she said.

The issue also gained prominence in the backdrop of the Enforcement Directorate questioning lenders' roles as it probes alleged diversion of loans by Kingfisher Airlines.
Earlier in the day, RBI Governor Rajan met senior bankers to discuss measures that could be taken to improve corporate governance within banks. "One of the chairmen suggested that the board should not be involved in sanctioning of loans. Another chairman suggested that focus should be on policy and risk management policies," said a senior banker present at the meeting.

During the meeting on corporate governance, Shikha Sharma, managing director of Axis Bank, and Kotak Mahindra Bank Executive Vice Chairman Uday Kotak made a presentation of how the board of a private bank should function. Deepak Parikh, chairman of HDFC, spoke on the measures that could be taken to run the board in a professional manner. 

Courtesy The Economic Times

Cabinet approves merger of 5 associate banks with SBI, stocks surge

The Union Cabinet on Wednesday approved the merger of five associate banks — State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad as well as Bharatiya Mahila Bank with State Bank of India, according to TV reports.Last month, SBI cleared proposal for merger of subsidiary banks and Bharatiya Mahila Bank.

Arundhati Bhattacharya, chairman, SBI said, “The merger of SBI and its associate banks is a win-win for both. While the network of SBI would stand to increase, its reach would multiply. One can expect efficiencies to be created from rationalisation of branches, common treasury pooling and proper deployment of a large skilled resource base. Currently, no Indian bank features in the top 50 banks of the world. With this merger, some visibility at global level is likely to increase. Customers of associates and subsidiaries of the bank will also be beneficiaries.”

Welcoming the move, State Bank of Travancore MD CR Sasikumar told CNBC TV that it will be a great benefit to the customer. He further added that he doesn’t see any issues on staff integration.

Among the 5 banks, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed.

Shares of State Bank of Mysore closed 20 per cent up at Rs 547.90. State Bank of Travancore and State Bank of Bikaner and Jaipur settled 19.99 per cent up each at Rs 478.90 and Rs 599.60, respectively. Shares of State Bank of India surged 3.90 per cent to Rs 215.65, whereas the BSE Bankex index advanced 1.38 per cent to 20,525.10.

The merger will create Rs 37-lakh crore banking behemoth with over 50 crore customers.

SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged.

SBI has maintained since then that it would merge others as well but none of its moves fructified due to lack of capital (which was pegged at least Rs 2,000 crore each for per bank) and stiff opposition from employee unions.

Courtesy The Financial Express

New aviation policy: Now, just fly, forget Indian Railways

Consumers hailing from smaller towns and cities hitherto unconnected by flight have something to look forward to as they may soon get to fly more often and at affordable rates. The civil aviation policy has unveiled a regional connectivity scheme (RCS) that aims to connect smaller towns and cities to the main hubs and has capped the fare at Rs 2,500 per passenger for one-hour flights on the RCS routes that include unserved airports.

To implement this policy, the government plans to revive 160 airports and airstrips each at a cost of Rs 50-100 crore.

What this means is that while there would not be any change in fare for a Delhi-Chandigarh flight, for a destination not connected by air from Delhi today that gets connected tomorrow and can be reached in an hour, the fare would be capped at Rs 2,500 per passenger.

To bridge the gap between actual cost and the capped fare, the government will provide viability gap funding (VGF) to airlines plying on the RCS routes. The VGF will be shared between the ministry of civil aviation and state governments. The burden will be shared on an 80:20 basis for RCS airports while for the northeastern states the ratio will be 90:10. The VGF will be funded by a small levy per departure on all domestic routes, other than Category II and IIA routes, RCS routes and small aircraft, at a rate decided by the ministry from time to time.

“We plan to impose a small levy per departure on all domestic flights other than CAT II /CAT IIA routes,” said Rajeev Nayan Choubey, civil aviation secretary. However, he added that this will be so small as to have any impact on the fares of flights plying on these routes.

In the draft, the aviation ministry had proposed a cess of 2% on most of the domestic and international routes to raise funds to improve regional air connectivity, which it has dropped.

“We have right now only come out with the broad contours of the RCS, we will be coming out with the detailed scheme within 10 days,” said Ashok Gajapathi Raju, Union minister for civil aviation.

“The scheme will connect India’s remote unconnected regions, boost tourism, create jobs and stimulate the economy in tier 2-3 cities. Sub-sectors like MRO, cargo, helicopters, general aviation and Make in India, etc, will get a fillip with liberalised operational norms and tax breaks,” said Amber Dubey, partner and head, aerospace and defence, at KPMG India.

Besides providing for VGF, the government also plans to provide for various tax sops ranging from doing away with airport charges for airports that will fall under the RCS routes to reducing service tax on tickets and lowering excise duty at 2% on aviation turbine fuel (ATF) picked at RCS airports.

“We have approached different states in pursuance to make the RCS a success and only those states will be included in the RCS routes which are ready to assist the ministry in giving these various tax sops, which includes reducing the excise duty on ATF,” Raju said.

Airlines that will fly on the RCS routes are expected to be provided police and fire services for free by the state government. The state governments are also expected to provide power, water and other utilities at concessional rates if they want their airports to be included in the RCS.

“AirAsia India also flies on routes which take less than one hour and costs less than Rs 2,500. We think on the face of it the regional connectivity scheme seems to be viable, but we need to wait for the government to come up with the intricacies of the scheme before deciding on anything,” said Amar Abrol, CEO AirAsia India.

Courtesy The Financial Express

Shares of PSBs, leveraged companies surge on revised loan recast norms from RBI.

MUMBAI: Shares of public sector banks and debt-laden companies rallied sharply in an otherwise weak market on Tuesday after the Reserve Bank gave flexibility to banks to bail out companies with high debt. 

Under the scheme, banks can split the loans of struggling firms into sustainable and unsustainable debt. Sustainable debt refers to loans that can be serviced with a firm's existing cash flow. Banks have been given the option of converting the unsustainable debt, which cannot be serviced with cash flow, into equity. Fund managers termed the move positive for PSU banks as they have significant exposure to corporates.

For debt-ridden companies, the scheme will spell relief in terms of ease of loan repayment period. The scheme will cover operational projects with loans of Rs 500 crore. "The revised norms are in line with the measures being announced by RBI and the government to reduce the NPA problem. The new guidelines are more beneficial for resolution of those cases where a lot of debt has already been provided for," said S Naren, executive director, ICICI Prudential AMC.
Courtesy Economic Times