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Allow majority private participation in PSBs: Arvind Subramanian

“In return, the RBI would deploy its surplus capital to augment the resources for recapitalising PSBs and capitalising any new holding companies.”

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New Delhi, Dec 2 : State-run banks need to be fundamentally reformed by allowing majority private sector participation in them as a way forward in resolving the crisis of massive non-performing assets (NPAs), or bad loans, former Chief Economic Advisor Arvind Subramanian has said.

In his shortly to be released book “Of Counsel: The Challenges of the Modi-Jaitley Economy”, published by Penguin, Subramanian argues for a “grand bargain” between the government and the Reserve Bank of India (RBI) to resolve NPAs which have accumulated to a staggering Rs 13 lakh crore, setting off a liquidity crunch and provoking a tiff between the Centre and the central bank.

“Fundamental reform of the PSBs (public sector banks) is facilitated by allowing majority private-sector participation in the PSBs,” Subramanian writes.

“In return, the RBI would deploy its surplus capital to augment the resources for recapitalising PSBs and capitalising any new holding companies.”

The government’s differences with the RBI centres on four issues — the former wanted liquidity support to head off any credit freeze risk, a relaxation in capital requirements for lenders, relaxing the prompt corrective action (PCA) rules for banks struggling with accumulated NPAs, and support for micro, small and medium enterprises.

Central to the liquidity issue was the government’s demand that the RBI hand over its surplus reserves by making changes to the “economic capital framework”.

“Regulatory/supervisory reform is further achieved by granting the RBI greater supervisory powers over public sector banks,” Subramanian says.

Taking some major names that have emerged in the banking controversy like Vijay Mallya, Nirav Modi, Chanda Kochhar, Rana Kapoor and Ravi Parthasarathy, the former CEA says: “Hearing this roll call of names is to be reminded of India’s astigmatised capitalism’.

He also suggests, to paraphrase from Shakespeare, that “something is rotten in this state of Indian banking for having allowed stigmatised capitalists to survive and thrive for so long”.

He also says that the recognition of the NPA crisis through the RBI’s PCA framework initiated in June 2015 is further advanced by sanctioning financial institutions that are not classifying their loans properly, especially power-sector loans, at banks and other loans at non-banking finance companies (NBFCs).

Besides, the asset resolution process, as enacted by the Insolvency and Bankruptcy Code, is accelerated by sending smaller assets to specialised distressed asset recovery firms, “while the powers sector assets would be shifted to a new government-run holding company”.

“The government should also allow the RBI to implement the Prompt Corrective Action (PCA) framework for less strong banks,” he said.

“Finally, check-ins and oversight of the banking system must be in place to ensure that the shenanigans we have seen over the last several years from Vijay Mallya to Nirav Modi to ICICI Bank to IL&FS are minimized; they can never be fully avoided (regulation),” he added.

While the NPA crisis is a legacy of the lending boom during the high growth years up to 2010, the current liquidity crunch, particularly among non-banking finance companies, follows a series of defaults last month by the privately-run Infrastructure Leasing and Financial Services and banks hesitating to lend after a series of scams, most notably the Rs 14,000 crore fraud on state-run Punjab National Bank by two absconding jewellers Nirav Modi and Mehul Choksi.

(Biswajit Choudhury can be contacted at [email protected] )

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Rajnath: I pray for early release of Abdullahs & Mehbooba from detention

Rajnath Singh drew accolades in Kashmir while he was the Home Minister in the previous government under Prime Minister Narendra Modi, for his uprightness and kindness.

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New Delhi, Feb 22 : Defence Minister Rajnath Singh on Saturday said that he is praying for the early release of three former chief ministers of Jammu & Kashmir from their detention and hoping that they will contribute to normalizing situation in Kashmir.

Dozens of politicians, including three former chief ministers — Farooq Abdullah and his son Omar Abdullah of National Conference (NC) and Mehbooba Mufti of People’s Democratic Party (PDP) — were placed under preventive detention soon after the Modi government reorganized and bifurcated Jammu and Kashmir state into two Union Territories on August 5 last year.

Though most of the politicians have been released since then, the three chief ministers and a dozen politicians remain detained. While Farooq Abdullah was booked under the stringent Public Safety Act (PSA) in September, Omar and Mehbooba were also recently detained under the same law. The government cited their provocative statements and threats issued before the nullification of Article 370 of the Indian constitution which granted special status to Jammu & Kashmir state.

In an exclusive interview to IANS on Saturday, Defence Minister Rajnath Singh said, “Kashmir has been peaceful. The situation is improving rapidly. Along with the improvement, these decisions (release of politicians from detention) will also be finalized. The government has not tortured anyone.”

Defending the government’s decision, the Defence Minister said that certain steps had been taken in the interests of Kashmir. “Everybody should welcome it,” he said.

Singh said he will pray for the early release of the Abdullahs and Mufti from their detention. “I also pray that once they are out, they work and contribute towards improvement of the situation in Kashmir,” the Union Minister said.

Rajnath Singh drew accolades in Kashmir while he was the Home Minister in the previous government under Prime Minister Narendra Modi, for his uprightness and kindness.

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Research and development activity to get hit as WD benefit to cease from FY21

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

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New Delhi, Feb 19 : India Inc’s R&D activity might get adversely impacted as weighted deduction (WD) benefits, including those on capital expenses, stand withdrawn from the next fiscal.

Till now, the Income Tax Act allowed for weighted deduction for all R&D activities.

However, four years back a sunset provision was introduced in the Budget on the availability of weighted deduction from April 1, 2020.

This deadline was expected to have been extended in this year’s Budget. However, that did not happen.

“The weighted deduction was a key reason for entities to invest in R&D infra. This withdrawal will impact future investments in this area,” said Amarjeet Singh, Senior Partner, International Tax and Regulatory, KPMG in India.

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

Besides, R&D investments into India have grown with many MNCs establishing their research bases here.

“The ‘Make in India’ programme has got the booster of a reduced tax rate. Similarly, had the government continued with the weighted deduction for R&D, it would have surely ensured that India marched ahead both in manufacturing and in the corresponding R&D,” said Gukul Chaudhri, Partner, Deloitte India.

“So, while India may not lose its tag as the R&D lab of the world, the availability of weighted deduction would have ensured that India continued as one of the most attractive destinations for R&D in the world,” Chaudhri added.

The Finance Act, 2016, restricted the availability of expenditure incurred on scientific research to 150 per cent from April 1, 2017, and no weighted deduction from April 1, 2020.

“Globally, most countries are encouraging R&D activity as it generates new ‘intellectual property’ (IP), which in turn creates sustainable revenues. Such IP or new product gives rise to a new industry and other supporting activities,” said Samir Kanabar, Partner, Tax and Regulatory Services, Ernst & Young.

“In India, several sectors like auto, pharma etc. have invested substantially in R&D facilities to develop new IPs, patents and hence, a new tax regime to boost R&D was a major expectation,” Kanabar added.

However, Suman Chowdhury, President, Ratings, Acuite Ratings and Research, said that the reduction in weighted tax deduction will not have any significant effect on India Inc’s R&D activity.

“India’s R&D activity has held steady at 0.7 per cent of GDP over 5 years and no visible signs of positive outcomes were seen emanating from private enterprises despite such benefits,” Chowdhury said.

“Nevertheless, corporates now enjoy a reduced effective corporate tax structure, which should more than compensate for the loss, at least for the manufacturing sector. Service oriented enterprises, whose business model thrives on innovation, do not require incentives to do R&D in our opinion,” Chowdhury added.

(Rohit Vaid can be contacted at [email protected])

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AGR risk for GAIL, OIL and Powergrid stays: Fitch

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New Delhi, Feb 19 : India’s telecom-related regulatory dispute still is event risk for GAIL, OIL and Powergrid, Fitch Ratings said on wednesday.

Fitch Ratings continues to treat any payments that three India-based companies – GAIL (India) Limited (BBB-/Stable), Oil India Limited (BBB-/Stable) and Power Grid Corporation of India Ltd (BBB-/Stable) – may have to make under a demand notice from the Department of Telecom as an event risk for the companies’ ratings.

Fitch is not taking immediate rating action on the three companies, as the Supreme Court of India allowed the companies to withdraw their clarification applications on February 14, 2020, and resolve their dispute with Department of Telecom outside the court.

This is in stark contrast to the court’s decision to demand immediate payments from the telecom companies that are also involved in the dispute, Fitch added.

“We expect the three companies to eventually resolve the dispute, although resolution timing is uncertain. A speedy solution is important to prevent disrupting the companies’ investment plans and damaging their performance. The three companies are considering an appeal against the demand notices. We understand that they have the option to resolve the matter through alternate dispute-resolution mechanisms available to state-owned enterprises. This is in addition to the legal options available to telecom license holders in general,” it said.

The Department of Telecom has issued demand notices to GAIL, OIL and POWERGRID for Rs 1,831 billion, Rs 480 billion and Rs 220 billion, respectively.

The notices include license fees on non-telecom revenue and additional interest and penalties on the license fees. However, the three companies’ telecom-related revenue is insignificant, at around Rs 0.5 billion, Rs 0.01 billion and Rs 23 billion, respectively, for the same time period as the demand notices.

The three companies have created telecom infrastructure for internal use and have obtained national long distance and Internet service provider licenses to rent out spare capacity. They maintain that their licenses differ from the unified access licenses held by telecom companies, hence, the court’s decision on adjusted gross revenue for telecom companies does not apply to them.

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