Public sector bank officers seek more teeth to recover advances

Officers' association of various public sectors banks(PSBs) under the banner of All India Nationalised Bank Officers' Federation (AlNBOF) has stressed on the strengthening of the legal system to recover the money advanced from the willful defaulters.

"The NPA ( non performing assets) is mounting.The existing legal system is not sufficient to take effective steps for recovery, so the banks need some strengthening"Data shows that Rs 2,25,000 crores worth assets are NPA.

He said that majority of the infrastructure projects have been financed by the PSBs in the country.

"The banks are not facing the capital crisis.The capital is sufficiently available but it is blocked towards the bad debts for funding the infrastructure projects and other portfolios, which should otherwise have been allocated from the budget by the government. So it is the duty of the government to infuse capital"Against the demand of Rs 2 lakh crores capital infusion, the government has allocated Rs 25,000 crore infusion in last budget. We are demanding to infuse the balance amount to strengthen the PSBsThe banker's body claimed that public sector banks have paid Rs 64,000 crore as dividend, Rs 1.35 lakh crore as income tax since nationalization of the banks while the government has infused only Rs 60,000 crore till 2014.

"We are opposing the government's move to reduce their stake in public sector lenders. The contribution of the PSBs for the upliftment of the nation cannot be undermined as all the government schemes are implemented by them and they accounts for about 65 per cent market share"

Source(Business  Standard)

Economy may expand by 7.8 per cent in 2017-18

Indian Economy projected to expand by 7.6 per cent in 2016-17 and accelerate to 7.8 per cent in 2017-24, mainly on the back of domestic consumption demand aided by steady employment and a relatively low inflation, a UN Report for the Asia-Pacific said today.

"The near-term growth outlook is positive, with the projected growth being 7.6 per cent in 2016 and 7.8 per cent in 2017," said the United Nations Economic and Social Survey for Asia and the Pacific-2016 report, which was released here.

"Some progress has been made in reforming the fiscal policy such as the rationalisation of fuel price subsidies, but implementation of the Goods and Services Tax remains an important reform that is being held up due to political deadlock,"National Institute of Public Finance and Policy under the Finance Ministry, who was present, democratic and social deficit are preventing India from looking beyond 7.5-7.8 per cent.

"Democratic deficit and social deficit are preventing India from looking beyond 7.5-7.8 per cent. I will be happy with 7.4 per cent. When we all know that we are not going down to 6 per cent, that is a good news, but we are not going to go up to 9 per cent,"

"Our supply side is short, we have huge challenges on the infrastructure side and project execution."On the export front, he felt that socio-economic conflicts are proving to be a big drag.India can grow at a much better rate if issues related to gender inequality are addressed and women have equal participation in the economy.

Source (Economic Times)

Mutual Funds or ULIPs: Where should you invest

we had discussed that Unit Linked Insurance Plans, popularly known as ULIPs, are now much better products than what they were before 2010. The IRDA regulations with respect to ULIPs in 2010 made significant changes with respect to the life cover of ULIPs as ratio of annual premium, policy surrender procedures (including charges) and most importantly with respect to the rationalization of costs of ULIP policies.The minimum life cover or sum assured in ULIP as per IRDA regulations is 10 times the annual premium for investors below the age of 45. But is a life cover of 10 times your annual premium adequate? Life insurance thumb rules suggest a minimum life cover of 10 to 12 times your gross annual income. Your annual ULIP premium is only a fraction of your gross annual income. Therefore, it is clear that your ULIP policy will not be able to meet your life insurance needs. You have to buy additional life insurance to get adequate financial protection in the event of an unfortunate death.

We will simply focus on the impact of these costs on yield of ULIPs. As per IRDA regulations, the maximum reduction in yield, excluding mortality charges, due to ULIP costs are capped as follows:-

• In the first 5 years, maximum reduction in yield is capped at 4%.


• From years 5 to 10, the maximum reduction in yield is capped at 3%


• From year 10 onwards, the maximum reduction in yield is capped at 2.25%

By maximum reduction in yield, we mean the maximum amount your gross returns can go down due to the costs. It is important to reiterate here that, the maximum reduction in yields exclude mortality charges (the cost of life insurance cover). Therefore when we compare the costs of ULIPs without mortality charges and mutual funds, we are making a like to like comparison.

What is the cost in mutual fund?

 Expenses in mutual funds are regulated by the market regulator SEBI. Expense ratios vary from one mutual fund scheme to another, based on the expenses of the scheme and the assets under management. Expense ratios in equity funds can range from 1.5 to 3%. In debt funds it is usually much lower. For the purpose of comparison of ULIP and mutual fund expenses, let us assume that the expense ratio is 2.5%. You can see that compared to the maximum expense cap specified by IRDA, a mutual fund with 2.5% expense ratio is significantly less expensive than ULIPs in the first 5 years. It continues to be less expensive than ULIPs from years 5 to 10 too.

We should understand the mechanics of how the costs work. The various expenses of a mutual fund scheme are charged proportionately against the assets under management of the scheme. Some of these expenses are variable, while others are fixed. Therefore, when the assets under management grow the expense ratio comes down over time. If you look at the expense ratios of some large sized mutual fund schemes, you will observe that they are much lower than average expense ratios. Over a period of time as the assets under management of a mutual fund scheme grows one can expect the expense ratio to come down. The mechanics of ULIP expenses are different. If you go through the product brochure of different ULIPs, you will see that premium allocation and policy administration specified, usually as a percentage of your premium. In fact, in many ULIPs the total expenses are closer to the IRDA cap unlike large sized mutual fund schemes where the expense ratios are much lower than the SEBI cap. However, in the recent years, several low cost ULIPs have been launched where over a long investment horizon the costs might be comparable or even slightly lower than mutual funds.

Source (Business Standard)

Equity Linked Saving (ELS) Scheme for Mutual Funds

Many believe that two months into the new financial year is perhaps too early to worry about tax planning. This belief can be harmful, particularly for those planning to invest in Equity Linked Saving (ELS) Schemes of Mutual Funds. ELS schemes offer tax rebate under Section 88 for an investment upto a maximum of Rs 10,000. These schemes typically invest atleast 80 per cent of their corpus in equities and carry a three-year lock-in period. The unitholder is free to redeem his holdings once this lock-in expires at a price based on the Net Asset Value (NAV).

Timing can be advantageous. Since ELS Schemes invest primarily in the equity markets, timing can be a distinct advantage for any investor. At a time when equity markets are down, exposure can be made to these schemes to lower holding cost. Thus, an investor can put in money in these schemes even at the beginning of the financial year if, in his opinion, the equity markets at that moment present a good investment opportunity.The situation turns even more advantageous when the concerned ELS schemes decides to distribute a dividend or bonus during the lock in period. Dividends distributed and the units credited in the event of a bonus declaration are not covered by the lock in clause. Thus, an investor can, in these schemes, get back a portion of his money invested even during the operation of the lock in period.

There is however a catch to this. Claiming dividends in these schemes is extremely beneficial presently as all dividend distributions from open-end equity funds are not charged with any distribution tax.The third advantage is that this investment comes with greater transparency. Mutual Funds are, by law, required to disclose their portfolio to their unitholders. It is therefore easy for the investor to monitor how his investment is doing. Another advantage is that these schemes carry an upside potential as they invest in equities. Most other tax saving alternatives carry a fixed rate of return.

But a smart investor can choose well keeping in mind the following parameters. Scrutinise Past Performance: While past performance is no assurance that a scheme will do well in the future, it is a good indicator of its future potential. Choose the correct option: Many ELS Schemes offer a choice between dividend and growth options. Choosing the dividend option will make an investor eligible to receive dividends from the scheme which, if declared during the lock in period, serve to reduce the total capital locked in. 

Source(Aru Shrivastav)

Mauritius investors to be taxed from Apr 2017

The government has gained the right to tax capital gains arising in Mauritius from sale of shares acquired on or after April 1, 2017, in Indian companies.India and Mauritius on Tuesday signed a protocol for amendment of a three-decade-old double taxation avoidance agreement. The agreement was signed in Port Louis. During a transition period of two years, the tax will be limited to half the Indian tax rate. The full tax rate will kick in from 2019-20.  

“This could bring some disappointment to foreign investors. What was expected widely was exemption on capital gains would continue with some additional conditions.The development could affect investors in the US, many of whom use Mauritius to route money to India. The tax treaty between India and the US does not grant investors credit in the US for taxes paid in India.

“This protocol is a result of many years of negotiations between the two countries. The obvious push is because of the Base Erosion and Profit Shifting Initiative of the G20 countries, which has explicitly gone against countries proving to be tax havens or having harmful tax practices,” said Neeru Ahuja, partner, Deloitte Haskins & Sells.

“Mauritius may cease to be preferred routing destination for some inbound and outbound multinationals and India can hope to achieve its fair share of taxes,”The Singapore treaty has a clause that says that as long as the Mauritius treaty allows tax exemption to companies in India, Singapore residents would also get similar exemption.At present, short-term capital gains are taxed at 15 per cent, while long-term gains are tax free. A finance ministry release said the protocol would improve exchange of information between the countries and address treaty abuse and round-tripping of funds. It was also expected to curb revenue loss, prevent double non-taxation, and streamline the flow of investment.

A resident of Mauritius, including a shell or conduit company, will not be entitled to the benefit if it fails the main purpose test and bona fide business test. A company will be deemed a shell or conduit company if its expenditure on operations in Mauritius is less than Rs 27,00,000 (Mauritian Rupees 15,00,000) in the preceding 12 months. Another provision deals with withholding tax on Mauritian banks. “Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5 per cent in respect of debt claims or loans made after March 31, 2017,” the protocol states. Interest income of resident Mauritian banks in respect of debt claims existing on or before March 31, 2017, shall be exempt from tax in India.

Source(Business Stanndard)

After Mauritius tax treaty, government looking to rework pact with Singapore.

After successfully amending the 33-year-old India-Mauritius tax treaty to prevent loss of revenue and round-tripping, New Delhi is now looking to start talks with Singapore to tweak the double taxation avoidance agreement (DTAA) with the nation to plug any similar leakages.

Singapore is the second-biggest source for foreign direct investments (FDI) into India after Mauritius, accounting for over 16% of cumulative inflows so far."We will start negotiations with them soon." Changing the accord will put an end to confusion over the bilateral tax treaty between India and Singapore.

The capital gains tax benefit under this agreement is linked to the capital gains tax provision in the India-Mauritius tax treaty. However, this parity is not automatic and the India-Singapore treaty will have to be amended to clearly spell out the changes. The government on Tuesday announced a revamped India-Mauritius treaty that will essentially mean capital gains on investments made in India through Mauritius will get fully taxed here from April 1, 2019. 

There have been concerns expressed over the impact of the amendment to the India-Mauritius treaty on investments from Singapore, particularly in the two-year transition phase that provides for a 50% exemption in respect of the domestic tax rate if specified conditions are met. These conditions, spelled out in the new Limitation of Benefit (LoB) clause in the India-Mauritius tax treaty, make investments of at least Rs 27 lakh mandatory in the island nation to qualify for the lower rate.

But since it's an international protocol and New Delhi is keen to provide stability and certainty to investors, the government is keen on renegotiating it and incorporating clear provisions upfront in the treaty with Singapore, an important financial centre for investments into the country. "There should not be any issue in renegotiating the treaty," said the official cited above.

Source(Economic times)

Credibility low as bankers have cried wolf too often

Bankers may have a low credibility for having "cried wolf too often", RBI Governor Raghuram Rajan said even as he appeared favouring their case for easing of strict capital control measures to boost growth.

The outspoken Governor also likened the situation in India to that of small and medium enterprises (SMEs) in industrial countries, saying a need for faster growth is the central factor in both scenarios. The greater demand on banks to hold capital in the post-financial crisis scenario has come at a cost.

"It made sense post financial crisis to ask banks to hold more capital. But one of the concerns bankers have been expressing, even if bankers may have low credibility because they have cried wolf too often, that eventually it will... create greater aversion to taking on risky lending. India has been assigned the lowest investment grade rating with a high risk profile by various global agencies. 

“We see some of that today. Certainly, as an emerging market central bank regulator, I see that foreign banks have stopped opening branches because our credit rating is BAA, which implies higher risk. From that perspective, international banks who are asked to put in money in India feel it is not worth it, because they have to set aside a lot more capital." 

"So we need to ask ourselves, is more capital good or is it likely to impinge on activities banks do. There is a trade-off and this calls for more empirical work as to what the right level of capital is." There is a reason why banks operate. All these proposals to do away with banks, to my mind, will cause serious costs on the system, it will increase the cost of financing and therefore we have to be very careful. 

Source(Economic Times)