25 april india news

RBI relaxes norms for provisioning of bad loans

MUMBAI: The Reserve Bank of India has relaxed norms regarding setting aside money for bad loans - a move which has come as a major relief for all commercial banks. The banking regulator has said banks should maintain 70% of the provision coverage ratio (PCR) of their gross bad loans as on September 2010, but they do not have to maintain 70% of PCR on an ongoing basis.

PCR is the amount that a bank expects to forgo from a loan if they have to writeoff that loan account. Thus if a Rs 100 loan has turned bad, setting aside 70% as PCR means that the bank has set aside Rs 70 as provision and it expects to recover Rs 30 of the loan.

RBI has said September 2010 onwards, on incremental NPAs banks would have to set aside money based on the income recognition norms. This ranges from 10% in the initial months when the asset is classified as substandard to 100% when it is classified as a loss asset after a few years.

Even now, banks follow income recognition norms for making provision on bad loans, however, the provision coverage ratio was over and above it. The central bank has said the surplus of provision under PCR should be segregated into a separate account called 'Countercyclical Provisioning Buffer'.

The Reserve Bank has said this buffer will be allowed to be used by banks for making specific provisions for NPAs during any downturn in the economy. However, to dip into this, banks will require approval from the regulator. "Balance sheet planning will become easier. If a bank earns windfall profit, say from treasury operations, it can be set aside as a buffer and subsequently used during bad times," said MD Mallya, chairman of the Indian Banks' Association and CMD of Bank of Baroda .

"Incrementally, it will bring down banks' requirement for making provisions," said Somnath Sengupta, executive director and chief financial officer of Axis Bank. The Reserve Bank of India has said the majority of the banks have achieved 70% of PCR and had represented RBI whether the prescribed PCR is required to be maintained on an on-going basis.

While most banks already achieved 70% PCR, banks such as the State Bank of India has asked for time till September 2011. Its PCR stood at 64% as on December 2010.

Loan-to-grant scheme planned to revive

 Urban development minister Kamal Nath has a new plan for fixing the infrastructure mess in Indian cities that are struggling to keep pace with pressures of rapid growth.
Now, instead of funding urban projects in installments, the government will pay the entire cost upfront as a loan to municipal administrations. The loan will be converted into a grant if promised outcomes are achieved with the projects.
UPA's flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been 'a complete failure that has wasted money and left an ugly spectre of unfinished projects across cities,' Nath told ET.
Under the JNNURM, the Centre gives funds to states but stops payments when municipal administrations do not carry out reforms mandated.
"How will nagar palikas implement these reforms (without any support)? It's an absurdity," the urban development minister said.
"It is up to us to pay them the rest so that the project at least is finished. With installments, you get sucked into a trap - our money is wasted and reforms don't take place either."
State urban officials agree. "Implementing reforms is not an issue, it is more about delay of release in money and inconsistent fund flow," a JNNURM project director of a southern state told ET.
"There is a lot of inconsistency in release of money to states under the scheme and projects have to be dropped half way," he said.

USDA revises India's sugar output forecast lower than government

NEW DELHI: The US Department of Agriculture (USDA) has revised its estimate of India's sugar production in the ongoing 2010-11 sugar year slightly upward to 24 million tonnes (MT), but this is still lower than the government's forecast of 24.5 MT.

Earlier, the USDA had pegged the country's sugar production at 23.6 million tonnes during the ongoing 2010-11 sugar year (October-September).

The USDA said in its latest report that it has revised India's sugar production forecast to 24 MT from its previous estimate after taking into account higher cane output of 340.5 million tonnes in the 2010-11 sugar year.

Production in top two sugar producing states -- Maharashtra and Uttar Pradesh -- is expected to be 9.3 MT tonnes and 6.2 MT, respectively, this year, it said.

Higher sugar production is expected particularly in central and southern India, as output in these regions is likely to be better following well distributed monsoon rains and favourable weather conditions, it said.

Also, the recent weakening of gur prices vis-a-vis sugar and relatively modest cane prices paid by sugar mills limited the diversion of sugarcane for the production of gur during peak the crushing season, it added.

According to the USDA, Indian mills are estimated to have produced 16.3 MT of sugar till February this sugar year, as compared to 13.7 MT in the year-ago period.

With expected surplus sugar production in 2010-11, the report observed that India may export around 8,00,000 tonnes of sugar in the current sugar year.

Already, the government has approved the export of 5,00,000 tonnes of sugar under Open General Licences (OGL). It had also allowed mills to meet their export obligation of around one million tonnes under the Advance Licence Scheme (ALS).

India is the world's second biggest sugar producer, but the largest consumer of the sweetener.

Estimating higher sugar production for India in the 2011-12 sugar year at 25.5 million tonnes, the USDA said that sugar output is likely to gain strongly in the coming sugar year as production is on an upswing this year after consecutive years of decline.

RBI likely to pull up 7 banks for flouting currency regulations

Sri Satya Sai Baba is no more

·  Buoyant tax collections

The Centre’s tax collection for 2010-11 has reportedly exceeded the revised estimates by about Rs. 12,000 crore to hit Rs. 7.92 lakh crore.

·  Some coarse grain related statistics

From the 1970s, as government policy, pricing and procurement heavily favoured wheat, rice and sugarcane, farmers took the rational decision to grow more and more of these, so land under coarse grains shrank rapidly: falling by as much as 1.3% every year through the 1980s, and by 0.76% every year through the 2000s.

·  About dedicated freight corridor

The Rs 77,000 crore dedicated freight corridor project, scheduled to be built by 2016/17, is expected to ease infrastructure bottlenecks and boost industrial development and international trade as existing railway lines in these regions are running up to 50% more than the designed capacity. The choked railway lines have encouraged a rapid shift to road transport from railways. The National Highway Authority of India's plan to expand the Delhi-Mumbai highway to six lanes would accelerate the shift of cargo from goods trains to trucks, but the new freight corridors are expected to reverse the trend as the railways would be able to offer faster and cheaper transportation.

Look at this graphic for some more details of the project.  

·  Chairman PFRDA

Is Yogesh Agarwal.  

·  Banks betting big on consumer loans

Bank credit to consumers for personal consumption has increased 12.6% to ` 1,17,919 crore as on February 25, 2011, from 1,04,715 crore a year earlier, RBI data show. Loans outstanding on credit cards increased to 6,212.92 crore at the end of February 2011, from 4,923.11 crore a year ago. Credit card spend increased 26.9% in the same period. Industry estimates show average monthly spending on cards averaged 3,000-3,900 this year, up from 2,200-2,400 last year.

Banks are returning to consumer lending after getting hurt during the credit crisis when many customers defaulted. But this time things appear to be different, with better credit information and banks avoiding third-party salesmen who did not do their due diligence

Companies use LLPs as tax smokescreen

Corporates are masking their true identities to jump regulatory hurdles and form holding entities that help them lower their tax burden.

Promoters of at least 30 companies have formed limited liability partnerships (LLPs) by suppressing the information that the newly-floated LLPs would serve as group investment companies — a disclosure that would have called for a no-objection certificate from the Reserve Bank of India (RBI). Instead, they have tweaked the object clause to claim that the LLPs are into businesses like consultancy and broking — a simple manipulation that quickens clearance from the registrar of companies (RoC), the final authority that approves the formation of an LLP.

In 2008, Indian businessmen were allowed to form LLPs, an internationally followed tax-efficient structure that is spared of dividend distribution tax and minimum alternative tax (MAT) on gains from sale of shares. Though the new law was aimed at making life easier for smaller businesses and such ventures as law and audit firms, there was nothing to prevent business houses from converting their investment companies into LLPs.

But when businesses houses applied for such conversion, the RoC insisted on a noobjection certificate from the central bank. Most companies hit a wall as RBI was unwilling to comply with their requests. The banking regulator is keen to monitor corporate investment firms just as it keeps an eye on non-banking finance companies. And allowing them to transform into LLPs would mean losing control over these firms.

Now, corporates have found a way out.  An entity that claims to be carrying out consultancy is not required to approach RBI. Since its business is unrelated to activities like share investment, banking, insurance and finance, it can directly approach RoC.  An entity that attains LLP status by falsely declaring consultancy as its main business activity is subsequently capitalised by the partners to buy out the shares that is held by the original group investment companies.

However, the possibility of RBI coming out with new rules to stop LLPs from bypassing it is not being ruled out, more so, given its intentions to monitor investment companies. A year ago, RBI announced new rules which meant that group holding companies and investment firms would have to get themselves registered with RBI, fulfil certain criteria and share information on a regular basis. Amid corporate lobbying, the rules were later diluted to an extent to exclude investment companies which do not raise funds. But finance professionals said that even the diluted rules would cover a significant number of companies.

International

India to export petro products to Pakistan