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Banking News 07.03.2017

Change to Gratuity Act likely in coming session

 

Archis Mohan

The Business Standard

Published on March 7, 2017

 

 

New Delhi, March 6: The government is likely to bring a change to an Act to make gratuity up to Rs. 20 lakh tax-free in the upcoming second half of the Budget session of Parliament slated to begin on Thursday. The change to the Payment of Gratuity Act will not only raise the tax-free portion of the gratuity but also allow the government to increase it through the executive order in the future, official sources said.

 

Ceiling on gratuity will be linked to inflation and that way it would be raised through an executive order in the future, if the Bill is passed by Parliament. Earlier, the labour ministry and trade unions reached an understanding in this regard. Pavan Kumar, organising secretary of the BMS, said the government has conveyed to the trade unions that the change to the Act is slated to be introduced in the Budget session.

 

However, he said trade unions have also demanded other changes, including a change in the current formula of calculation of gratuity to increase the number of days for which gratuity is calculated from 15 days in a year to 26 days.

 

Currently, gratuity received is tax-free to the extent that it does not exceed 15-days´ salary for every completed year of service. The unions, he said, have also demanded removal of the five-year ceiling. Currently, one gets gratuity only if he has completed five years of service. The Act applies to those establishments where the number of employees is not fewer than 10.

 

 

From E-Group, Banking-News

 

 

Government asks State Bank of India

to reconsider minimum balance penalty

 

The Press Trust of India

Published on March 6, 2017

 

 

Also asked to reconsider levying charges on cash

transactions, ATM withdrawals over specified limits

 

New Delhi, March 6 (PTI): The government on Monday asked State Bank of India (SBI) to reconsider its decision to levy penalty on non-maintenance of minimum balance, which the bank plans to hike manifold from April 1 impacting over 310 million savings bank account holders.

 

SBI, according to a source, has also been asked to reconsider charges it proposes to levy on cash transactions and ATM withdrawals over specified limits. The country’s largest lender has announced imposing penalty ranging from Rs 20-100 on non-maintenance of minimum average balance (MAB) in savings bank accounts from April 1.

 

The penalty is as high as Rs 500 in case of current accounts. The penalty for breach of MAB is being reintroduced after a gap of five years. The bank has also increased the minimum balance requirement by many times, which is as high as Rs 5,000 for account maintained with branches in six metro cities.

 

SBI has also imposed restrictions on withdrawals of cash from its branches as well as ATMs. These will attract charges after certain specified limits. "Government has asked SBI to reconsider its decision to impose a penalty on non- maintenance of minimum balance in accounts from April 1 onwards," the source said.

 

The government has also urged SBI and other lenders, including private sector banks to "reconsider the charges on cash transactions and ATM withdrawals above a certain limit".  Some private banks, like HDFC Bank, ICICI Bank and Axis Bank, have started charging a minimum amount of Rs 150 per transaction for cash deposits and withdrawals beyond four free transactions in a month.

 

Points to consider:

 

v         SBI has been asked to reconsider charges it proposes to levy on cash transactions and ATM withdrawals over specified limits

 

v         The bank has announced penalty ranging from Rs 20-100 on non-maintenance of minimum balance in savings bank accounts from April 1

 

v         The penalty is as high as Rs 500 in case of current accounts

 

v         Penalty for non-maintenance of minimum balance is being reintroduced after a gap of five years

 

v         The bank has also increased the minimum balance requirement to Rs 5,000 for an account maintained with branches in six metro cities

 

 

From E-Group, Banking-News

 

 

Lateral recruitment on the

rise in public sector banks

 

N S Vageesh

The Business Line

Published on March 7, 2017

 

 

With increasing complexities, new specialisations and

requirements have arisen and banks are hiring from outside

 

Mumbai, March 6:  Chief Ethics Officer, Chief Marketing Officer, Chief Investment Officer, Chief Learning Officer, Head-Analytics, VP-Marketing…  These are some of the roles and designations that are being offered by public sector banks, seeing which one realises that change is afoot. Public sector banks are increasingly recruiting senior management professionals directly or laterally from the market to handle new roles.

 

Earlier trend

 

Earlier, they recruited probationary officers who joined in the junior management grade or at the bottom of the corporate ladder and then climbed their way to the top over the next three decades. This was the era of ‘generalists’ —although specialist officers who had expertise in agriculture, legal or accounting would be recruited periodically and they would have their own separate career paths to the top.

 

It was hoped that the generalists would acquire experience along the way and use the ‘principles of management’ to handle whichever department they were posted to — very akin to how IAS officers get rotated across different enterprises and departments and get a ‘rounded perspective’.

 

But that is changing. With increasing complexities in banking, new specialisations and requirements have come up.

 

This has necessitated recruiting staff with relevant experience — that is compelling these banks to look outside.

 

From private sector

 

Some departments have done this even earlier to get cutting edge experience from the private sector — for instance, information technology. Banks, including SBI, have looked to recruit systems analysts, digital analysts, and even chief technology officers on contract basis. That’s been extended a step further now — SBI, Bank of Baroda and Union Bank are in the process of setting up an analytics department in their banks to help analyse their customer base and come up with statistical models and other techniques to improve the sale of their products.

 

Now, newer roles are being created to recast organisations and their structures and prepare them for a new era. For instance, SBI has recruited a ‘Chief Ethics Officer’ to propagate a culture of ethics and enhance the bank’s brand and reputation.

 

Similarly, it has recruited a professional for investor relations — to liase with brokerages, rating agencies and monitor their reports, brief the top management, benchmark SBI against competition and facilitate improvement in perception of the bank as being investor friendly. Earlier, this may have been done informally by the CFO as part of his or her many duties.

 

Other public sector banks have also followed this lead for functions, such as marketing, legal, risk management, ‘learning’, investments, economic research, fraud management, etc. A little over a year ago, under the government’s active encouragement, two public sector banks – Bank of Baroda and Canara Bank — even got their chief executives from the private sector.

 

Compensation package

 

Typically, all these appointments are on contractual basis for a period of three years. In some cases, these are extendable by another two years.

 

While there is the usual line about compensation not being a limiting factor for the right candidate, some posts mention a lump sum compensation package with a variable component linked to performance.

 

This is in contrast to regular jobs of a permanent nature where the compensation is structured at different pay scales with periodic hikes at intervals of a few years and other associated perks, such as housing, medical, et al. Some posts, in deference to market realities, carry a package that would be higher than those drawn by MDs in public sector banks.

 

 

From E-Group, Banking-News

 

 

Supreme Court seeks reply of Centre,

RBI on exchanging demonetised notes

 

The Press Trust of India

Published on March 6, 2017

 

 

The apex court asked why old notes were

not accepted till March 31 as was promised

 

New Delhi, March 6 (PTI): The Supreme Court on Monday took note of the alleged tweaking of rules by the Centre and the Reserve Bank of India (RBI) on exchanging demonetised currency notes and sought their responses on why old ones were not accepted till March 31 as was promised.

 

The Prime Minister's address to the nation on the evening of November 8 last year on demonetisation and subsequent notification of the federal bank that the devalued currency notes can be exchanged at RBI offices even up to March 31, 2017 were valid assurances which stood breached by the ordinance, the counsel for petitioner Sudha Mishra said.

 

"Issue notice, returnable by Friday (March 10)," a bench of Chief Justice J S Khehar and Justices D Y Chandrachud and S K Kaul said. It also asked the counsel to serve the copy of the petition to the Centre and the RBI during the day to ensure effective hearing on March 10.

 

It was alleged that the Prime Minister and the RBI had assured the people at large that demonetised currency notes can be exchanged at banks, post offices and RBI branches and if people are unable to deposit them by that day then they can do so till March 31, 2017 at RBI branches after complying with some formalities.

 

The lawyer then referred to the Specified Bank Notes Cessation of Liabilities Ordinance and said it had breached the assurance. The Ordinance said that only those who were abroad, the armed forces personnel posted in remote areas or others who can give valid reasons for not being able to deposit the cancelled notes at banks, can deposit the demonetised currency notes of Rs 500 and Rs 1,000 currency notes till March 31.

 

The Centre had come out with the Ordinance making possession of a large number of scrapped banknotes a penal offence that will attract monetary fine. The Ordinance also provided for amending the RBI Act to provide legislative support for extinguishing the demonetised banknotes that are not returned. While the high-denomination currency ceased to be a legal tender from midnight of November 8, 2016, a mere notification was thought to be not enough to end the central bank's liability and avoiding future litigations.

 

The deadline for the deposit of old currency in bank or post office accounts expired on December 30, 2016 and time till March 31 was made available to only those people who were abroad, armed forces personnel posted in remote areas or others who can give valid reasons for not being able to deposit the cancelled notes at banks. Of the Rs 15.4 lakh crore worth of currency that was scrapped, about Rs 14 lakh crore has been deposited in banks or exchanged till December 28.

 

 

From E-Group, Banking-News

 

 

Note ban might affect some sectors in Q4: RBI

 

Indivjal Dhasmana

The Business Standard

Published on March 7, 2017

 

 

Remonetisation should be completed in 2-3 months,

 says RBI Deputy Governor Viral Acharya

 

New Delhi, March 6: The impact of demonetisation might be seen on some sectors of the economy in the fourth quarter (January to March, Q4) of the current financial year (2016-17, FY17), said Reserve Bank of India Deputy Governor Viral V Acharya on Monday. He added the remonetisation exercise should be completed in two to three months.

 

Prime Minister Narendra Modi had announced the demonetisation of old Rs 500 and Rs 1,000 notes on November 8. Economists and analysts had expected the ensuing cash crunch to adversely affect gross domestic product (GDP) growth in the third quarter (October-December). But with growth at 7 per cent, note ban seemed to have not affected the economy at all.

 

Asked if the spill over of demonetisation could extend to the January-March quarter, Acharya, who came to participate in the G-20 preparatory meeting in the finance ministry, said the impact could be felt in some segments. “Ultimately, the cash shortage is like the liquidity shock and unless it had led to a substantial wealth destruction, one would expect its effects to be quite temporary. I’m not saying that the temporary impact is not hard on some parts of the economy; you would expect the effect to be temporary,” he said

 

There may be a couple of sectors, such two-wheeler sales, where there is slightly slower rebound, he said.

 

Asked about the GDP estimate, he said, “You can see our MPC (Monetary Policy Committee) resolution, which is that our estimate was actually reasonably close to that (of CSO estimate). Of course, the drivers may have been slightly different.”

 

He said there were a couple of issues people have raised — how much of the informal sector gets fully captured other than through its links to the formal sector — which would be interesting and worth thinking about.

 

For the entire 2016-17, GDP growth was projected to be 7.1 per cent in the second Advanced Estimates, the same as the first Advanced Estimates. This was despite the fact that the first Advanced Estimates did not take into account the impact of demonetisation, while the second Advanced Estimates did so.

 

Acharya also said the impact of the note ban would only be temporary and would help in bringing informal sector into the mainstream. “I think everyone should keep in mind that the remonetisation is taking place at a very fast pace. We have some way to go, but I think we expect that within two to three months we will reach full currency in circulation. It will be slightly lower, but it is in that ballpark (number),” he said.

 

The newly appointed RBI deputy governor also said asset quality review (AQR) is on the track. The RBI had set a deadline of March 2017 for completion of the AQR exercise for public sector banks.

 

It had embarked on the AQR exercise in December 2015 and asked banks to recognise some top defaulting accounts as non-performing assets (NPAs). This has had a debilitating impact on banks’ numbers and their stocks. The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.

 

 

From E-Group, Banking-News

 

 

Consultation with government is not an

encroachment on RBI autonomy: Thorat

 

The Press Trust of India

Published on March 6, 2017

 

 

Mumbai, March 6:  Former Reserve Bank Deputy Governor Usha Thorat today said any consultation between the Government and RBI should not be construed as an infringement on the latter’s autonomy. “It is categorically stated that the government fully respects the independence and autonomy of RBI. Consultation between the government and RBI, mandated by law or as evolved by practise, should not be taken as an infringement of autonomy of the Reserve Bank,” she said. Thorat was speaking on the topic, ‘RBI and its autonomy’, at an event here.

 

She was referring to an instance, post demonetisation, wherein a section of RBI employees had written to Governor Urjit Patel expressing concern over appointment of a Joint Secretary-rank officer by the finance ministry to co-ordinate the apex bank’s currency chest operation. In the letter written in January, the employees termed the appointment as a “blatant encroachment” on the RBI’s exclusive turf of currency management. Thorat said the RBI is a full service central bank which plays several roles – it is a monetary authority, banking regulator, operates FEMA, regulates capital flows, manages public debt and regulates payment system.

 

“Hence, the issue of independence (of the RBI) needs to be discussed in respect of each of these roles and also from the overall angle of political, financial and operational independence.” Thorat said in the case of public debt management there can be no independence because there is always going to be a close co-ordination between the RBI and ministry of finance. “This co-ordination is necessary to ensure the large fiscal deficits were financed in an orderly manner without too much upward pressure on interest rates and without compromising the price stability objective.”

 

Thorat said the process of appointment of the Governor and Deputy Governors has changed now. Bureaucrats are now being involved in the selection of the Governor, the Deputy Governor and the Monetary Policy Committee members. She said there is a scope of increasing the tenure of the Governor and the Deputy Governors to five years from the present three.

 

 

From E-Group, Banking-News

 

 

Demonetisation and informal sector:

Indian economy was slowing,

note ban compounded problem

 

M Govinda Rao

The Financial Express

Published on March 7, 2017

 

 

The growth estimates put out by the Central Statistical Organisation (CSO) in the Second Advance Estimates of National Income for the year and the third quarter estimates have raised many eyebrows. As against the Bloomberg consensus estimate of 6.1% for the quarter, the CSO’s estimate shows the growth of 7%. The second advance estimate of GDP for FY17 is 7.1%, which takes account of the effect of the note-ban, and is exactly identical to the first estimate. In fact, both the Reserve Bank of India as well as the Economic Survey put out by the Union ministry of finance have admitted to the fact that the note-ban would have adverse impact on growth and the latter speculates the reduction in the growth by 0.25-0.5%. The growth estimate remaining unchanged at 7.1% in the second advance estimate has led some to erroneously conclude that demonetisation has not had any significant impact on the growth rate while others have raised suspicions on the estimate itself. The fact is that there has been an effect and this is revealed by the analysis of growth composition of different sectors. Besides, as stated by the chief statistician, TCA Anant, the impact of the note-ban is yet to play out completely. Thus, there is no need either to be jubilant about the note-ban nor is there any case for stating, “lies, damn lies and statistics!”

 

From the policy perspective, it is important to note that the growth rate of GDP in the current year has decelerated significantly over the previous year from 7.9% to 7.1%. The deceleration in the gross value added (GVA), which is the real measure of economic activity, has been much sharper, from 7.8% to 6.7%. Except for agriculture and public administration, the growth rate was either stagnant or declined by various magnitudes in other sectors. In agriculture, thanks to the bountiful monsoon, the growth is estimated to have accelerated from 0.8% in FY16 to 4.4% in the current year, and in public administration, thanks to the pay revision, the growth rate increased from 6.9% to 11.2%. The sharpest decline in the growth was in mining (from 12.3% to 1.3%), financial and real estate sector (from 10.8% to 6.5%) and manufacturing (from 10.6% to 7.7%).

 

More importantly, the gross domestic capital formation (GDCF) has shown a steady decline from 29.2% to 26.9% (in current prices). This is really a matter of concern as the estimate is the lowest in the last 15 years. Sustained acceleration in growth rate is possible only when the investment climate improves and that underlines the urgency in solving the twin balance sheet problem. The third quarter estimate of growth for FY17 at 7% as against the Bloomberg consensus estimate of 6.1% has raised many eyebrows. The estimate of growth in private consumption at 11.1% in the third quarter over the previous one has only added to the confusion. While some have questioned the legitimacy of estimates, others have argued that the note-ban had no impact on economic activity!

 

A close scrutiny of the estimate shows that the conclusion that the note-ban has had no impact on economic activity would be erroneous. There are a number of reasons for this.

 

First, the note-ban affected only the latter part of the quarter and its effect is not confined to the quarter alone. We will have to see how the economy fares in the next quarter as well.

 

Second, much of the impact of the note-ban has been on the informal sector and small and medium industries. The data set from ministry of corporate affairs and the Index of Industrial Production (IIP) on which manufacturing GDP estimate is based mainly captures the trend in the formal sector and the informal sector numbers are projected based on these. It is only when more detailed information on them comes in will we get a better picture. It must be stated that the GDP estimates undergo revisions for almost two years.

 

Third, the impact of the note-ban cannot be assessed on the basis of simple trends. That can be assessed only in counter-factual terms, i.e., what would have been the growth in the absence of the note-ban. In other words, in the absence of the note-ban, the growth rate in some of the sectors could have been higher if there was no demonetisation. Even so, the financial and real estate sector grew at only 3.1% in the third quarter, as against 7.6% in the previous, and similarly, the construction sector grew at 2.7% as against 3.4% in the previous quarter.

 

In fact, the high growth was mainly on account of agricultural sector which is estimated to register 6% growth in the quarter as against 3.8% in the previous quarter and -2.2% in the third quarter of the previous year. Another sector which showed a sharp surge in growth is mining, which accelerated to 7.5% in the third quarter as against -1.3% in the previous. Similarly, the note-ban has nothing to do with the acceleration in the growth of manufacturing (from 6.9% to 8.3%) or public administration (from 11% to 11.9%).

 

Despite this, as mentioned earlier, the GVA according to the second advance estimate for FY17 at 6.7% is lower than the first advance estimate put out in early January (7%). A careful analysis of the growth trends, excluding agriculture and public administration, shows that the economy actually slowed down from 6.9% in the first half of the year to 5.8% in the third quarter, which gives sufficient evidence of the adverse impact. This is clearly more than one percentage point slowdown even when the demonetisation impacted only in the second half of the quarter. Indeed, as mentioned above, the full impact of the measure will be known only when the revised estimates come in.

 

The simple point is that the economy was already slowing down on account of the poor investment climate, and demonetisation compounded the problem. While the disruption caused by demonetisation will be overcome with passage of time as the economy gets remonetised, the government will have to address the poor investment climate in the country to arrest declining investments and credit off-take. Hopefully, action on this front will happen soon.

 

The author is emeritus professor, NIPFP, and

chief economic adviser, Brickwork Ratings.

 

 

From E-Group, Banking-News

 

 

All you wanted to know about...

Gross Value Added (GVA)

 

Radhika Merwin

The Business Line

Published on March 7, 2017

 

 

Economists are at it again, nitpicking the recent GDP growth estimate put out by the Central Statistics Organisation (CSO). Why? Because the 7.1 per cent growth forecast for FY17, remains unchanged from CSO’s earlier estimate. This begs the question: was the hype over demonetisation hurting growth much ado about nothing?

 

However, a less conspicuous figure put out by the CSO shows moderation in growth. That is the gross value added (GVA). GVA growth has been pegged at 6.7 per cent for FY17, lower than the earlier estimate of 7 per cent.

 

What is it?

 

GDP or gross domestic product is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. Until about two years ago, GDP was all you needed to see, to gauge a country’s economic activity.

 

Now, there are other pieces of jargon that you need to know if you have to decode CSO numbers. The gross value added (GVA) is one key number. Over two years ago, the CSO introduced a new method to calculate growth numbers. This differed from the earlier method in many ways. Another key change was to move from factor cost to basic prices. GDP at factor cost represents what the producers in the economy make from industrial activity — wages, profits, rents and capital — called ‘factors of production’, if you jog your memory on economics.

 

Aside from these costs, producers may also incur other expenses such as property tax, stamp duties and registration fees before sale. These are included in the GDP, but not the GVA. Essentially, GVA captures what accrues to the producer, before a product is sold.

 

Why is it important?

 

GVA, under the new method, has assumed importance as it is the closer representation of the economic activity on the ground. The RBI too considers only GVA to spell out its economic projections in its policy reviews.

 

Adjustments made to the GVA number to arrive at GDP, under the new method, can throw the resultant number out of whack. The growth in the economy under the old series was gauged by the growth in GDP at factor cost — period. Now the headline GDP growth is adjusted for net indirect taxes — indirect taxes are added while subsidies are subtracted from GVA. This is to reflect the price paid by the consumer. But at different points in time, GDP and GVA have been telling different stories.

 

For instance, in its recent revision, the CSO has lowered its GVA growth by 30 bps to 6.7 per cent for 2016-17. But indirect taxes growing at a sizzling pace (24 per cent until January) and shrinkage of subsidies led to higher growth in net indirect taxes, and hence GDP. Thus, the difference between GDP growth and GVA growth has increased substantially to 40 bps for 2016-17, compared to just 10 bps in 2015-16.

 

Hence it makes sense to look at the GVA number to do a sectoral or historical comparison of economic activity. But if you are looking to compare India with the rest of the world, then GDP would be the number to go by.

 

Why should I care?

 

How the economy is doing is critical to your job prospects and your annual pay hike. A higher GDP is usually good news, implying better living standards for the country at large.

 

For the investor, the implications are more direct — a higher growth in the economy will mean better corporate earnings. Higher GDP or GVA growth in India may also lure more foreign investors to pour capital into the country.

 

The bottomline

 

GDP or GVA, do pay attention, as the devil is in the details.

 

 

From E-Group, Banking-News

 

 

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