Banking News Dated 12th September 2018

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Banking News: September 12, 2018


Supreme Court halts Insolvency Proceedings  against the Corporate Defaulters

Supreme Court halts Insolvency Proceedings
against the Corporate Defaulters

The Financial Express
Published on September 12, 2018

Move may help SBI revive Samadhan scheme for power
assets; others too to explore alternative resolution plans

New Delhi, September 12: The Supreme Court on Tuesday asked the Reserve Bank of India (RBI), banks and others to desist from invoking insolvency proceedings against corporate defaulters as per the banking regulator’s mandate till its orders, a move that would enable scores of stressed units in the power, textiles, sugar and shipping industries to avoid being immediately dragged by their lenders to the insolvency arena and look for alternative ways for resolution.

The court will hear the matter next in mid-November.

As per the RBI’s February 12 circular, lenders had to identify projects with even a day’s default and come out with a resolution plan within 180 days from the reference date of March 1, 2018 (that is, by August 27, 2018). The circular had compelled banks to take these firms to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) right away; even some serious attempts by large banks like State Bank of India (SBI), which would have helped existing promoters to retain part of their stakes in some stressed but apparently revivable units, were hamstrung by the circular’s stringent time schedule.

“The SC order has provided a great relief to power-sector stressed assets. This would provide time for bankers to finalise resolution plans for projects with combined capacity of about 13 gigawatts. The resolution plans (outside the IBC purview) were in their final stages and a high-level empowered committee under the chairmanship of Cabinet secretary was to submit its report on corrective actions,” said Ashok Kumar Khurana, director general, Association of Power Producers (APP).

Confederation Of Indian Textile Industry chairman Sanjay Jain said the labour-intensive textiles and garment sector should be given relaxation from the RBI circular, as these businesses, dominated by medium and small-scale enterprises, have been affected by factors beyond their control (such as demonetisation and the implementation of the goods and services tax). “Even their cash flow is seasonal, so they deserve special treatment,” he said.

A bench led by justice Rohinton F Nariman transferred to itself all the related petitions pending before different high courts in the country. While this reporter was present in the court during Tuesday’s hearing, the order wasn’t uploaded on the apex court’s website at the time of going to press.

However, sources said, the lenders can still move the high courts for recovery of their debts or NCLT for filing insolvency petitions in their independent capacities under Section 7 of the IBC, but cannot do so under the RBI mandate. The order came on an application filed by the RBI seeking the transfer of all the similar cases pending before high courts of Delhi, Allahabad and Madras on the grounds that there was a likelihood of conflict of decisions if the petitions were decided independently and that would lead to “confusion and uncertainty for lenders, borrowers, defaulters and other involved parties”.

APP, Independent Power Producers Association of India, shipowners and textile associations, private power companies, bank employees, etc, had filed various petitions against the controversial circular in various high courts. Even the Madras High Court on Monday gave temporary protection to RKM Powergen’s 1,440 MW stressed power unit at Chhattisgarh from any action under the RBI circular. However, the four firms — Essar Power, GMR Energy, KSK Energy and Rattan India Power — withdrew their petitions from the Allahabad High Court, seeking similar relief.

The Allahabad HC had on August 27 refused to set aside the circular. The Allahabad HC said the Centre may direct the RBI for a special dispensation for the sector. Power sector players had alleged that the impugned provision was unfair to them as their debt servicing capability was directly linked to payments from power discoms and coal availability and both are heavily regulated by state and central governments.

The government had earlier told the Allahabad HC that it had set up a high-level empowered committee in June to resolve various issues, including fuel allocation, and prevent stressed power assets worth Rs 2.5 lakh crore from becoming non-performing assets.

Under the Samadhan scheme proposed by SBI, a host of power projects were identified for resolution and their sustainable debt levels were determined. These projects with at least partial power purchase agreements and certain fuel linkages included GMR (Chhattisgarh) Energy (1,370 MW), Essar Mahan (1,200 MW), Prayagraj Power (1,980 MW), KSK Mahanadi (2,400 MW) and Jaypee Power Ventures (1,820 MW).

As many as 34 power assets with a capacity of 40,130 MW remain stressed. The top four stressed assets by capacity are KSK Akaltara (3,600 MW), Adani Tiroda (3,300 MW), Jaypee Bara (1,980 MW) and Rattan Power Nasik-1 (1,350 MW). Analysts said under the Pariwartan scheme devised by the Rural Electrification Corporation, a number of projects could be salvaged.

The scheme proposes a transitory warehousing of the viable lot of the stressed power assets and safeguarding the value of these assets from any immediate distress sale under the IBC. The government has recently asked REC to tweak the structure of the proposed asset reconstruction company (ARC) under the scheme after the RBI refused to relax its norms for ARCs exclusively for the one planned for the power sector.


Anshula Kant takes charge
as SBI Managing Director

The Financial Express
Published on September 12, 2018

Anshula Kant on Tuesday took charge as Managing Director
of State Bank of India (SBI), the bank said in a release.

New Delhi, September 11: Anshula Kant on Tuesday took charge as managing director of State Bank of India (SBI), the bank said in a release.

In her new role, Kant would be handling the areas of stressed assets, risk and compliance. Prior to this role, she was deputy managing director and chief financial officer at the bank.

The Appointments Committee of the Cabinet had earlier approved the appointment of Kant as MD of SBI till the date of her superannuation, September 30, 2020, the order issued by the personnel ministry said.

Her name was recommended by the Bank Boards Bureau for the post. The post of SBI MD fell vacant after the resignation of B Sriram, who took over as the MD and CEO of IDBI Bank.


Indian rupee ends at record closing low of
Rs 72.69 per USD amid oil surge, trade concerns

Uttaresh Venkateshwaran
The MoneyControl News
Published on September 11, 2018

Weakness in the currency, analysts said, was largely because of factors such as surge in oil prices, trade war concerns along with lack of aggressive intervention by India’s central bank

Mumbai, September 11: The Indian rupee on September 11, 2018 closed at a record low of 72.69 per US dollar, against a previous close of 72.45 per USD. Weakness in the currency, analysts said, was largely because of factors such as surge in oil prices, trade war concerns along with lack of aggressive intervention by India’s central bank.

However, the currency was marginally off the record intraday low of 72.74 per US dollar in the afternoon trade. This makes total fall of the currency in 2018 at 13.81 percent so far.

“Two day-specific catalysts weighed on the rupee. After seeing a good opening, oil prices started to rise, which pushed the rupee lower. Additionally, China approaching World Trade Organisation (WTO) for its permission to impose sanctions on US over dumping duties also impacted the currency. These sparked the selloff,” explained Anindya Banerjee, Deputy Vice President, Currency Derivatives at Kotak Securities to Moneycontrol.

China will ask the World Trade Organization (WTO) next week for permission to impose sanctions on the United States, for Washington’s non-compliance with a ruling in a dispute over U.S. dumping duties, a meeting agenda showed on Tuesday.

The request is likely to lead to years of legal wrangling over the case for sanctions and the amount. China initiated the dispute in 2013, complaining about U.S. dumping duties on several industries including machinery and electronics, light industry, metals and minerals, with an annual export value of up to $8.4 billion.

Experts also believe that a lack of aggressive intervention by the Reserve Bank of India (RBI) is leading to a lot of speculative buying in the market. “Previously, the RBI used to communicate effectively to the market and help in receding the panic, but that is not the case right now,” Rushabh Maru, Senior Analyst at Anand Rathi Shares and Stock Brokers told Moneycontrol.

Going forward, the focus will turn to data from index of industrial production (IIP) and consumer price inflation (CPI). Though inflation is expected to decline in August, it will be a temporary trend. Due to a sharp depreciation in the rupee, higher MSP (minimum support price) and higher crude oil prices inflation could once again pick up. For the short term, the rupee trading range is 72 and 73.50,” he further added.

Meanwhile, Banerjee of Kotak Securities expects downward trend to continue. “The overall trend for dollar still remains on the upside. Surging oil prices are an added risk to the rupee and the trend may not alter for the near term,” he added. Government bonds too took a hit on Tuesday amid global weakness. The 10-year benchmark government bond yield climbed to 8.18 percent.


Raghuram Rajan Gave PMO a List of 'High Profile
NPA Fraud Cases' but No Action Was Taken

Swati Chaturvedi
The Wire
Published on September 11, 2018

Rajan Gave Modi a List of 'High Profile
NPA Fraud Cases' in 2015, but No Action Was Taken

New Delhi, September 11: The former governor of the Reserve Bank of India (RBI) Raghuram Rajan had red flagged “a list of high profile fraud cases of non-performing assets to the Prime Minister’s Office for coordinated investigation” and noted how the over-invoicing of imports by “unscrupulous promoters” was used to inflate the cost of capital equipment.

Incredibly, the “Rajan list” did not set alarm bells ringing. Though Rajan does not mention the date he wrote to the PMO– setting off speculation in a section of the media that the prime minister who had been derelict was Manmohan Singh and not Narendra Modi – the Hindustan Times had reported in April 2015 that Rajan had written to the Modi PMO wanting action on bank frauds worth Rs 17,500 crore.

“The bank accounts cited by the RBI belong to Winsome Diamond and Jewellery, Zoom Developers, Tiwari Group, Surya Vinayak Industries, Deccan Chronicle Holdings, First Leasing Company of India, Biolor Industries, Surya Pharmaceuticals, Prime Impex / Prime Pulses and a person identified as Shivraj Puri”, the HT said, quoting unnamed sources.Of these, Winsome Diamond was finally booked by the CBI only in April 2017.

Rajan has referred to his attempt to sound the alarm on NPA fraud in a detailed 17-page reply to the estimates committee of parliament which, under the chairmanship of Murli Manohar Joshi, had sought his views on the NPA crisis.

Though the committee believes Rajan is referring to the incumbent when he said “PMO”, it is now considering asking him for the date he wrote to the PMO. At the same time, a committee member said this was not so relevant as the responsibility for action in fraud cases is clearly on the incumbent. “We are looking at the PMO as a continuum.”

Reason for NPAs

The former RBI governor said “a larger number of bad loans were originated in the period 2006-2008 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget. It is at such times that banks make mistakes. They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity…. This is the historic phenomenon of irrational exuberance, common across countries at such a phase in the cycle.”

When growth slowed down following the global meltdown of financial markets in 2008, bank loans quickly came under stress.

Compounding the problem, said Rajan, was official foot-dragging on clearances. “A variety of governance problems such as the suspect allocation of coal mines coupled with the fear of investigation slowed down government decision making in Delhi, both in the UPA and the subsequent NDA governments… The continuing travails of the stranded power plants, even though India is short of power, suggests government decision making has not picked up sufficient pace to date.”

The absence of a proper bankruptcy code in this period made it difficult for banks to write off debt by penalising the debtor; the end result was the ever-greening of bad loans. However, malfeasance and fraud were also factors, said Rajan, and the reluctance of the system to act is a serious problem:

“The size of frauds in the public sector banking system have been increasing, though still small relative to the overall volume of NPAs. Frauds are different from normal NPAs in that the loss is because of a patently illegal action, by either the borrower or the banker. Unfortunately, the system has been singularly ineffective in bringing even a single high profile fraudster to book. As a result, fraud is not discouraged.

“The investigative agencies blame the banks for labelling frauds much after the fraud has actually taken place, the bankers are slow because they know that once they call a transaction a fraud, they will be subject to harassment by the investigative agencies, without substantial progress in catching the crooks. The RBI set up a fraud monitoring cell when I was Governor to coordinate the early reporting of fraud cases to the investigative agencies. I also sent a list of high profile cases to the PMO urging that we coordinate action to bring at least one or two to book. I am not aware of progress on this front. This is a matter that should be addressed with urgency.” (emphasis added)

Bankruptcy process

In his reply to the committee, Rajan minced no words, writing that the “bankruptcy process is being tested by the large promoters with continuous and sometimes frivolous appeals.” Pointing out the obvious – that the judicial system is not equipped to deal with every bad loan – Rajan writes that “much loan renegotiation should be done under the shadow of the bankruptcy court not in it”.

In a scathing indictment of the huge NPAs racked up by the big defaulters, Rajan writes, “Banks and promoters have to strike deals outside of bankruptcy or if promoters prove uncooperative bankers should have the ability to proceed without them.”

While noting that the “culture of leniency” towards defaulters is changing in recent years, Rajan has cautioned the estimates committee against two much fancied ideas of the Modi government – a bad bank and mergers. He writes, “We need concentrated attention by a high level empowered and responsible group set up by the government on cleaning up the banks. Otherwise the same non-solutions (bad banks, management teams to take over stressed assets, bank mergers keep coming up and nothing really moves).”

The estimates committee has been tasked with identifying the reasons behind India’s nearly Rs 9 lakh crore bad loan pile.

Rajan has identified several reasons for this and says “writing down the debt is simply a gift to promoters and no banker wanted to be seen doing so and invite the attention of the investigative agencies.”

Rajan points out the malfeasance in the NPA problem and writes “unscrupulous promoters who inflated the cost of capital equipment through over invoicing were rarely checked. Public sector bankers continued financing the promoters even while private sector banks were getting out. Finally, too many loans were made to well-connected promoters who have a history of defaulting on their loans”.

“How important was malfeasance and corruption in the NPA problem? Undoubtedly, there was some, but it is hard to tell banker exuberance, incompetence, and corruption apart,” writes Rajan, adding, “Unfortunately, the system has been singularly ineffective in bringing even a single high profile fraudster to book. As a result, fraud is not discouraged.”

The problem of evergreening of loans is bluntly dissected by Rajan, by saying the “asset quality review was meant to stop the evergreening and concealment of bad loans and force banks to revive stalled projects. Until the Bankruptcy Code was enacted, promoters never believed that they were under serious threat of losing their firms. Even after it was enacted some are still playing the process hoping to regain control through proxy bidder at much lower price.”

Authoritative sources have confirmed that the PMO and Ministry of Finance received Rajan’s list, but no action was taken. Why Modi would not act on the “fraud NPAs” is a serious question which the government should not duck, says a member of the estimates committee.

Interestingly, Rajan had written back to the committee saying that as he was without secretarial help in the US, he would like some time to reply. Joshi granted him two weeks and Rajan used the time to provide the committee a guide to the NPA crisis.

Sources say that the parliamentary committee will now ask the principal secretary to the prime minister, Nripendra Mishra, and finance secretary Hasmukh Adhia to depose before it on why no action was taken on Rajan’s fraud list. Adhia has already deposed before the committee once.

The committee has also asked current RBI governor Urjit Patel to testify. The biggest defaulters in India include Bhushan Steel, which has a loan default of Rs 44,478 crore, and Essar Steel promoted by the Ruia brothers which has loan default of Rs 37, 284 crore.


RBI did not cause an economic
slowdown: Raghuram Rajan

Debabrata Das
The Fortune India Online
Published on September 11, 2018

In a 17-page deposition, Rajan clarifies the role that
the RBI played in initiating a clean-up of the NPA mess.

Ever since the charismatic former governor of the Reserve Bank of India (RBI) Raghuram Rajan left office, the central bank’s policies during his tenure have been blamed for slowing down economic growth under the Prime Minister Narendra Modi regime.

Last week, the current Katherine Dusak Miller distinguished service professor of finance at the University of Chicago Booth School of Business, submitted a 17-page deposition to the Parliament Estimates Committee explaining why RBI policies cannot be held responsible for a slowdown. The deposition was prepared at the request of Murli Manohar Joshi, the chairman of the committee.

The criticism pointed at Rajan has been called unfair and politically motivated, and a way to deflect from the conversation about the effect of demonetisation on the economy. Most recently, Rajiv Kumar, vice chairman of the NITI Aayog, suggested in an interview with news agency ANI that it was Rajan and his move to initiate Asset Quality Review (AQR) in 2015 which led to the slowdown in economic growth.

In the interview, Kumar alludes to the rise in non-performing assets (NPA) of the banks to Rs 10.5 lakh crore by mid-2017 from Rs 4 lakh crore in 2014. Kumar told ANI, “Under the former RBI Governor Raghuram Rajan, they had instituted new mechanisms to identify stressed and non-performing assets. This is why the banking sector stopped giving credit to the industry.”

His comments had sparked a fresh round of debate on what crippled growth post 2016, and whether Rajan was really to blame for it.

In his deposition, Rajan tackles the question on NPAs and builds a case for why the policies on AQR and NPAs were needed at the time.

“The RBI has been accused of slowing the economy by forcing NPA recognition….Simply eye-balling the evidence suggests the claim is ludicrous, and made by people who have not done their homework,” Rajan writes.

The deposition explains, how the slowdown in credit growth in the public sector banks had already started in early 2014. The same, Rajan writes, is true for the industry and micro, small and medium enterprises (MSMEs).

“The fact that public sector bank credit slowdown dates from early 2014, suggests that the bank clean-up, which started in earnest in the second half of fiscal year 2015, was not the cause [for slowdown in economic growth],” he writes, pointing to the increasing aversion of public sector bankers to lend to industrial projects. He describes the behaviour of the banking system as one that was plagued by balance sheet problems.

“The obvious remedy to anyone with an open mind would be to tackle the source of the problem– to clean the balance sheets of public sector banks, a remedy that has worked well in other countries where it has been implemented,” he writes.

Most of the bad loans had originated between 2006 and 2008, according to Rajan. The period was marked by a phase of the highest economic growth in post-liberalisation India. Naturally, there was a bull run in the stock markets and credit was readily available.

It led to an environment of Indian banks lending large amounts of money to corporate houses without much in-house due diligence and often depended on reports by investment banks or the likes of SBI Caps and IDBI, writes Rajan.

“It is at such times that banks make mistakes,” he writes, adding that, “They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity.”

Rajan, who predicted the global economic crisis of 2008, finds a similar aggressiveness to lend in the banking sector today but for completely different reasons. Within the credit growth targets under the central government’s schemes like Pradhan Mantri MUDRA Yojana and Kisan Credit Cards, Rajan finds the possible roots of the next crisis in the banking system.

He terms the targets as ambitious and says that sometimes, these are achieved by ‘abandoning appropriate due diligence, creating the environment for future NPAs’. He even calls for greater examination of potential credit risk when loans under the two schemes are sanctioned and calls the Credit Guarantee Scheme for MSME run by SIDBI, a growing contingent liability.

While defending the RBI and its policies under his tenure, Rajan has been non-partisan in New Delhi’s role over the years in contributing to the large NPA levels in the Indian banking system.

“A variety of governance problems such as the suspect allocation of coal mines coupled with the fear of investigation slowed down government decision making in Delhi, both in the UPA and the subsequent NDA governments. Project cost overruns escalated for stalled projects and they became increasingly unable to service debt,” he writes.

“The continuing travails of the stranded power plants, even though India is short of power, suggests government decision making has not picked up sufficient pace to date,” he adds.

Further, about the period when the UPA government was in power Rajan writes, ‘there was obviously some amount of corruption’. He adds that there were also instances of promoters who were inflating the cost of capital equipment through over-invoicing and well-connected promoters were granted loans despite a history of defaults.

His disclaimer when writing about corruption is that it is hard to distinguish between banker exuberance, incompetence and corruption without an investigation into unaccounted wealth of bank CEOs. In the absence of such an investigation, Rajan writes it would be difficult to ascertain whether significant element of the NPA mess was due to corruption.

Rajan is more worried about the frauds in the banking system. He writes that the size of frauds is still small relative to the size of NPAs, the problem has been increasing. He also points to the system’s failure in bringing even a single high profile fraudster to justice. A list of high profile cases, he mentions, was sent to the Prime Minister’s Office for a coordinated action. Though he doesn’t mention when he sent such a letter, media reports on Tuesday said it was during Modi’s tenure in 2015.

“I am not aware of progress on this front. This is a matter that should be addressed with urgency,” he writes.

Interestingly, the steps that the government has announced in the last few months suggest that fundamentally it does not totally disagree with Rajan’s views.

For example, Rajan’s suggestions on greater due diligence and improving the process of evaluation of project risks was something that the government said will need to be done for public sector banks under the prompt corrective action of the RBI before they get recapitalised.

Similarly, the government has also tried to strengthen the recovery process through the introduction of the Insolvency and Bankruptcy Code, and by amending it in a quick and timely manner.

Sure, NPAs did rise during the time that Rajan occupied the position of the RBI governor. But, his decision to conduct the AQR did not create the NPAs, it simply uncovered the ones hiding in the system. Rajan may or may not be perfect, but surely, he cannot be blamed for anything more than the man who fed Indian banking the bitter pill of truth.


Doubling limit for filing DRT cases will
expedite bad loan recovery: Finance Ministry

The Times of India
Published on September 12, 2018

Banks may show photos of assets to be auctioned

New Delhi, September 11 (PTI): The decision to double the limit to Rs 20 lakh for filing applications in Debt Recovery Tribunals will help them focus on high-value matters leading to a quicker recovery of bad
loans, the Finance Ministry said Tuesday.

The pecuniary limit was raised last week following amendment in the rules of Recovery of Debts due to Banks and Financial Institutions Act, 1993.

Revising the limit will free up Debt Recovery Tribunals (DRTs), leaving them to focus on high-value matters which will lead to a quicker recovery of NPAs, Financial Services Secretary Rajiv Kumar said here.

This is part of the ministry's targeted approach to make Debt Recovery Laws and process more effective so as to increase recovery of public money from defaulting borrowers, he said.

As many as 38,376 cases involving debt amount between Rs 10-20 lakh pending in DRTs which account for 38 per cent of total cases but in value terms these are just 4 per cent as on June 2018.

However, he said, this number is rising as the recent data indicates that cases of less than Rs 20 lakh have touched 41 per cent in number terms.

"Data indicates that 80-85 per cent of non-performing assets (NPAs) cases in the range of Rs 10-20 lakh are fully secured. For their recovery, lenders can take actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act)," he said.

Besides, he said, the Finance Ministry has also spoken to all states to monitor that the district magistrate pass order within the prescribed limit of 60 days for handing over physical possession of pledged collateral of defaulting borrowers to lenders.

As many as 10,000 cases with an outstanding loan of Rs 40,000 crore are pending before district administrations. As part of improving the auction process, Kumar said, it has been decided to set up e-auction bazaar of properties of defaulters.

It will be a common platform for the public sector banks which will enable them to put all e-auction properties on the website with details including reserve price. It will help people from across the country to participate and also help lenders realise better value for such properties, he said.

He also said that digitisation of records of cases being handled across all the 39 DRTs and five Debt Recovery Appellate Tribunals (DRATs) has been commenced.

The e-DRT software:

The e-DRT software, for which a successful pilot has already been run, has features similar to the e-court software, which includes e-filing, e-payment of fees, uploading of orders, viewing case status among others, he said.

Personal guarantor's details will also be captured if the borrower is a company. This would automate the full cycle of workflow which will bring transparency and increase efficiency by making the legal process easier, time-saving and more user friendly, he added.

Banks and financial institutions' recovery of dues takes place on an ongoing basis through legal mechanisms, which inter-alia includes Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, Recovery of Debts to Banks and Financial Institution (DRT) Act and Lok Adalats.

The borrowers of such loans continue to be liable for repayment even when the loans have been removed from the balance sheet of the bank(s) concerned.

To make the tribunals more effective and to facilitate fast disposal of debt recovery cases, the government has made several amendments in different laws, including the SARFAESI Act.


Windfall for states as rupee depreciates

The Financial Chronicle
Published on September 12, 2018

While raising excise duty on petrol & diesel, the Centre said it would use the funds to tackle hike in rates, but has now washed its hands from any duty cut and wants states to take the lead

Mumbai, September 11:  In the last six months states have made windfall gains from the current spurt in fuel prices even though it is burning a bigger hole in consumers’ pockets. They are being forced to pay all-time high prices for petrol and diesel.

According to a State Bank of India report, the increase in petrol and diesel prices is likely to swell states’ exchequers by Rs 22,700 crore over and above the budget estimates for the current financial year.

The increase translates into revenue gain of Rs 1,513 crore for every $1 increase in international crude oil prices to all the major 19 states of the country.

Since March, petrol and diesel prices have increased by Rs 5.60 per litre and Rs 6.31 per litre, respectively, in Delhi. Pump price of petrol in Delhi on Tuesday stood at Rs 80.87 per litre and diesel at Rs 72.97 a litre, an all-time high fuel price.

In fact, petrol price is closer to breaching the Rs 90 a litre mark in Maharashtra where it has climbed to over Rs 89 a litre.

“The variation in prices in various states is primarily due to different rates of the value-added tax (VAT). For example, at 39.12 per cent per litre, Maharashtra has the highest rate of VAT on petrol and at 16.66 per cent per litre, Goa has the lowest VAT. This windfall gain will have positive impact on state finances, which might push down the states fiscal deficit by 15-20bps, other things remaining unchanged,” said the SBI report authored by its group chief economic advisor Soumya Kanti Ghosh.

The SBI report points to the nature of taxation on auto fuels where the Centre levies excise duty as a fixed charge while state levies VAT as a percentage (ad valorem basis) of the value of the product.

In the ad valorem system, windfall gain is in built in the event price of product rises. This is how gains for the states have been higher than the Centre.

But, if one looks at overall gain from the petroleum sector, the Centre’s collection is still much higher than all states put together, thanks to the increase in excise duty on petrol and diesel on nine occasions between November 2014 and January 2016.

As per oil ministry’s Petroleum Planning and Analysis Cell, while the Centre collected Rs 2,29,019 crore as excise revenue from the petroleum sector in FY18, states VAT collection has just reached Rs 1,84,091 crore even though VAT rates is over 30 per cent in several states. Also, due to frequent excise duty increases, while the Centre has more than doubled its collections from Rs 99,184 crore in FY 15, the collections for states has progressively increased over last few years.

While raising excise duty on petrol and diesel when crude oil prices were low, the government said it intended to use the fund when prices rise. But the Centre has now washed it hands from any excise duty cut and wants states to take the lead.

The SBI report has also taken the view held by the Centre suggesting duty reduction by states. “We also estimate that since states are having an incremental revenue over the budgeted one, they could cut on an average petrol prices by Rs 3.20 a litre and diesel by Rs 2.30 a litre, without affecting their revenue arithmetic.

“States like Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Andhra Pradesh, Rajasthan and Karnataka have the privilege to cut petrol prices by at least Rs 3 from their existing rates and Rs 2.5 on diesel,” it said.

A suggestion has also been made that if the states impose VAT on base price (crude oil + transportation cost + commission), then diesel prices could drop by Rs 3.75 and petrol by Rs 5.75. However, this will result in a revenue loss of states of around Rs 12,000 crore (net of Rs 34,627 crore loss and Rs 22,700 crore gain from oil bonanza).

Already states like Rajasthan, Andhra Pradesh and West Bengal have pared rates that will bring down fuel prices by Rs 1-2 per litre. But analysts suggest a combined action is required to reduce the pain of the common man. Tax should be reduced both by Centre and states and a portion of the burden should be taken by the state-owned entities. Also, inclusion of fuel in GST should be advanced, they added.


Govt plans special courts under NCLT
by Nov to deal with insolvency cases

Veena Mani
The Business Standard
Published on September 12, 2018

Officials in the Ministry of Corporate Affairs
said 30 judges might be recruited

New Delhi, September 11: Special courts under the National Company Law Tribunal (NCLT) are likely to be set up by November to deal with an increasing numbers of insolvency cases. The Ministry of Corporate Affairs is working on this proposal.  Officials in the ministry said 30 judges might be recruited.

“Our focus is to hire as many judges as possible because the tribunal cannot function without them. It can function with a few technical members or none, but not without judicial members,” said a senior official. Eight courts would be set up for this, three in Mumbai, two in New Delhi, and one each in Chennai, Kolkata, and Hyderabad.

Once these starting functioning, there will be seven NCLT courts in Mumbai, six in New Delhi, and three each in the other three cities.

When the Reserve Bank of India (RBI) came up with its first list of non-performing assets to be referred to the NCLT last year, experts had said there would be a burden on the tribunals because of a few numbers of Benches.

The NCLT deals with company law cases and mergers and acquisitions, apart from insolvency and bankruptcy cases. Of the first 12 cases referred by the RBI, two have been resolved.

Apart from the government working towards a cross-border insolvency framework that will require the upgrade of infrastructure at the NCLT, e-courts will be set up so that in the jurisdictions that sign an understanding with the Indian government, cross-border insolvency proceedings can take place.

A committee is discussing the contours of cross-border insolvency provisions. Globally, the UNCITRAL (United Nations Commission on International Trade Law) Model Law on Cross-Border Insolvency, 1997, has emerged as the most widely accepted legal framework to deal with cross-border insolvency issues.

Owing to the growing prevalence of multinational insolvencies, the Model Law has been adopted by 44 countries, including Singapore, the UK, and the US. The Insolvency and Bankruptcy Code came into effect in 2016.

Source: Internet Newspapers and anupsen articles


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