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BANKS WRITE OFF BAD LOANS

PUNE: All scheduled commercial banks (SCBs) wrote off Rs 2,25,180 crore cumulatively in the five-year period ended March 2016, the Reserve Bank of India (RBI) said in an RTI reply filed by TOI. SCBs represent all public sector banks, private sector banks, foreign banks, regional rural banks and some co-operative banks. These represent over 95% of the formal credit given out by all financial institutions in the country. “This could be the highest ever write-off in a five-year period in absolute terms as are the total stressed assets in the banking system,” said Abhishek Bhattacharya, director and co-head for financial institution India Ratings.

Banks and the RBI have often stated that these write-offs are just technical in nature and an exercise to clean up the balance sheets. They have further argued that banks continue to retain the right to recovery from these written-off accounts. “Writing off of non-performing assets (NPAs) is a regular exercise conducted by banks to clean up their balance sheets. A substantial portion of this write-off is, however, technical in nature. It is primarily aimed at cleansing the balance sheet and achieving taxation efficiency. In ‘technically written off’ accounts, loans are written off from the books at the head office, without foregoing the right to recovery. Further, write-offs are ‘generally’ carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks,” the RBI said in a clarification to a media report, based on an RTI reply in February 2016.

Be that as it may, the recovery from written-off accounts constituteonly a tiny fraction of the overall written-off accounts, available data shows. In the financial year 2014-15, banks could recover only 11.85% (Rs 6,968 crore) of the written-off accounts in that year and 13.8% (Rs 9,717 crore) of the written-off accounts in FY 2015-16. The data for previous three years is not available with the RBI, it said. “The information on recovery from written-off accounts from FY 2011-12 to 2013-14 is not available with us,” the RBI said in its RTI reply. Though the amount from recovered loans in FY15 and FY16 might not pertain to that financial year alone, the numbers show the actual recovery to be only a tiny fraction of the total amount written-off and also to be a long protracted process.

STEEP LEVY OF GST ON HYBRID CARS

NEW DELHI: The GST Council may reconsider the proposed 43 per cent tax on hybrid cars at its meeting next week after the auto industry voiced disappointment over the steep rate hike.

As per the tax slabs decided by the Council last week, the incidence of GST on mid and large-sized hybrid cars has been kept at the same level as passenger cars.

Under the GST, the tax incidence on hybrid vehicles will go up to 43 per cent from the current level of effective tax rate of 30.3 per cent.

“The tax incidence on hybrid vehicle has gone up and we are reading about the concerns being shared by industry. The Council may take a re-look at it in its next meeting on June 3,” a revenue department official told PTI.

Auto industry sources said that they will write to the Finance Ministry this week explaining their position and how it would put a spanner in the wheels of government plans to promote alternate energy.

Auto industry has already said that the increased tax incidence is against the government’s long-term goal of promoting green vehicles in the country.

Some of the popular hybrid vehicles sold in India are Camry Hybrid and Prius from Toyota and Honda Accord. These cars are priced between Rs 31.98 lakh and Rs 38.96 lakh.

A host of other companies were also planning to foray into the segment.

The GST Council, in its meeting last week, finalised 28 per cent tax rate for hybrid cars. However, mid-size and large-size hybrid cars have been subject to 15 per cent cess — same as similar sized passenger cars.

The official further said, the rates have been put up in public domain well before time so that the industry gets time to prepare for the Goods and Services Tax (GST) which will be rolled out from July 1.

“Concerns expressed by industry would be taken on board and anydecision to change the tax rate would go back to the Council,” the official said.

SOP FOR SMALL EXPORTERS

New Delhi: The commerce department is expected to push for higher interest subsidy and a wider export credit insurance as it seeks to make life easier for small exporters. As part of review of the Foreign Trade Policy, the department is also seeking to widen services basket and make it more attractive for foreigners to study and receive medical treatment in India.

Commerce and industry minister Nirmala Sitharaman has already flagged the two areas – small exporters and services – for review of the Foreign Trade Policy, which is likely to be released next month, in time for the switchover to GST. Sources said the commerce department has spent Rs 1,000 crore allocated for interest subsidy for the current financial year, a benefit that is available to exporters from select sectors, and is now seeking an enhancement. They added that the annual subsidy outgo would be close to Rs 2,500 crore so that a wider section of exporters, especially the SMEs, could benefit.

Similarly, in case of Export Credit Guarantee Corporation, the idea is to take the coverage beyond the current level of 7% (of exporters) to the global average of around 20%. While the government is favourable to the plan, the finance ministry needs to allocate funds. “It is not difficult for large exporters but it is the smaller players who need export credit insurance,” said a source.

The commerce department, which has an allocation of a little under Rs 4,500 crore for the current financial year, is hoping that additional funds would be available in the supplementary demand for grants. In any case, it is showcasing its spending record to argue for more funds. In case of services, the government believes that there should be an enhanced focus on sectors beyond IT that is hit by protectionist regimes across several parts of the globe including the US, Australia and Singapore, which are restricting visas. As a result, the commerce department is of the view that services such as education and health would be better placed to tap into demand and also help scale up quality domestically.

TAX PUTS HOTEL INDUSTRY INTO DISADVANTAGE

NEW DELHI: India’s hospitality sector has asked the government to levy 18% GST on luxury hotels instead of the proposed 28%. Under the proposed slabs, accommodation of over Rs 5000 has been classified as luxury and restaurants in the five-star category and above will also be taxed at 28%. The Federation of Associations in Indian Tourism & Hospitality (FAITH) on Thursday wrote to finance minister Arun Jaitley saying, this high taxation will make India “highly uncompetitive”.

“We compete in global marketplace with countries such as Thailand, Malaysia and Singapore (which have lower taxes)…. Thailand has a consolidated indirect hotel tax rate of 7% & 17.7% on restaurants. Singapore has a hotel VAT of 7% & 7% on restaurants. Malaysia has a hotel VAT of 6% & a 6% on restaurants. A 3-day stay by a foreign tourist at a daily rate of $150 (assuming hotel and food & beverage) will be taxed per night in India at $42 (not including cesses), $18 in Thailand (weighted average) (and) $9 in Singapore.

That implies: a total stay of 3 nights for one person in India now becomes expensive by $72 vs Thailand, by $95 vs Singapore and by $100 vs Malaysia,” a statement by FAITH said.

“This difference will get compounded when Indian companies bid for global conferences and events and large tour groups which come to India. Assuming the above simple economics, for a visiting conference of 100 people, India now becomes $7,200 more expensive than Thailand, $9,500 than Malaysia & $10,000 than Malaysia. This difference will further get compounded as most of the groups normally stay post conferences for 7-10 days and travel around the country. These travellers are now most likely to give India, a miss,” it added.

FAITH has pointed out that these countries get much more tourists than India and earn a significant amount from them. “Thailand already gets 26 million foreign tourists and $42 billion in foreign exchange. Malaysia gets around 25 million foreign tourists and $ 22 billion in foreign exchange and Singapore which is a fraction of India’s size gets 12 million foreign tourists and $20 billion in foreign exchange. In contrast, India gets less than 9 million tourists and $21 billion in foreign exchange,” it said.

INVESTMENT MARKET FOR WINE MAKERS

New Delhi: Pernod Ricard has set its eyes on top international-wine-player slot in the country as it adds Spanish varieties to its existing portfolio. Christian Barre, CEO, Pernod Ricard Winemakers, Spain, believes Indian wine market will continue to grow at 15% and double every five years. Present government’s increased focus on tourism, young population with good disposable incomes and an evolved palate will make India a strategic investment market for winemakers, says Barre.

The global wine industry is growing at an average of 1-2% with some established European wine regions even registering negative sales, China and India are regions of future for global wine makers as the two countries have been registering double digit growth in terms of wine sales. “Tourism is being given a strong push by the present Indian government. As the sector becomes a strong contributor to nation’s GDP and brings in many European travellers, there will be a need among many European brands to be here.

 

INDIA TO WIND UP 25 YEAR OLD FOREIGN INVESTMENT BOARD

NEW DELHI: The Union Cabinet has approved winding up of the 25-year-old Foreign Investment Promotion Board (FIPB), which has been vetting FDI proposals requiring government approval. Finance MinisterArun Jaitley in his Budget speech on February 1 had announced the scrapping of the inter- ministerial body, which comes under the ministry’s Department of Economic Affairs.

The decision to abolish FIPB was taken by the Cabinet, chaired by Prime Minister Narendra Modi, Jaitley said while briefing the media after the meeting. FIPB will be replaced by a new mechanism under which the proposals will be approved by the ministries concerned as per the standard operating procedure approved by the Cabinet, he added.

INDIAN FIRMS LOOK AT DUBAI FINANCIAL SECTOR FOR GROWTH

Dubai International Financial Centre (DIFC) is attracting a number of Indian financial services related firms, making it the destination of choice for them to access the region. This was reaffirmed during a special event on Wednesday, May 17 where DIFC hosted a number of top-tier consultancy firms from India, aimed at further reinforcing the financial centre’s strong ties with the country.

DIFC’s links to India are already strong. From hosting just one financial institution in 2007, DIFC is now home to many Indian firms. DIFC’s 2024 strategy aims for even further growth, and has ambitious plans to attract more Indian banks, financial institutions and firms operating out of the centre.

A number of recent developments are evidence of DIFC’s strengthening position in terms of Indian business and finance.

UTI International, India’s largest asset manager, has just set up its latest fund in DIFC.

Praveen Jagwani, CEO of UTI International said “We found that DIFC offers a comprehensive ecosystem required for a thriving asset management business – a world class regulator and a plethora of administrators, law firms, accounting firms and availability of talent.”

Current pricing incentives are designed to attract more Indian and other asset managers to Dubai, the largest fund regime in the region.

Recent changes to domestic regulations in India, and the India-Mauritius tax treaty, mean that Indian asset managers are seeking alternative fund juristictions. DIFC’s vibrant ecosystem, coupled with its efforts to improve ease of business and an enabling Qualified Investor Funds regime, has seen significant interest from Indian asset managers.

Recently, Kotak Mahindra Bank and Federal Bank upgraded their representative office status in DIFC to Category 1 License, with HDFC Life and Axis Bank, the third largest of the private-sector banks in India, also strengthening their operations in the centre. DIFC is also home to leading Indian banks, financial institutions and fund managers including ICICI Bank, IDBI Bank, Punjab National Bank, Union Bank of India, State Bank of India, IIFL Private Wealth Management, L & T Capital Markets Limited and Aditya Birla Sun Life Asset Management Company Limited.

DIFC has also recently signed two separate MoUs – with Gujarat International Finance Tec-City (GIFT), India’s first financial services centre, and Mumbai Metropolitan Region Developmental Authority (MMRDA), an urban town planning and development authority established by the Maharashtra state government. Both MoUs provide for the sharing of knowledge and international best practice.

These developments come against a backdrop of strengthened ties and co-operation between the two countries, with 14 wide-ranging, bilateral agreements signed in January this year.

Salmaan Jaffery, Chief Business Development Officer at DIFC Authority, said: “We are living in an era where UAE-India ties are accelerating. With 2.6 million Indian experts living in the UAE, 26,000 Indian firms and over 40,000 UAE-based firms owned by non-resident Indians, the bond between the UAE and India is already strong.

“Indian institutions make up the third largest community of financial firms in DIFC, behind the US and UK, and DIFC is the ideal platform for Indian businesses and institutions as it offers political and financial stability, an investor-friendly setting, strong regulation and an English common law base. DIFC is an important link for India in the South-South corridor, connecting the subcontinent to Africa and Central Asia. There is a huge opportunity for Indian firms looking to conduct business in DIFC.”

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