If, there is any sector that is under maximum stress today it is banking. And, the sole reason for this is monumental loans given in the past that turned in to non-performing assets [NPAs]. For public sector banks [PSBs], these are Rs 476,000 crores on March, 2016 [up from Rs 267,000 crores on March, 2015]. In the past, their managements suffered from inertia of two types; first, they won’t recognize the existence of the problem and second, despite recognition they would do nothing to solve it. Raghuram Rajan – the tough governor, Reserve Bank of India [RBI] forced them to clean up their balance sheets. As a result, some 20 banks who would have otherwise made a profit of Rs...
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Category: Savings & Investment
Rajan halts rate cut journey, midstream
In the bi-monthly monetary policy review announced on June 7, 2016, RBI governor, Raghuram Rajan has left the repo rate [interest rate at which the apex bank lends money to commercial banks] and cash reserve ratio [CRR] [funds that banks have to keep with RBI as a percentage of their deposits] unchanged at 6.5% and 4% respectively. In sync with repo rate, the reverse repo [rate at which banks lend money to RBI] remains un-altered at 6.0%. During his press briefing, however, Rajan maintained that his so called accomodative stance [implies being receptive to borrower’s sensitivities by way of lowering lending rate and making adequate funds available] continues. That should have called for reduction in the policy rate or pumping...
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Burden on shareholders
In the Union Budget for 2016-17, Finance Minister Arun Jaitely proposed that if the dividend income earned by a resident individual, HUF (Hindu Undivided Family) or firm exceeds Rs 10 lakh, it will be taxed at the rate of 10% in the hands of the recipient. This is over and above the dividend distribution tax (DDT) currently paid by firms at 16.99% (inclusive of surcharge and education cess] of the dividend amount so declared, distributed or paid. With the grossing up [as per Finance Bill, 2014, dividend paid is grossed up with income distributed for computing DDT), the effective tax rate is even higher at 20.47%. The policy in regard to tax on dividend income had a chequered history with...
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Taxing dividend – shareholders face triple whammy
Signalling a major change in the way dividend income is taxed, the finance minister, Arun Jaitely proposed in the Union Budget for 2016-17 that if dividend income earned by a resident individual, HUF [Hindu Undivided Family] or firm exceeds Rs 10 lakh, it will be taxed at the rate of 10 percent in the hands of the recipient. This is over and above the dividend distribution tax [DDT] currently paid by firms @ 16.995 percent [inclusive of surcharge and education cess] of the dividend amount so declared, distributed or paid. With the grossing up [as per Finance (No.2) Bill, 2014, dividend paid is grossed up with income distributed for computing DDT], the effective tax rate is even higher at 20.47%....
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Good move, hasty retreat
TAX ON EPF WITHDRAWAL The 2016-17 budget proposal to tax 60% of withdrawal from EPF (employees provident fund) and other superannuation funds faced flak from all quarters forcing Finance Minister Arun Jaitley to withdraw it lock stock and barrel. How could the Narendra Modi government, which is committed to the welfare of every section of the society, contemplate such a move in the very first place? Was it really targeted against the salaried class? Was it a right step but not properly piloted? Jaitley had proposed tax on 60% of withdrawal from accumulations in EPF account (contributions plus interest accrued) from April 1, 2016. However, the money would be exempt from tax if re-invested in purchase of annuity plan. He...
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EPF withdrawal – hasty retreat from well crafted move
The proposal mooted by finance minister, Arun Jaitely in the Union Budget for 2016-17 to tax 60% of withdrawal from EPF [employees provident fund] and other superannuation funds has caused Modi – government much embarrassment. It faced flak from all quarters including from its own support base forcing Jaitely to withdraw the decision lock stock and barrel. The budget announcement was bandied as anti-salaried class/ common man by all and sundry. But, that is completely out of sync with the DNA of prime minister who – from the day of assuming charge – has consistently vowed to devote every moment of his work to improving the welfare of the 1.25 billion people especially the poor and down-trodden. How could his...
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2016-17 – budget that helps poor earn decent living
The Union Budget for 2016-17 presented the finance minister, Arun Jaitely on February 29, 2016 carries the imprint of prime minister Modi’s unflinching and genuine commitment to ameliorate the conditions of millions of poor – engaged in farming and other occupations – by creating all right conditions to enable them do productive work and earn good income. Driven by latter’s pledge to double farmers income by 2022 [75th year of Independence], the former has unveiled a plethora of initiatives/steps to bring about a structural transformation in the way farming is conducted and agricultural produce is marketed. Boost to farmers income & rural employment The measures that will enhance farmer’s capability to increase yield include a mammoth capital spend of Rs...
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Will PSBs survive Rajan’s surgery?
The carnage seen on the Indian bourses on February 11, 2016 leading to erosion in market capitalization by a whopping Rs 300,000 crores [around US$ 44 billion] was led primarily by plunge in the stocks of public sector banks [PSBs]. Even as the near recessionary trends globally precipitated by deceleration in Chinese growth rate has been the undercurrent contributing to decline in Sensex/Nifty, steep fall in PSBs stocks in particular, is due to poor results of the third quarter [October-December, 2015] of the current financial year. State Bank of India [SBI] – biggest of all PSBs in terms of size and market capitalization – reported a steep fall of around 60% in net profit for the quarter. Punjab National Bank...
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India’s growth narrative – hits Rajan’s speed breaker
While, presenting the budget for 2015-16, finance minister, Arun Jaitely had taken a conscious decision to deviate from the fiscal consolidation road-map drawn by his predecessor and reiterated by him in budget for 2014-15. Accordingly, he fixed the fiscal deficit target as 3.9% of GDP as against 3.6% as per the road-map. The rationale behind this decision was to give a big boost to public investment in infrastructure viz., roads, highways, rails, power, port, airport etc in the backdrop of sluggish investment by the private sector [groaning under heavy debt and low margins]. The idea was to resurrect growth and push it in to double digit orbit. For 2016-17, in view of industry clamoring for continued boost in public spending...
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Economic policies – NDA versus UPA
Some time back, Arun Shourie a senior minister in the then NDA [National Democratic Alliance] government under Vajpayee [1998-2004] and erstwhile member of BJP observed that the economic policies being followed by Modi – government are just a continuation of UPA [United Progressive Alliance] plus the “cow’ [a euphemistic reference to sacred animal worshiped by majority Hindu community in India]. Shourie’s view is shared by many thinkers. UPA – dispensation II [2009-2014] had pushed the country towards economic paralysis with all key indicators i.e. growth [manufacturing in particular], inflation, fiscal deficit, current account deficit [CAD], foreign exchange reserves and infrastructure etc showing dismal trend. In this backdrop and since, Modi is also following the same policies, they aver that outcomes...
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