Telangana is home to the country’s first public aerospace and precision engineering SEZ
The Indian fishermen were brought here on a train from Karachi this morning.Released Indian fishermen wait for buses after crossing the India-Pakistan border at Wagah, about 35 km from Amritsar.
The Lok Sabha on Friday passed the Insolvency and Bankruptcy Code (Amendment) Bill 2017, paving the way for tightening loopholes in the existing code and making the resolution process more effective.
The missile is being developed as part the Ballistic Missile Defence (BMD) system and it was the third successful test this year.
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Endo-atmospheric interceptor missile successfully tested.
Historic event will be hosted by Manipur University
The event was scheduled at the Osmania University (OU), Hyderabad, in the first week of January but had to be moved out due to “security problems.” This was the first time the 106-year-old ISC — the largest congregation of scientists in India — had to be postponed at the last minute.
“We’ve got confirmation from the Governor as well as the Chief Minister’s invitation to host the event at Manipur University,” Prof. Gangadhar, general secretary (Membership Affairs), Indian Science Congress Association (ISCA), told The Hindu. They would soon be writing to the Prime Minister’s Office about the dates. The congress sees several students, Nobel Laureates and scientists from India’s science academies in attendance. Fresh registrations would now be required, Mr. Gangadhar said.
Since the days of Jawaharlal Nehru, the ISC was traditionally the first public function the Prime Minister addressed in the calendar year.
Funds not spent
Student unrest has rattled the OU since December 3 last year, after the suicide of a student and this was among the key reasons that led to its withdrawal as a venue. Moreover, funds allotted by the ISCA to the OU to spruce up the campus and prepare for the event were mostly unspent, sources said.
The choice of venue is usually decided a year in advance and the massive logistical exercise involves coordinating the visit of several Nobel Laureates, heads of Indian science academies and thousands of students. “We’ll be writing to the Laureates again and I hope they can come,” Mr. Gangadhar said.
In recent years, the Science Congress has also got flak for being a forum that promoted pseudo science, such as in 2014, when a session on mythology and Vedic-era airplanes was a highlight.
India-born Chemistry Laureate Venkatraman Ramakrishnan had castigated the congress as a “circus.”
(Source:The Hindu)
The Rajya Sabha on Wednesday passed the Indian Forest (Amendment) Bill, 2017, which excludes bamboo from the definition of "tree", even as the opposition members, opposing the Bill and questioning the government's intentions behind bringing this legislation, walked out.
The Bill will replace the Indian Forest (Amendment) Ordinance that was promulgated by the President on November 23 this year.
The Indian Forest Act, 1927, placed bamboo in the definition of "tree", besides palms, stumps, brush-wood and canes, and hence felling and transportation of bamboo required a permit.
The government argued that the exclusion of bamboo from the definition of "tree" would promote bamboo cultivation and reduce the country's dependence on imported bamboo.
"The bamboo, though taxonomically a grass is treated as 'tree' for the purpose of the said Act, and therefore, attracts the requirement of permit for transit under the said Act. Although many states have exempted felling and transit of various species of bamboos within the states, the interstate movement of bamboos requires the amending measure," Environment and Forest Minister Harsh Vardhan told the House as he presented the Bill.
"The farmers face hardships in getting the permits for felling and transit of bamboos, which has been identified as a major impediment in the cultivation of bamboos by farmers on their land.
"Hence, it was decided to amend Clause (7) of Section 2 of the said Act, so as to omit the word 'bamboos' from the definition of 'tree', in order to exempt bamboos grown on non-forest area from the requirement of permit for felling or transit under the said Act, and would encourage bamboo plantation by farmers resulting in the enhancement of their income from agricultural fields," the minister said.
However, the opposition MPs from the Congress, Samajwadi Party, Trinamool Congress, Biju Janata Dal, Bahujan Samaj Party and the Communist Party of India opposed the Bill contending that it would only benefit the big industrialists, timber mafia and the rich and not the farmers as claimed by the government.
The opposition members expressed concern that the amended law would encourage illegal felling of bamboos in the forests as there was no way to differentiate between privately cultivated bamboo and the forest bamboo while being transported.
They also claimed that the law would pave the way for encroachment on the tribal people's and forest dwellers' rights. The opposition also wanted to know as to what was the hurry to amend the law through an Ordinance just ahead of a Parliament session.
Another objection raised by some of the opposition MPs was that states were not consulted before bringing the Ordinance or the Bill.
In his reply, Harsh Vardhan said that India produces only half the quantity of bamboo consumed by it in various industries and the rest had to be imported.
However, Congress member and former Environment and Forest Minister Jairam Ramesh said his party was not satisfied by the minister's reply and hence they were walking out.
A few other MPs from other parties followed suit and walked out of the House before it passed the Bill with a voice vote.
(Source:Business Standard)
A file photo. The project was first submitted to the Forest Advisory Committee (FAC) of the Union ministry of environment, forest and climate change (MoEFCC) in January 2010. Photo: Abhijit Bhatlekar/Mint
Clearing the decks for a new naval base at Rambilli in Andhra Pradesh, an expert panel of the Union environment ministry has recommended granting the project, pending since January 2010, “in-principle approval”.
The project for setting up the Naval Alternate Operating Base (NAOB) involves diversion of 676.12 hectares of forest land in Rambilli and Kalavalapalli regions of Visakhapatnam in Andhra Pradesh.
It was first submitted to the Forest Advisory Committee (FAC) of the Union ministry of environment, forest and climate change (MoEFCC) in January 2010. Subsequently, it was discussed by FAC in its meeting in April 2013, February 2016, September 2017 and then in its latest meeting, last week, on 20 December.
“After careful consideration of the facts placed before it, FAC recommended granting in-principle approval for the project proposal with general conditions and standard conditions along with specific conditions,” said the minutes of FAC’s meeting on 20 December, which were reviewed by Mint.
Once FAC recommends or rejects clearance to a proposal, it is rare for MoEFCC to go against the recommendation.
The naval base was planned for commissioning by 2018, but it may take more time to complete. The base is expected to house several conventional and nuclear warships as well as nuclear submarines. A new base in the eastern region has become crucial for India with China rapidly expanding its naval power and increasing its influence in the South China Sea.
Though FAC recommended “in-principle approval”, it noted that “construction and non-forestry activities will be restricted to within 1.94 hectares as per the undertaking provided by the user agency and remaining 674.18 hectare will be maintained as forest.”
“Large-scale plantation will be undertaken in remaining 674.18 hectares,” said the FAC while directing that no activities will be undertaken in the forests which may “cause deleterious effect on the ground water regime of the area”.
The FAC also held that “compensatory afforestation shall be raised over double the forest land diverted, and at least 1,000 plants per hectare diverted (676,120 plants) shall be planted over identified degraded forest land”.
“No other activities including mining, quarrying activities or construction of commercial/residential buildings will be taken up in the area under diversion and an undertaking to this effect shall be furnished,” said the minutes of the meeting.
(Source:Live Mint)
HIGHLIGHTS
The Army crossed into PoK to kill 3 Pakistani soldiers
This was in retaliation for Pakistan's ceasefire violation on Saturday
Separately, security forces also killed a key operative of terror group Jaish-e-Mohammad
Indian security forces hit back at Pakistan, hard, overnight Monday, killing three Pakistani soldiers across the LoC in Pakistan-occupied-Kashmir (PoK), and separately, neutralising a wanted Jaish-e-Mohammad (JeM) terrorist in J&K's Pulwama district.
In retaliation for a ceasefire violation on Saturday, the Indian Army undertook an operation very reminiscent of last year's surgical strikes. They crossed over to PoK early Tuesday, to Rakhchikri in the Rawlakot sector, and killed three Pakistani troops while also wounding one, agencies reported.
Thus, India avenged the unprovoked and indiscriminate shelling and firing in the Keri sector by Pakistani troops on Saturday, which led to three soldiers and one Army Major being martyred.
Pak violations along LoC
On Saturday, Pakistani troops opened fire on an Indian Army patrol, killing a Major and three soldiers, along the LoC in the Keri sector of Jammu and Kashmir's Rajouri district. A defence spokesman said Pakistani troops targeted the Army patrol at Brat Galla in the Keri sector.
Jammu and Kashmir witnessed a total of 881 ceasefire violations this year, highest in the past seven years, along the LoC and the International Border (IB), resulting in the death of 34 persons.
According to officials, Pakistan has violated ceasefire along the LoC in Jammu and Kashmir 771 times till December 10, and 110 times along the IB till November-end this year.
Thirty persons -- 14 Army personnel, 12 civilians and four BSF personnel -- were killed in such incidents.
The truce between India and Pakistan along the International Border, Line of Control and the Actual Ground Position Line in Jammu and Kashmir came into force in November, 2003.
India shares a 3,323-km-long border with Pakistan , of which 221 km of the IB and 740 km of the LoC fall in Jammu and Kashmir.
In 2016, there were 449 incidents of ceasefire violations wherein 13 civilians and 13 government forces personnel were killed and 83 civilians and 99 security personnel were injured.
In 2014, there were 583 incidents of ceasefire violation in which 14 civilians and three security personnel were killed and 101 civilians and 28 security personnel were injured.
In 2015, the number of ceasefire violations was 405; 347 in 2013, 114 in 2012, 62 in 2011 and 70 in 2010.
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Army crosses LoC, kills 3 Pak soldiers
China will maintain communication with India to deal with massive lakes formed by landslides on the Brahmaputra river in Tibet following an earthquake, which caused concerns of a sudden flooding on the Indian side, a Foreign Ministry official said today.
According to reports, three huge artificial lakes, whose size and volume of water in them are yet to be ascertained, were formed in the Brahmaputra river, locally known as the Yarlung Tsangpo, due to landslide after a 6.4-magnitude earthquake in Tibet last month.
The massive accumulation of water has caused concerns that if the lakes join or burst, millions of people residing along the banks of both Siang (in Arunachal Pradesh) and Brahmaputra (in Assam) downstream could get affected.
"The Chinese side, through the existing channels, will maintain communication with the Indian side on the cross- border rivers," Chinese Foreign Ministry spokesperson Hua Chunying told media persons here.
She said verification by the Chinese authorities has revealed that lakes are on the eastern section of the India- China boundary.
"It is caused by natural factors. It is not a man-made accident. I noticed that authorised Indian professionals have made an analysis and clarified," she said, referring to reports of the lakes being detected by satellites.
"We hope the Indian media will not make a groundless speculation on this," she said.
She said the Chinese officials concerned will maintain communication with the Indian side on the issue.
Earlier, China had refuted reports that the highly- polluted water in the Siang river was caused by attempts to build a massive tunnel to divert the water to neighbouring arid Xinjiang region.
The issue was reportedly discussed during the recent 20th border talks between NSA Ajit Doval and Chinese State Councillor, Yang Jiechi on December 22 in Delhi.
The India-China border dispute covers the 3,488 km long Line of Actual Control (LAC). While China claims Arunachal Pradesh as Southern Tibet, India asserts that the dispute covered Aksai Chin area which was occupied by China during the 1962 war.
India and Israel are likely to discuss the deal to supply two new Airborne Early Warning and Control Systems (AWACS) 'eyes in the sky', worth Rs 7,000 crore. The deal has been stuck for over a year now due to steep price hike.
Israel's Prime Minister Benjamin Netanyahu is visiting India on January 13, 2018.In the previous deal signed in 2003-04, India had acquired three AWACS systems in which the Russian Ilyushin-76 aircraft were equipped with Israel-made sophisticated radars at the cost of $1.1 billion (over Rs 7,035 crore) to carry out surveillance of enemy aircraft, drones and cruise missiles at ranges up to 400-500 km inside their territory.
"The price of the two new AWACS has been quoted to be over USD 1.25 billion (Rs 8,000 crore) by the vendors as they have asked for much more compared to the cost of the three planes bought earlier. It cannot be agreed to, and that is why the programme has been stalled," senior government sources told Mail Today.
"The main reason behind the steep jump in the price is the almost three-fold increase in the price of the IL-76 planes, on which the radars have to be mounted. The Israelis have also hiked their price much more than what is permitted due to inflation," official added.
The deal is now expected to be discussed during the meeting of the two Prime Ministers.On several past occasions, the issue of acquiring AWACs has been coming up at meeting of Defence Acquisition Council (DAC), which is the apex body of the Defence ministry, to acquire new weapon systems for the armed forces.
With the deal stuck, both Pakistan and China have worked closely to get an edge over India in terms of the surveillance equipment as Beijing has more than 20 of such AWACS planes, both new and old.
Pakistan acquired four AEWC surveillance aircraft four to five years ago from Sweden, and has also started taking the Chinese AWACS planes in its force.
India also decided to develop its own AWACS as the DAC has given clearance to a proposal to acquire two Airbus-330 planes and build an AWACS, which can provide 360-degree surveillance like the Israeli radar.
The project would start with two planes, which are likely to take five to six years to be completed, and once successful, the DRDO would take sanction for six more aircrafts.The trials of DRDO developed Airborne Early Warning and Control (AEWC) aircraft is nearing its completion in Bhatinda.
These are smaller in size and have 240-degree coverage. After undergoing trials, they would be used for operational flying by the services.
The Air Force needs 15 AWACS and smaller AEWC planes with radars of different capabilities.
(Source:India today)
The impact of ‘normalization’ of the economy may add 1% to real GDP growth in H2 FY2017.
The period from 2011 to 2020 may be called the decade of incomparable gross domestic product (GDP) growth. Due to a battery of events in the last six years, the numbers may not be comparable across time periods and may get revised to such an extent that the revised growth trend may alter. Blanket criticism of the Union ministry of statistics and programme implementation (Mospi) or the government not only misses the nuances of the GDP estimation process but provides a hyper-simplistic explanation, which is incorrect. The author estimates that over the next six quarters, i.e. till Q4 FY19, the GDP numbers reported will initially throw up positive surprises, followed by a period of volatile GDP revisions. Other macro numbers, however, may not improve in tandem. Let us see under what assumptions and scenarios this can play out.
Formalization and normalization to surprise on the upside
The GDP growth estimates of H2 FY2018 will benefit from the lower base of H2 FY2017 as well as normalization of economic activity. In FY2015 and FY2016, the GDP in H2 was 104.3% of H1 GDP for the same financial year. In FY2017, the H2 GDP was 103.3% of H1 GDP. This may be due to demonetization. The impact of ‘normalization’ of the economy may add 1% to the real GDP growth in H2 FY2017. On similar lines, the ‘normalization’ related to the launch of the goods and services tax (GST) may increase the real GDP growth by 1% for Q1 FY2019.
However, the formalization of economic activity attributable to GST will have a higher positive impact on the GDP growth number and, possibly, for a longer period of time. Various economic estimates suggest that India’s parallel economy, i.e. economic activity which is below the official radar and thus not accounted for in GDP measurement, is 25% to 50% of the official GDP value. Arguably, if the entire parallel GDP is formalized in one year, it will give a humongous lift to the GDP growth number, not because economic activity may have improved but because more of it is measured. While the rate of formalization of the economy may be difficult to predict, one may make a range of assumptions and estimate the impact of calculated real GDP growth.
Let’s go with the estimate that the parallel economy is one-fourth of Indian GDP and assume that it will be formalized over a 10-year period. This formalization rate of economy, where more economic activity will get measured, should provide a 2.5% to 3% boost to real GDP growth. So there is a possibility that the H2 FY2018 real GDP growth may be above 8% to 8.5%. The full-year GDP forecast by many forecasters is in the range of 6.7% to 7%, thus building in an expectation of 7.5% plus GDP growth rate in H2 FY2018, given that the H1 FY2018 GDP growth is 5.8%. Moving further into FY2019, this formalization trend would have ensured a 7% real GDP growth floor at least as far as numbers are concerned.
Inadequate data infrastructure to produce ‘shocks’
However, there are risks to this growth trajectory posed by suboptimal data infrastructure for collecting economic data. While GDP estimate revisions are commonplace globally, the high dependence on the availability of periodic survey results, which are delayed, aggravates the problem in India. For the annual survey of industry, the latest available data are the provisional numbers till 2014-15. The 2016-17 survey, which will capture the impact of demonetization and GST, will only be available in 2019, and then we will get a more realistic estimate of FY2017–FY2018 GDP. But the biggest variability in GDP numbers may come in 2018 when the National Sample Survey Office (NSSO) survey on household expenditure for 2016-17 will be published. Existing GDP estimates are based on the 2011-12 survey. This input has a significant bearing on estimating private final consumption expenditure, which is 55% to 60% of India’s GDP. This will be incorporated in the GDP calculation from 2019, which may show a very different picture of the GDP’s trajectory from 2013 to 2019.
Nonetheless, the GDP formalization benefit stays. In fact, unless the revised GDP numbers are released in 2019, the GDP growth number may suggest a sustained recovery from Q2 FY18 all the way into FY19-FY20. In this era of yo-yo-ing GDP estimates, but upward bias nonetheless, if other economic indicators such as capex, corporate earnings or job growth do not palpably pick up, then the cacophony about the GDP number may increase.
Travails of a ‘high’ GDP growth number
The recovery of GDP, as may be perceived by the ‘reported’ number in conjunction with stabilizing or upward bias in inflation, may actually create a stronger argument for an interest rate hike, which again may be counterproductive. If the government focuses exclusively on the GDP number, then it may again, in 2019, go back to the ‘India Shining’ mode of 2004. However, it can use the anticipated higher GDP to go for a fiscal push, since the fiscal deficit ratio may continue to remain strong. This may go a long way in reviving the real economy, including jobs, capex and consumer spending, rather than convincing the common man that the economy has recovered because the GDP number is higher.
(Source:livemint)
US President Donald Trump. The differential in corporate tax rates will prevent US parents from fully adjusting the tax credits earned in India to meet their tax liability on worldwide income in the US.
President Donald Trump’s US tax bill, signed into law on Friday, is set to hit the competitiveness of US firms’ Indian subsidiaries and encourage flow of capital from these units to their parents.
The Tax Cuts and Jobs Act is set to make some taxes that Indian units of US multinational firms pay in India a cost to their parents. The differential in tax rates—30% in India, exclusive of surcharge, versus the proposed 21% in US— will prevent US parents from fully adjusting the tax credits earned in India to meet their tax liability on worldwide income in the US. The unused tax credit becomes a cost.
Also, the US tax overhaul is expected to encourage Indian units to repatriate their ‘passive income’ back to their parents as repatriated dividends will be taxed at a nominal rate. Many Indian arms of US firms have so far been deferring repatriation owing to the high tax rate on such receipts.
All these changes put together could see a major change in the way US corporations invest and structure their businesses in India.
The steep decline in tax rates and the elimination of certain deductions will sharply increase the tax cost for Indian subsidiaries of US corporations, said Sudhir Kapadia, national tax leader, EY India.
“The current effective Indian corporate tax rate of 35% and the dividend distribution tax of 20% on top will result in a significant increase in the after-tax cost of doing business for Indian subsidiaries of US corporations. This is because US corporations will end up with much larger Indian tax costs which will not be possible to set off against the proposed lower tax rate of 21%,” he said.
“Further, US is moving towards a territorial system of dividend taxation, which means that dividends paid by an Indian subsidiary to its US parent will be exempt in US and the 20% DDT (dividend distribution tax) paid in India will be an unclaimed tax cost,” he said, adding that the problem will get compounded by proposed provisions for disallowing of expenses made to related US affiliates outside the US.
“This will impact payments made by US corporations to their captive technology centres in India. Similarly for Indian multinationals with subsidiaries in the US, any payments made to the Indian head-quartered company, let’s say for offshoring work, will be impacted by these proposed changes in the US tax laws,” he added.
The high corporate tax rate in the US, among other things, has over the years encouraged many US firms to use overseas tax planning structures. That has led to regulatory agencies questioning how non-US subsidiaries of such groups, accounting for a smaller share in a group’s global revenue, account for a disproportionately higher share of profits.
Experts said the US tax reform could impact capital flows between India and the US and would encourage New Delhi to quicken its promised corporate tax rate cut to 25% to a larger section of the industry, but admitted that cross-border investments are not solely dependent on tax policy. India had reduced the tax rate for companies with annual revenue of less than Rs50 crore a year to 25% from 30% in the Union budget for 2017-18.
According to Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP, the impact of US tax reform in India may be on the information technology (IT) and IT-enabled services and contract research and development industry, which had a cost advantage over the US. The tax rate cut could slightly narrow the advantage India had on account of the wage differential, he said.
The income tax department cautions against knee-jerk reactions to the sharp corporate tax cut by the US.
“Taxation alone does not determine the competitiveness and growth potential of an economy. Singapore, for example, always had a lower corporate tax rate of close to 20% but that never prevented foreign direct investments coming to India from that country. Besides, we already have stated our policy of reducing corporate tax rate to 25%,” said a tax department official, who asked not to be named.
The official also said subsidiaries of US firms in India repatriating profits home will not affect the revenue receipts in India as these are already taxed in the country.
“The US tax overhaul is meant to encourage investments and job creation in the US. Many European nations have announced tax rate cuts or plans to cut rates. If large economies take this approach, it will prompt us also to have a competitive corporate tax rate, although taxation alone does not determine investments,” said Neeru Ahuja, partner Deloitte India.
(source:livemint)
The United Nations Security Council placed new sanctions on North Korea on Friday that significantly choke off fuel supplies and order North Koreans working overseas to return home, in what may prove the last test of whether any amount of economic pressure can force the isolated country to reverse course on its nuclear weapons programme.
The sanctions, proposed by the United States and adopted by a vote of 15 to 0, were the third imposed this year, in an escalating effort to force the North into negotiations. China and Russia joined in the vote, in a striking display of unity, but only after the Trump administration agreed to soften a couple of the provisions.
Under the new sanctions, the amount of refined petroleum North Korea can import each year will be cut by 89 percent, exacerbating fuel shortages. Roughly 100,000 North Korean labourers who work in other countries, a critical source of hard currency, will be expelled within two years. Nations will be urged to inspect all North Korean shipping and halt ship-to-ship transfers of fuel, which the North has used to evade sanctions.
But the resolution does not permit countries to hail or board North Korean ships in international waters, which the Trump administration proposed in September. That would be the most draconian measure, because it would enable the United States Navy and its Pacific allies to create a cordon around the country, though Pentagon officials say it would risk setting off a firefight between North Korea and foreign navies.
The new sanctions are the toughest ever, but so were the last two rounds: In August, the Security Council blocked North Korean exports of coal, iron, iron ore, lead, lead ore and seafood, and in September, it blocked textile exports, curbed oil imports and called for inspections of ships that have visited the North’s ports
Experts, and even the White House, agree that the United States is running out of sanctions options. The CIA assessment is that no amount of economic sanctions will force the North Korean leader, Kim Jong-un, to give up his country’s nuclear programme.
“President Trump has used just about every lever you can use, short of starving the people of North Korea to death, to change their behaviour,” the White House homeland security adviser, Thomas P Bossert, said Tuesday.
The vote came just four days after the United States charged that the North was responsible for the “Wannacry” cyberattack that crippled computers around the world in May, and nearly a month after the country launched a new intercontinental missile that appears capable of reaching any city in the US.
The United States, which has led the sanctions effort at the Security Council, drafted the latest round in consultation with other members, notably China, which historically has been reluctant to impose them for fear of destabilising North Korea, its neighbour.
There were some last-minute changes in the final version of the resolution, partly to satisfy Russian complaints. The changes included doubling the deadline for the return of North Korean workers to 24 months from 12 months.
Russia’s deputy ambassador, Vladimir Safronkov, who attended the Security Council vote, made a point of complaining about negotiations over the resolution, in which he said Russia had not been adequately consulted.
Still, Russia went along with the new measures — though American officials have charged that in recent months the Russians have secretly opened new links to the North, including internet connections that give the country an alternative to communicating primarily through China.
The unanimous decision was a diplomatic achievement for the Trump administration, only a day after most members of the United Nations General Assembly, brushing aside President Trump’s threats of retaliation, condemned the United States’ new recognition of Jerusalem as Israel’s capital.
Bank privatization will address the issue of moral hazard of the government. As long as it remains majority owner in public sector banks, it will not be easy to have the bail-in clause that the FRDI Bill proposes.
It does not happen often. Last week, both the Reserve Bank of India (RBI) and the finance ministry had to step in to quell widespread rumours of some public sector banks being closed.
“No question of closing down any bank. Government is strengthening PSBs by (Rs) 2.11 lakh crore recapitalisation plan. Do not believe rumour mongers. Recap, reforms roadmap for PSBs firmly on track,” financial services secretary Rajeev Kumar tweeted even as RBI issued a press release clarifying that “the PCA framework is not intended to constrain normal operations of the banks for the general public.”
The framework is 15 years old now. Introduced in December 2002, it was reviewed early this year and a revised version was put in place in April 2017. This will be reviewed again in 2020.
The PCA framework tracks three key areas of bank operations—capital, asset quality and profitability—through the capital adequacy ratio, or the ratio of capital to risk-weighted assets (CRAR), net non-performing assets (NPAs) as a percentage of loans and return on assets (RoA). Besides, it also monitors the leverage of a bank or the amount of debt used for financing assets.
The framework has laid down three risk thresholds and once a bank breaches the “risk threshold 3”, it becomes a candidate for resolution through tools like amalgamation, reconstruction, or even winding up. Breaching of the first two thresholds makes banks subject to restrictions on dividend distribution and remittance of profits (in case of foreign banks), branch expansion and compensation of senior management, among others.
A bank is placed under PCA framework on the basis of its audited annual financial results and the supervisory assessment made by RBI. However, the regulator may impose PCA on any bank during the course of a year or migrate a bank from one threshold to another if the circumstances so warrant. In the case of Bank of India as well as United Bank of India, this is what happened last week. While Bank of India was brought under the PCA framework, Kolkata-based United Bank of India, which was put under PCA three years ago, migrated from one threshold to another.
To be sure, none of the banks that have so far been put under PCA meets the criteria for being wound up. However, this does not mean that they just have flu. They have cancer; depending on the stage of the disease, they need radiation, chemotherapy and surgery even though RBI statement has attempted to play down the affliction, saying the PCA framework is a supervisory tool which monitors certain performance indicators of banks as an early warning exercise and the objective is to facilitate the banks to take corrective measures in a timely manner to restore their financial health.
So far, 10 PSBs have been placed under PCA framework. They are Indian Overseas Bank, Dena Bank, Corporation Bank, Central Bank of India, IDBI Bank Ltd, Uco Bank, United Bank of India, Bank of Maharashtra, Oriental Bank of Commerce and Bank of India. Collectively, they have a deposit portfolio of Rs25.26 trilion, 30.55% of the total deposits of all public sector banks. Similarly, they have a 30.08% share of the loan book of the public sector banking industry and their share of PSB banking assets is 30.44%. So, there is no point in remaining in a denial mode; we must accept that close to one-third of India’s public sector banking industry is sick.
The situation is unlikely to improve fast. Going by RBI’s December Financial Stability Report, NPAs of Indian banks will rise further even though the financial system as a whole remains stable. Under the Indian central bank’s base case scenario, gross NPAs in the banking sector may rise from 10.2% of advances in September 2017 to 10.8% in March 2018 and further to 11.1% by September 2018.
“Earlier, the June report had warned that the banking system’s gross bad loan ratio would rise to 10.2% in March 2018 and for public sector banks, the gross bad loan ratio could be as much as 14.2%. The Financial Stability Report is a biannual reality check of the Indian financial system, in vogue for eight years.
The rise in bad loans would also hit the capital adequacy ratio of banks. Under its base case scenario, two banks may have a CRAR below the minimum regulatory level of 9% by March 2018; and, if the macro conditions deteriorate, as many as six banks may record a CRAR below 9%. The CRAR of the entire banking system may decline from 13.3% in March 2017 to 11.2% in March 2018, the RBI report has pointed out.
The International Monetary Fund (IMF) too has flagged the risks to the Indian banking system on account of its deteriorating asset quality. IMF’s assessment of Indian financial sector’s stability, also released last week, points out that the large banks are sufficiently capitalized but many others are “highly vulnerable to further declines in asset quality and higher provisioning needs”.
The need for additional capital ranges between 0.75% and 1.5% of India’s $2.44 trillion GDP. The IMF stress tests covered the 15 largest banks, which account for 71% of the banking assets in India. The list includes 12 PSBs. IMF has urged the Indian government to consider privatization of weak PSBs by selling their viable assets instead of merging them with stronger banks.
This suggestion merits the owner’s attention. Some of the public sector banks are fast losing their relevance. By merging them with relatively strong banks, we will end up eroding the strength of the system. Instead, privatization is a better solution even though politically it is an extremely difficult task.
Privatization will also address the issue of moral hazard of the government. As long as the government remains the majority owner of these banks, it will not be easy to have a law that the Financial Resolution and Deposit Insurance Bill 2017 (FRDI Bill) proposes, asking depositors to sacrifice in case of a bank failure.
(Source:livemint)
Any fool can know – The Point is to Understand (For the Student). Any fool can deliver ‘know’ledge – The point is to make others Understand (For the coach).
Individual should give complete commitment to understand what is being taught rather than getting satisfied by knowing
The real power of Best IAS coaching is revealed when the Individual is able to correlate with what is being taught and what is happening in the society. And when the Individual provides sustainable solution, it is a sign of Successful coaching.
‘Tell me and I will forget’ – ‘show me and I may remember’ – ‘Involve me and I will learn’ – B Franklin
IAS Coaching should integrate the principles that focus on the student's needs and to harness their inner wisdom so that they create a solution that meets them where they are at.
IAS Coaching is also about the Individual, the whole person including their values, interests, passions, needs, etc...When we can tap into these through reflection and questions, we empower our students to learn at a much deeper level.
“IAS Coaching is a strategy to deepen a Social skills and a knowledge base that a community of educators has committed to learning together”.
