CCEA approves Rs 1,340-cr recapitalisation for weak regional rural banks

Source: Business Standard, Mar 25, 2020

New Delhi: The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a Rs 1,340-crore recapitalisation plan for the weak regional rural banks (RRBs) to help improve their capital to risk weighted assets ratio (CRAR) during 2020-21. RRBs are mandated to maintain a minimum CRAR of 9 per cent by the regulator.

Of this, Rs 670 crore each would be provided by the Centre and sponsor banks, Information and Broadcasting Minister Prakash Javdekar told reporters after the Cabinet meeting. This is, in a way, an extension of the recapitalisation plan that was to end this financial year (April 2019 to March 2020, of FY20).

The release of the government’s share of funds would be contingent upon the release of the proportionate share by the sponsor banks, an official statement said.

After the Reserve Bank of India’s decision to introduce disclosure norms for CRAR of RRBs with effect from March 2008, a committee was set up under the chairmanship of former central bank deputy governor K C Chakrabarty.

Based on the Committee’s recommendations, a scheme for recapitalisation of RRBs was approved by the Cabinet in 2011 to provide capital support of Rs 2,200 crore to 40 RRBs with an additional amount of Rs 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly in the north eastern and eastern region.

By March 31 every year, National Bank for Agriculture and Rural Development (Nabard) identifies RRBs that require recapitalisation assistance to maintain the mandatory CRAR of 9 per cent.

After 2011, the recapitalisation scheme was extended till 2019-20 in a phased manner with a financial support of Rs 2,900 crore a year. Of this, 50 per cent is provided by the government.

The government has released Rs 1,395.64 crore out of its share of Rs 1,450 crore to RRBs in 2019-20 so far. Meanwhile, the government has initiated structural consolidation of RRBs in three phase, reducing their number from 196 in 2005 to the present 45.

Covid-driven tax reliefs to cost government 2-3% of GDP

Source: The Economic Times, Mar 26, 2020

Taxation experts have welcomed the measures announced by the government, saying these steps will add up to 2-3 per cent of GDP but will go a long way in addressing the issue of liquidity and deferment of payment obligations. The government on Tuesday came out with a slew of relaxation in tax and payment compliances by reducing the quantum of penalties, extending the deadline to make clear the dues among others to help the public and corporates.

Some of the key measures include extension of tax filing/returns and accordingly all tax due arising between March 20, 2020 and June 29, 2020 now stand extended to June 30, 2020.

This is across income tax and GST, and would apply to all return filings, replies/appeal filings, and other compliance documents. For delayed payments, interest rates have been reduced to 9% under both income tax and GST.

Welcoming the measures, Deloitte said these measures will help ease the compliance pressure on businesses and individuals and provide necessary relief to critical sectors in view of the Covid outbreak.

Many analysts have said the lockdowns will shave off as much as Rs 9 lakh crore of the GDP.

Gokul Chaudhri of Deloitte India said, “These steps will certainly give a lot of confidence to corporates and different sectors of the economy.
The relief measures and easing of compliance deadlines will enable businesses to sustain themselves in the current atmosphere and is likely to have a positive impact on economic activities and more importantly remove uncertainty in the system.

“From the tax point of view, the reliefs like tax breaks, accelerated depreciation, reliefs on payrolls, payments-weighted deduction, relief on contribution to PF will add up to 2-3 percent of GDP, which is much needed to help address the issue of liquidity and deferment of payment obligations,” he said.

The move to ensure 24/7 trade facilitation at ports through the customs will not only promote ease of doing business but also ensure smooth flow of trade, he added.

Jiger Saiya, partner and leader for tax and regulatory services at BDO India, said the extension to the Vivad Se Vishwas scheme will go a long way in making the entire scheme a success as in the original form it was an impossibility to attain the objective.

“With the extension, taxmen will now have time to clarify more aspects and taxpayers will have reasonable time to evaluate and seek settlement of tax disputes, under the scheme,” Saiya said.

Veena Sivaramakrishnan of Shardul Amarchand Mangaldas & Co said the tax measures are a step in the right direction and indicate more such practical measures to come in the future.

KPMG India’s Rajeev Dimri said the various tax reliefs announced by the finance minister would provide the much needed succor to all in these unprecedented times.

Naveen Aggarwal of KPMG said extension of the deadline under Vivad Se Vishwas from March 31 to June 30 without paying additional tax of 10 per cent is a welcome move and is in line with the representations made by taxpayers and industry forums.

This would help companies save for possible financial difficulties faced by companies in this crises.

On the IBC changes, Manish Aggarwal of KPMG said changing the operative sections of the IBC will help avoid large scale insolvencies.

The government also needs to consider sector specific measures to address the cash flow & liquidity enhancement measures to help businesses withstand this period.

Stopping the process towards insolvency is necessary but not a sufficient condition to address fundamental issues facing the businesses now.

Rajesh Narain Gupta, managing partner of SNG & Partners the measures announced will lead to a positive direction and will give a boost to trade and commerce.

Government likely to fall short of revised divestment target by Rs 13,000 crore

Source: The Economic Times, Mar 25, 2020

NEW DELHI: With a week to go for the financial year to end, the government is set to fall short of its revised divestment target of Rs 65,000 crore by a little over 20%, even as officials expect some deals to close this month.

Proceeds from divestment including offers for sale, equity traded funds and buybacks, stood at Rs 35,537.32 crore as of March 12, officials said, adding that an additional Rs 15,000 crore is expected from NTPC’s buyout of NeepCo and THDC and the sale of Kamarajar Port Ltd. to Chennai Port Trust.

“(Proceeds of) THDC and NeepCo will happen in the coming days. Kamarajar Port will also happen,” an official said, asking not to be identified. “But this year’s targets cannot be met.”

While a few share buybacks from public sector units are in the works, offers for sale will not be taken up owing to the volatile situation in the stock markets, a second official said.

Conceding that the coronavirus outbreak and the oil price crash have created a volatile situation in the markets, officials said that while March 2020 has been dry, the month otherwise typically sees average inflows of between Rs 15,000 crore and Rs 20,000 crore every year.

“Three weeks ago, we would have been more gung-ho because this is typically a bull month… but no company would have expected such a crash in demand… and the economic impact of these developments will be deep,” one of them said.
The government had revised its divestment target for FY20 to Rs 65,000 crore from Rs 1,05,000 crore. It set a goal of Rs 2,10,000 crore for FY21, including Rs 90,000 crore from the sale of government stake in banks and financial institutions.

Industry experts said the government’s plan to sell its marquee assets – Air India, Bharat Petroleum Corporation Ltd., Container Corporation of India and Shipping Corporation of India – in the next financial year could take a hit due to the worldwide coronavirus outbreak and oil prices, which crashed to less than $25 a barrel. Government officials are taking a cautious approach. “We’re not too optimistic but we’re neither being pessimistic. We have to see how coronavirus pans out. We’re carrying out the decisions on strategic sales that we’ve taken… it will take time, about six to eight months, but we’re constantly engaging with investors,” the second official said.

While the last date for submission of bids for Air India has been extended by more than a month to April 30 on the grounds that interested parties had sought more time due to the fallout of the coronavirus spread across several countries, the government will take a call on extending dates for BPCL if potential investors seek more time. Meanwhile, the request for bids for Concor are targeted for September as several issues, including that of land leased by the entity from the ministry of railways, are being resolved.

To maintain liquidity, RBI to purchase Rs 10,000-crore govt bonds via OMO

Source: Business Standard, Mar 19, 2020

Mumbai: The Reserve Bank of India (RBI) on Wednesday said it would buy Rs 10,000 crore of bonds from the secondary market to keep the market liquid, even as it infused Rs 25,000 crore of liquidity through long-term repo operations (LTRO).

“With the heightening of COVID-19 pandemic risks, certain financial market segments have been experiencing a tightening of financial conditions as reflected in the hardening of yields and widening of spreads. It is important to ensure that all market segments remain liquid and stable, and function normally,” the RBI said in a statement on its website.

Therefore, the central bank will conduct open market operations (OMO) on March through a multi-security auction.

The bonds mature between February 2022 and May 2025. This is one more effort by the central bank to infuse liquidity even as the system remains in liquidity surplus of about Rs 2.5 trillion.

Earlier this week, the RBI said it would infuse liquidity in the system through Rs 1 trillion of long term repo operations (LTRO) and will also increase dollar liquidity through a sell-buy swap of dollars, starting with a $2-billion swap.

The first tranche of the LTRO, for Rs 25,000 crore happened on Wednesday. The LTRO for a three-year tenure saw participants bidding for a total of Rs 27,096 crore. This is a far cry from bids in multiples that the RBI received in its first round of LTRO of Rs 1 trillion, and indicates that liquidity is quite comfortable in the system. The RBI has already infused Rs 1 trillion of liquidity through LTRO since February. The RBI also assured that it will use all that it has to fight a COVID-19-led slowdown, and address all kinds of liquidity concerns.

Government liabilities at Rs 93.89 lakh crore at December-end, up 3.2 per cent over Q2

Source: The Economic Times, Mar 18, 2020

New Delhi: Total liabilities of the government increased to Rs 93.89 lakh crore at the end of December 2019, up 3.2 per cent as compared to the previous quarter, said finance ministry data on Wednesday. The liabilities, including those under the public account, had stood at Rs 91,01,484 crore at the end of September 2019.

Public debt accounted for 90.4 per cent of total outstanding liabilities at the end of December 2019.

The Public Debt Management Quarterly Report further said the proportion of debt (dated securities) maturing in less than one year was higher at 6.64 per cent at the end of December 2019 as compared to its previous quarter level of 5.41 per cent.

The proportion of debt maturing within 1-5 years was also higher at 25.09 per cent at the end of December 2019, compared with 23.65 per cent at end-September 2019.

Debt maturing in the next five years worked out to 31.7 per cent of total outstanding debt at the end of December 2019 or 6.3 per cent of outstanding stock, on an average, needs to be repaid every year over the next five years.

As per the report, the yields on G-Secs moved in a narrow range during October-November 2019, before hardening in the first fortnight of December 2019.
This reflected the impact of several developments, namely reduction in the repo rate by RBI, contraction in IIP for the month of October and simultaneous purchase and sale of government securities in December 2019, the report said.

Central government-dated securities continued to account for a major share of total trading volumes in the secondary market, with a share of 82 per cent in total outright trading volumes in value terms during the third quarter of the current financial year.

Govt encouraging people to avoid using cash to stop coronavirus transmission

Source: The Economic Times, Mar 19, 2020

The government has asked banks to encourage customers to use digital payment methods like UPI, NEFT, mobile banking and debit and credit cards instead of cash as a precautionary measure against the coronavirus outbreak.

The notification, released on Wednesday by the ministry of finance, said that cash could be a potential medium through which the virus propagates.

The notification advised banks to run campaigns in the media, social media and via email and SMS to highlight the health benefits of adopting digital payments given the prevailing situation.

Customers can also be educated on these matters through banners and posters at branches, business correspondent outlets and ATMs, the notification said.

Additionally, the government has also asked that business correspondents, customer service providers and banking agents provide sanitation facilities to customers while using commonly used equipment such as biometric readers for Aadhaar enabled payment systems and ATM machines.

India’s current account deficit narrows to $1.4 bn in December quarter

Source: Business Standard, Mar 12, 2020

Mumbai: The country’s current account deficit (CAD) narrowed sharply to $1.4 billion, or 0.2 per cent of GDP, for the December 2019 quarter, the Reserve Bank of India (RBI) said on Thursday. The deficit had stood at 2.7 per cent in the corresponding quarter a year ago and 0.9 per cent in the previous quarter.

The sharp contraction in the deficit was mainly due to a lower trade deficit of $34.6 billion, and a rise in net services receipts, the central bank said.

The CAD, a critical indicator of the macroeconomic health, represents the gap between the overall foreign exchange expended and received in the economy. The release of the data, coming at a time when markets are spooked due to the coronavirus concerns, will help provide hope to investors.

The foreign exchange market tracks the gap closely, and the release of the data comes on a day when the rupee depreciated to a 17-month low of 74.24 against the dollar. During the ‘taper tantrum’ episode of 2013, the CAD at record highs was one of the reasons for the rupee to be hammered.

For the first nine months of the financial year, the CAD has narrowed to 1 per cent, the RBI said.

During the December 2019 quarter, the trade deficit narrowed to $34.6 billion as against $49.3 billion for the same period a year ago, the RBI data said adding that the dip was largely driven by a correction in imports.

The Indian economic growth may slow to a decadal low of 5 per cent for the financial year 2019-20, driven largely by consumption, which seems to have impacted the imports as well.

On the services front, the net earnings increased to $21.9 billion, which was marginally higher as compared to the $21.7 billion in the year-ago period. The RBI said the receipts increased on the back of a rise in net earnings from computer, travel and financial services.

In what can be seen as a surge in remittances by the diaspora, the private transfer receipts rose 9 per cent to $20.6 billion for the quarter, the RBI said. The net foreign direct investment was also higher at $10 billion in the December 2019 quarter, as against $7.3 billion in the year-ago period.

Foreign portfolio investments recorded a net inflow of $7.8 billion as against an outflow of $2.1 billion last year on account of net purchases in both the debt and equity market, it said.

The external commercial borrowings by Indian companies increased to $3.2 billion for the quarter, up from the $2 billion in the year-ago period, the RBI said. There was an accretion of $21.6 billion to the foreign exchange reserves on a balance of payment basis as against a depletion of $4.3 billion in the third quarter, the RBI said.