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With an aim to safeguard mutual fund investors from high-risk assets, regulator Sebi wants fund houses to shift all their investments to listed or to-be-listed equity and debt securities in a phased manner and reduce their exposure to unrated debt instruments from 25 per cent to only 5 per cent.  Exposure to risky debt securities has emerged as a major risk for the capital market investors, including those coming through the mutual fund space, and the regulator has been making efforts to enhance its regulatory safety net against such risks.  Taking forward certain decisions approved by Sebi's board earlier in June, the regulator has now finalised the draft amendments to the prudential norms for mutual fund schemes for investment in debt and money market instruments.  Besides, some further amendments have been proposed for approval of Sebi's board at its next meeting later this month, officials said.  A key fresh proposal is to reduce the existing overall limit for ...

The Reserve Bank of India (RBI) will cut interest rates again at its October meeting, making it the fifth in a row, according to economists in a Reuters poll who said the central bank's decision to ease by 35 basis points on Wednesday was right.  While a survey taken ahead of August's meeting showed a 25 basis points rate cut was a done deal, the RBI was expected to keep rates unchanged for the rest of this year.   However, a more recent Reuters poll, conducted Aug 7-8, predicted the RBI would ease its benchmark lending rate by 25 basis points to 5.15% in October. If it does cut again as forecast it would be a repeat of a cutting spree last seen in 2000-01  After the expected October cut, the RBI is then forecast to ease by 15 basis points to a near decade low of 5.00% in the first quarter of next year, although much depends on global conditions.  "India is amidst an economic and financial slowdown with minimal support from fiscal policy. The responsibility is...

The income tax (I-T) department has relaxed its assessment and scrutiny norms for start-ups.  In a circular it directed its officers not to raise additional tax demands for start-ups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT).  This will be done in cases where scrutiny is limited to Section 56 (2) (viib) of the Income Tax Act, or what is called in popular parlance angel tax.  Angel tax refers to income tax payable on capital raised by unlisted firms by issuing shares where the share price is considered more than the fair market value.  “No verification on such issues will be done by the AOs (assessing officers) during the proceedings and the contention of such recognised start-up companies on the issue will be summarily accepted,” the circular said.  In cases where start-ups are recognised by the DPIIT but scrutiny involves wider issues, the I-T Department has asked its field formations not to pursue the issue of the ange...

Reserve Bank of India Governor Shaktikanta Das gave a big push to retail lending by lowering risk weights for consumer lending and raising the bank exposure limits for non-banking finance companies which could directly boost borrowing capacities for top firms.  Housing Development Finance Corp., Mahindra Financial and Chola are among the firms that could benefit from the RBI’s change of rule in regard to banks’ lending to NBFCs.  Permission to classify bank lending to some NBFCs that lend to priority sectors as such would reduce the time taken for transmission which otherwise had to wait for securitisation.  “This will reduce our capital requirements for these loans and increase our risk adjusted returns,” said PK Gupta, managing director at State Bank of India. “Some of these benefits can be passed on to the customer. It could have some impact on rates though we are yet to calculate it. The main reason this was done was because despite an expansion in these loans, deli...

The Reserve Bank of India released the quarterly survey on capacity utilisation (CU), order books and inventories in the industry for Q4 FY19. While CU keeps its six-year-high title this time too, new orders have grown this time, but sales have declined, the survey shows. Expansion in new orders is being seen as an uptick in activity. Improvement in inventory of raw material and finished goods is suggestive of decline in sales in this period, the RBI said. This survey provides a snapshot of demand conditions in India’s manufacturing sector. Business Standard, 8th August 2019

The Reserve Bank of India (RBI) on Wednesday moved for an unconventional repo rate cut by 35 basis points, the first of such magnitude by the central bank, to arrest falling economic growth while insisting that banks must now pass on the benefits to their customers.  The central bank has lowered the growth projection for the current financial year to 6.9 per cent from 7 per cent earlier. It kept its inflation projection unchanged at 3.1 per cent.  In response to the policy, State Bank of India (SBI), which recently lowered the deposit rates, cut its lending rate by 15 basis points across all tenors. Housing Development Finance Corp (HDFC), too, last week lowered its loan rates by 10 basis points.  RBI Governor Shaktikanta Das said “all stakeholders must act together” to lift economic growth. He said while the RBI lowered rates, the government was looking at sectoral issues. The banks must now cut their lending rates, he added, though he did not say if these would be eno...

India’s version of Google tax, or the equalisation levy, may now be applicable in Jammu & Kashmir. With Parliament passing a Bill to revoke Article 370, digital commerce operators advertising on global social media, which earlier did not pay Google tax on their operations in Jammu & Kashmir, may now have to cough it up at 6 per cent.  According to people across companies, firms such as Facebook, Google, Amazon and Flipkart, among others, are all trying to figure out various tax implications of the government’s move.  “We are assessing if we need to start paying additional taxes, and also if we have to change our accounting strategies. This will take a few weeks as the government has just made the announcements. We will get a better idea after we have a meeting with the tax department in Jammu & Kashmir,” said a senior management member at one of the biggest e-commerce firms.  Industry experts believe the equalisation levy is something that may be applicable ...

India's central bank is poised to deliver its fourth successive quarter-point interest rate cut on Wednesday, amid calls from investors and the government for further easing as a slowdown gripping the economy becomes more pervasive. The Reserve Bank of India will lower the benchmark repurchase rate by 25 basis points to 5.5 per cent, according to almost all of the 36 economists surveyed by Bloomberg. Swap markets are pricing in at least another 50 basis points of reductions before the end of 2019.  Finance Minister Nirmala Sitharaman has ratcheted up pressure on the six-member monetary policy committee for a "significant cut" to lift economic growth from a five-year low. Inflation that's stayed below the central bank's 4 per cent medium-term target for 11 months in a row and the Federal Reserve's first rate cut since the financial crisis allows room to retain the policy makers' easing bias. A quarter-point cut will take the benchmark rate to the lowe...

The Reserve Bank of India (RBI) has tightened the fit-and-proper criteria for directors on the boards of state-run banks, and said the Centre’s nominee director shall not be part of the nomination and remuneration committee (NRC). The revised criteria also, for the first time, laid down an exhaustive list for the disqualification of directors.  The terms with regard to the NRC and the manner of the appointment of directors have been aligned with the practice in private banks, the recommendations made by the Banks Board Bureau, and with the provisions in the Companies Act.  While the revised norms are applicable only to public sector banks (PSBs), separate guidelines for private banks and non-banking financial companies (NBFCs) may be in the offing. The NRC will have a minimum of three non-executive directors from amongst the board of directors. Of this, not less than one-half shall be independent directors and should include at least one member from the risk management com...

The Securities and Exchange Board of India (Sebi) has received a string  of recommendations from its working group on tightening the regulatory framework for the portfolio management service (PMS) industry.  One of the proposals pertains to increasing net worth requirement of PMS players to Rs 50 million.  Some of the other proposals involve improving the reporting disclosures, high exit-loads in PMS products and improving the overall industry standards.  The working group commissioned by the Sebi said higher net worth requirement would deter non-serious players while seeking registration and also put pressure on the fringe players. It observed that it has been over 10 years since the net worth requirement was last revised from Rs 5 million to Rs 20 million. However, the focus of the working group’s recommendations was to improve disclosures in the PMS industry, make it more investor-friendly and less expensive for investors.  The working group also took repre...

Capital markets regulator Sebi slapped Rs 94.5 lakh penalty on 17 entities for indulging in fraudulent trade practices in illiquid stock options segment on the BSE.  The regulator, during the course of investigation between April 2015 and September 2015, found that 81.38 per cent of all the trades executed in the stock options segment involved reversal of buy and sell positions by the clients and counter-parties in a contract on the same day.  These entities were among those "whose reversal trades involved squaring off transactions with significant difference in sell value and buy value of the transactions," Sebi said in similarly worded separate orders on Friday.  It further said trades of the entities are non-genuine as they are not executed in normal course of trading, lack basic trading rationale, lead to misleading appearance of trading in terms of generation of artificial volumes, and are hence deceptive & manipulative.  By indulging in such trades, the e...