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The Reserve Bank of India (RBI) has struggled for more than a decade trying to ensure that policy rate changes end up getting reflected in bank lending rates. Fed up with banks unwilling to play ball on lending rates, the central bank has changed the math behind loan rates thrice in the last decade.  How banks calculate their loan rates could change yet again this year, if RBI goes ahead with a proposal to link them with external benchmarks. But this time, the math is not the central bank’s only problem. The growing currency in circulation is a greater risk at present, given the implications on liquidity. The fact that it has far exceeded deposit growth makes the problem bigger. Analysts at Edelweiss Securities Ltd point out that currency in circulation as a proportion of deposits is back to  pre-demonetization levels and higher than the average in the past 25 years. Falling deposit growth and rising cash among Indians are twin blows to liquidity in the banking system. Edelweiss’

The finance ministry has asked banks to give preference to Indian manufacturers under the ‘Make in India’ initiative when purchasing ATMs.  A finance ministry official said the directions are in accordance with the guidelines issued in 2017 by the then Department of Industrial Policy and Promotion (DIPP). “Banks have been directed to ensure compliance,” he said. DIPP has since then been renamed the Department for Promotion of Industry and Internal Trade (DPIIT). DIPP had directed all departments to evolve an internal system of vetting the restrictive and discriminating terms against domestic manufacturers especially included in the tenders they float with states. The extant norms also said there should be no criteria for bidders that would be advantageous to foreign manufactured goods.  A bank executive said the move may help domestic ATM manufacturers, who number over 200,000. The Confederation of ATM Industries of India has in the past raised the issue that the revenues from prov

Worried over a slowdown in exports, the government is looking to use India’s good relations with other countries to push up exports through governmentto-government (G2G) trading arrangements for food products.  The commerce department is exploring export of non-Basmati rice to the Philippines and Indonesia, and sugar to Egypt under this mechanism to boost exports that have been hit by rising protectionism globally and slowdown in trade. The department sent a proposal to Egypt last week to participate in its sugar tender. “We want to increase total exports and G2G trade is one such arrangement. This was a common way to trade a decade ago and is being revived now because many countries float tenders to procure food,” said one official aware of the details. “We want to be part of that procurement.”  The foreign trade policy for 2015-20 has set a target of dollar 900 billion for merchandise and services exports by 2020, which is seemingly unachievable due to muted growth of traditional

Imagine falling into a debt trap, exhausting all your sources of funding, and finding yourself at a dead end. In such situations, your only recourse may be filing for bankruptcy. Though Indian laws have the provision wherein individuals can file for bankruptcy, the process is not as streamlined as it is for corporate entities under the Insolvency and Bankruptcy Code (IBC). Though the IBC has rules for individual bankruptcy too, they have not been notified yet.  We tell you how the current bankruptcy law works and how can it change to your advantage under IBC. If you live in Mumbai, Kolkata or Chennai, you will be governed by the Presidency Towns Insolvency Act, 1909; for all other places in India, you will be governed by the Provincial Insolvency Act, 1920. Both laws are similar and eventually are meant to be replaced by the IBC.  Under the Provincial Insolvency Act, you can file for bankruptcy if you are unable to repay a debt greater than ?500. According to Aishwarya Satija, rese

The Central Board of Direct Taxes (CBDT) has asked its officers across India to avoid taking “coercive measures” against companies that have received notices under the so-called angel tax, in what can be seen as softening of its stance on an issue that has roiled the startup ecosystem.  In its written communication, the department also asked tax commissioners to resolve disputes with startups on a priority basis. The tax deals with premiums paid by investors while they invest in unlisted companies. The tax department’s latest step comes after the government issued a directive recently, giving a reprieve to startups on the treatment of such investments on a prospective basis.  Tax officials had questioned increasing valuations of startups even when their revenue is falling or remaining stagnant. The revenue department deems the capital in excess of a fair market value as ‘other income’ that is taxable. Also, in cases where the investor is not Indian, the tax department has in the pa

The Reserve Bank of India is using a new tool to enhance liquidity in the system through which it would buy as much as dollar 5 billion from the banks in a swap deal that could inject nearly Rs. 35,000 crores into the system. Banks would be required to park dollar funds with RBI with a deal to buy it back from the RBI after three years. The auction for this first of its kind US dollar buy/sell swap auction will take place on March 26. This is the first time the central bank is using a foreign exchange auction to augment banking liquidity after generally using bond purchases for the same all these years. RBI has infused more than Rs 2.36 lakh crore through such purchases so far this fiscal. “In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject Rupee liquidity for longer duration through longterm foreign exchange buy/sell swap in terms of its extant Liquidity Management Framework. The US doll

Indian businesses that paid most of their goods and services tax (GST) liability using input tax credit or reported a significant variation in turnover are being queried by taxmen, a move that has irked industry and prompted it to petition the authorities against such tactics.  Tax officials have sent emails seeking information from businesses that paid over 95% of their dues using input tax credit to ascertain the key factors responsible for subdued GST collections. These queries relate to a large variation in turnover reported, negative growth in central GST liability and a wide divergence in input tax credit between GSTR 2A and GSTR3B. In some centres, businesses have been even asked to furnish tax payment challans. GSTR 2A and GSTR3B are return forms. The first includes all information related to purchases, the second is a simplified return form aimed at making life easier for filers. GST was rolled out on July 1, 2017. Tax experts said revenue pressure appears to be driving