RBI starts meeting major players in P2P lending

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After releasing a consultation paper on peer-to-peer (P2P) lending last week, Reserve Bank of India (RBI) has started meeting some leading players in the sector. The founder of a leading P2P lending platform, who met officials of RBI’s Department of Non-Banking Regulation on Wednesday, told FE on the condition of anonymity that the central bank is gearing up to come out with final guidelines for P2P lending platforms by the end of the current calendar year.

He also said that money laundering and interest rate are two of the main areas that the RBI is focusing on while framing the final guidelines for the sector. “It seems RBI is keen on capping the rate interest that a P2P lender can charge at the same level as that for non- banking finance company micro finance institutions (NBFC MFIs),” he said.

As per current RBI regulations, the maximum rate of interest that an NBFC MFI can charge is the lower of 10% more than its cost of funds and 2.75 times of the base rate of the top five commercial banks.

“While money laundering shouldn’t have been a big concern, given that draft guidelines have mandated that all transfer of funds happen directly from the lender’s bank account to that of the borrower, the unearthing of a few ponzi schemes in the P2P sector in China seem to have made the RBI more cautious,” the P2P lending platform’s founder added.

Post May 31, which is the deadline set by RBI for suggestions and comments on the regulations, it will work on the final guidelines and seems keen on releasing them by the end of the year, he added.

According to P2P Finance Association, the global P2P market almost doubled last year and has crossed the £5 billion mark.

“Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders and its associated risks to the financial system are too important to be ignored. The Reserve Bank has therefore found it necessary to put out this discussion paper to elicit public opinion and views of the various stakeholders on the future course of action having regard to the current legal and regulatory framework in place to regulate the business of financial intermediation,” RBI noted in the consultation paper.

It has also proposed a minimum capital requirement of R2 crore for P2P NBFCs and is intent on restricting such entities to just companies, thereby barring proprietorships, partnerships and LLPs.

Source: http://www.financialexpress.com/article/industry/banking-finance/rbi-starts-meeting-major-players-in-p2p-lending/248758/

Sumitomo likely to acquire 44% stake in Excel Crop Care

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Japanese conglomerate Sumitomo is at an advanced stage of negotiations to acquire a substantial equity stake in Excel Crop CareBSE -0.87 % , a Mumbai-headquartered listed company. The proposed deal could pave the way for the Japanese group to own about 44% shares of the pesticides and agrochemicals company for a total consideration ofRs 1,200-1,300 crore.

Sumitomo plans to buy out stake of Excel promoters — the Shroff family — holding 24.7% equity as well as two financial investors together owning close to 19% of the shares. ET’s email to Dipesh Shroff, managing director of Excel Crop Care, and Sumitomo Chemical went unanswered.

There have been several rounds of talks between officials of Sumitomo Chemical and the Excel management, and indications are that the deal may be signed in June. Nufarm, the Australian crop protection and specialist seeds company, owns more than 14% and is likely to retain its strategic stake in Excel Crop Care.

According to a report by Avendus Capital, global players are looking at India to increase their market share, add to their product portfolio , and strengthen their supply base in specialty and agrochemicals. “The Indian agrochemicals market is expected to grow rapidly (about 12% CAGR over 2014-19) with increase in farmer awareness, improvement in rural income and increase in pressure for improving productivity,” said Preet Mohan Singh, executive director, Avendus Capital.

The Shroffs are also the promoters of Excel Industries, a specialty chemicals company, and co-promoters of Aimco Pesticides in which they control a little over 25%. Before entering into any agreement with Sumitomo, the Shroffs are expected to conclude the inter se transfer of their holding to the other promoter family of Aimco. Excel Crop Care has 1.13% equity interest in Excel Industries.

Besides Shroffs, the other two shareholders of Excel Crop Care who may sell their shares to Sumitomo are Ratnabali Capital Markets (holding 14.99%) and Ratnabali Investments (3.95%). Among the institutional shareholders of Excel Crop Care are Life Insurance Corporation (6.58%) and DSP Blackrock (1.92%).

Excel Crop Care’s consolidated net profit for the quarter ended March 31, 2016 was Rs 7.6 crore as against Rs 1.7 crore in the year ago period, on total income of Rs 188.6 crore (Rs 205.6 crore). The Excel Crop Care stock has been trading at around Rs 1,109, against 52-week high and low of Rs 1,247 and Rs 750, respectively.

M&A activities in sectors like agro and specialty chemicals is expected to pick up, said Avendus, adding that the stride towards food security will also increase the significance of agrochemicals. An estimated 85% of India’s crop loss (worth close to $20 billion) is caused by pest infestation, disease and weeds and is prevented by the use of agrochemicals.

India exports agrochemicals to countries like the us , France, the Netherlands, Belgium, Germany, Brazil, Colombia, China, Vietnam and Indonesia.

Source: http://economictimes.indiatimes.com/articleshow/52392474.cms

India moots framework for SME sector cooperation in BRICS

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India is working on a mechanism to boost cooperation amongst small and medium enterprises in the five-nation BRICS to promote joint ventures and share expertise on strengthening the sector.

New Delhi, which holds the Presidency of the BRICS this year, is drafting a framework for a joint growth strategy for micro, small and medium enterprises (MSMEs) in the region. “The framework for cooperation amongst MSMEs, which will identify the relative strengths of each country and also possible areas of joint ventures, will be discussed at the next meeting of officials in June and hopefully finalised at the BRICS ministerial meet in October,” a government official told BusinessLine . MSMEs in Brazil, for instance, are highly successful in participating in government procurements, he said, adding that they “capture almost 90 per cent of the business. Other countries could draw from Brazil’s legislative frameworks and other policy initiatives to help their small industry also get a chunk of government business.”

The BRICS grouping of five emerging economies — Brazil, Russia, India, China and South Africa — together account for a GDP of over $16 trillion, which is about half that of the seven major advanced economies. More than 40 per cent of the BRICS economies are driven by the MSME sector, according to government estimates.

The Commerce and Industry Ministry is also holding discussions with the industry to give a final shape to its proposal of putting in place a BRICS portal for addressing non-tariff measures (NTMs) that hamper trade between the BRICS.

Exporters’ body FIEO is one of the industry bodies giving inputs for the proposed portal.

“One of the biggest problems faced by exporters in the five countries is the lack of knowledge on various non-tariff measures (NTMs), such as new standards or specifications. Most of the times they get to know about the NTMs only when their goods are rejected. If this issue is addressed, it will serve as a big incentive for industry in the five nations to trade with each other,” said Ajay Sahai of FIEO.

Source: http://www.thehindubusinessline.com/todays-paper/india-moots-framework-for-sme-sector-cooperation-in-brics/article8617609.ece

India, Mauritius to amend tax treaty

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India will levy capital gains tax on investments routed through Mauritius from April 1 next year, bringing down the curtains on a contentious three decade-old rule that allowed companies to bring in billions of dollars by paying negligible taxes.

The taxes on capital gains will apply to investments made from April 1, 2017 and will be imposed at 50% or half of the domestic rate until March 31, 2019, and at the full rate thereafter.

How do people use tax havens to avoid paying taxes?

Through “round tripping” or “treaty shopping”.

How does round tripping work?

Round tripping refers to routing of investments by a resident of one country through another country back to his own country.

You get money out of India and transmit it to a tax haven with whom India has a bilateral tax avoidance treaty such as the double-taxation avoidance agreement (DTAA). In the tax haven, this money is treated as capital of a registered corporate entity. You now invest this money back in an Indian company as foreign direct investment (FDI) by buying stakes or invest it in Indian equity markets.

How does this help in avoiding taxes?

The entire purpose of this exercise is to window-dress as foreign capital your original money that you had taken out from India.

In the entire process, you end up paying zero or negligible taxes. In India, you can claim tax exemption citing the DTAA arguing that you have paid taxes in the source country. In the source country, taxes are negligible since it is a tax haven.

What is DTAA?

These are bilateral treaties signed between governments to prevent companies from being taxed twice over.

So, what was the problem with Mauritius?

Mauritius, and other tax havens, has almost negligible taxes. This was encouraging companies to route their investments in India through “shell” companies (those that exist only on paper) in Mauritius and avoid paying taxes.

How big was the problem?

At $94 billion, Mauritius has been the largest FDI source for India, accounting for 34% of total FDI in India between 2000 and 2015.

What are the changes that will plug this gap?

The changed DTAA will make it mandatory to pay capital gains tax on sale of shares in India by companies registered in Mauritius

When will the new rules kick-in?

Share sales in Indian companies by Mauritius-registered firms will be taxed at half of the applicable rate between April 1, 2017 and March 31, 2019.

If the capital gains tax in India is 10% currently, Mauritius-registered companies will be taxed at 5% during the first two years beginning April 2017. Full capital gains tax will apply from April 1, 2019.

What about previous investments?

The new rules will not apply only to investments made before April 1, 2017, meaning share sale of investments made before this date will be exempt from capital gains tax.

Which companies will benefit from the reduced tax rates during the first two years?

The benefit of 50% reduction in tax rate during the transition period from April 1, 2017 to March 31, 2019 shall be subject to a limitation of benefit (LOB) Article.

A Mauritius-registered company (including a shell or conduit company) will not be entitled to lower tax rate, if it doesn’t spend at least Rs 27 lakh in Mauritius in the previous 12 months. This is called ‘purpose and bonafide business test’.

How will impact investors?

Many foreign investors will have to redraw their strategies. The incentive to route investments through Mauritius will cease to exist once the new rule kicks-in. This could raise their tax outgo.

What about markets?

It could hurt short-term foreign investor inflows into India, particularly from companies whose investment strategies are guided by minimising taxes. This could pull down markets initially.

Are these rules related to the general anti-avoidance rules (GAAR)?

GAAR are aimed at curbing tax avoidance and aim to give tax authorities the right to scrutinise transactions that they feel have been done to avoid taxes.

Under GAAR corporations may be forced to restructure salaries of employees if taxmen conclude that these were structured only to avoid taxes. Similarly, if a foreign investment transaction from Mauritius has taken place with an intent to exploit DTAA, it will come under GAAR.

Implementation of GAAR will take place from April, 2017.

Source: http://www.hindustantimes.com/business/india-mauritius-tax-treaty-all-you-need-to-know/story-QSOlvKyt6rrN7E00S7wp9K.html

IRDAI gives approval to 23 cross-border reinsurers

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The Insurance Regulatory and Development Authority of India (IRDAI) has granted special approval to 23 Cross Border Reinsurers (CBR) for the year 2016-17.

This will allow Indian insurers to make reinsurance placements with a large number of reinsurers. Cross-border reinsurers are those who do not have a physical presence in India but carry on reinsurance business with Indian insurance companies.

According to PJ Joseph, Member (Non-Life), IRDAI, approvals were given on the basis of submissions made by CBRs and the recommendations made by the insurers and GIC Re in line with the guidelines issued by the authority last month. The approved CBRs include Ingosstrakh Joint Stock Insurance Company (Russia), Asian Reinsurance Corporation (Thailand), Trust Re (Bahrain), United Overseas Insurance Company (Singapore), Equator Reinsurances Ltd (Bermuda), East Africa Reinsurance Company Ltd (Nairobi), Vietnam National Reinsurance Corporation (Vietnam), CICA Re (Kenya), Arab Insurance Group (Labuan) and Union Insurance Company (UAE), among others.

Reinsurance assumes significance as it is important to maintain solvency of the insurer and to ensure that the claims/other clauses are honoured as and when they arise.

Past approvals

In the year 2015-16, the regulator had recognised 244 reinsurers and 90 Lloyds Syndicates. In 2014-15, 238 reinsurers and 87 Lloyds Syndicates were recognised. It is likely that the authority may give more approvals in future.

The onus of placing reinsurance business with registered CBRs is on the Indian insurers or reinsurers and they will have to ensure that the cross-border reinsurer meets the requirements as specified by the regulator. Within the country, the General Insurance Corporation of India is designated as the ‘Indian Reinsurer’ which entitles it to receive obligatory cessions of 5 per cent from all the direct non-life insurers.

Source: http://www.thehindubusinessline.com/money-and-banking/irdai-gives-approval-to-23-crossborder-reinsurers/article8581417.ece

Projects worth Rs. 80,000 cr coming Tamil Nadu’s way

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Tamil Nadu State’s ports will also benefit hugely fromRs. 4-lakh-cr Sagarmala programme: Gadkari

“We need cooperation from State governments for infrastructure development. In Tamil Nadu, unfortunately, we had to terminate two projects,” said Nitin Gadkari, Road Transport, Shipping & Highways Minister. “We never mix politics with development and development with politics,” claimed Gadkari, speaking at ‘Breakfast with BusinessLine ’, an interactive session with senior executives from the corporate sector. But in Tamil Nadu, he said, his Ministry had to give up on the Maduravoyal-Chennai Port elevated road project as there was no progress. Gadkari said he had “written many letters to the State government” to no avail.

Another road project, by L&T, also had to be shelved, said Gadkari, who is touring the State to campaign for the BJP in the Assembly elections, which will be held on May 16.

“We need an atmosphere in the country for development of infrastructure. Our government and my ministry look for ways to help develop infrastructure in different States with different political parties but sometimes we are helpless,” he shrugged.

“I am not speaking politically, but I am talking of practical issues such as forest and environment clearances,” claimed Gadkari.

There is strong political will at the Centre and speedy decision making. Positive cooperation from stake holders will help achieve goals, he said.

Sagarmala programme

Tamil Nadu will be a huge beneficiary under Sagarmala, a Rs. 4-lakh-crore flagship programme of the Centre envisaging port-led development. Conceived as a 10-year project, he hopes to complete it in five years.

Gadkari listed out projects totalling more than Rs. 80,000 crore relating to port and industrial investments in Tamil Nadu. Under Sagarmala, the State will get an LNG terminal at Ennore at a cost of about Rs. 3,000 crore; at Tuticorin Port, a North Cargo Berth, a foodgrain berth, an additional container berth and a coal jetty are planned.

Also in the pipeline is the development of ports at Sirkali and Colachel. Work on all of these will start within two years, he said.

Huge investments are also planned in developing inland waterways using the major rivers in the State, including the Tamiraparani, Manimuttar, Cauvery, Palar, Vaigai and the Bhavani. These present a huge opportunity for private sector investments, he said.

 

Source: http://www.thehindubusinessline.com/todays-paper/projects-worth-rs-80000-cr-coming-tns-way/article8597545.ece