Banking News Dated 5th September 2018

Leave a Comment

Banking News: September 5, 2018


Rupee likely to fall further: SBI

Rupee likely to fall further: SBI

The Business Line
Published on September 5, 2018

The Indian Rupee depreciated today at 71.57 to the dollar

Mumbai, September 4:  The decline in the rupee, which closed at yet another all-time low on Tuesday, may continue further, cautioned State Bank of India in its research report, Ecowrap.

The Indian unit depreciated to close at 71.57 to the dollar on Tuesday against the previous close of 71.18, down 39 paise. The rupee is weakening amid foreign portfolio investors selling in the Indian financial markets, rising oil prices and widening current account deficit.

“Continued volatile depreciation, we strongly believe, may result in orthodox monetary policy measures such as rate hikes in future, thus slowing down consumption significantly as in 2014,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI. The rupee has depreciated 6.2 per cent since June 2018 when the RBI started hiking rates.

“The rupee is one of the worst-performing among its Asian peers. One of the reasons could be the spike in current account deficit on the back of crude oil price increase. After appreciating marginally in January 2018, the rupee has witnessed depreciation every month,” said the report.

Since the beginning of the year, emerging market currencies have also witnessed volatility and have depreciated considerably on the back of US policies on free trade and a strengthening US economy. The US recovery has made the possibility of rate hikes imminent, and akin to the time of the taper tantrum, the emerging market currencies have tumbled, the report observed.

To stabilise the exchange rate, the RBI has spent nearly $14 billion in Q1 FY19, which has further dented the overall stock of foreign exchange reserves, the report said.

In this regard, the report pointed to the detailed discussion on the cost of continued RBI intervention in the foreign exchange market in the central bank’s August monthly bulletin. The bulletin said intervention in the foreign exchange market through purchase or sale of US dollars, however, could pose other challenges by altering domestic liquidity conditions. While purchases lead to injection, sales result in withdrawal of primary rupee liquidity from the system. This requires proactive management of liquidity consistent with the stance of monetary policy.

Given the inefficacy of sterilised intervention, the RBI may be following a relatively hands-off policy in the forex market for now and, hence, the recent penchant for the rupee to depreciate at a much faster rate, the report said.

For example, it took only one trading day for the rupee to travel 100 paisa on August 13, against a historical average of 17 days beginning April 18 (27 days in 2015), it added.

Costs of sterilisation

“Sterilisation by the RBI comes with associated costs...There are other costs of sterilisation as well, which are, however, difficult to estimate.

“For example, sterilised intervention raises interest payments and subsequently revenue expenditure, squeezing out capital expenditure in the process. We estimate such costs per annum could be around Rs. 10,000 crore,” the report said.

SBI’s economic research team recommended that the government and the RBI should implement the Standing Deposit Facility (SDF) without any further delay as it has no sterilisation cost. In the interregnum till the SDF is implemented, the RBI must continue with durable liquidity injections through regular open market operation (OMO) purchases to offset the current spate of liquidity withdrawals.


Debt resolution under IBC process:
Banks take 47% haircut in RBI first list

Dev Chatterjee
The Business Standard
Published on September 5, 2018

Lack of capacity at the NCLTs is turning out to be
a big concern for the investors as well as lenders

New Delhi, September 4: With debt resolution under the Insolvency and Bankruptcy Code process picking up, banks have seen Rs 550 billion of recoveries at an average 47% haircut in the Reserve Bank of India’s (RBI) first list announced in June 2017.

Here is the status of the first 12 companies:

Bhushan Steel
Ownership transferred to Tata Steel
Essar Steel
Bid received, but litigated by Numetal, Arcelor Mittal
Bhushan Power
Bits received from JSW Steel, Tata Steel, Liberty
Alok Industries
CoC accepted bid by Reliance Industries
Ownership transferred to Vedanta
Amtek Auto
Ownership changed to Liberty House
ABG Shipyard
CoC recommended liquidation
Monnet Ispat
Ownership transferred to JSW Steel-AION
JP Infra
SC orders rebids
Lanco Infra
NCLT approved liquidation
Era Infra Engg
In process, delay in admission
Jyoti Structures
NCLT rejects bid, approves liquidation

The pick-up in recoveries to 4% of loans in June quarter was also primarily on account of IBC-led resolutions. According to Credit Suisse, though the IBC process is time-bound (180 days extendable to 270 days), many of the larger cases have witnessed delays.

However, the usual 300-day timeline is still significantly superior to the other court-driven processes (DRT, SARFAESI) where it takes even a decade for the entire process to get over. In the past, the RBI also attempted several restructuring/dispensations for bank-led resolution processes. However, these did not yield strong results, with 100% of SDR and 70% of corporate restructuring faltering or failing.

NCLT capacity is a constraint

Lack of capacity at the NCLTs is turning out to be a big concern for the investors as well as lenders. With now over 2,200 cases filed, they appear to be getting clogged-up. Among the 28 companies under the 2nd list, 10 with 40% of debt are yet to be admitted to the NCLT.

None of the cases have seen any resolutions. A couple are close to being resolved while a few are likely to go into liquidation. With an estimated additional 60-65 large companies expected to be referred to the NCLT following the February 12 circular of the RBI, the timelines are likely to be further delayed.


No relief in petrol, diesel prices soon! Government rules out excise duty cut as fuel rates hit new high

The Financial Express
Published on September 5, 2018

New Delhi, September 4 (PTI): The government will not cut excise duty on petrol and diesel to cushion spiralling prices, which touched fresh highs Tuesday, as it has limited fiscal space available to take any dent in revenue collections, a top official said. With imports becoming costlier because of a free-fall in rupee against the US dollar, the government believes the current account deficit will overshoot the target and it cannot “disturb fiscal maths by cutting excise duty on petrol and diesel,” the official, who wished not to be identified, said.

Petrol and diesel prices Tuesday touched fresh highs as rupee dipped to a record low of 71.54 against US dollar, making imports costlier. Petrol price in Delhi rose to a record Rs 79.31 a litre and diesel climbed to an all-time high of Rs 71.34, renewing calls for a cut in excise duty to cushion the spike. Almost half of the retail selling price of the two fuel is made up of central and state taxes.

According to a price notification of state-owned fuel retailers, petrol price was Tuesday hiked by 16 paise per litre and diesel by 19 paise. Fuel rates have been on fire since mid-August, rising almost every day due to a combination of a drop in rupee value and rise in crude oil rates.

Petrol price has risen by Rs 2.17 per litre since August 16 while diesel rates have climbed by Rs 2.62 – the biggest increase in rates witnessed in any fortnight since the launch of daily price revision in mid-June last year. Commenting on the relentless price rise, former Finance Minister P Chidambaram said: “Relentless rise in prices of petrol and diesel is not inevitable. Because the price is built up by excessive taxes on petrol and diesel. If taxes are cut, prices will decline significantly.”

“We already know that there will be a hit on current account. Knowing that we can’t disturb the fiscal deficit, we should rather be fiscally prudent,” the official in the finance ministry said. While fiscal deficit means expenditure higher than income, current account deficit (CAD) is the difference between inflow and outflow of foreign currency.

In an election year, the spending cut is not an option, the official said reasoning that it would hamper government’s spending on development schemes. “The government cannot disturb fiscal maths by cutting excise duty,” he said.

Last week, credit rating agency Moody’s Investors Service said there are risks of India breaching the 3.3 per cent fiscal deficit target for the current financial year ending March 31, 2019, as higher oil prices will add to short-term fiscal pressures. CAD will widen but will not jeopardise India’s external position, and the gap will remain significantly narrower than five years ago, it had said.

The government has budgeted fiscal deficit to be at 3.3 per cent of gross domestic product (GDP) in the current 2018-19 fiscal year. Also driven by higher oil prices and robust non-oil import demand, Moody’s expects the current account deficit to widen to 2.5 per cent of GDP in the fiscal year ending March 2019, from 1.5 per cent in fiscal 2018.

Almost half of the fuel price is made up of taxes. The Centre currently levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy Value Added Tax (VAT) – the lowest being in Andaman and Nicobar Islands where a 6 per cent sales tax is charged on both the fuel.

Mumbai has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel. Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel.

The central government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by 13.47 a litre in nine instalments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

This led to its excise collections from petro goods more than doubling in last four years – from Rs 99,184 crore in 2014-15 to Rs 2,29,019 crore in 2017-18. States saw their VAT revenue from petrogoods rise from Rs 1,37,157 crore in 2014-15 to Rs 1,84,091 crore in 2017-18. A litre of petrol in Mumbai costs Rs 86.72 while diesel is priced at Rs 75.74 per litre.

Prices in Delhi are the cheapest in all metros and most state capitals due to lower sales tax or VAT. Officials said the spike in rates is on account of exchange rate falling to a record Rs 71 to a dollar, depreciating by Rs 2.5 in a month. Also, crude oil has gained USD 7 a barrel in a fortnight, driven by fears that the US sanctions on Iran will likely contract supplies.


Diesel price spike puts Govt in a spot

Twesh Mishra
The Business Line
Published on September 5, 2018

Costly fuel impacts inflation numbers,
and is a handicap in an election year

New Delhi, September 4: Spiralling auto fuel prices are giving sleepless nights not only to consumers, but to the government as well, particularly with elections round the corner and the Opposition stepping up its attack.

The price of diesel, the most common transport fuel, has spiked by Rs. 3.72 a litre since July 29. It sold at Rs. 71.34 a litre in Delhi on Tuesday, with daily price revisions propelling it from Rs. 67.62 a litre on July 29. With higher fuel prices, transportation costs too are up.

According to SP Singh, Senior Fellow and Coordinator at the Indian Foundation of Transport Research and Training, truck rentals and retail parcel freight charges were up 4-5 per cent in the first fortnight of August, when diesel price rose by Rs. 1.30 a litre. The numbers for September will offer a clearer trendline.

Companies such as Mahindra Logistics raise prices virtually every month, given the higher fuel and other costs. Mahindra Logistics CEO Pirozshaw Sarkari said: “One of the main components of transportation is fuel and it basically is a pass-on.”

But high diesel prices don’t really lead to a big decline in consumption, said a petrol pump owner. “There is a drop, but not a huge decline. In fact, the current decline in consumption owes more to the rains.”

The Petroleum Planning and Analysis Cell agrees that higher diesel prices do not translate into a tapering of consumption. Although diesel prices zoomed to a (then) record Rs. 69.30 a litre in May, consumption during the month increased, both sequentially and annually, to 7.55 million tonnes.

Car sales numbers too seem immune to rising diesel costs. Automakers, especially in the commercial vehicle segment, saw a growth in sales in August.

In the passenger vehicle segment, too, diesel engine-oriented manufacturers such as Mahindra & Mahindra and Tata Motors saw sales growth. However, Maruti Suzuki India’s sales of diesel vehicles have dipped in recent months. Its petrol/diesel car sales ratio has changed from 60:40 to 70:30.

Though the government is adopting a wait-and-watch approach, those in the know say it has few options to deal with a spike. “Yes, we are studying the reactions, but we are aware that our options are restricted,” said a government source. “In fact, even our own (BJP-run) States cannot be taken for granted as far as fuel price is concerned.”

Response of States

Bringing down the excise duty by a rupee or two will not help, said an official, adding: “Last year, the Centre reduced the excise duty on fuel, and the Finance Minister appealed to States to reduce local taxes, but only Goa responded.”

The bulk of government revenues (both Centre and States) comes from fuel taxes: a Rs. 15.33 a litre excise duty and Rs. 10.46 a litre VAT on diesel. Till now, four States and one Union Territory have reduced taxes on auto fuel.

In fact, the elections may also compel the Railways, the largest bulk buyer of diesel, to pass on costs to consumers. Instead of a tariff hike, it may tinker with revenue generators, such as food, parking and cancellation charges.

Higher diesel costs also play havoc with inflation calculations. For statistical purposes, diesel is part of the fuel and energy group in the Consumer Price Index, with a weight of 7.94. Diesel alone weighs 3.10 in the Wholesale Price Index. So, changes in retail prices of various fuels impact the overall retail inflation numbers.

(With inputs from Mamuni Das, S Ronendra
 Singh, Shishir Sinha and Richa Mishra)


Fact check | Is the banking sector
lending less to industry?

Rohan Abraham & Ritesh Presswala
The Moneycontrol News
Published on September 5, 2018

Mumbai, September 5: Despite vacating office in September 2016, former Reserve Bank of India (RBI) Governor Raghuram Rajan continues to be a bogeyman for detractors of his economic policies. On September 3, NITI Aayog Vice-Chairman Rajiv Kumar laid the blame for lacklustre economic growth over the past half-a-dozen quarters on the former RBI governor, saying his policies of fiscal prudence and tighter lending norms shut the tap on credit to industry.

"There was a trend of declining growth and why was it declining? Growth was declining because of rising non-performing assets in the banking sector. When this government assumed office, those figures were about Rs 4 lakh crore. It rose to Rs 10.5 lakh crore by mid-2017," he said in an interview to ANI.

Kumar went on to say that new mechanisms for identifying and classifying stressed assets were responsible for the mess in the banking sector, which in turn had dried up funds to capital-intensive industries. He also attributed the decline in the GDP growth rate to deleveraging of credit.

However, Kumar’s comments overlook the fact that the banking sector has benefited from the Insolvency & Bankruptcy Code of 2016, whereby banks have been able to make substantial recoveries on loans gone sour. Rajan had championed the institution of a body to expedite the time involved in liquidating zombie companies and maximising recoveries by recycling bad debt.

The allegation that cash-strapped banks are giving the cold shoulder to industry is unfounded. According to data compiled by RBI on the sectoral deployment of bank credit, lending to industries has remained robust throughout the years Rajan was at the helm. The total outstanding credit to micro-and-small, medium, and large industries was Rs 23,71,500 crore in September 2013, when Rajan took over as governor of India’s central bank.

Industrial credit rose to Rs 27,45,500 crore in February 2016, before plateauing around the Rs 26 lakh crore-mark subsequently. As the asset base of banks has grown over the years, so has their exposure to companies, both large and small. In January 2011, the total outstanding loans to industry was Rs 15,39,800 crore. This figure has increased by 71 percent, to Rs 26,37,100 crore in July last year.

Despite bad loans weighing on their balance sheets, banks have not lost faith in power of enterprise. The growth rate of industrial credit might have slowed over the past couple of years, but in absolute terms, industry has been the recipient of a third of all loans disbursed by banks as of July.

The net NPAs of Indian banks has been on the rise. The RBI’s Database on Indian Economy shows that the quantum of loans classified as stressed assets increased drastically over the past couple of years. This should be seen as a direct consequence of the stringent asset classification norms endorsed by the RBI under Rajan's leadership.

The RBI’s interpretation of the Basel-III norms is stricter than the original, giving less leeway to banks to engineer a change in their financial position by lending over and above the minimum liquidity requirement prescribed by the central bank.

Net NPAs of banks increased by over 10 times in the space of seven years, from Rs 38,725.1 crore in 2011 to Rs 4,33,009.7 crore in 2017, according to RBI data. Bad loans on the books of public sector banks (PSBs) stood at Rs 3,83,088.93 crore, around 88 percent of all NPAs in the banking sectors. Private lenders have fared slightly better than their state-owned peers, accumulating Rs 47,780.2 crore in stressed assets by 2017-end. However, their relatively smaller exposure to industry has insulated them from the blowback of such loans subsequently coming a cropper.

The recent spurt in bad loans is also indicative of the fact that indiscriminate lending on the part of banks in the past have come back to haunt them in the light of tighter regulatory scrutiny and external factors such as demonetisation and the transition to the Goods and Services Tax (GST) regime.

However, to attribute sluggish GDP growth to banking reform would be inaccurate since industrial credit has remained steady since the turn of the decade. By sanitising the liabilities on the books of banks, the RBI is laying the foundation for greater transparency and accountability, a move that could pave the way for sustainable credit growth.


Big scandal taking place in the name
of real estate business: Supreme Court

The Indo Asian News Service
Published on September 4, 2018

New Delhi, September 4 (IANS): The Supreme Court on Tuesday said "big scandal" is taking place in the name of real estate business, as it favoured independent forensic audit of balance-sheets of the Amrapali Group to know diversion of home buyers' money.

Saying "big, serious fraud" is being committed on home buyers, a bench of Justice Arun Mishra and Justice U.U. Lalit told the Amrapali Group to cooperate with the auditors or face sealing of its premises and a forensic audit of accounts of all companies, including directors, their wives and daughters.

It said those found guilty will have their properties sold.

The court asked Additional Solicitor General (ASG) Maninder Singh, appearing for Bank of Baroda (BoB), to suggest names of auditors and posted the matter for hearing on September 6.

The ASG said BoB has initiated insolvency proceedings against Amrapali and its forensic audit of some companies showed diversion of Rs 2,765 crore.

The National Buildings Construction Corporation India Ltd (NBCC) gave a proposal for completion of 15 residential projects having 46,575 flats at an estimated cost of Rs 8,500 crores in 6-36 months, adding that it could take over the projects while denying outing its own money to build these projects.

NBCC chairman Anoop Kumar Mittal, who was present in the court said that to realise the estimated cost of Rs 8,500 crore to complete the projects, there will be a shortfall of Rs 2,038 crore which can be raised from selling unsold floor space worth Rs 2,100 crore.

The court said it will try to reach the persons "responsible for the fraud" and retrieve each and every money siphoned off from various projects.

On the proposal of NBCC, the bench said: "We won't ask you (NBCC) to put any money. We will provide you all necessary funds to start the project. The idea is that the wheel should start moving."

The court asked Amrapali Group to file its response on NBCC's proposal.


RBI Orders More Banks to Appoint Internal Ombudsman: But is the Concept Working?

Yogesh Sapkale
The Moneylife Online
Published on September 4, 2018

The Reserve Bank of India (RBI) has asked all scheduled commercial banks having more than 10 banking outlets to appoint internal ombudsman (IO) in the bank. This expands the scheme started by former RBI governor Raghuram Rajan. However, the efficacy of the internal ombudsman (IO) seems to be kept a closely guarded secret by the central bank and is completely non-transparent.

Since the customer is not allowed to access or interact with IO in any bank, this new direction from RBI may not add any heft to the redress of grievances, unless it makes banks more accountable. As things stand, it is yet another layer in the process before a customer is allowed to approach the Banking Ombudsman, where in rare cases the customer gets justice. In addition, since the IO would be an authority placed at highest level of the bank’s grievance redressal mechanism and may be on a payroll of the bank, expecting it to deliver justice to customer may remain an illusion.  

In a release, RBI says, "The IO will examine customer complaints, which are in the nature of deficiency in service on the part of the bank, including those on the grounds of complaints listed in Clause 8 of the Banking Ombudsman Scheme that are partly or wholly rejected by the bank. As the banks shall internally escalate all complaints, which are not fully redressed to their respective IOs before conveying the final decision to the complainant, the customers of banks need not approach the IO directly. The implementation of IO Scheme will be monitored by the bank’s internal audit mechanism apart from regulatory oversight by RBI."

Last year in September, Moneylife, through an application filed under Right to Information Act, found that Internal Ombudsman is meant only for banks and not for customers. (Read: RBI Shocker: Internal Ombudsman is for banks and not for customers)

The scheme details, which we obtained, were full of contradictions, lack of transparency and disclosure and seemed like yet another hurdle to quick grievance redress for the consumer. Unfortunately, this was sanctioned by the regulator. It is no wonder then, that even the new regulations by the RBI to protect against digital fraud get better results from consumer courts than from the RBI.

The RBI further says that the “final communication to the complainant shall mention that the complaint has been examined by the IO and still if he is not satisfied, he can approach the BO, i.e., level VI.”

This communication itself is proof of the extraordinary harassment that a consumer is subjected to through official sanction by the RBI.  Why should a consumer have to wade through six levels of filing complaints, with endless delays at each level? Since the RBI has flatly refused to impose punishment on banks for such harassment, it is no wonder that banking related disputes either get resolved in consumer courts or simply languish. 

So far, we have not come across any complaints where there is such a communication about reference to the IO. In fact, most complainants are in the dark about action taken. What is worse, the very sanctity of this ‘advice’ is unclear, since the RBI’s communication to banks’ does not seem a part of the master circular of the RBI, which has strict implications.

The scheme further says that the IO should ‘take into account the evidence placed before him by the parties'. However, the consumer seems to have no say in ensuring that all evidence is actually submitted to the IO.

A communication issued on 18 August 2016, when Dr Raghuram Rajan was the governor, RBI, changed nomenclature of existing Chief Customer Service Officer (CCSO) to IO. The escalation mechanism stated in the communication kept IO at level 5, preceded by Branch Manager at level 1, Circle Office at level 2, Zonal Head at level 3 and Principal Nodal Officer at level 4. If the customer is not satisfied with the IO decision, she is required to approach the Banking Ombudsman at level 6, appointed by the RBI.

In 1995, RBI had introduced the Banking Ombudsman Scheme to provide an expeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services provided by commercial banks, regional rural banks and scheduled primary co-operative banks.

All complaints reached at the BO level are categorised as 'maintainable' and 'non-maintainable'. Most non-maintainable complaints are those where procedure for filing is not adhered to as per Clause 9 of the BO Scheme.

As per the Annual Report of the Banking Ombudsman Scheme for 2016-2017, released by RBI in December 2017, the Ombudsman has given an award in just 31 or 0.05% of total maintainable complaints. All BO offices across the country had received 1,30,987 complaints out of which 62,539 were found maintainable.

According to RBI, initial efforts of the BO is to try to settle the dispute by mutual agreement and so, during FY16-17, it resolved 42.43% or 26,535 complaints in this manner.

At the same time, the BO rejected a whopping 57.23% or 35,792 maintainable complaints out of the total 62,539 complaints it received.

Majority of the complaints that were rejected by the BO were found not to be as per provisions of Sub-Clause (3) of clause 9 of the BO Scheme. As per this Clause, the complainant must first approach his bank for redressal of his grievance. However, a large number of complainants approached the Ombudsman directly without first approaching their bank.   

During FY16-17, the BO gave 31 awards. Of these, 20 had been implemented as on 30 June 2017. Out of 11 awards remaining unimplemented, in five cases, banks have preferred appeal before the appellate authority, two Awards have lapsed and four Awards remained unimplemented as on June 2017.

Although Delhi and Mumbai account for the number of complaints filed before the BO, in terms of awards, Delhi got one, while no award was given for Mumbai. The BO Office at Kanpur gave highest 17 awards, followed by Kolkata at 6, Bengaluru and Dehradun at two each and Bhubaneswar, Chennai, New Delhi, and Patna, at one award each.

While there is increase in digital fraud cases related with banking, the present BO scheme cannot effectively handle these matters. The grievances relating to digital mode of financial transactions accounted for 19% of total complaints during 2016-17. This has gone up to 28% till end- June 2018, particularly with the inclusion of deficiencies in mobile banking service as a ground of complaint under the scheme with effect from 1 July 2017.

Looking at the levels of mechanisms created by RBI for delivering justice to customers, there is an apprehension about IO scheme as well. With the customer running from pillar to post to get justice from bank, creation of another level without any direct connection with the end user will turn out to be only another white elephant. It, however, may provide ‘cushy’ ‘post-retirement’ posting for some influential (and about to retire) seniors in RBI or the bank itself.


What ails India’s pension regulator

Ulka Bhattacharyya
The Business Line
Published on September 5, 2018

As the PFRDA completes five years, it is time to reflect
on its success, shortcomings and the way ahead

The coming month marks five years of the passage of the Pension Fund Regulatory Development Authority (PFRDA) Act, 2013, which set up the PFRDA as India’s pensions regulator. As the regulator in charge of overseeing the National Pension System (NPS) and India’s pensions sector, the PFRDA has come a long way to the present. Therefore, given the occasion, it is worth reflecting upon some of the gaps in India’s pension regulatory framework.

Setting up of the PFRDA

The interim PFRDA was established in 2003 to oversee the NPS, and regulate India’s pensions sector. Concerns of inadequate coverage and fiscal unsustainability of traditional civil-servant pensions had led to the NPS being introduced in 2003. The NPS was visualised as a defined-contribution pension scheme, with features including individual pension accounts, multiple pension funds and mandatory annuitisation at exit.

Initially covering only government employees, the NPS was extended to all citizens by 2009, barring members of the armed forces. Subsequent reforms have focused on encouraging India’s vast unorganised sector workforce to subscribe to the NPS, such as introducing a simpler variant of NPS, ‘NPS-Lite’ in 2010, the ‘Swavalamban’ scheme in 2010 where the government co-contributes to the pension corpus of unorganised sector workers not covered by social security schemes, and the ‘Atal Pension Yojana’ in 2015, where the government guarantees a minimum post-retirement monthly pension, as well as extends co-contribution benefits to unorganised sector workers.

The interim PFRDA transitioned into the PFRDA, and the NPS received formal legislative backing, with the PFRDA Act’s passage in September 2013. The PFRDA Act is the linchpin of India’s pension regulatory framework, being supplemented by regulations issued by the PFRDA, which regulate the functioning of key intermediaries under the NPS framework, such as the NPS Trust, Pension Funds and Points of Presence (PoPs). A recent report by the Vidhi Centre for Legal Policy, New Delhi discusses this regulatory framework in detail, pointing out issues and the way ahead.

A pervasive lack of clarity

A major theme in India’s pension regulatory framework is a pervasive lack of clarity.

For instance, while the PFRDA is the regulator of the pensions sector, it is also responsible for promoting and developing the NPS — a pension ‘product’. This gives rise to concerns of a potential conflict of interest, and requires a clearer delineation of the PFRDA’s role to encourage greater regulatory accountability.

A related issue concerns the NPS Trust’s role vis-à-vis the PFRDA. The NPS Trust is a critical intermediary in the NPS framework, which holds subscriber funds and assets in its custody, implements PFRDA’s regulations, supervises and monitors other intermediaries, while remaining under the PFRDA’s supervision. At present, the NPS Trust and the PFRDA possess overlapping and concurrent powers, in relation to inspecting other NPS intermediaries. Greater clarity in this regard would certainly be welcome.

The need for greater clarity also spills over to the PFRDA Act. For instance, the Act caps foreign shareholding in Indian pension funds to be the higher of 26 per cent of the pension fund’s paid-up capital or the limits specified for Indian insurance companies. Though, foreign shareholding limits for Indian insurance companies are currently 49 per cent, and foreign exchange regulations cap foreign shareholding in the pensions sector at 49 per cent, the language of the PFRDA Act which reflects dual percentages, creates avoidable confusion.

Consumer protection

Another major theme in India’s pension regulatory framework is an inadequate emphasis on consumer protection. For an issue as critical as financial consumer protection, especially when the NPS serves as a universal product securing citizens’ retiral incomes, some of these gaps are particularly troubling. For instance, the web-based grievance portal for NPS subscribers allows complaints to be registered only in English, while the Hindi version of the portal is dysfunctional.

In a nation as diverse as India with multiple languages, and especially for a flagship national pension product, having a functional grievance redress portal in English alone is a clear problem.

Similarly, the PFRDA (Redressal of Subscriber Grievance) Regulations, 2015 fail to specify clear grounds for approaching the office of the Ombudsman, who functions as the grievance redress authority. This contrasts with the mention of clear grounds for approaching the office of the Ombudsman operational under the regulatory ambit of SEBI and RBI, by aggrieved consumers.

Inadequate attention to consumer protection also reflects in the recent PFRDA (Points of Presence) Regulations, 2018. While the Regulations require PoPs, (who are intermediaries and help in on-boarding subscribers to the NPS) to maintain confidentiality of subscribers’ personal information, they fall short of detailing specific standards of care required of PoPs, or expressly penalising PoPs who fail in protecting confidentiality.

In today’s age, where protecting personal information is critical, the absence of such safeguards suggests that the realisation that protection of subscribers’ personal information is critical and non-negotiable, has not made much headway.

The road ahead

Anniversaries are occasions to reflect, take stock and prepare for the future. On PFRDA’s fifth anniversary, addressing these gaps and strengthening the underpinnings of India’s pensions framework should be a priority, for there can be no better way to mark the occasion than creating a robust regulatory framework which underpins sustainable retiral incomes of all Indians.

The writer is Research Fellow, Corporate Law and Financial Regulation at Vidhi Centre for Legal Policy, New Delhi


Re-imagining the university

Janaki Nair
The Inddian Express
Published on September 5, 2018

This Teachers’ Day, let us recall a 1949 report
written under the leadership of S Radhakrishnan

The time has come, more urgently than ever, to speak of that gravely endangered space of the Indian public university system. It is poised like an elephant hanging over a cliff with only its tail tied to a daisy. Neither is the mind striding around without fear, nor is the head being held high.

Instead, teachers are being attacked for voicing opinions, as in the vicious assault on Sanjay Kumar, assistant professor of sociology at the MG Central University of Bihar. Other teachers are being raided, and their life’s work “seized” merely because of the accident of marriage to the daughter of a renowned, though radical, poet, as was K Satyanarayana of the English and Foreign Languages University, Hyderabad. Yet others are being placed under overzealous police scrutiny (if not being actually arrested) for their critical writings, or association with legitimate rights and civil society groups, as were Nandini Sundar and Archana Prasad, and now a wide range of teacher-intellectuals such as Sudha Bharadwaj or Shoma Sen. All this follows the actual murder of teachers such as HS Sabharwal in 2006 and MM Kalburgi in 2015.

There are, too, those teachers who are being collectively bludgeoned by their own administrations intent on driving the scholarship of teaching and learning into the ground, as has been happening in JNU for the last two-and-a-half years. Delhi University had faced the wrecker’s ball slightly earlier. The intolerance of research, fearless speech, and contrary opinions has reached a crescendo in the past four years — the murderous intent to exterminate all intellectuals was announced by a BJP MLA from Karnataka, Basanagouda Patil Yatnal. And the Higher Education Commission of India proposes to do away altogether with teacher participation in the very institutions by which they will be governed.

Let us, therefore, declare this Teachers’ Day a day of silent reflection, introspection and remembering, of all that the public university may have achieved, its obvious failures, and its portentous future.

How far we have travelled from the deeply prescient report, written in 1949 with admirable literary flourish, under the leadership of the man whose name is commemorated today, SarvepalliRadhakrishnan. Written in the first flush of Independence, when world-class institutions such as the IITs and IIMs were not even a twinkling in the nation’s eye, the document was a hard-nosed look at the existing university system, its promises, its failures and its possibilities. Our finest tribute to Radhakrishnan would be to remind ourselves of the breadth of that vision.

In it, universities were described as the “sanctuaries of the inner life of the nation”, as the “organs of civilisation” where “Everything is being brought to the test of reason — venerable theologies, ancient political institutions, time-honoured social arrangements, a thousand things that a generation ago looked as fixed as the hills”. The commission was conscious of the precipitous preoccupations of a new nation: “We must give up,” said the report, “the fatal obsession with the perfection of the past, that greatness is not to be attained in the present, that everything is already worked out and that all that remains for the future ages of the world is pedantic imitation of the past.” Indeed, “Universities are the homes of intellectual adventure.” Recognising, with an appropriate quote from T S Eliot, that information had imperiled knowledge, as much as knowledge had forestalled wisdom, the report reminded us that “we are building a civilisation, not a factory or a workshop”.

“Our ancient teachers, tried to teach subjects and impart wisdom. Their ideal was wisdom (irfan) along with knowledge (urn)”. “Jnanam vijnana-sahitam” was not far behind, but with the choice of those two opening words, the report acknowledged a different composite intellectual heritage from the impoverished intellectual past that is being promoted today.

Just two elements of this fascinating document deserve our attention. At a time when there is mindless pursuit of glory via science and technology (to which five of the six Institutes of Eminence, which have been chosen to blazon our way into international rankings, are devoted), let us hear what this document said: “If we wish to bring about a savage upheaval in our society, a raksasa raj, all that we need to do is to give vocational and technical education and starve the spirit. We will have a number of scientists without conscience, technicians without taste who find a void within themselves, a moral vacuum and a desperate need to substitute something, anything, for their lost endeavour and purpose.” The haste with which JNU has opened a school of engineering, across the road from an equally illustrious institution which has been unable to fill its seats this year, appears to be a fulfilment of this ominous prophesy.

Two, listen to the report on university autonomy: “Higher education is, undoubtedly, an obligation of the State but State aid is not to be confused with State control over academic policies and practices.” Further: “Professional integrity requires that teachers should be as free to speak on controversial issues as any other citizens of a free country.” An atmosphere of freedom is essential for developing this “morality of the mind”. Yet the autonomy that has, ironically, been recently thrust on institutions like JNU has come to mean the freedom to raise fees, bring in faculty at enhanced salaries or start innumerable certificate courses, which convert an admirably autonomous research university into a teaching shop.

The Indian public university, despite the innumerable problems it faces, in no small part due to the compromises made by teachers themselves, has many creditable achievements that were not foreseen even by the Radhakrishnan Report. But it is to its lofty imagination that we must cling when the bonfires are being lit and the macabre dance of anti-intellectualism has begun.

Source: Internet Newspapers and anupsen articles


Post a comment