22 Jul 2016

India central bank relaxes rule for Basel III liquidity coverage ratio

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The Reserve Bank of India relaxed Basel III-mandated liquidity coverage ratios for banks, allowing the sector to apply an additional one percentage point of the deposits they currently hold as government bonds under their statutory liquidity ratios (SLR).

Banks can now apply up to 11 percent of their deposit base held as SLR – or government securities that banks must hold with the RBI – from 10 percent earlier when calculating their liquidity coverage ratios to meet Basel III requirements, the RBI said in a statement on Thursday.

Liquidity coverage ratio is a capital measure mandated under Basel III norms requiring banks to maintain highly-liquid assets, including government securities, to meet any sudden short-term outflows.

 

RBI/2016-17/25
DBR.BP.BC.No.2/21.04.098/2016-17

July 21, 2016

All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir,

Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards

Please refer to our circulars DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 9, 2014, DBR.BP.BC.No.52/21.04.098/2014-15 dated November 28, 2014 and DBR.BP.BC.No.77/21.04.098/2015-16 dated February 11, 2016 on ‘Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards’.

2. Presently, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR of banks, inter alia, include Government securities in excess of the minimum SLR requirement and, within the mandatory SLR requirement, Government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) [presently 2 per cent of the bank’s NDTL] and under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 8 per cent of the bank’s NDTL].

3. It has been decided that, in addition to the above-mentioned assets, banks will be permitted to reckon government securities held by them up to another 1 per cent of their NDTL under FALLCR within the mandatory SLR requirement as level 1 HQLA for the purpose of computing their LCR. Hence, the total carve-out from SLR available to banks would be 11 per cent of their NDTL. For this purpose, banks should continue to value such reckoned government securities within the mandatory SLR requirement at an amount no greater than their current market value (irrespective of the category of holding the security, i.e., HTM, AFS or HFT).

Yours faithfully,

(Ajay Kumar Choudhary)
Chief General Manager

Source: http://www.reuters.com/article/india-cenbank-lcr

20 Jul 2016

Bandhan Bank reduces microfinance loan rate

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Bandhan Bank on Monday reduced its lending rate for micro loans by 0.6 per cent, bringing down the interest to 19.9 from 20.5 per cent.

This is the third time the bank has reduced its interest rate for such consumers. Immediately after the microfinance institution transformed itself into a bank last August, it had slashed the rate by 1.4 percentage points or 140 basis points (bps), effectively reducing the rate to 21 per cent. In April this year, the rate was reduced by another 0.5 per cent or 50 bps for micro-small-scale sectors, making it 20.5 per cent.

With the latest round of lending rate reduction, Bandhan Bank has pared is micro loan rate by 2.5 percentage points or 250 bps in three stages in less than 11 months since it started operations as a universal bank.

Chandra Shekhar Ghosh, the bank’s chairman and managing director, said: “With the transformation of the micro-lending institution into a bank, the cost of funds has come down so we can afford to lower the interest rates. This reduction will benefit the micro-small scale industry who finds it tough to arrange for their funds.”

Since its launch, the bank has mobilised close to Rs 15,000 crore of deposits.

According to Ghosh, this will not only help attract more people opting for loans, but it will ease their financial burden as well. The cost impact on the bank is stated to be favourable with this decision.

Micro loans are generally granted for 1-2 years.

Currently, Bandhan Bank operates across 29 states and Union Territories through a network of 688 branches, 2,022 doorstep service centres and 237 ATMs with more than 8.77 million customers being served by a team of 21,000 employees. The Kolkata-headquartered bank’s savings bank account interest rate is six per cent for balances above Rs 1 lakh and 4.25 per cent for balances up to Rs 1 lakh. For term deposits, the maximum interest rate offered is 8.25 per cent for one to three years, with an additional 0.5 per cent for senior citizens.

Source: http://www.business-standard.com/article/finance/bandhan-bank-reduces-microfinance-loan-rate-116071800513_1.html

20 Jul 2016

ADB trims developing Asia growth forecast; India on track

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ADB today marginally cut economic growth projection for Asia and Pacific region for 2016, though India is likely to meet 7.4 per cent and 7.8 per cent growth forecast for this and the following year.

Asian Development Bank said it has cut its 2016 growth projection for developing economies in Asia and the Pacific to 5.6 per cent from earlier forecast of 5.7 per cent.

“South Asia, meanwhile is expected to be the fastest growing subregion, led by India, whose economy has shrugged off global headwinds and is on track to meet ADB’s March fiscal year 2016 (year to March 2017) projected growth target of 7.4 per cent, supported by brisk consumer spending and an uptick in the rural economy”, ADB said in a supplement to its Asian Development Outlook 2016 report.

“Although the Brexit vote has affected developing Asia’s currency and stock markets, its impact on the real economy in the short term is expected to be small,” said Shang-Jin Wei, ADB’s Chief Economist.

However, in light of the tepid growth prospects in the major industrial economies, policy makers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust,” Wei said.

ADB said it now forecasts 2016 growth for the developing economies at 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth is seen unchanged at 5.7 per cent.

Growth in 2016 and 2017 is led by South Asia, and India in particular, which continues to expand strongly, while China is on track to meet earlier growth projections, it said.

In Southeast Asia, growth projections for the subregion in the 2016 and 2017 remain unchanged at 4.5 per cent and 4.8 per cent, respectively with solid performances by most economies in the first half of 2016 driven by private consumption.

The exception was Vietnam where the economy came under pressure from a worsening drought that caused a contraction in the agriculture sector, it added.

ADB said growth in Asia and the Pacific’s developing economies for 2016 and 2017 will remain solid as firm performances from South Asia, East Asia and Southeast Asia help offset softness from the US economy, and near-term market shocks from the Brexit vote.

It has projected inflation for developing Asia at 2.8 per cent for 2016 and 3 per cent or 2017- a 0.3 percentage point rise for each year from the previous forecasts.

“The rise is largely due to a recovery in oil and food prices,” it added.

The Manila headquartered ADB is owned by 67 members – 48 from the region. In 2015, ADB assistance totalled $27.2 billion, including co-financing of $10.7 billion.

Source :
http://economictimes.indiatimes.com/articleshow/53263953.cms

16 Jul 2016

Black money: No cut in tax, warns CBDT

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The government on Thursday clarified that tax paid under the ongoing amnesty scheme for persons with undisclosed domestic assets can’t be reduced to an effective 31% from 45% prescribed by enjoying immunity not only for such income declared but also for the other undisclosed income from which the tax is paid.

The Income Disclosure Scheme (IDS) 2016 is the latest in a series of such windows opened by governments to address the scourge of black money and the second by the Modi government.

The government on Thursday clarified that tax paid under the ongoing amnesty scheme for persons with undisclosed domestic assets can’t be reduced to an effective 31% from 45% prescribed by enjoying immunity not only for such income declared but also for the other undisclosed income from which the tax is paid.

The tax department said its earlier answer to a query in this regard, where it said after a valid declaration is made under the scheme, it won’t make any “enquiry in respect of sources of income, payment of tax, surcharge and penalty”, was “limited to the conduct of enquiry by the department”; the clarification, the department said, was in no way intended to modify the tax rate.

The Income Disclosure Scheme (IDS) 2016 is the latest in a series of such windows opened by governments to address the scourge of black money and the second by the Modi government.

The government had found response to an earlier amnesty scheme for Indians with undisclosed assets overseas tepid. The IDS, under which declarations can be made between June 1 and September 30, 2016, provides persons with hidden income a chance to declare such income/assets and pay tax, surcharge and penalty totalling 45% and enjoy immunity.

What necessitated the latest clarification by the I-T department is an interpretation by sections of analysts that its assurance that no enquiry will be made into “the sources of income, payment of tax” allowed one to pay the 45% tax on the fair market value of the declared asset (immovable property) and claim immunity with respect to not only this asset but an additional one equivalent to 45% of the declared asset as “the source of payment of tax”.

Effectively, this would have reduced the tax rate (including surcharge and penalty) on the assets declared plus the source of income for tax payment to 31%. However, the department has now said this has never been the intention.

Giving the example of a person declaring Rs 100 lakh as undisclosed income (as fair market value of immovable property as on June 1, 2016) under the scheme and paying the stipulated 45% tax on it from her “other undisclosed income”, the department has said:

“To get immunity under the scheme in respect of the entire undisclosed income of R145 lakh, the declarant has to declare undisclosed income of R145 lakh (R100 lakh being the undisclosed income represented by the immovable property and R45 lakh being the payment made from undisclosed income), and pay tax, surcharge, penalty under the scheme amounting to R65.25 lakh, ie, 45% of R145 lakh.”

Meanwhile, in recognition of the concerns raised by many quarters that the initial deadline (November 30, 2016) for making payments under the scheme was very tight and force people to make distress sale of assets, the government has revised the schedule for payments:

As per the new schedule, a minimum amount of 25% of the tax, surcharge and penalty will have to be paid by November 30, 2016; a further amount of 25% of the tax, surcharge and penalty by March 31, 2017; and the balance on or before August 30, 2017.

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 Source: http://www.financialexpress.com/economy/tax-outgo-amnesty-scheme-cant-reduced-31per-cent-cbdt/317162/
14 Jul 2016

Government disburses Rs 1,433 crore as interest subsidy to exporters

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Government has disbursed Rs 1,433 crore up to March under the interest subsidy scheme to exporters, the Commerce Ministry today said.

The Centre’s interest equalisation scheme, announced last December, reduces cost of capital by allowing 3 per cent interest subsidy on pre and post-shipment rupee export credit to eligible exporters.

“Indian exporters pay high rate of interest on the capital borrowed… all products manufactured and exported by SMEs (are) eligible. Up to March 2016, benefit to the tune of Rs 1,432.90 crore has been passed on to eligible borrowers,” the ministry said in a statement.

Enlisting steps to improve ease of doing business and boost exports, it said the ministry has taken several steps.

Number of mandatory documents required for exports and imports have been reduced to three for each segment. Earlier 7 documents were required for exports and 10 for imports.

“Exporter can now file online applications for IEC (import export code), Advance License, MEIS (merchandise exports from India scheme), SEIS (services exports from India scheme), pay application fee online and check status of their applications,” it said.

To spread awareness about benefits of free trade agreements, it said an ambitious outreach programme has been launched to reach out to exporters located in the 34 major export clusters/cities.

“The programmes focus on training exporters to utilise the FTAs, taking inputs from exporters on FTAs under negotiations for example Regional comprehensive economic policy (RCEP),” it added.

It said the efficacy of these initiatives is reflected in the fact the annual trade data  indicates the share of manufacturing sector in India’s total exports has increased from 64 per cent in 2014-15 to more than 69 per cent in 2015-16.

In terms of trading across borders, India is ranked at 133rd out of 189 economies, according to the World Bank’s report on ease of doing business.

Source:http://economictimes.indiatimes.com/articleshow/53178132.cms

 

10 Jul 2016

Brexit to hit eurozone growth, says IMF

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The International Monetary Fund has cuts its economic growth forecasts for the eurozone in the wake of the UK’s vote to leave the European Union.

The eurozone is expected to grow by 1.6% this year and 1.4% in 2017. Before the referendum the IMF had predicted growth of 1.7% for both years.

The IMF also revised down its 2018 growth forecast to 1.6% from 1.7%.

It said medium-term growth prospects for the 19-member bloc were “mediocre” due to high unemployment and debt.

Mahmood Pradhan, deputy director of the IMF’s European Department, said the outlook could worsen if drawn-out negotiations between the UK and the EU led to a continuation of recent trends in financial markets – where investors have shunned riskier assets.

“If that risk aversion is prolonged, we think the growth impact could be larger and at this point, it is very difficult to tell how long that period lasts,” he said in a conference call.

The revised 2017 figure was the IMF’s “best case” scenario, assuming a deal was struck that allowed the UK to retain its access to the EU’s single market, Mr Pradhan said.

However, if the UK decided not to maintain close ties with the EU and chose to rely on World Trade Organization rules, there could be “major disruptions,” he said.

Mr Pradhan added it was “very, very early days to have any strong sense of confidence” about what the eventual relationship between the UK and EU would be.

In the medium-term, challenges such as high unemployment and persistent structural weaknesses in the euro area would continue to weigh on growth, the IMF said.

“As a result, growth five years ahead is expected to be about 1.5%, with headline inflation reaching only 1.7%,” the report said.

It also said that as the euro area was such a big player in world trade, any slowdown could have an impact on other economies, including emerging markets, but it expected this to be “limited”.

Source: http://www.bbc.com/news/business-36743862

8 Jul 2016

No World Recession From Brexit But Risks High, Says IMF’s Lagarde

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International Monetary Fund chief Christine Lagarde said that Britain’s shock vote to quit the European Union has injected significant uncertainty into the global economy but is unlikely to cause a world recession.

But in an exclusive interview with AFP, she also said that Brexit underscores the need for the EU to do a better explaining how it benefits Europeans, amid “disenchantment” with the institution.

And she said that Britain’s move to cut corporate taxes to counter the expected economic fallout from its choice to break with the EU was just a “race to the bottom” that could hurt everyone.

Two weeks after the British referendum on cutting its EU ties, Ms Lagarde, speaking in her Washington offices at the beginning of her second five year term as IMF managing director, called the event a “major downside risk” for the world.

“We don’t think that a global recession is very likely. The immediate effects will be on the UK,” with some spillover into the euro area, she said.

Yet the longer the process for Britain’s withdrawal remains unclear, the worse the effects could be, she said. “The key word about this Brexit affair is uncertainty and the longer the uncertainty, the higher the risk,” she said.

“The sooner they can resolve their timeline and the terms of their departure the better for all. It needs to be predictable as soon as possible.”

But Ms Lagarde, who during her first five years leading the Fund has already endured a substantial amount of turmoil in Europe, said she remained positive over the outcome.

“There will be spillover effects on the euro area. But my optimistic approach of life tells me that Brexit could be a catalyst that could push the EU to deepen its economic integration.”

Source: http://profit.ndtv.com/news/global-economy/article-no-world-recession-from-brexit-but-risks-high-says-imfs-lagarde-1429092