Banking News Dated 7th September 2018

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Banking News: September 7, 2018


CIC asks Finance Ministry, RBI to Publish  Details of Loan Defaulters of over Rs 50 Crore

CIC asks Finance Ministry, RBI to Publish
Details of Loan Defaulters of over Rs 50 Crore

Vinita Deshmukh
The MoneyLife News
Published on September 6, 2018

New Delhi, September 6: Central Information Commissioner (CIC) Prof Sridhar Acharyulu has directed the finance ministry, the ministry of statistics & implementation and the Reserve Bank of India (RBI) to make public, the names of those bank loan defaulters whose unpaid loans amount to Rs50 crore and above.

This order is a sequel to the information sought by an RTI applicant who was refused information by the CPIO of the ministry of labour & employment. The RTI applicant had sought information on two issues. One was directly related to the labour & welfare ministry comprising information on employment guarantee schemes. The second related to the names of loan defaulters of Rs50 crore and above which the ministry has nothing to do with, but it was the duty of the Central Public Information Officer (CPIO) to forward the RTI application to the relevant public authorities – in this case, the ministries of finance and of statistics and implementation and the RBI.

As per the CIC’s observation in his order, records show that the CPIO did not forward the RTI application to the appropriate ministry, which is mandatory under the RTI Act.

Sandeep Singh Jadoun, the RTI applicant, sought the following information from the ministry of labour & employment (which included information related to loan defaulters as well as employment schemes):

·       Number of wilful defaulters (those who are unwilling to pay despite having the capacity to do so) of loans of Rs50 crore and above, advanced by banks and other financial institutions; with or without guarantees;

·       The names of guarantors, details of loans such as dates of sanction and default and details of non-performing assets (NPA) accounts;

·       The cost and investment of the projects for employment generating schemes initiated by the Central government between 2005 and 2018.

·       List of failed projects and projects, which only existed on paper and were never introduced on the floor, with which the ministry of labour and employment (MoLE) is concerned.

The CPIO declined to provide the information, stating that since records pertaining to loan defaulters are not maintained by the MoLE, he had therefore forwarded the RTI application to the finance ministry. As for the employment schemes, he told the CIC during the hearing last week, that all information regarding employment schemes launched by the government such as the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) was available on the website www.ncs.gov.in and at a toll free number 1800-4251514, both of which are functional from Tuesdays to Sundays.

However, the RTI applicant, Jadoun, argued that the information he was seeking was more elaborate in terms of details of costs and investments involved in the employment-generating projects and schemes launched since 2005.
The officer responded that such information is available with the regional offices under the jurisdiction of the ministry of rural development, and the ministry of skill development and entrepreneurship. He also claimed to have forwarded the RTI application to other related ministries for more information.

The CIC observed that the records show that the CPIO had not transferred the RTI application to the other public authorities. The CIC observed, ``When the CPIO does not transfer an RTI request to the appropriate authority, it becomes his duty to collect the information and furnish it to the appellant. The CPIO dismissed the request saying “information was not maintained in the form sought”, which is neither a defence nor an exception.

This is not recognised as an excuse to deny information under any of the provisions of RTI.’’

Regarding the number of wilful loan defaulters of Rs50 crore and above, the CIC referred to several newspaper reports and stated that such information should be made public under Section 4 of the RTI Act. He writes in his order that this RTI applicant has given the opportunity to the ministry to upload the information as the public at large has the right to know the names of individuals who have been given loans, above Rs50 crore. Similarly, it must share the names of those who have defaulted and if none have defaulted, it should say so in the public domain.

CIC further states in the order, “The question is, that when the Reserve Bank of India (RBI) has authorised the banks to prepare the list of wilful defaulters of Rs25 lakh, and after ensuring that no genuine loan-taker’s name is published in the list of wilful defaulters, why not ensure publication of the details of wilful defaulters of Rs50 crore and above as sought by this appellant, to the nation to fulfil the right to information of the citizens? And why should the government of India, the ministries of finance and for statistics and program implementation and the RBI not reveal the action taken or contemplated to recover the loans from wilful defaulters beyond Rs50 crore, reasons for the failure, criminal actions initiated, or reasons for not initiating criminal actions etc to the people?’’

The CIC also pointed out that “Section 4(1) (c) of the RTI Act mandates to publish all relevant facts while formulating important policies or announcing the decisions which affect the public; section (d) says provide reasons for its administrative or quasi-judicial decisions to affected persons. What is the policy of the finance ministry, the ministry for statistics and program implementation and the RBI in dealing with the wilful defaulters of Rs50 crore and above?

Earlier in February 2016, the Supreme Court directed RBI to furnish a list of the companies which are in default of loans in excess of Rs500 crore or whose loans have been restructured under corporate debts restructuring (CDR) scheme by banks and financial institutions.

Even in December 2015, the apex court, in a landmark judgement, has told the RBI that the banking regulator cannot withhold information citing 'fiduciary relations' under the Right to Information (RTI) Act. Hearing a set of transferred cases, a Division Bench of Justice MY Eqbal and Justice C Nagappan said, "From the past we have also come across financial institutions which have tried to defraud the public. These acts are neither in the best interests of the Country nor in the interests of citizens. To our surprise, the RBI as a Watch Dog should have been more dedicated towards disclosing information to the general public under the Right to Information Act. We also understand that the RBI cannot be put in a fix, by making it accountable to every action taken by it. However, in the instant case the RBI is accountable and as such it has to provide information to the information seekers under Section 10(1) of the RTI Act."

In most of the transferred cases, Shailesh Gandhi, former Central Information Commissioner, while directing the RBI to provide information sought by applicants, had rejected the central bank's contention of 'fiduciary relation' for denying information.

Why the information on loan defaulters above Rs50 crore should be made public: The CIC referred to the following news reports to qualify his order directing the finance ministry and the RBI to provide information on loan defaulters as asked by the RTI applicant:

·       As on 30 September 2017, more than Rs1.1 lakh crore was owed to banks by “wilful defaulters”. More than 9,000 such accounts for which banks have filed lawsuits for recovery and found that the top 11 debtor groups, each with dues of over Rs1,000 crore, together had over Rs26,000 crore outstanding to the banks. (Times of India)

·       After several bank officials were arrested in Rs11300 crore scam, involving the Punjab National Bank, the All India Officers Confederation AIBOC (with a membership of three lakh officers) has posed a challenge to the Central government for the publication of the names of wilful defaulters of all banks. AIBOC asked why the RBI was hesitating to publish the list of such defaulters as Vijay Mallya, Nirav Modi and Mehul Choksi and why they were allowed to leave the country. AIBOC questioned banks; the way they are writing off loans of thousands of crores every year in favour of these corporates, which itself was major scam. AIBOC has alleged that the RBI and the government did not correct the system despite it being well known that SWIFT system has been used for frauds in the nineties.  (India Today)

·       The apprehensions of AIBOC were proved by media’s analytical reports. One report last year says about 7,000 millionaires shifted their residence outside India, or changed their citizenship, leaving the banks, economy of the nation, public exchequer and public sector banks bleeding.

·       On 19 February 2018 an internet news portal published a list of defaulters who escaped from our country and changed citizenship. In March 2018, the minister of state for external affairs MJ Akbar stated in the Parliament that 31 business people facing CBI investigation have flown out of the country. (The Wire)

·       After the Nirav Modi case, the Central Board of Direct Taxes (CBDT) set up a five-member working group to examine the exodus and their taxation aspects. (New Indian Express)

·       In April 2018 the Fugitive Economic Offenders Ordinance was passed. A committee headed by financial services secretary Rajiv Kumar, with representatives from the RBI, the ministries of home and external affairs, the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) has since recommended stopping wilful defaulters with loans exceeding Rs50 crore from travelling overseas without prior approval.

·       In March, banks had been directed to seek the passport details of borrowers taking loans of Rs50 crore and more. The website reported that for the quarter ended June 30, 2018, as many as 3,385 suits were filed against defaulting companies that had wilfully defaulted on loans of Rs25 lakh and above - amounting to a whopping Rs57,523.90 crore. The finance ministry had also directed public sector banks (PSBs) to examine all NPA accounts of over Rs50 crore for possible fraud and accordingly report the cases to concerned investigating agencies, including CBI, ED and DRI, if any wrongdoing was detected. (Business Today)

·       The RBI has issued a master circular regarding wilful defaulters, on 30 June 2015. It says that pursuant to the instructions of the Central Vigilance Commission for collection of information on wilful defaults of Rs25 lakh and above by RBI and dissemination to the reporting banks and financial institutions (FIs), a scheme was framed by RBI with effect from 1 April 1999 under which the banks and notified all India financial institutions were required to submit to RBI the details of the wilful defaulters. This circular recommended criminal action by banks under Sections 403 to 415 of the Indian Penal Code, which deal with cheating.

·       Ministry of corporate affairs had introduced the concept of a director identification number (DIN) with the insertion of Sections 266A to 266G in the Companies (Amendment) Act, 2006. In order to ensure that directors are correctly identified and in no case, persons whose names appear to be similar to the names of directors appearing in the list of wilful defaulters, are wrongfully denied credit facilities on such grounds, banks / FIs have been advised to include the DIN as one of the fields in the data submitted by them to credit information companies.

Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals.


Anshula Kant Appointed
Managing Director Of SBI

The Press Trust of India
Published on September 6, 2018

The post of MD, SBI fell vacant after the resignation of B Sriram, who took over as the MD and CEO of IDBI Bank.

New Delhi, September 6 (PTI): Anshula Kant was on Thursday appointed as the Managing Director of State Bank of India (SBI), an official order said.

She is at present the Deputy MD in the bank. The Appointments Committee of the Cabinet approved the appointment of Kant as the Managing Director (MD), SBI till the date of her superannuation i.e. 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 MD, SBI fell vacant after the resignation of B Sriram, who took over as the MD and CEO of IDBI Bank.


The Lower Limit for filing cases in
DRT now increased to Rs 20 lakh

The Press Trust of India
Published on September 6, 2018

New Delhi, September 6 (PTI): The government Thursday doubled the pecuniary limit to Rs 20 lakh for filing loan recovery application in the Debt Recovery Tribunals (DRT) by banks and financial institutions.

The move is aimed at helping reduce pendency of cases in DRTs. There are 39 DRTs in the country.

The Central government has raised "the pecuniary limit from Rs 10 lakh to Rs 20 lakh for filing application for recovery of debts in the Debts Recovery Tribunals by such banks and financial institutions," said a Finance Ministry notification.

As a result, any bank or financial institution or a consortium of banks or financial institutions cannot approach DRTs if the amount due is less than Rs 20 lakh.

As per RBI data on global operations (with provisional data as on March 2018), aggregate amount of Rs 3,98,671 crore was written-off by banks over the last four financial years. Over the same period, their NPAs reduced by Rs 2,57,980 crore due to recoveries.

Banks and financial institutions' recovery of dues takes place on 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.


Rupee breaches 72-mark for first time

Tushar Goenka
The Financial Express
Published on September 7, 2018

Rupee will continue to face
pressure in foreseeable future: SBI

Mumbai, September 6: The rupee continued to slide for the eighth consecutive session on Thursday and fell to yet another record low of 72.11 against the dollar in intra-day trade before ending the session at a fresh closing low of 71.9875. There were indications of some intervention by the Reserve Bank of India (RBI), dealers said, though the quantum of dollar selling was not known. The rupee has given up nearly 3% in the past eight sessions.

With the dollar index having remained stable on Thursday, other emerging market (EM) currencies too were relatively steady. The rupee, however, slipped to record lows owing mainly to dollar demands in the market. Experts believe that the rupee over-valuation is more or less done with, and said if the bank for international settlements-real effective exchange rate (BIS-REER) is considered, the rupee has achieved its long-term average.

Ananth Narayan, professor of finance at SPJIMR, opines that in the short run, the RBI has ample currency reserves to manage volatility. “The central bank having held the 69 level against the greenback earlier, following other EM currencies, has allowed a move up to 72 now. In my view, it should now use its reserves and hold current levels, rather than risk more panic. However, RBI intervention can only buy us time, within which we have to address issues around our core financial stability,” Narayan explained.

“Our external balance is unhealthy, and we are borrowing expensive money to fund our oil needs, smartphones and gold imports. The core issues around our exports and manufacturing have to be addressed, alongside correction of rupee overvaluation,” Narayan concluded.

A State Bank of India (SBI) report analysed that the movement of rupee against dollar was always followed by appreciation of currency. Once the currency settled at a lower level, appreciation of currency picked up dramatic pace. Economists at SBI added that this time will be no different as currency will start appreciating once the dust settles for the currency to stabilise at a lower level.

“In the offshore non-deliverable forwards (NDF) markets the rupee is trading at `75 per dollar levels. During this financial year the rupee has depreciated sharply; with NDF implied yield on rupee hardening sharply from 6.5% to 7.7% in September. The last 364 day treasury bill (T-bill) cut-off was 7.32%. Thus, rupee will continue to face pressure in foreseeable future,” economists at SBI added.

Yield closes nearly flat at 8.056%

Meanwhile, the yield on the benchmark bond went up to levels of 8.088% in intra-day trades. However, they retreated somewhat in sync with the recovery in the rupee to close at 8.056%, almost flat in comparison to Wednesday’s close of 8.050%. Although the bond yields are wary of the inflation rates and a depreciation in the rupee, they are more sensitive to the fiscal deficit presently, and the expectations of rate hikes have to be realigned, dealers said. On the possibility of an open market operation (OMO), experts believe that it would only freeze the bond yields and not reduce it, at least not in the short term.

R Sivakumar, head of fixed income at Axis Mutual Fund, believes that the market should be prepared for at least two more rate hikes, the timing of the hikes, will however be difficult to determine.

“There have been two hikes even before the currency started to depreciate, the recent market behaviour just adds to the possibility of future rate hikes. There is going to be a pressure on the long end of the G-sec curve. We expect some amount of upscale in the yields here on, both from a rate hike cycle perspective and because of a reduction in the demand of G-secs primarily because of reduced OMOs,” Sivakumar said.

In this kind of a scenario, it is very difficult for any market participant to take comfort that the market is fully pricing in the rate hikes and, hence, bond yields have fully reacted.

B Prasanna, head of markets and group executive at ICICI Bank, in an interview to a television channel, said when the rate hike cycle started it looked like a 25 bps hike and done. “It went further and then it looked like 50 bps and done. Then it looked like there might be a long pause, after which, the central bank will end hike. But now, it looks like there might be an imminent third hike, if not in October, at least by December. And then, a fourth hike by February or April,” Prasanna said.

The yield has now hardened by 13 bps in the past seven trading sessions as the markets are convinced the central bank will raise the key repo rate. Fears of the rate hike have led to a sharp fall in banks stocks in the past couple of sessions as investors apprehend losses on lenders’ bond

The rupee has now lost nearly 11.5% since the beginning of 2018.

Crude oil prices have fallen to $77.6 per barrel, down from $78.17 levels two sessions ago. India imports approximately three-fourths of its requirements of crude oil.


Be mindful of the costs of
rupee depreciation, warns SBI report

The Business Line
Published on September 7, 2018

Mumbai, September 6:  With the rupee breaching the 72-mark to the dollar on Thursday, a State Bank of India research report said policy makers should be mindful of the costs of rupee depreciation. It warned that rupee will continue to face pressure in the foreseeable future.

In this regard, it underscored the possibility of roll-over of India’s short-term debt obligations (for the second half, assuming that rupee depreciates to an average value of 71.4/US dollar, the debt repayment amount would be ₹7.8-lakh crore), adding a significant cost to the Government. Further, oil import bill could go up manifold.

Referring to yields (on government securities) increasing, the Ecowrap report felt that this could add up government fiscal costs. “On all these counts, the costs could add up to 0.7 per cent of GDP. It may be noted that the yields are already under pressure as unlike earlier years, the government borrowing programme has been evenly distributed between two halves in current fiscal,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Pointing to the RBI estimates, assuming a 10 per cent depreciation, the report assessed that this could add up to 50 basis points on inflation number.

“In fact, continued rupee depreciation could result in rate action by the RBI in October policy, even as headline CPI will decline meaningfully to 3.6-3.7 per cent in September. This could be thus the biggest predicament waiting to unravel.”


The depreciation of the Rupee:
Multiple costs for economy

The Telegraph
Published on September 7, 2018

Mumbai, September 6: The depreciation of the rupee is set to inflict multiple costs on the economy. On two fronts alone - crude cost and debt servicing - the additional burden could be at least Rs 1 lakh crore, the State Bank of India (SBI) said in a research report on Thursday.

There could be other worries as well. For instance, the RBI may be forced to raise rates which will have an adverse impact on consumption and investment expenditure. Further, with gilt yields crossing the 8-per-cent mark, the government will be staring at higher fiscal costs.

Import bill

The domestic currency has depreciated around 13 per cent this calendar year, accompanied by rising crude oil prices. With India importing around 80 per cent of its crude oil requirements, the rising prices along with the depreciation would inflate the country's oil import bill. The research report - Ecowrap - forecasts the crude import bill will come to $57 billion in the current fiscal, assuming that the country imports 0.76 billion barrels during the rest of the year. The estimate is based on an average oil price of $74.24 per barrel for the remaining half.

"If the average exchange rate remained at Rs 65.1 per dollar, the crude oil import bill would have been Rs 3,64,300 crore. However, with the rupee depreciating to an average of Rs 71.4 per dollar in the second half of 2018, the import bill will increase to Rs 4,03,600 crore, implying an extra cost of around Rs 39,300 crore," the report added.

If the average exchange rate of the rupee falls to 73 to the greenback, the extra cost will rise to Rs 45,700 crore.

Debt repayment

The rupee's depreciation can also have an impact on short-term external debt repayment of corporate India.

While India's short-term debt obligations as on December 2017 were $217.6 billion, the SBI said if half of this amount has either been paid in the first half of 2018 or is rolled over to 2019, the remaining repayment amount in rupee terms would be Rs 7.1 lakh crore at an average 2017 exchange rate of Rs 65.1 per dollar. However, for the second half, assuming that the rupee depreciates to an average value of 71.4 per dollar, the debt repayment amount would be Rs 7.8 lakh crore, implying an additional cost of Rs 67,000 crore.

However, the report forecast the domestic unit will bounce back. The SBI, which is tracking the rupee movement against the dollar since the global financial crisis, said the depreciation was always followed by appreciation.

"There were two instances where the depreciation lengthened for more than three quarters, but once the currency settled at a lower level, the appreciation picked up at a dramatic pace," it said.

We believe, this time will be no different as currency will start appreciating once the dust settles for the currency to settle at a lower level'', it added.


‘GST revenue may be
Rs. 90,000 crore short in FY19’

The Business Line
Published on September 7, 2018

Kolkata, September 6: West Bengal Finance Minister Amit Mitra said on Thursday that the Goods and Services Tax is yet to fully stabilise even a year after its rollout and revenue from the levy could see a possible shortfall.

“In 2017-18, States fell short of more than Rs. 43,000 crore, which the Centre had to compensate. I am now being told that there may be a shortfall of Rs. 13,000 crore in July and August,” Mitra told BusinessLine on the sidelines of the 43rd AGM of the US India Business Council.

He contended that in effect this would mean a Rs. 6,500-crore shortfall per month and could potentially lead to over Rs. 90,000crore of shortfall in GST revenue for the full year.

“The shortfall was projected at Rs. 55,000 crore in the GST Council. The Centre will have to pay the money. It is a mess that they have created,” said Mitra, who is also a GST Council member.

The total mop-up from GST in August amounted to Rs. 93,960 crore, against Rs. 96,483 crore in July.

It could see a further drop in September, when the actual impact of the rate cuts on a large number of products is felt.

Mitra said the lack of preparation has impacted SMEs. “The bottom of the pyramid, with struggling entrepreneurs who provide the largest number of jobs and contribute a significant proportion of the GDP, has been hit with a sledgehammer,” he said.

Mitra also raised concerns over the lack of clear GST returns and said SMEs continue to suffer under the new tax regime.

“Even now GST has not stabilised. GSTR 1 can be uploaded but it doesn’t self populate. So, there is no GSTR-2. GSTR-3B was introduced, which is not supported by any invoice,” he pointed out, adding that according to some State tax officers, it is also leading to tax evasion.


Parliamentary Standing Committee on Finance:
‘RBI should bear responsibility to fix
flaws with its oversight functions’

Sunny Verma
The Financial Express
Published on September 7, 2018

The Committee emphasised that the present banking sector crisis, which is transient, should not become an alibi for privatisation of public sector banks (PSBs).

New Delhi, September 6: In the backdrop of the recent fraud at Punjab National Bank and stress in the banking sector, a Parliamentary panel has recommended that the Reserve Bank of India should bear the responsibility to proactively fix the flaws in its oversight functions.

The Parliamentary Standing Committee on Finance, in its report on banking sector released Wednesday, made various suggestions to the RBI to resurrect the bleeding public sector banks, which include relaxation in capital adequacy rules to free up excess capital, easing of the Prompt Corrective Action (PCA) framework, separate treatment of NPAs due to wilful defaulters and those where defaults are because of extraneous reasons, among others. The Committee emphasised that the present banking sector crisis, which is transient, should not become an alibi for privatisation of public sector banks (PSBs).

With regard to the RBI maintaining that it doesn’t have enough powers to regulate the state-owned banks, the Parliamentary panel suggested that the government should constitute a high-powered committee to evaluate the role, powers and authority of RBI in its entirety, while also appraising the economic impact of the various NPA resolution norms/schemes formulated by RBI. The proposed Committee should look provisions of the RBI Act, Banking (Regulation) Act and other relevant statutes to ensure “the accountability of RBI as the regulator of the banking sector including the matter of having RBI nominees on the Boards of banks”. The Parliamentary committee, chaired by M Veerappa Moily, also sought a review of whether the RBI has used its powers effectively in case of digressions by private banks ICICI Bank and HDFC.

In its submissions to the Parliamentary Committee, the RBI maintained that its “supervisory process does not constitute an audit of banks and does not seek to replace it” and with the number of commercial bank branches being more than 1.16 lakh in the country, it would be impossible to cover each and every branch of banks under the RBI’s supervisory process. The RBI also maintained that it doesn’t have various powers with respect to public sector banks, which it enjoys for regulating private banks. These include the power to remove chairman and managing director and to appoint them, call a meeting of directors of the bank concerned, appoint observers, remove managerial and other persons from office, supersede the Board of Directors and make application for winding up and amalgamation, among others.

The finance ministry listed out the numerous powers the RBI enjoys over PSBs. While asking the government to critically examine these issues for empowering the RBI with respect to the PSBs, the Committee noted: “It also needs an objective appraisal as to the extent to which RBI has been enforcing their assigned authority and powers with respect to digressions by private banks such as ICICI and HDFC etc.”

Interestingly, in submission before the Committee, the Department of Financial Services Secretary Rajiv Kumar also argued that the government does not have powers to seek fraud details from the regulator.

“There is also a problem with the Government and the Regulator … all the powers of inspection of audit, deciding the credit, keeping the loan details above Rs. 5 crore, getting the reports on fraud is with the Regulator. It is not with the Government. Under the RBI Act, the Government, under Section 45, cannot even ask the details of an account because of the privacy issues involved,” Kumar told the Parliamentary panel.

‘Fix reasonable base price’

New Delhi: Considering the fact that unduly large haircut have been suffered by the creditors in some cases, the Committee recommended fixing reasonable base price for any bidding so that large “haircuts” can be avoided in the course of the IBC process in National Company Law Tribunal.

The Committee received suggestions that the floor price could be at 50 per cent or such other number the Committee of Creditors thinks appropriate. For assets where the bid price falls below the floor price, they could be taken over by an asset reconstruction company.


Agricultural Loans Worth Rs 59,000 Crore
Went to 615 Accounts in One Year

Dheeraj Mishra
The Wire Online
Published on September 5, 2018

Agricultural experts say that large corporations are being given 'agricultural' loans at cheaper interest rates and with easier regulations in the name of farmers.

New Delhi, September 5: Government banks handed out Rs 58,561 crore to 615 accounts in agricultural loans in the year 2016. On average, each account has been given over Rs 95 crore in agricultural loans.

This information was revealed by the Reserve Bank of India in response to a Right to Information (RTI) application filed by The Wire.

Agricultural loans incur lower interest rates as compared to other common loans, and they are also given under fewer preconditions than the average loan. These changes were made to make it easier to give loans to small and marginalised farmers. At the moment, farmers are given agricultural loans at the interest rate of 4%.

Kiran Kumar Veesa, the founder of the farmers’ organisation RythuSwarajya Vedika, said, “Many big companies involved in agri-business are taking loans under the agricultural loans category. Companies like Reliance Fresh come under the agri-business company category. They engage in the buying and selling of agricultural produce, and take loans under the agricultural loans category for the construction of godowns or other such related activities.”

In order to give top priority and ensure the development of some economic sectors in the country, the RBI has issued a directive to banks that they invest a fixed part of their total loans into sectors like agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure and renewable energy. This is called priority sector lending (PSL).

According to the PSL policy, banks are required to hand out 18% of their total loans to the agricultural sector, targeting small and marginalised farmers. Veesa told The Wire, “The problem is that banks are giving a big percentage of this to corporate and big companies, as a result of which farmers are unable to avail these loans.”

He further stated, “Actually, it is pretty easy for big companies to take loans under the PSL policy as the regulations around giving the loans are lax and the interest rate is also quite low compared to general loans. Banks hand out big loans so that their resources remain intact.”

The Wire also filed RTI inquiries in all zonal branches of the State Bank of India for state-wise data, but no branch except the Mumbai zone revealed the information. SBI Mumbai zone stated that the Mumbai City branch – one of the richest localities in Mumbai – has given out Rs 29.95 crore in loans to three accounts.

Going by these numbers, each account has been given almost Rs 10 crore on average in loans, whereas in the same branch, more than Rs 27 crore have been given in loans to nine accounts. However, the bank did not provide information on the names of the beneficiaries of these loans.

Agricultural expert Devendra Sharma has said that big corporations are being given loans at a cheaper rate after pronouncements in the name of farmers. “There is just the charade of solving farmers’ problems,” he said. “What kind of farmers are these who are being given Rs 100 crore in loans? This is all a show. Why is the industry being given loans in the name of farmers?”

Sharma says that banks also stand to benefit from this whole process, and that is why such massive loans are being given under the agricultural loans category. “Here, Rs 100 crore can easily be given to a company. If the same amount were to be given to farmers, at least 200 people would be required. Banks are giving out such massive loans so that their resources are depleted less and the target of 18% can be achieved soon.”

The National Democratic Alliance government had kept giving out Rs 8.5 lakh crore in agricultural loans in 2014-15, which has increased to Rs 11 lakh crore in 2018-19. However, data accessed by The Wire from the RBI reveal that a big chunk of this is made up of massive loans. Agricultural experts say these loans are going to agri-business companies and the industrial sector.

Agricultural loans are given under three subcategories – agricultural debt, foundational agricultural infrastructure and supporting activities. Godowns and cold-storages fall under foundational infrastructure. For these, loans up to Rs 100 crore are given. Things like the setting up of agri-clinics and agri-business centres fall under supporting activities, and for these too the limit for loans is Rs 100 crore.

Data from the RBI reveals that massive amounts have been given to people in the name of agricultural loans even before 2016. In 2015, 604 accounts received Rs 52,143 crore, which comes to Rs 86.33 crore per account, whereas Rs 60,156 crore (at an average of Rs 91.28 crore per account) was given in agricultural loans in 2014. The same method was being followed during the UPA government as well.

Where 2013 saw 665 accounts receive Rs 56,000 crore at an average of Rs 84.30 crore per account in agricultural loans, 698 accounts received Rs 55,504 crore at an average of Rs 79.51 crore per account in 2012.

Kedar Sirohi, a farmer from Madhya Pradesh and a member of the Aam Kisan Union, is of the opinion that the government first traps farmers in a vicious cycle of debt, and when a farmer wishes to take a loan in order to do better financially, he is harassed by the banks. An ordinary farmer cannot even imagine that the government is handing out loans to the tune of hundreds of crores to big corporate companies after launching schemes in their name.

Sanjeev, a farmer, lives in Ittawa, Uttar Pradesh, and farms over four acres of land. He says that a chunk of agricultural loans is taken by the middlemen who help secure it. Some farmers take loans under duress as they don’t have money, but even for this, they have to make several rounds to the bank and face ridicule from the bank officials. It’s a mystery who these 615 account holders are, who have received so much money as agricultural loans.

Devendra Sharma says that the loans given to farmers and agri-business companies should be separated. Farmers should not be defrauded by giving companies loans under the ‘agricultural’ tag. Sharma said he had made this suggestion in front of the finance minister, but no reactions were received.


The price of social banking

Moin Qazi
The Asian Age
Published on September 6, 2018

It is true that banks can play an important role in the financial transformation of low-income communities, but sustainability should never be overlooked. In their excitement to oblige their constituencies, politicians run financially amok and literally plunder banks for their vote blocks. This was precisely the reason why India’s post nationalisation mass banking programmes degenerated into populist agendas which financially ruined the banks. All these highlighted how unenlightened politician can play havoc with financial systems. The entire execution lacked the soul of a genuine economic revolution because it was not conceived by the grassroots agents but assembled by starry-eyed mandarins who had picked up bits and pieces about financial inclusion from pompous new fangledand half baked ideas generated at seminars and conferences.

The original banking concept, based on security-oriented lending, was broadened to a social banking concept based on purpose-oriented credit for development. This called for a shift from urban to rural oriented lending. Social banking was conceptualised as “better the village, better the nation”. However, opening new branches in rural areas without proper expansion, planning and supervision of end use of credit or creation of basic infrastructure facilities meant that branches remained mere flag posts. It was a make-believe revolution that was to lead to a serious financial crisis in the years to come.

The initial impetus for social banking in India came from the report of the 1951 All-India Rural Credit Survey which concluded that lack of access to commercial banks was a root cause of rural poverty (Reserve Bank of India,1954). This resulted in the setting up of State Bank of India for initiating social banking in India. In 1969, the fourteen largest Indian commercial banks were nationalised, at which point they came under the direct control of the Indian Central bank and were formally incorporated into the planning architecture of the country. The point of bank nationalisation was to empower the state to target financial backwardness as a means of promoting social objectives. A central aim was to reduce and equalise the average population per bank branch across Indian states.

The object of social ban-king was to bring home two facts and four effects.

The two facts were:

1. That right from the time of Independence, the over-riding concern of development policy makers has been to find ways and means to finance the poor and reduce the burden upon them.

2. Between the concern of the policy makers and the quality of the effort, however, there was a gap. The efforts made were not able to achieve the success envisaged for a variety of reasons mainly because of the defects in policy design, infirmities in implementation and the inability of the government of the day to desist from resorting to measures such as loan waivers.

The four consequences flowing from these facts are:

1. That the banking system was not able to internalise lending to the poor as a viable activity but only as a social obligation. It was something that had to be done because the authorities wanted it so. This was translated into the banking language of the day;

2. Loans to the poor were part of social sector lending and not commercial lending;

3. The poor were not borrowers, they were beneficiaries;

4. Poor beneficiaries did not avail of loans they availed of assistance.

The politicians believe banks can bring economic revolution through rural credit, which is just like expecting a midwife to deliver a baby. In a developing country, it is not enough just to provide credit for production. Production itself must be increased with the adopting of improved technology.

The Integrated Rural Development Programme (IRDP) is a grim reminder of how mechanically trying to meet targets can undermine the integrity of a social revolution to such an extent that a counter-revolution can be set into motion. Arguably India’s worst-ever development programme, the IRDP intended providing income-generating assets to the rural poor through the provision of cheap bank credit. Little support was provided for skill-formation, access to inputs, markets and necessary infrastructure. In the case of cattle loans, for example, a majority of cattle owners reported that either they had sold-off the animals bought with the loan or that these animals were dead. Cattle loans were financed without adequate attention to other details involved in cattle care: fodder availability, veterinary infrastructure, marketing linkages for milk, etc.

Working for the poor does not mean indiscriminately thrusting money down their throats. Unfortunately, IRDP did precisely that. The programme did not attempt to ascertain whether the loan provided would lead to the creation of a viable long-term asset nor attempt to create the necessary forward and backward linkages to supply raw material or establish marketing linkages for the produce. Little information was collected on the intended beneficiary. The IRDP was principally an instrument for powerful local bosses to opportunistically distribute political largesse. The abiding legacy of the programme for India’s poor has been that millions have become bank defaulters through no fault of their own. Today, the people so marked find it impossible to rejoin the formal credit stream.

The IRDP alone accounted for 40 per cent of the losses incurred by commercial banks in rural lending in India. By the end of the 1980s, great concern began to be expressed about the low capital base, low profitability, and high percentage of non-performing assets of public sector banks, whose earnings were invariably lower than their loan losses and transaction costs. They required continual refinancing and recapitalisation by apex institutions. The final nail in the coffin was the official loan waiver of 1989, which destroyed whatever semblance of credit discipline remained.

There are two basic prerequisites of a poverty eradication programmes. Firstly, reorientation of the agricultural relations so that the ownership of land is shared by a larger section of the people. Secondly, programmes for alleviating poverty cannot succeed in an economy plagued by corruption, inflation and inefficient bureaucracy.

The writer is a well-known banker


RBI has a new tool to prevent bank frauds!
It'll affect most companies

Mudit Kapoor
The Business Today
Published on September 6, 2018

Money is laundered through a web of companies located in different geographies, making it difficult to check such transactions. To fight this, the Reserve Bank of India (RBI) has introduced Legal Entity Identifier or LEI. Its key aim is to check and prevent banking frauds.

New Delhi, September 5:  Global financial transactions are often difficult to track. Especially, when no standard identification of companies is followed around the world.

Unscrupulous businessmen running away with huge sums of taxpayer's money is not uncommon. Money is laundered through a web of companies located in different geographies, making it difficult to check such transactions. To fight this, the Reserve Bank of India (RBI) has introduced Legal Entity Identifier or LEI. Its key aim is to check and prevent banking frauds.

In fact, RBI has mandated a phase-wise implementation of LEI (Legal Entity Identifier) for all borrowers of banks in India. Entities without an LEI code will not be granted renewal / enhancement of credit facilities after a specified date.

What is LEI?

LEI is a 20 digit global reference number which uniquely identifies a company. Across the world LEI is conceived as a key measure to improve the quality and accuracy of financial data through improved risk management.

Global Legal Entity Identifier Foundation (GLEIF) is the regulator of LEI. The foundation is backed and overseen by the LEI Regulatory Oversight Committee, represented by public authorities from around the globe that have come together to jointly drive forward transparency within the global financial markets.

Advantages of LEI

1 Uniquely identifies parties to a transaction.

2 Improves accuracy and quality of financial data.

3 Enables transaction tracking.

How would LEI help the banking sector?

1 Help banks to effectively monitor debt.

2 Prevent issuing multiple loans for the same collateral.

3 Facilitate assessment of aggregate borrowing by corporate groups.

4 Serves as a proof of identity for a firm.

5 Eases transaction reporting to regulators.

6 Corporate entity identification across financial markets.

An example of legal entity identification number and its breakup

The structure of LEI is determined by ISO standard 17442 and takes into account financial stability board stipulations.

How will this work?

Through LEI, key reference information can be connected that enables clear and unique identification of legal entities participating in a financial transaction.

Banks will be required to acquire LEI number from the borrower and report it to CRILC (Central Repository of Information on Large Credit), a database of loans where details of loans above Rs 5 crore is maintained. CRILC collects data on non-performing assets (NPA) from all Indian financial institutions and advises the state of impairment.

Timeline to adhere to LEI

RBI in its November 2, 2017 mandate has specified introducing LEI in a phased manner for large corporate borrowers having fund and non-fund exposure of Rs 5 crore and above.

How to get LEI for your business in India?

Legal Entity Identifier India Limited (LEIL) a wholly Owned Subsidiary of The Clearing Corporation of India Ltd. acts as a Local Operating Unit (LOU) for issuing globally compatible Legal Entity Identifiers (LEIs) in India. LEIL has been recognised by the Reserve Bank of India as an "issuer" of Legal Entity Identifiers under the Payment and Settlement Systems Act 2007. Cost of obtaining LEI for your business is Rs 6,000 plus GST.


A Tale of Directors

Akhilesh Bhargava
The HW News Online
Published on September 6, 2018

The board of directors of a company predominantly consists of the promoter directors, who are the persons who promoted the company and generally are its majority shareholders. They thus truly own the company and look after its day to day management. It is they who hold the money purse and chequebook of the company and are the direct beneficiaries of its good performance or otherwise. The assets and the overall business of the company are under their control and it is they who also siphon the funds and assets of the company, in case they turn out to be a fraudulent lot.

Since these promoter directors are the entrepreneurs, who have risked their capital, reputation and careers in investing and managing the company, it is they on whose table the buck stops and it is thus they to whom the bucks of corporate profits accrue. But then, these promoters are not the only ones who have invested in the company and it includes many others, including banks, suppliers, vendors, minority shareholders and the government too, which is entitled to its share of taxes on the profits of the company. In many cases, the total investment of these other outside stakeholders in a company is far in excess of the investment by its promoters, but they have no representation on its board of directors and also have no say in its management. The company law and the listing agreement, therefore provide for the appointment of independent directors on the board of a company, to protect the interests of the minority shareholders and the other stakeholders, who too have a stake in the company, but have no say in its management. Through their diverse and often eminent background, these independent directors also enhance the management and profitability of the company, apart from giving it the benefit of their own personal goodwill, reputation and network.

These independent directors often have no shareholding in the company and are expected to play the role of wise men and watchdogs who look after the interests of the company and its minority shareholders and other stakeholders. They do not control the company’s money purse but are yet expected to keep a check on the promoter directors, who are in control of its overall state of affairs.

The corporate law of India does not quite differentiate between the promoter directors and independent directors, with a similar level of onerous responsibilities for both. They are held equally liable for any violations of the Company. It is all fine, till it turns out that the promoter directors have been fraudulent and have indulged in a criminal breach of trust, as in the case of Nirav Modi. And when the promoter decides to run away, hell breaks loose for the independent directors. They are subject to intense interrogation by the investigation agencies like CBI, SFIO, ED etc., which hold them equally responsible for the crime and fraud and blame them as accomplices in the murky saga. They are immediately held to have colluded into the conduct of the mega a fraud by the promoter, as we see in the case of Nirav Modi. The independent directors of his company, who are persons of eminence, viz. Sanjay Rishi, the South Asia president of American Express, Suresh Senapati, a former CFO of Wipro and Gautam Mukavilli a former head of Pepsico India, has not only faced and continue to face interrogation, but also face the crisis of all their personal assets being attached and not being allowed to be sold, for the fraud committed by Nirav Modi. The Supreme Court, in a mere temporary relief to them has permitted them to access their bank accounts, but that does not give them a clean chit for the crimes of Nirav Modi.

Independent directors are needed to keep a check on the promoter, but their position under the law is very weak. While they cannot dilute their fiduciary duties, they cannot be treated at par with the company promoter. Till this anomaly is not rectified, persons of eminence, integrity and independence, will refuse to join company boards.


The fuzzy impact of demonetisation

R Kavita Rao
The Business Line
Published on September 7, 2018

DeMo does not seem to have impacted black money hoards. It
may, however, lead to improved tax compliance in the long run

The recently released Annual Report of the Reserve Bank of India for 2017-18 has revealed that 99.3 per cent of the high denomination notes were returned to the banking system. In other words, only about 0.7 per cent of the value may have been “extinguished” — this is the fraction that was being attributed to unaccounted incomes, if at all. This number should be taken with a pinch of salt, since for one, countries like Nepal and Bhutan where Indian currency has served as a proxy currency, are reportedly requesting for a facility to exchange notes held by their citizens.

Further, anecdotal evidence seems to suggest that citizens within the country could be holding some balances as well since they couldn’t exchange the said amounts for a variety of reasons. Since the latter cannot be considered to be manifestation of unaccounted incomes, clearly, demonetisation as a means to dry up unaccounted wealth held in stocks of currency cannot be said to have yielded immediate results.

There has been considerable discussion on the likely impact of demonetisation on a range of parameters such as growth in the economy, compliance with tax regimes, and impact on the informal economy, to take only the economic factors. It is possible to argue that while the direct impact of demonetisation through currency not returning to the banking system did not play itself out, the measure could have had some indirect impact through improvement in compliance for income tax.

The CBDT has provided some evidence on increase in the number of taxpayers as well as in the revenue collections, especially in personal income tax. The rate of growth of income tax collections, particularly personal income tax collections, has inched up over the levels reported since 2010-11 —the rates of growth in 2016-17 and 2017-18 are 21 per cent and 25 per cent respectively. The same holds for all direct taxes taken together.

Further, the number of returns filed too has reported a sharp increase — in 2017-18 compared to 2016-17, the number of returns have grown by over 50 per cent in some categories of returns. However, when these numbers are put together, it is apparent that the average tax per return must have fallen significantly. In other words, a number of nil filers or people with little tax liability might now have been brought into the tax regime. This could encourage compliance in the long run, if the taxpayers can be retained in the system.

Growth impact

Turning to the impact on the economy, it is now recognised that there was a decline in the rate of growth of GDP in the months following demonetisation. Growth rate for the first quarter of the financial year 2017-18 dropped to 5.4 per cent. It is interesting to see what the expenditure side of GDP reveals. There appears to have been considerable increase in the expenditure on valuables during this period.

Such spending does not contribute to expansion in productive capacities in the economy, nor does it result in expansion in demand for other sectors in the economy. If one excludes expenditure on valuables from the calculations, the rate of growth of rest of GDP falls further to 4.1 per cent.

Even in the next quarter, the rate of growth without valuables is lower at 5.7 per cent as compared to 6.3 per cent with valuables. In other words, the immediate impact is a reduction in growth with the recovery led by government expenditure.

The second expected economic impact was a boost to the use of financial substitutes of currency as well as a shift from physical savings to financial savings. The Annual Report of the RBI for 2017-18 suggests that net financial savings of households as a percentage of gross national disposable income had declined in 2016-17 to 6.7 per cent when compared to 8.1 per cent in the previous year. For 2017-18, it has increased to 7.1 per cent which is barely on par with the levels reached in the earlier years of this decade. The surge in the use of cash to exceed pre-demonetisation levels suggests that comfort in cash based transactions continues to persist.

In other words, the dramatic changes in the economy, and in behaviour that DeMo was expected to bring about, have not been comprehensively witnessed.

There are two other aspects one needs to look at. First, did informal substitutes to currency take root during this period? Here anecdotal evidence suggests that there was a surge in purchase of digital currencies with a premium in the Indian markets over the international prices. Exploring digital currencies might have happened in the natural course of things, but demonetisation, it is argued, has accelerated the interest in alternatives.

Formalisation push?

Second, formalisation of the economy as measured by the share of transactions on which taxes are paid should have received a boost. Unfortunately, we do not have evidence on this aspect of the economy, since the methodology of measurement of GDP only measures the formal sector and attributes the same growth to the informal component of the economy. Formalisation should have led to an expansion in the formal component at a cost to the informal component.

However, if one looks at trends in indirect tax collections as a proxy for formalisation in the economy, then the shift from informal to formal is not in evidence.

In fact, the lacklustre performance of GST collections seems to suggest that either the size of the informal sector in the Indian economy was not very large to begin with or that both these measures —demonetisation and GST — have not made a substantial dent on formalising this informal sector.

It is indeed worth attempting another base correction in GDP estimation to disentangle the impact on the informal economy.

The writer is Professor,
National Institute of Public Finance and Policy
Source: Internet News papers and anupsen articles


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