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.
Income Tax return processing time to reduce from 63 days to just 1 day
Mumbai:The Union Cabinet approved an integrated income-tax e-filing and centralised processing centre (CPC) portal, which will reduce the return processing time from 63 days to just one day. The new portal is also expected to process the refunds within one day of filing of tax returns, in huge relief for taxpayers. However, one will have to wait for 18 months to see its launch.
“Earlier, taxpayers would face troubles because of delay in refund processing and the CBDT used to spend a lot of money every year as interest on pending refunds, which will be history now,” Union minister Piyush Goyal told reporters after the Cabinet meeting here.
Last month, Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra had said a simplified return form and process would be put in place soon in which the department would process the self-declaration made by the taxpayer. The new Rs 4,241-crore project will incorporate these changes.
“This is a laudable initiative and will go a long way to ease tax compliance, and enhanced experience for taxpayers. However, the real success of this will be measured when it brings ease to a common man and is accompanied by changes in the culture of the tax authorities at the operational level,” said Neeru Ahuja, partner, Deloitte India.
Currently, the e-filing portal and the CPC work separately. While e-filing is being managed by Tata Consultancy Services (TCS), the CPC is run by Infosys.
In the bids invited by the government, Infosys emerged as the lowest bidder and it would develop the ITR-CPC 2.0 project in 18 months from now, Goyal said.
Under the new system, Infosys will handle end-to-end solution — from e-filing to return assessment to refund processing. The CBDT and Infosys would work in a revenue-sharing model, sources in the know said.
Goyal said ramping up scrutiny was not the mandate of the new portal. Currently, about 0.3 per cent of the I-T returns are scrutinised, he said. The system intends to resolve taxpayer grievances as well as tax demands from the CBDT faster and equitably, he said.
“The decision will ensure horizontal equity by processing returns filed by all categories of taxpayers across the country in a consistent, uniform, rule driven, identity blind manner. This will assure fairness in tax treatment to every taxpayer irrespective of their status,” a government release said.
But even under the new ecosystem, only those applications which are clean would have the chance of getting processed in a day, sources said.
About 23 crore I-T returns have been processed, along with Rs 2.62 trillion worth of refunds, till September 2018 cumulatively. Of this, refunds worth Rs 1.83 trillion have been processed in 2018-19, said Goyal.
Lenders considering resolution plan for Jet Airways: SBI
Mumbai: State Bank of India (SBI) on Thursday said lenders are considering a resolution plan for Jet Airways to ensure long-term viability of the debt-laden company.
The SBI statement comes a day after the crisis-hit airline said discussions were “progressing well” with stakeholders on a comprehensive resolution plan that also contemplates equity infusion and consequent changes in its board of directors.
There are rising concerns over financial health of Jet Airways, whose shares have also taken a beating at stock exchanges.
“We would like to state that lenders are considering a restructuring plan under the RBI framework for resolution of stressed assets that would ensure a long-term viability of the company,” SBI said in a statement.
It said the restructuring plan for the cash-strapped airline would need approval from boards of lenders.
“Any such plan would be subject to approval of boards of the lenders and subject to adherence and clearance, if required, from the RBI and/or Sebi (takeover code, ICDR regulations.) and Ministry of Civil Aviation and in compliance with all regulatory prescriptions,” the statement said.
Shares of the airline are trading 4.24 per cent lower at Rs 259.50 apiece on BSE.
NGT slams Volkswagen for not depositing Rs 100 crore as per its 2018 order
New Delhi: The National Green Tribunal (NGT) slammed German auto major Volkswagen for not depositing Rs 100 crore in accordance with its November 16, 2018 order and directed it to submit the amount within 24 hours.
A bench headed by NGT chairperson Adarsh Kumar Goel took strong exception to the non-compliance of its order by the automobile giant and asked it to give an undertaking that it will submit the amount by 5 PM Friday.
“Why have you not complied with our order when there is no stay. We will not give you any further time,” the bench, also comprising Justice S P Wangdi, said while asking Volkswagen to submit an affidavit of compliance after deposit.
The tribunal deferred the matter for hearing after it was informed that the Supreme Court is also seized of the issue.
On November 16 last year, the tribunal had said that the use of ”cheat device” by Volkswagen in diesel cars in India leads to inference of environmental damage and had asked the German auto major to deposit an interim amount of Rs 100 crore with the Central Pollution Control Board (CPCB).