6 MAY 2016
GS II: POLITY-VISA
Commerce Ministry’s visa plan runs into MHA wall
The Union Commerce Ministry has proposed an ambitious scheme to waive the visa requirement for business visitors and tourists from 18 countries, which are considered critical to economic and trade strategy, but the Home Ministry has raised objections to an omnibus exemption.
The 18 countries belong to BRICS, in which India joins Brazil, Russia, China and South Africa and the Asia Pacific group that is part of the proposed Regional Comprehensive Economic Partnership (RCEP), senior officials in the two Ministries told. China is a member of both groups.
In the services trade, India’s strength lies in its large pool of skilled workers and independent professionals. The Commerce Ministry is, therefore, keen that as part of the strategy, internal reforms are undertaken unilaterally to enable easier temporary movement of such persons from its trade partner countries. This will make it possible to later demand the same facility from them reciprocally.
The Home Ministry’s major objection is giving a visa waiver to Chinese citizens as part of the package, an official in the Ministry said. Security concerns have been cited in the case of visitors from China and Pakistan.
RCEP is a proposed mega regional Free Trade Agreement (FTA) between 16 Asia Pacific countries, and its members include the ten Association of South East Asian (ASEAN) nations, China, Japan, Korea, Australia, New Zealand and India.
A fee waiver for all visa categories has also been proposed by the Commerce Ministry. “In case of business visitor, visa fee can still be charged, but 5-10 years multiple entry visa with prior screening should be a must have,” the letter says.
The letter contends that relaxation of the visa procedure for foreign business visitors will contribute towards making India an attractive destination for investors from RCEP countries, keeping in mind the ‘Make in India’ policy.
The Commerce Ministry’s proposal is to boost India’s services trade and help earn foreign exchange. The Home Ministry has conveyed it could consider visa waivers for business, tourism and healthcare purposes initially for citizens of India’s FTA partner countries.
GS III: ECONOMY
Draft norms for on-tap bank licences released
The Reserve Bank of India (RBI) issued draft norms for on-tap licensing for universal banks, in which stiff conditions have been set for industrial houses that aspire to become banks.
This is first time since the financial sector was opened up in 1991 that the banking regulator has decided to make the bank licensing process continuous, as opposed to the ‘stop and go’ approach adopted hitherto.
While the broad contours of the norms are in line with guidelines issued for bank licensing in 2013, the central bank has now made it clear that business houses predominantly in financing activities, for example, non-banking financial companies (NBFCs) would be preferred.
“Groups in the private sector that are ‘owned and controlled by residents’ and have a successful track record for at least 10 years, provided such a group has total assets of Rs. 5,000 crore or more, and the non-financial business of the group does not account for 40 per cent or more in terms of total assets/in terms of gross income,” RBI said, regarding eligibility of the promoters. Preference will be given to promoting entities having diversified shareholding, it added.
Individuals can also apply for a licence but they should have at least 10 years of experience in banking and finance.
The central bank has allowed individuals as well as companies who are directly or indirectly connected with large industrial houses to have 10 per cent stake in a bank, as compared to 5 per cent earlier. However, the regulator said such companies should not have such shareholders should not have any director on the board of the bank on account of shareholder agreements or otherwise.
The initial capital requirement for opening a bank is set at Rs. 500 crore and the entity have to maintain 13 per cent capital adequacy ratio for three years. The entity has to maintain a net worth of Rs. 500 crore at all times.
Regarding the corporate structure, it is proposed that individuals or standalone promoting entities need not have a non-operating financial holding company structure (NOFHC), but this is mandatory if the promoter entities have other businesses. The NOFHC, which will be registered with RBI as NBFC, will hold the bank as well as the other financial services companies of the group.
The NOFHC will not be allowed to set up any financial services companies for three years from the date it commences. Promoters’ minimum stake in the NOFHC will be 51 per cent.
The promoter (or NOFHC, as is the case may be), should have 40 per cent equity in the bank which will be locked in for five years, from the date the bank starts business, RBI said. In case promoters (or NOFHC) hold more than 40 per cent, then it has to be brought down over five years.
The RBI also mandated that promoters’ stake be brought down to 30 per cent over 10 years and to 15 per cent over 12 years.
The bank has to list its shares on the stock exchange within six years.
“The bank shall maintain arm’s length relationship with Promoter / Promoter Group entities, and the major suppliers and major customers of these entities,” the draft norms said.
The central bank said licences would be issued on a selective basis to those who are likely to conform to the best international and domestic standards of customer service and efficiency and it may not be possible for RBI to issue licences to all the applicants just meeting the eligibility criteria prescribed above.
RBI will set up a standing external advisory committee (SEAC), comprising eminent personalities, to vet the applications. The SEAC will, in turn, submit its recommendations to RBI for consideration.
RBI will put out the name of entities that have applied for a licence and also of successful candidates in the public domain. The regulator will also inform the unsuccessful candidates about the decision. Unsuccessful candidates will not be allowed to apply within three years of rejection.
The unsuccessful candidates can appeal against the regulator’s decision to the RBI’s central board of directors within one month of rejection.
GS II: POLITY-MPC
LS clears decks for MPC
The Lok Sabha approved the Finance Bill 2016 which included an amendment to the RBI Act clipping the central bank governor’s powers to set monetary policy.
The amendment made to the RBI Act through the Finance Bill removed the governor’s powers to singularly set monetary policy vesting them in a six-member Monetary Policy Committee.
Of the six members, the government will nominate three. The RBI Governor will chair the committee and have a second or casting vote in case of a tie.
The Deputy Governor in-charge of monetary policy and another officer to be nominated by the central bank’s board will also be members. Decisions will be taken by majority vote with each member having a vote.
The passage of the finance bill marks the completion of the three-stage process in the passage of the General Budget in the lower house.
Union Finance Minister Arun Jaitley moved 55 amendments to the Bill he had introduced on February 28, including for extending tax holiday for start-ups to Limited Liability Partnerships and to drop the proposal to tax employer contributions to recognised provident funds in excess of Rs.1.50 lakh.
In respect of additional dividend tax to be levied at the rate of 10 per cent in case of the specified tax payers, it has been clarified that it will be levied if the aggregate amount of dividends received by such tax payer from a domestic company or companies exceeds Rs.10 lakh.
With the passage of the Bill, the government has also succeeded in amending retrospectively the definition of foreign companies in the Foreign Contribution (Regulation) Act 2010, paving the way for political parties to receive funds from Indian registered foreign companies, where Foreign Direct Investment (FDI) is allowed.
The amendment is likely to benefit the BJP and the Congress, both accused of receiving foreign funds for political activities by U.K. based Vedanta Group from 2004 to 2012. Both the parties challenged a Delhi High Court order, which had termed the donations illegal in 2014.
Replying to the debate on the Finance Bill 2016, Mr. Jaitley said the government had no intent to impose Income-Tax on agriculture income as under the Constitution, the Centre had no powers to levy tax on agriculture income. He rejected demands, including from ally Shiv Sena, for roll back of one per cent excise duty on non-silver jewellery.
India eyes bad debt cleanup as wary state-run banks balk
India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans, in order to shield bankers from a populist backlash they say is hobbling efforts to clean up their balance sheets.
India's $121 billion troubled debt pile, over $100 billion of which is on the books of state-owned banks, has come under close scrutiny from prosecutors, media and politicians. Some have blamed banks for going too easy on corporate tycoons, and do not want taxpayers propping up the struggling banking sector.
The proposal, being examined by the government and in its early stages, would give the panel power to define the “haircut" a bank should face on a loan gone sour, protecting bankers from critics who want failed Indian firms to pay back in full, two finance ministry and two central bank officials said. Bad debt has hampered banks’ ability to lend, threatening to throttle a nascent economic recovery. Prime Minister Narendra Modi has made repairing bank balance sheets his administration's “top-most priority,” a senior government official said.
Fear of bad headlines was one reason why state-run banks declined to consider embattled tycoon Vijay Mallya's offer to pay up to $900 million in tranches to settle about $1.4 billion his defunct Kingfisher Airlines owed, two banking sources said.
Mallya now also faces a money laundering investigation. Mallya told the Financial Times late last month that he wanted a “reasonable” settlement that he could afford and banks could justify. Bad loans have piled up as subdued consumer demand hits corporate earnings, making it harder for big businesses to repay loans.
Gaping capital hole
RBI Governor Raghuram Rajan has set a deadline of March 2017 for banks to clean up their books, and the government said it would inject $11 billion in state banks by March 2019 to help them repair their balance sheets. India Ratings and Research, a local affiliate of Fitch, has said the government would have to cough up as much as $45 billion if the lenders failed to raise funds from markets to address expected future capital shortfalls.
Negotiated settlements, in which a bank takes a writedown on a loan gone bad, can help speed up the process.
They would allow banks to more quickly establish how much money they would need to bolster their balance sheets. All state lenders including State Bank of India (SBI), the largest, are trading at a steep discount to their book values. Healthier institutions would be able to raise money from the market, reducing the burden on taxpayers.
Several finance ministry officials said stake sales were more likely once valuations of state-run banks improved.
Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management Co, said an independent panel for deciding haircuts on non-performing assets would accelerate decision making and help banks focus on their core lending business.
GS II: BILATERAL-(INDIA-CHINA)
China dissidents didn’t meet in India: MEA
In yet another turnaround, the government said that the controversial conference of Chinese dissidents held in Dharamsala last week had not taken place.
The government’s stand on the gathering Dharamsala held between April 28-May 1, indicates a decision to play down the impact of the conference, which came into the limelight when Uighur activist based in Germany Dolkun Isa announced that he would be attending it, following which, the government informed him that his visa was cancelled. Two activists were restrained from boarding their flights to India. The MEA had earlier said that they had been stopped because they had all received e-visas which are not available for conference delegates, and should have applied through the Indian embassy.
According to the invitation letter sent out to international participants of the conference, has the theme of the “11th Interethnic/Interfaith Leadership conference” held at a hotel in Dharamsala was “Strengthening our alliance to Advance the people’s dream: Freedom Justice Equality and Peace”, and included prominent “Han Chinese, Tibetan, Uyghur, Mongolians, Christians, Muslims, Falun Gong” activists as delegates. The conference was organised by US-based Yang Jianli, who runs the “Initiatives for China” policy group, supported by the US Congress-funded National Endowment for Democracy.
GS II: INTERNATIONAL
LETTING OUT THE TRADE GENIE