The Great Indian Banking Crisis.

For a few years now we have witness number of banks and other financial institution crumbled to dust. Apart from PMC (Punjab and Maharashtra Co-Operative) Bank and Yes Bank crisis there are several small banks crisis that have barely been reported and recently RBI have red flagged as many as 11 bank. So how come most important financial institution of our country are falling apart one by one?

Well the failure of several financial institutions and more importantly banking are mainly due to these reasons. Firstly, Indian banks mainly public sector banks(PSB) are loaded with non performing assets (NPA). This implies that they find it difficult to lend more money to industries and other business out of fear which leads to fall in capital formation which in turn leads to reduction in growth of an economy. Secondly, Public Sector Banks are not professional enough that is government still controls the appointment to their boards and their management are short of talents. Thirdly, Banks are made to do too much and take too much risk. They are made to bear the burden of loan waiver and direct lending. All banks suffer miserably due to lack of well develop financial system that could take some risk.

The banking system in India is overwhelmed by bad loans ( loans which bank fails to recover along with interest). Much of the blame is put on the poor performance of public sector bank but recent crisis in YES BANK shows that problem of poor governance, lack of transparency, government interference is same across all banks in both public and private through direct or indirect channel. And how small solution like privatisation is not a solution to any problems.

Any banking reform should address 2 important areas:

  1. Cleaning up banks
  2. Improve governance and management in Public sector banks

Cleaning up Banks

Under IBFC law, National Company Law Tribunal (NCLT) helps to restructure the loans for the largest firms but it’ll be overwhelmed if every stressed firms files before it. So, we need to find a way for out of court restructuring process so the many cases are restructure out of bankruptcy and NCLT acting as a last resort. Out of case settlement process should be transparent, speedy and it should protect the interest of bankers and harass them using central agency of CBI, CVC, ED on the other hand NCLT should be more transparent and speedy.

Improving Governance

Public sector has still not adequately professionalized since government rather than a independent body appoint boards member which inevitably leads to government interference. Every public sectors bank should independent body which have a power and authority to appoint CEO and hold him responsible for performance. Productivity of employees should also increased through imparting new skills and knowledge as PSBs has a huge talent deficit. Lateral entry should also be promoted at the top most. Banking system should not made to bear risk of the government electoral promises of loan waiver and direct benefit transfer targets because these are often achieved by abandoning appropriate procedure and create environment for future NPA and these measure constraint state and central government budget spending.

Over the there have been many debate and discussion over solution to fix the flaws of about the great Indian Banking crisis. All these debate and discussion often leads two common answers: Privatization of PSBs and Merger of Small and non performing PSBs to good performing and well managed PSBs.

Privatization of Banks

Privatization of Public Sector Banks (PSB) means to process in which government transfer the ownership and control to private entity by selling of its shares. Much of the discussion and debate over privatization are based on the ideology one believes in. Definitely, if the PSBs are given more independence in decision making, policy making and especially in recruitment of high skilled workers it’ll lead to some better result. However believing privatization is the solution to all the problems are short sightedness and foolish. The crisis of YES BANK only brought the biggest vulnerability in Indian banking system, the interference of government across all the bank both private and public is a big reality and lack of proper management and governance across all sector is also a reality which cannot be ignored.

Merger of Banks

Merger of banks often prescribed as solution to address the problem of poor goverance. In this process the poor manage banks are merged with good managed and governed banks. It is uncertain whether this process will result in a good result for collective performance of both banks but it’ll depends on ability of good bank management to impose its policy and will without alienating the employees of poor managed banks. Recently India government merge 10 PSBs and India is left with 12 Public sector banks. Whether this move is a success or not only time will tell.

Bank and other financial institution plays an important role in growth of any economy. It accepts deposit from an individual and lends that any people or business. It gives interest to people who deposit their savings and charges interest on loans, the difference between the two is its profit. Through process of accepting deposit and lending money (loans) leads to capital formation which is very important component of growth of an economy. So the government and all the stakeholder should pay a serious attention on the fragility of Indian banking system.

Lockdown effect: Diesel sales in August 14% lower than in July

Consumption of diesel in the first 26 days of August was 14.2% lower than the levels recorded in the same period in July, signaling that there – imposition of lockdown curbs in many areas has slowed industrial and commercial consumption.

While rural agricultural demand is now mainly driving diesel consumption, floods in Bihar and the northeastern states has moderated the speed of demand recovery. Muted sales of commercial vehicles is also not letting diesel sales rise.

On a year-on-year basis, diesel consumption fell 22.4% to 4 million tonne (mt) in the 26 days of August. Diesel sales alone contribute to around 40% of total consumption of petroleum products in India. The sales data for August is from retail outlets of state-run oil marketing companies, which run about 90% petrol pumps in India.

According to provisional data by the government’s Petroleum Planning and Analysis Cell (PPAC), consumption of petroleum products fell 22.5% y-o-y to 56.4 mt in the April-July period. Sales of LPG was the only major product to register growth in the lockdown period, due to a government scheme of free cylinder refills for poor households. But sources said LPG sales dipped 3% y-o-y during August 1-26.

2000 Rupees Notes Not Printed By RBI In 2019-20, Currency is Still Valid

Rs. 2000 notes were introduced by the Government of India after the announcement of the demonetization of 500 and 1000 rupees notes in November, 2016. Currently, it is the highest denomination currency note of the country. According to the annual report of the RBI, the Rs 2000 denomination note was not printed at all during 2019-2020.

These notes were introduced after the government announced demonetisation of old Rs 500 and Rs 1,000 notes 4 years back. At that time, those two denominations had accounted for 86% of the then total currency in circulation.

The number of Rs 2,000 denomination notes had peaked at 3.36 billion units in 2017-18. This number had dropped to 3.29 billion in the years 2018-19. It has again fallen to 2.73 billion in 2019-20. The currency note presses of the Reserve Bank of India (RBI) did not print even one Rs 2,000 note in the last year. This happened because the presses did not receive any order for printing those. This seems to indicate a conscious decision for starting the trend of decreasing the number of notes which are circulated. The 2000 notes under circulation was 50% in 2016-17 and it has come down to almost 22% in 2019-20. These figures are based on RBI’s Annual Report for 2019-20, which was released on August 25 2020.

It is also known that RBI has also disposed a disproportionate share of Rs 2,000 notes in the soiled category. This has raised many questions on the government’s plan about the 2000 denomination note. In January, 2019 the was an indication that the Rs. 2000 notes were not being printed any further because there was adequate supply.

A total of 176.8 million pieces, which is quite a high number, of Rs 2,000 notes under the category of soiled notes were disposed of in 2019-20 by the RBI. While in 2018-19, just 1 million Rs 2,000 notes were disposed of and in 2016-17 or 2017-18, no Rs 2,000 notes were disposed of. Both the 2000 and 500 denomination notes were introduced after demonetisation. In 2019-20, the share of Rs 2000 notes which were disposed of was 6.5% while that of Rs.500 notes was 0.6%. Out of the 22 billion currency notes printed in 2019-20, more than 50% of those were of the Rs 500 denomination. Due to these changes in currency composition, the Rs 500 notes has reached a very high share in the total currency under circulation.

The Minister of State for Finance Anurag Singh Thakur had told the Lok Sabha on March 16, 2020 that, “Printing of bank notes of particular denomination is decided by the government in consultation with RBI to maintain the desired denomination mix for facilitating transactional demand of public. No indent was placed with the presses for printing of Rs 2,000 denomination notes for 2019-20. However, there is no decision to discontinue the printing of Rs 2,000 bank notes.”

A government official said that, “The Rs 2,000 notes were introduced in 2016 to quickly fill the gap created by demonetisation of Rs 500 and Rs 1,000 notes. It was the need of the hour. Gradually, with increased supply of smaller notes, including new notes of Rs 100 and Rs 200, and with growing popularity of digital transactions, the urgency to issue new Rs 2,000 notes is no longer there. But this does not mean that there is any move to discontinue Rs 2,000 notes. Increasingly, commercial banks are also using more and more smaller notes because their customers often find difficulties in getting change for Rs 2,000 notes.”

Mindtree’s old guard makes a comeback… as VC investors

The founders of IT company Mindtree are returning in a venture capitalist avatar, with their early-stage fund Mela Ventures making its first close of Rs 130 crore. The overall size of the fund is targeted at Rs 200 crore.

Former Mindtree chairman KK Natarajan, NS Parthasarthy are the managing partners of the fund. Former Mindtree CEO Rostow Ravanan will be on the investment committee.

The founders let go of executive responsibilities at Mindtree soon after a hostile takeover by L&T last year.

Six of the ten MindTree founders, including the three mentioned above, along with Subroto Bagchi, Janakiraman Srinivasan and Kalyan Banerjee have invested in the venture fund, while also raising funds from external investors.

“We will look to invest in the B2B and the tech space, since that is where our expertise lies,” said Natarajan.

The fund has already made makes first commitment to a startup in AR-VR space, he said.

Mela Ventures is a SEBI-approved Category-2 AIF fund for early stage companies.

The fund is backed by institutional investors, global technology leaders and startup investors.

“We are on a mission to build next-generation entrepreneurs out of India. Towards this mission, Mela Ventures will support early-stage companies using cutting edge technologies to build B2B solutions targeted at global enterprises,” Krishnakumar Natarajan, Managing Partner, Mela Ventures, said.

“We are extremely excited to get such an overwhelming response from investors even during challenging times. This gives us confidence that we have a right mission and are here with the right strategy,” he added.

Parthasarathy N.S, Managing Partner, Mela Ventures, said: “Many of our investors are technology professionals, who share the same passion as much as we do, for meaningful technology, startup community and building Indian entrepreneurs. We look forward to this new and exciting journey.”

The fund will focus on building a portfolio in areas, such as AI/ML, AR/VR, IoT, cloud migration and deep learning technologies.

Mining company Rio Tinto executives lose bonuses over destruction of ancient caves

 a canyon with a mountain in the background

Mining giant Rio Tinto has decided to cut the bonuses of three executives over the destruction of 46,000-year-old sacred indigenous sites  in Australia.

Rio Tinto’s chief executive Jean-Sebastien Jacques will be losing a total of £2.7 million. Chris Salisbury, chief executive of iron ore, and Simone Niven, group executive of corporate relations, will also lose payouts of more than half a million pounds each.

These executives will remain in their roles.

“It is clear that no single individual or error was responsible for the destruction of the Juukan rockshelters,” said Rio Tinto chairman Simon Thompson.

“But there were numerous missed opportunities over almost a decade and the company failed to uphold one of Rio Tinto’s core values – respect for local communities and for their heritage.”

In May, Mining company Rio Tinto issued an apology after blowing up a 46,000-year-old sacred indigenous site with dynamites to expand Australia’s iron ore mine.

This mining company is one of the largest with vast operations in Australia. The iron ore mines account for more than half of its total revenue, and these ancient sites were above about eight million tonnes of high-grade iron ore, with an estimated value at the time of £75 million.

The site they blew up was situated in Juukan Gorge, in Western Australia state’s resource-rich Pilbara region. It had two cave systems which consisted of artefacts indicating tens of thousands of years of continuous human occupation.

According to CNN, grinding stones, a bone sharpened into a tool and 4,000-year-old braided hair were among almost 7,000 relics that had been discovered at the site. 

The site was demolished despite a seven-year legal battle by the local custodians of the land, the Puutu Kunti Kurama and Pinikura People, to protect the site.

The CEO of Rio Tinto Iron Ore, Chris Salisbury issued a statement on Sunday, which read: “We pay our respects to the Puutu Kunti Kurama and Pinikura People (PKKP).”

“We are sorry for the distress we have caused. Our relationship with the PKKP matters a lot to Rio Tinto, having worked together for many years,” the statement said.

“We will continue to work with the PKKP to learn from what has taken place and strengthen our partnership. As a matter of urgency, we are reviewing the plans of all other sites in the Juukan Gorge area.”

“At Juukan, in partnership with the PKKP, we followed a heritage approval process for more than 10 years. In 2014 we performed a large-scale exercise in the Juukan area to preserve significant cultural heritage artifacts, recovering approximately 7,000 objects,” it added.

Australia’s Federal Indigenous Affairs Minister Ken Wyatt condemned the “destruction” and said that it should not have occurred and ensure that it does not happen again.

He said: “The West Australian State Government needs to ensure that their legislation and approvals processes protect our Indigenous cultural heritage. It seems quite clear, that in this instance, the legislation has failed.”

Global stocks, dollar rise with U.S. economic data

Reuters: A jump in U.S. business activity and home sales helped push global equities and the dollar higher on Friday, counteracting earlier stock declines in Europe. Oil fell about 1%. The Nasdaq and S&P 500 hit record highs and the dollar broke an eight-week losing streak, gaining as weaker economic data in Europe weighed on the single currency. The fresh impetus came from a preliminary purchasing managers’ survey that showed U.S. business activity in August snapped back to the highest level since early 2019, data firm IHS Markit said.

Global stocks, dollar rise with U.S. economic data

Services and manufacturing indices also rose, even though new COVID-19 cases remain high across the United States. U.S. home sales data for July showed deals rising at a record pace for the second straight month, providing another glimmer of growth in the U.S. economy.

Friday’s data counterbalanced a steep rise in U.S. jobless claims on Thursday and Federal Reserve minutes on Wednesday that suggested the economy was beginning to stall, prompting investors to seek safe havens, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.”It’s not surprising to see a pick-up in manufacturing as the economy has started to reopen, even though pockets of the country have pulled back on their reopenings,” said Lindsey Bell, chief investment strategist at Ally Invest.

“It’s an encouraging sign and it supports the upside we have seen in the markets.”The Dow Jones Industrial Average rose 190.6 points, or 0.69%, to 27,930.33. The S&P 500, which broke out of its bear market on Tuesday by recouping pandemic-related losses, powered up 11.65 points, or 0.34%, to 3,397.16. The tech heavy Nasdaq Composite added 46.85 points, or 0.42%, to 11,311.80. Among global shares, MSCI’s benchmark for global equity markets was off its lows for the day, rising 0.27% to 571.17.

Europe’s broad FTSEurofirst 300 index dropped 0.20% to 1,416.57. Meanwhile, the dollar index rose 0.63%.”Investors are exiting some of the more economically sensitive sectors of the market and going back to the old stalwarts of tech, where you get reliable growth,” Arone said of the rise in tech shares.

EUROPE DECOUPLED

Somber economic numbers earlier in the day in Europe, including eurozone data pointing to a faltering recovery, doused stock market gains in Asia overnight and also caused the euro to recoil further from recent peaks.The loss of momentum came after fresh numbers painted a muted economic outlook, with purchasing managers’ index releases from France and Germany as well as the wider euro zone falling short of expectations.

“The survey contains some strong evidence that the recovery has slowed in August, particularly in the services sector,” said Moritz Degler, senior economist at Oxford Economics. The euro fell 0.61% to $1.1787 and also ended down for the week, after seven weeks of gains against the dollar.U.S. Treasury yields declined for the week, showing the preference for safe-havens. The shift short-circuited last week’s rally and resumed the downtrend that has largely prevailed all year.

Analysts pointed to rising coronavirus infection numbers having tempered economic activity. On Thursday, France experienced a post-lockdown record in new infections, while countries across the region imposed fresh travel restrictions.Europe’s troubles weighed more heavily on oil, which lost about 1% on Friday on concerns about the global economic recovery, renewed coronavirus lockdowns and rising crude supplies.

Brent crude futures settled at $44.35 a barrel, down 55 cents, or 1.2%. U.S. West Texas Intermediate (WTI) crude futures settled at $42.34 a barrel, falling 86 cents, or 1.1%. Brent fell about 1% for the week, while WTI saw a weekly rise of nearly 1%.Spot gold dropped 0.3% to $1,937.69 an ounce. U.S. gold futures fell 0.12% to 1,934.60 an ounce.

Economic turmoil : corona courtesy

The COVID-19 pandemic consequences on the country in a nutshell. Economy revival a top priority.

The corona effect on the economy in a nutshell.

As the country went into lockdown mode by the end of march, there were hopes that the country would beat the virus in a matter of few weeks. Almost 6 months down the line, we’re yet awaiting the silver lining; with the ever limbing economy, crippled.

Indefinitely blurring, the promise of a better tomorrow. Like a picture by an amateur photographer.

It is difficult times we’re living through, our tales would be recited someday, on how the world lived through a pandemic in the first quarter of the twenty first century.

As always, US leading from the front, with the highest toll of covid casualties. A testament that no superpower is indeed that ‘super’ a power. Uncle Sam bowing to a virus with Communist roots.

India on the third spot on the chart, showing little hope on cutting down the numbers whilst reviving from a stringent lockdown.

Following the trend of lockdowns to curb the novel coronavirus by the end of march, slowed down the pandemic by a few months rather than preventing.

Prevention would have been ideal.

As the end of the day, millions hope that the the worst has passed, with reviving the economy being a priority and curbing the pandemic being the top priority.

The lack of health infrastructure ever apparent. ‘Events being the greatest teachers of fools,’ hoping the future game-plan would be proficient in this aspect.

The sudden surge of covid clusters in certain localities, pushes the authorities to impose further lockdowns, affecting such local economies evidently. Throwing the business owners into a frenzy.

I believe it goes without saying that the worse hit by the lockdown was the daily wage earners and the poorer households. About 50,00,000 people have lost their jobs till date.

The loss of jobs would constrain the purchasing power and consumption for good. Further derailing the economy.

Basic economics I learned in grade 11th taught me that, ‘Production’, ‘Consumption’ and ‘Investment’ constitutes the major economic activities in an economy.

With the former two limited, economy revival any time soon seems like a far fetched dream. Investment fell to the lowest in the last two decades during the past year. With the new highly criticised policy reforms promised by the Union with regards to Investments and education; makes one wonder whether covid is really at the heart of all our problems. Strange.

Don’t get me wrong, ‘Recovery does require reforms.’ Provided it addresses all the socioeconomic factors. Equality and freedom requested by popular demand.

The relief package of ₹20,00,000 crores promised by the Central Government fed the hopeless hope. But closer introspection made clear that such a generous financial aid can do nothing to crank up the economy. The relief sought after, delayed for the time being.

The current trends have shown us that the union does redress grievances; Mostly of industrialists and the people of a certain religion.

As the country is heading into the worst recession post independence, with the ones in power tolerating zero accountability and on the verge of striking down ‘the freedom of expression’. A ‘happily ever after’ seems like a far fetched dream than the reality

Now, foreign investors allowed to invest in ‘Alternative Investment Fund’ without PAN

In what has come as a relief to non-residents investing in category I and II alternate investment fund (AIF) located in International Financial Services Center (IFSC), the income tax department has amended rules to exempt such entities from obtaining permanent account number (PAN) on a mandatory basis.

The carve-out for such investors from section 139A of the Income Tax Act is contingent on non-residents not earning income other than from said funds. Additionally, these funds are also required to deduct TDS on such income.

Further, the exempted non-resident investors are also required to furnish declaration containing name, address, country of residence and tax identification number of the country or specified territory of their residence. Among other conditions, to avail the relaxation, the funds are required to furnish quarterly statement for non-resident investors in the newly notified format.

Sunil Gidwani, partner at Nangia Andersen LLP, said, “The demand for exemption has been based on the fact that the fund operating from IFSC would be withholding tax payable by the investors. This would go a long way in making it easy for the fund managers to attract foreign investors in a fund set up in IFSC and would give impetus to IFSC as a fund jurisdiction.”

Under section 139 of the Income Tax Act, any person who has earned taxable income in the previous financial year must apply for PAN.

National Handloom Day to be celebrated on August 7th

National Handloom Day is celebrated on the 7th of August annually in India. It is observed to create awareness about the importance of the textile industry in the economy. It began as an initiative to honour and provide work to handloom weavers and artisans. 7th August was declared as National Handloom Day by the Union Government in 2015 to generate awareness about the industry and its social importance. The day is celebrated through different functions and events across the country. Workshops are conducted to spread information about work opportunities among weavers and their families. Handloom fairs, exhibitions, parades, panels take place during various events.Through the celebrations of this day, handloom products get a wide recognition.

Handlooms have gradually emerged as the largest cottage industry. Almost 95% of the world’s handicrafts are from India. Weavers create from different natural fibres like cotton, silk and wool.While we celebrate the diversity of India’s art and crafts, its also important to address the problems and needs of the artisans. They should be provided with the knowledge of techniques, prices, and modern technology.

Photo by Skitterphoto on Pexels.com

Different schemes like Reservation of Articles for Production Act of 1985 and Handloom Census have been introduced so that artisans can benefit from them. Social media campaigns like #iwearhandloom have popularized the craft in recent times to an extent. These crafts should be included in contemporary industries so that younger generations can know about them and start supporting the cottage industries.

Historical Significance

Photo by Wallace Chuck on Pexels.com

August 7 was declared as the Handloom day in 2015 to revive the roots of handloom and to commemorate the Swadeshi Movement which began on the same day 115 years back. The first National Handloom Day was inaugurated on 7 August 2015 at the Centenary Hall of Madras University in Chennai. The movement was launched in Calcutta Town Hall on August 7, 1905 as a protest against the Bengal Partition by the British Government. The movement was started to facilitate the use of domestic products and production of goods within the country for boycotting British goods. There were also instances of burning British goods. When Lord Curzon announced the partition of Bengal in July 1905, the Indian National Congress started the movement. It led to the spread of revolutionary anti colonial and anti British movements across the country. Further movements like the Non Cooperation movement and the Satyagraha movement developed from the Swadeshi movement.

In recent times, the day is celebrated to spread awareness and develop consciousness of the public regarding textiles and the handloom industry which is extremely important for the socio economic development of the country. Handlooms and crafts empower artisans and represent the diverse cultural identities present in the country. They are eco-friendly and sustainable crafts which also function as the livelihood of so many people.

Celebrations this year

This year is the 6th National Handloom Day and the day will be celebrated through a virtual programme which will be conducted by the Union Ministry of Textiles. The textile minister Smriti Irani will be the chief guest for the event. The event will be observed with all the handloom clusters across India, 16 NIFT (National Institute of Fashion Technology) campuses, 24 Weaver Service Centres of different states and National Handloom Development Corporation.

Help!!

Is the central government again going to demand funds from RBI?
Corona crisis has a profound impact on revenue collection.


Amidst the ongoing Corona crisis in the country, the news is coming that the Central Government can once again demand funds (money) from the Reserve Bank of India (RBI) for its urgent expenses. In fact, the government can also do so because the Corona epidemic has had a profound impact on revenue collection and is facing difficulties in meeting its regular expenses. In such a situation, it can ask the RBI directly to buy government bonds or ask for financial help in the form of a dividend.

According to the news published in the Economic Times, the coronavirus epidemic has had a major impact on the revenue of the government. The government’s budget has increased to 7 per cent of GDP. According to one estimate, this is the highest in two decades. Quoting Sabyasachi Kar, a New Delhi-based professor of public finance and policy (RBI chair), the newspaper has written that taking measures to reduce losses would be the right step. If the government spends, only then demand will arise in the economy.
Sabyasachi Kar said that central banks from America to Japan are helping their governments in combating the corona epidemic. This is also seen in emerging markets. This week, the central bank in Indonesia has agreed to buy billions of dollars of bonds directly from the government. However, countries with emerging economies have their own risks. This can affect inflation, currency and central bank autonomy.

In India, RBI cannot buy bonds directly from the government in primary markets. There is a provision in the Fiscal Responsibility and Budget Management Act, but this law is allowed to do so under special conditions. This can be done in an atmosphere of national emergency or too much economic lethargy. Although the RBI has made some purchases of bonds in the secondary market so far, it has not said yet how it will implement the plan to raise Rs 12 lakh crore of borrowings for the government in this financial year.

RBI works for the central government to raise debt from the market. Right now banks are investing in government bonds with the hope that the central bank will buy these bonds later. Right now, banks have a lot of cash and on the other hand, loan demand is limited. Because of this situation, they have invested their money in government bonds.  Investors of banks in government bonds reached Rs 41.4 lakh crore on June 19. This is 13 per cent additional, compared to the end of March.

It is worth noting that due to the autonomy of the Reserve Bank and the demand of Rs 3.6 lakh crore from RBI’s Reserve Fund by the Government, there was a fierce battle in the month of October-November of 2018. As a result, on 10 December 2018, the then RBI Governor Urjit Patel had to resign his post. After his resignation, the government appointed Shaktikanta Das as the Governor of the Reserve Bank.

Actually, the pull of 2018 was not just between the government and the RBI. It was the same at the level of fiscal policy and monetary policy in the economy. Fiscal policy and monetary policy have different effects on the economy. The Reserve Bank was established under the Reserve Bank of India Act. The central bank runs its monetary system through this act. Under Section 7 of the same Act, the government issues an order to the RBI if it considers it necessary to discuss any important issue.