News Update

ACC grants one more year extension to CBDT Chairman Sushil ChandraThere is no provision in the CGSTAct which allows exemption on an Input Service if the Output service provided by taxable service is exempt: AARServices provided to M/s Karnataka Power Transmission Corporation Ltd. since it is company registered under the Companies Act, 1956, and not a State Government authority, benefit of concessional rate @12% not available: AARServices provided of diagnosis, pre and post counseling therapy qualify to be health care services and attract Nil rate of Tax: AARTransaction of transfer of one of the units of the applicant as a going concern amounts to supply of service Nil rate under 12/2017-CT(R): AARIGI Airport Customs seizes US Dollars worth Rs 2.94 Crore from pax heading for DubaiA Basic Primer on GDPR and its Relevance to the Indian Context (See 'TOG INSIGHT' in '')CX - Internal records showed lesser receipt of base oil - no exercise undertaken to ascertain whether goods were diverted en-route, whether compensation claimed - CENVAT credit not deniable: CESTATReversal of ITC on common capital goods - some apprehensionsI-T - In absence of any yardstick or guideline to determine an expenditure as excessive payment, AO has no discretion to make disallowance: HCST - Late fee for delay in furnishing prescribed returns - Appellant has no ground to seek relief which is not available u/r 7C of STR, 1994: CESTAT5 UTs + 2 States to roll out e-Way Bill from May 25High Level Group constituted for faster expansion of health sectorGovt calls for preventive vigilance to check malfeasanceGST related Petitions should be efficaciously defended by authorized Commissioners only - no transfer/amendment of authorization without express approval of BoardGST - ITC abuse - father-son duo lands behind barsPrabhu releases Paper on Computer Software ExportsIrresponsible Litigation - Rip Van Winkleism Syndrome continues to afflict Union of India!!End Governor's Discretion Raj by undoing Constitutional BlunderI-T - When reasons recorded by AO for reassessment stand approved by JC, it cannot be said that provisions of Sec 151(2) were not fulfilled merely because file erroneously got placed before CIT who also recorded satisfaction: HCCus - Notification 50/2017 amended to increase BCD on Wheat from 20% to 30% - Omits entries pertaining to Shelled almonds and Protein ConcentratesCX - Expression in statute cannot be allowed to be circumscribed on an unfounded interpretation by lower authorities: CESTATGovt exercises emergency powers to increase tariff rate of BCD on Walnuts in shell from 30% to 100% and on Protein concentrates and textured protein substances from 30% to 40%ST - CBEC has clarified that notice for rejection of VCES-1 declaration should be issued within 30 days-notice issued after 1 years is clearly time barred: CESTAT
Unveil Holistic, Integrated Financial Sector Reforms Agenda

DECEMBER 31, 2017

By TIOL Edit Team

INDIA's financial stability has come under focus from a couple of entities. A joint IMF-World Bank Report on India's ‘Financial System Stability Assessment' (FSSA) has pitched for a slew of major initiatives to strengthen India's financial institutions and processes.

Reserve Bank of India (RBI) in its report with its half-yearly ‘Financial Stability Report' (FSR) has also raised a few issues that merit attention of the Government. One such issue is the impact of demonetization of flow of savings and investments.

Both the reports were released on 21 st December 2017.

These reports, coupled with similar reports released in the recent past, should help Government enliven its financial reforms agenda. It should ideally prepare a road-map for holistic, integrated financial reforms to be pursued over next five years.

Financial Reforms in the country have largely been driven by crisis or crisis-like situations such as the ongoing ones propelled by non-performing assets (NPAs). The credit for certain reforms also goes to lobbying by financial services players over the years.

The proactive reforms have, however, been virtually missing all along. The Government should now at least unveil comprehensive financial sector reforms, factoring in recommendations from diverse government and external reports such as ‘Peer Review of India' published by Financial Stability Board (FSB), a global regulator, during August 2016.

FSSA report has recommended formulation of “a strategic plan for their consolidation, divestment, and privatization” in the short run. It has also advised the Government to review loan classification and provisioning rules keeping in view International Financial Reporting Standards (IFRS). This review should be focus on “special loan categories”.

IMW-WB team's other valuable, short-term recommendations include: a) Improve stress testing scenarios and methodologies; b) Subject domestic politically exposed persons to adequate due diligence and qualify domestic tax evasion as a predicate offense to money laundering and c) Improve stress testing scenarios and methodologies.

It also wants India to take a call over the medium term on a few other major recommendations. A key suggestion is to amend relevant laws to provide RBI with full supervisory powers over public sector banks (PSBs). It also wants the Government to clarify RBI's legal independence.

According to an IMF release, “India's key banks appear resilient, but the system is subject to considerable vulnerabilities. Stress tests show that the while largest banks are sufficiently capitalized and profitable to withstand a deterioration in economic conditions, a group of public sector banks (PSBs) are highly vulnerable to further declines in asset quality and higher provisioning needs. Capital needs range from 0.75 percent of GDP in the baseline to 1.5 percent of GDP in the severe adverse scenario”.

RBI, in its FSR released on 21 st December 2017, has voiced a similar concern over the health of banking sector.

As put by FSR, “The overall risks to the banking sector remained elevated due to asset quality concerns. Between March and September 2017, the gross non-performing advances (GNPA) ratio of scheduled commercial banks (SCBs) increased from 9.6 per cent to 10.2 per cent and the stressed advances ratio marginally increased from 12.1 per cent to 12.2 per cent. Public sector banks (PSBs) registered GNPA ratio at 13.5 per cent and stressed advances ratio at 16.2 per cent in September 2017”.

FSR adds: “The macro stress test for credit risk indicates that under the baseline macro scenario, the GNPA ratio may increase to 10.8 per cent by March 2018 and further to 11.1 per cent by September 2018”.

As for demonetization, FSR observes: “The significant increase in liquidity in financial markets in the wake of demonetisation has led to unprecedented fund flows to both equity and debt mutual funds. The effects of pervasive domestic liquidity in financial markets following demonetisation and abundant liquidity induced as a result of foreign exchange operations have pushed down borrowing costs for higher rated Indian corporate”.

Is the reduced cost of borrowings being used to refinance old debt or finance projects and expand businesses? RBI should answer this keeping in view its own conclusion that “overall investment climate remains challenging as seen from the decline in new investment proposals”.

FSSA has been prepared by IMF-WB combine under its Financial Sector Assessment Program (FSAP). Under this, the two multilateral institutions subject 29 major nations to financial surveillance.

The Finance Ministry should also factor in recommendations contained in earlier FSAP reports on India. The reports include one issued in January 2013 and another in August 2013. IMF's annual country reports on India have also made important suggestions over the years. These should also be kept in view while preparing a new roadmap for financial sector reforms.

The proposed roadmap should provide for substantial improvement financial transparency, which is sure-fire means to prevent dubious lending and subsequent cycle of restructuring of bad loans.

It would be worthwhile to watch India's ranking in financial secrecy index (FSI) 2017 that is slated to be released by US-based accountability group, Tax Justice Network.

In FSI 2015, India was ranked 45 th . This is one index, where rank fall should be welcomed to minimize growth NPAs, banking frauds and corruption. Modi Government has not set any target to improve its ranking in this case, unlike in the arena of ease of doing business index.

The Government must not overlook the fact that financial secrecy and crony capitalism (with embedded corruption) go hand in hand.