The non-performing assets [NPAs] or bad loans [as these are known in common parlance] in the banking system are threatening to cross the Rs 700,000 crores – this is 100% more since the asset quality review [AQR] was ordered by Reserve Bank of India [RBI] two years ago. For an economy that has been on a high growth trajectory since 2014-15, NPAs of banks has been identified as a major structural problem that poses risk in the medium-term even by International Monetary Fund [IMF]. To address it, RBI deputy governor, Viral Acharya has come up with a two-pronged strategy. First, for assets which are capable of generating cash flow in short-run, these may be transferred to a private asset management...
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Category: PSU reforms & dis-investment
Milching of ONGC/OIL halts
In an unprecedented move rarely seen in the financial history of independent India, the government has exonerated its undertakings in the oil sector viz. Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL] from a potential liability of about Rs 22,000 crore in royalty dues to states of Gujarat and Assam. ONGC had to pay Gujarat Rs 8,392 crore and Assam Rs 1,404 crore in royalties for the period between April 1, 2008 and January 2014. Together with interest Rs 2,868 crore, total liability was Rs 12,664 crores. OIL had to pay to Assam government Rs 4,902 crore in royalty dues plus Rs 4,355 crore in interest adding to Rs 9257 crore. Union government has settled this pending...
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Demonetization – myths versus reality
In the aftermath of demonetization announced by prime minister, Modi on November 8, 2016, the air resonates with a tsunami of charges/allegations regarding its alleged ill-effects. It is time to assess the credibility of these charges. The government has plundered resources of poor The resources with the poor include (i) money held by him/her in cash [notes of various denominations] or (ii) savings in bank/post office if he/she has an account. As regards (i), he got 50 days time to exchange cash held in 1000/500 denominations for new notes at banks and another 3 months at RBI. As for (ii), this money is owned by him/her and shall remain so; all that the government did was to put restriction on...
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FINDING THE MONEY FOR CHANGES
The Union Finance Minister has reason to both feel happy and worried. There have been considerable savings on account of subsidy slippages and earnings through spectrum sale. But there still are strains on revenue generation In the wake of the recently concluded spectrum auction yielding around Rs 32,000 crore less than the budgeted amount of Rs 64,000 crore for the current year, Union Minister for Finance , Arun Jaitley exuded confidence that this would not come in the way of his achieving the fiscal deficit target of 3.5 per cent of GDP set for the year. Jaitley’s confidence stems primarily from the success of the Income Declaration Scheme (IDS) announced in the Budget for 2016-17 and launched on June 1,...
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Fiscal consolidation – Jaitely is on course
The much touted spectrum auction has ended in a fiasco. As against an astronomical over Rs 560,000 crores being the expected proceeds from the auction, the actual sale has been a little over 10% or Rs 65,000 crores. Of this, around Rs 32,000 crores will be available during the current year. Critics aver that this will cast a shadow on the ability of finance minister, Arun Jaitely to achieve the fiscal deficit target of 3.5% of GDP [gross domestic product] during the current year. This is because under this head alone, there will be a shortfall of Rs 32,000 crores vis-à-vis the projected level of Rs 64,000 crores. Significant shortfall is also expected in proceeds from divestment of government equity...
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Sick fertilizer PSUs – revival or day-dreaming
NITI Aayog has come up with a blue print for 74 loss making and sick public sector undertakings [PSUs]. Of these, it has recommended ‘strategic’ sale of 6, closure of 26 and revival of 22. The selection of units for revival will be based on a three-fold criteria: (i) ‘public purpose’; (ii) revival program is already under-way and (iii) ‘market principle’. While, the first two do not instill confidence, whether the third will actually be practiced is suspect. As regards (i), in this era of reforms and liberalization when the Modi – dispensation has gone that far to open even railways and defense sectors [considered to be exclusive preserve of the state for decades] to private sector including foreign investment...
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Service tax demand on OVL – wholly unwarranted
The tax department is reported to have slapped service tax demand of over Rs 6,100 crore [Rs 2,816.31 crore for April 1, 2006 to March 31, 2010 and Rs 3,286.36 crore for April 2010 to March 2015] on ONGC Videsh Ltd [OVL] – an overseas arm of central government undertaking viz., Oil and Natural Gas Corporation [ONGC]. Including interest and penalty, the liability will be much higher. This has caused much consternation at a time when OVL is already financially stressed. OVL had reported a net loss of Rs 2,093.5 crore in 2015-16 fiscal against a net profit of Rs 1,904.2 crore in 2014-15 despite increase in production of oil and gas. Such humongous demand will seriously impair return from...
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Seize the moment
STRATEGIC DIVESTMENT : Unwillingness to go for strategic sale would be a tactical blunder. So far, the outcome on this front has been rather disappointing In its previous incarnation under A B Vajpayee, the BJP-led NDA dispensation (1998-2004) had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings (PSUs), some of the high profile cases being Modern Food Limited (MFL), Hindustan Zinc Limited (HZL), Bharat Aluminium Company (BALCO) etc. The UPA government which took charge in 2004, abandoned this route. The present NDA regime under Modi may have resurrected the idea. Looking at the budget for current and previous year, it would appear so. For these years, Finance Minister Arun Jaitley provided for Rs 28,500 crore (2015-16)...
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Strategic divestment of PSUs – seize the moment
In its previous incarnation under Vajpayee, the BJP-led NDA [National Democratic Alliance] during 1998-2004 had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings [PSUs], some of the high profile cases being Modern Food Limited [MFL], Maruti Udyog Limited [MUL], Hindustan Zinc Limited [HZL], Bharat Aluminium Company [BALCO] etc. The UPA – government which took charge in 2004 abandoned this route even as it sold shares in small lots with the sole aim of garnering resources to meet fiscal deficit target. The present NDA – regime under Modi may have resurrected the idea as would be evident from a provision of Rs 28,500 crores in the budget for 2015-16 as proceeds from strategic route out of total...
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Soft on borrowers
STRESSED ASSETS SCHEME : A close look at the scheme reveals that this is nothing but skulduggery and playing with jargons to make it look robust. Even as the Reserve Bank of India (RBI) has become increasingly tough with public sector banks ordering them to clean up their balance sheets by March 2017, it continues to treat the defaulting borrowers (who were responsible for their proliferating non-performing assets in the first place) with kid gloves. First, it was a scheme nick-named 5/25 introduced in December 2014, under which maturity of loans given to infrastructure companies could be extended up to 25 years. Six months later, this was followed by a scheme for “Strategic Debt Restructuring” (SDR). Under SDR, banks can...
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