Mumbai :Scandals, bad debts, ATM cash shortages–India’s banking system has experienced them all in recent months and the bad run is starting to have repercussions for both the broader economy and Prime Minister Narendra Modi.
India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans, and some regional banks have been ensnared in fraud scandals. With a national election slated for April or May, Goldman Sachs Group economists have trimmed their growth projections for the year ending March to 7.6% from 8% amid concerns that the banking system’s woes are more widespread than previously thought.
On top of that, ATMs in some parts of the country have been reported to be running dry in recent days. There’s an unusually high demand for cash, according to the Finance Ministry. The rupee shortage is being blamed on everything from farm spending to looming elections and hoarding by some families.
Yet some roots of the issue may lie in Modi’s 2016 decision to take high-denominated cash out of circulation in a bid to curtail India’s vast and unreported black economy and crack down on illicit financial transactions.
The move initially caused economic mayhem and the disruptive shocks to cash in circulation continue to linger.
While government officials have said the banking system is healthy and that there’s adequate cash for the excess demand, the crunch has only further tarnished the public image of banks.
“The problems in India’s banking system are self-inflicted mostly because of lack of due diligence,” said N.R.
Bhanumurthy, a Delhi-based economist at the National Institute of Public Finance & Policy. “Of course this will affect growth.”
The broad uncertainty hovering over the financial sector comes just as the economy was showing early signs of recovering from a disruptive tax system overhaul and the 2016 cash ban. Now there are growing worries that lending, and with it economic activity, will stall.
Bhanumurthy for now forecasts GDP growth of 6.5% for the current fiscal year ending March 2019, although he fears the numbers could go even lower. His estimate is already below last year’s 6.6 percent and as well as the most pessimistic forecast of 6.9% in a Bloomberg survey.
Indian banks — the heart of its economy — have had their image tarnished by a string of scandals that have come to light over the past couple months as companies, saddled with excess capacity and subdued demand, struggle with the aftermath of a borrowing spree following the global financial crisis.
Many companies have been unable to pay down their debt as the economy has slowed, especially in the power, steel and telecommunications sectors. At least some of these loans might have been given with insufficient scrutiny, exposing financial institutions to risk.
That coupled with tougher regulatory oversight by the central bank and federal investigators, has skeletons tumbling out of closets.
Last week, Kolkata-based UCO Bank was in the spotlight after India’s federal investigative agency registered a case against its former chairman for cheating the state-run lender. The bank had reported losses for nine straight quarters as it made provisions for soured debt. Calls to him went answered.
Axis Bank CEO, Shikha Sharma, this month said she will quit earlier than expected from the mid-sized lender after failing to rein in about 250 billion rupees in gross non-performing loans.
In one of the most high profile cases of fraud, a billionaire jeweler was accused of masterminding a $2 billion scam at Punjab National Bank, one of the country’s largest public sector banks by using fake guarantees. Punjab National Bank shares have lost almost 40 percent over the past year.
For more on India’s other banks read these stories: ICICI Bank’s Love for Its CEO Is Testing the Limits: Gadfly Investigators Summon Top Bank Chiefs as India Widens Fraud Probe
Business sentiment has soured in the wake of the alleged banking frauds, said Abhishek Gupta, Bloomberg’s India Economist, who cut growth forecasts this week. This is likely to have a negative impact on credit growth, with the banking system burdened by bad loans.
Gupta has lowered his growth forecasts to 7.2% from 7.5% for the year ending March 2019. That took it below the Bloomberg consensus of 7.4%, a pace probably insufficient for Modi to create enough jobs in time for the elections.
18 pc GST on flat owners paying monthly maintenance of over Rs 7,500
New Delhi: Flat owners will have to pay GST at 18 per cent if their monthly contribution to resident welfare association (RWA) exceeds Rs 7,500, the Finance Ministry said.
As per the rules, RWAs are required to collect GST on monthly subscription/contribution charged from its members if such payment is more than Rs 7,500 per flat per month and the annual turnover of RWA by way of supply of services and goods exceeds Rs 20 lakhs.
In a circular issued to field offices on how should the RWA calculate GST payable where the maintenance charges exceed Rs 7,500 per month per member, the Finance Ministry said the exemption from GST on maintenance charges charged by an RWA from residents is available only if such charges do not exceed Rs 7,500 per month per member.
“In case the charges exceed Rs 7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs 9,000 per month per member, GST @18 per cent shall be payable on the entire amount of Rs 9,000 and not on (Rs 9,000-Rs 7,500) = Rs 1,500,” it said.
On how the tax liability would be calculated for a person who owns two or more flats in the housing society or residential complex, the Ministry said in such cases the ceiling of Rs 7500 per month per member shall be applied separately for each residential apartment owned by him.
“For example, if a person owns two residential apartments in a residential complex and pays Rs 15,000 per month as maintenance charges towards maintenance of each apartment to the RWA (Rs. 7500/- per month in respect of each residential apartment), the exemption from GST shall be available to each apartment,” it said.
The Ministry further clarified that RWAs are entitled to take input tax credit (ITC) of Goods and Services Tax (GST) paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services.
Payments banks fall by the way on tight regulatory requirements
Mumbai: Despite digital transactions in India growing rapidly, the number of payments banks is coming down. Last week, Aditya Birla Idea Payments Bank (ABIPB), a venture between Idea Cellular and Aditya Birla Nuvo, announced closing of its operations from October 18, 2019. The payments bank that was only 18-month old said the closure was prompted by “unanticipated developments in the business landscape that have made the economic model unviable” and has asked its customers to transfer their balances before July 26.
Out of the 11 organisations that were given licences in August 2015 by the Reserve Bank of India for setting up payments banks, with the objective to promote digital payments and boost financial inclusion, four surrendered their licences early. Of the remaining seven players, a licence each was given to Vodafone and the Aditya Birla Group, which leveraged its Idea Cellular network to float a payments bank. At the time of the merger between Vodafone and Idea, the management had said it did not make sense to keep two licences, and they would eventually return one.
The number of active payments banks is now down to five—Airtel Payments Bank, Fino Payments Bank, Paytm Pay-ments Bank, India Post Payments Bank and Jio Payments Bank.
Says an analyst, “Banks themselves are offering mobile banking products and are aggressively promoting them besides there are technology companies too in this space. So why will a bank customer want to open another account with a payments bank unless the PB is offering a big value proposition?”
According to Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, the future is “uncertain” for payments banks. There are many reasons for payment banks losing steam and players choosing to shut shops. “First, there is lack of proper awareness about it amongst people and whatever little awareness is there has not been able to translate people into customers. Second, tighter regulatory restrictions and third, no innovations in products and services.”
PBs are not allowed to lend, deposit acceptance is capped at Rs 1 lakh besides the capital requirement is quite steep at 15 per cent despite the business being free from credit risks. Thus, due to strict regulatory guidelines, payments banks’ business operations are restricted to only mobilise deposits and invest in government bonds, which has led to substantial losses in their operations.
The operational payments banks showed net losses of Rs 516.5 crore for FY18, while ‘Paytm’ PB has declared a profit of Rs 19 crore in FY19.
India will achieve 8 pc plus growth from FY 2020-2021 onwards: Rajiv
New York: NITI Aayog Vice Chairman Rajiv Kumar has voiced confidence that India will achieve economic growth of 8 per cent plus from fiscal year 2020-2021 onwards as structural reforms like the GST are set to produce the benefits.
The eminent economist was in the city for the High Level Political Forum Ministerial Meeting on Sustainable Development Goals at the United Nations Headquarters.
During his visit, he delivered the keynote address at the ‘India Investment Seminar’ held at the Consulate General of India, New York.
Kumar stressed that in the next five, the Modi government is focussed on accelerating growth from the current about seven per cent to more than eight per cent that will propel the country to easily achieving the target of becoming a five trillion dollar economy.
“I personally think that in the fiscal year 2020-2021 onwards, we will achieve higher than 8 per cent growth, (continuing) then for the next many years. It is just a fact of (growth) taking off,” Kumar said.
“The foundation has been laid and the transformation has begun with the passing of structural reforms like the Goods and Services Tax, Insolvency and Bankruptcy Code. These have taken their time to settle down and now they’ll produce the benefits,” Kumar told PTI in an exclusive interview.
“We have the potential to grow at double digit growth rates,” he said.
On the issue of job creation, Kumar emphasised that a very large number of jobs have been generated in the country in the last five years.
“If it was always a jobless growth, then that would have shown up in social strife and social tensions and surely would have meant that this government would not have been re-elected,” he said, adding that the re-election of Prime Minister Narendra Modi-led government shows that there is a level of satisfaction with the government’s performance.
He however acknowledged that the nature and quality of jobs is not meeting the aspirations of the country’s young people and they want better quality jobs that will engage them fully.
“That has to be ensured by us improving the investment climate for domestic investors as well as foreign direct investors.”
Kumar highlighted that the Union Budget, presented earlier this month, has taken big steps forward for facilitating and further improving ease of doing business by liberalising the inflows of FDI.
“This budget is a paradigm shift in saying that we will achieve accelerated growth and job generation but with the primacy of private investment. That is what our focus is – that will then generate the jobs.”
Underscoring the potential in the agriculture sector, which has 43 per cent of the workforce, Kumar said investment in the agro-processing sectors and improvement in agricultural yields will help exponentially in job creation.
“Our agriculture, when it is transformed and it begins to have much higher volume of agro-processing, growth rates can easily rise from the current two per cent to four per cent,” he said adding that similarly there is a lot of potential in other sectors such as manufacturing and services.
“There is a lot of potential, there were constrains which are now being removed,” he said, citing the example of Labour Codes introduced in Parliament that will simplify the whole labour compliance situation.
He said at the NITI Aayog, the most important focus is on improving private investment by improving the investment climate, accelerating growth, generating jobs, creating policies for that and at the same time ensuring through social programmes that benefits reach the bottom of the pyramid and to the last person standing in the queue.
“The reforms have been done, the network for taking the benefits of growth to the bottom of the pyramid, to the last of the queue has also been laid. The delivery mechanism has been hugely improved,” he said.
Kumar said that inclusionary aspects of social programmes such as Ayushman Bharat, JAM trinity of Jan Dhan bank account, Aadhaar unique identity number and mobile phone, have been put in place.
“When growth accelerates, you will see the benefits at the bottom of the pyramid.”
Kumar pointed out that efforts are also being made to promote private investment in the mine, mineral and coal sectors because otherwise the country’s import dependence is increasing both for oil and gas as well as for coal even though there are huge reserves in the country.
He noted that the SDG principle of ?Leaving No One Behind? finds resonance with the Government of India’s motto of? Sabka Saath Sabka Vikas [Collective Efforts Inclusive Growth]?, which guides all development initiatives.
“It is a proud moment to say that India has not only mainstreamed the SDGs (Sustainable Development Goals) and Agenda 2030 but is on the way to achieving some of the targets ahead of time,” he said.
Kumar acknowledged that while a lot has been achieved through programmes such as Swachh Bharat Mission and Ayushman Bharat, challenges remain in a country of 1.3 billion people – from a water crisis, shortage of energy in parts of the country, pollution and need to increase female participant rates.
“In the last five years, we have laid the foundation for the benefits of growth to reach the bottom of the pyramid. In the next five years we are focussed on accelerating growth.”