Tuesday, December 27, 2016

Cash Costly, allow Banks to Charge for Cash Transactions

Mumbai, December 26: The country’s largest bank, State Bank of India, wants the government to allow banks to charge customers for cash transactions, said a senior executive. “We must be allowed to charge bank account holders to charge for cash transactions. Handling cash is a huge cost to banks,” said Manju Agarwal, deputy managing director at SBI. “Given that this is an opportune time, there needs to be incentives to use cards or internet to make electronic payments and discourage cash.”

The Reserve Bank of India and commercial banks face a total of Rs.21,000 crore ($3.5 billion) in currency operations costs annually. Speaking about the digital push after demonetisation, Agarwal said they have seen multifold rise in debit card and mobile banking usage to make payments. Banks, including SBI, have been promoting cashless transactions through cards and their mobile applications. SBI is aggressively promoting its SBI Buddy. Moreover, in collaboration with telecom firm BSNL, it has launched its new app – ‘mobicash’ which features three-way access to transfer fund from the mobile phone.

Agarwal said there were easy and secure ways to make cashless transactions even on basic phones which facilitate transactions through SMS or USSD code. Last week, SBI chairman also spoke about finding ways to disincentivise cash transactions, such as imposing a charge or levy above a specified limit or threshold, after normalcy is restored in banking operations.

With about 90% of our transactions done in cash, India has a cash-to-GDP ratio of about 12.2%, believed to be relatively high compared to many of its peer countries like Brazil, Russia and Mexico. Though the withdrawal of high-value currency notes has taken the number to 7.3% of the GDP, which is lower than US at 7.8% (as per RBI data), it is estimated to settle at 10% after the entire demonetised value is back in the system.

Bhattacharya said if India wanted to de-emphasise cash, not only should there be an incentive for people to move towards a cashless economy, but also a disincentive for transacting excessively in cash, leaving out small-ticket transactions. “Cash imposes a huge burden. We don’t understand it as it is not immediately visible. It is a huge burden on society,” she added.

Possession of Rs 10,000 in Old Notes after December 30 may invite Rs 50,000 Penalty

New Delhi, December 26: The government is likely to come up with an ordinance to penalise anyone caught in possession of old Rs 1,000 and Rs 500 notes worth more than Rs 10,000 after December 30, the last date to deposit demonetised currency notes in banks.

Sources said the ordinance is likely to be finalised before December 30. They added that the government is working out the penalty on the same which could go up to Rs 50,000 or more. The move is aimed at ensuring that people adhere to the deadline and deposit demonetised notes in bank by December 30.

Under the Garib Kalyan Yojana, people have till March 31, 2017 to disclose their illegal wealth and pay 50 percent tax, while locking in another 25 per cent of the declared income for four years. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood.

The scheme is a part of the Taxation Laws (Second Amendment) Bill, 2016, passed by Parliament on November 29 to amend the income tax laws to provide for stiffer penal tax in the wake of the November 8 demonetisation. However, there would be no immunity from criminal acts like Prevention of Money Laundering Act, Naroctics Act or for holding 'benami' (by proxy) properties and smuggling offences.

Tuesday, December 13, 2016

Associate Banks of State Bank of India to offer VRS before merger with SBI

Kolkata, December 9:  The Associate Banks of State Bank of India (SBI) have started preparations to unveil voluntary retirement schemes (VRS) for their employees before the proposed merger with the parent bank. 

State Bank of Hyderabad (SBH) board has approved the VRS while other associate banks will place the scheme before their boards in the next few days, according to two senior SBI group officials.

The VRS in associate banks would help SBI curb in staff cost escalation after the merger. SBI’s staff expense was Rs 6,853 crore in the September quarter, rising 11.6% year-on-year. SBI’s pension obligation is estimated to be around Rs 3,500 crore. This would rise once associate bank employees come under SBI fold.

SBI has nearly 2.02 lakh employees while its associate banks have a cumulative headcount of 70,000. SBH, the largest among all the five associate banks, has around 18,000 employees. State Bank of Patiala has around 15,000.

The details of VRS is not known as yet. Sources in the SBI said all associate bank employees opting for it would get similar benefits. A good chunk of them are likely to go for VRS as there has been apprehensions across levels about their pecking order under the State Bank of India.

The government approved the merger in August while the exercise is likely to be over by March 2017. The integration of IT platform-- a key aspect to SBI’s merger with associate banks State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore– is in the final stages.

SBI chairman Arundhati Bhattacharya earlier said there would be no pay cut and job loss for associate bank employees after the merger. At the time of State Bank of Saurashtra and State Bank of Indore's merger with SBI, there were allegations that fairness was compromised demotivating associate bank employees.

As on September 30, associate banks cumulatively have Rs 5,21,344 crore of deposits and Rs 3,92,436 crore in advances. This will get added to SBI’s Rs 18,58,999 crore of deposits and Rs 14,81,832 crore of advances, making the group's total business nearly five times of ICICI Bank's business of Rs 9,03,371 crore.

Sunday, December 11, 2016

RBI asks banks to upload KYC with central registry from January 1

Mumbai, December 8 (PTI): Reserve Bank today directed all banks to upload the Know Your Customer (KYC) data pertaining to new individual accounts opened after January 1, with Central KYC Records Registry. Besides, it has been decided to allow One Time Pin (OTP) based e-KYC subject to certain restrictions.

"All Scheduled Commercial Banks (SCBs) are required to invariably upload the KYC data pertaining to all new individual accounts opened on or after January 1, 2017, with Central KYC Records Registry," RBI said in a notification. All banks are, however, allowed time upto February 1 for uploading date in respect of accounts opened during January 2017, it said.

Regulated entities other than banks are to upload the KYC data pertaining to all new individual accounts opened on or after from April 1, with Central KYC Registry.

For OTP, it said, restriction would include specific consent from the customer for authentication and the aggregate balance of all the deposit accounts of the customer should not exceed Rs 1 lakh.

Besides, the aggregate of all credits in a financial year, in all the deposit taken together, should not exceed Rs two lakh.

"Banks should invariably upload the KYC data pertaining to all new individual accounts opened on or after January 1, 2017 with CERSAI in terms of the provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005," it said.

Under Foreign Account Tax Compliance Act (FATCA) and Common Standard on Reporting (CRS), regulated entities should adhere to the provisions of Income Tax Rules and determine whether they are a reporting financial institution as defined in Income Tax Rule.

Thursday, December 8, 2016

Black money estimates overshot as 82% of cash deposited in banks

About Rs.12.6 trillion had been deposited
into bank accounts as of 3 December

New Delhi, December 6 (Bloomberg):  Indians have validated 82 percent of bank notes rendered worthless by Prime Minister Narendra Modi’s surprise move last month, according to people with knowledge of the matter, undermining the government’s estimate of black money in the economy.

About 12.6 trillion rupees ($185 billion) had been deposited into bank accounts as of Dec. 3, the people said, asking not to be identified citing rules for speaking with the media. The government had estimated that about 5 trillion rupees of the 15.3 trillion rupees sucked out by Modi’s move would stay undeclared, implying that this was cash stashed away to evade taxes, known locally as black money.

Lack of a meaningful cancellation could be a double blow for Modi as the measure was being used as a political and economic gauge of the success of his Nov. 8 move. One of Modi’s biggest campaign pledges was to expose black money in Asia’s No. 3 economy, and economists were viewing the cash as a potential windfall for the government.

“Some of the windfall that the government was hoping for from the cancellation of notes will be dented,” said Anjali Verma, chief economist at PhillipCapital Ltd. “That means the fiscal stimulus that was being expected might also take some hit. That is not good news at a time when direct consumption, private investment is not expected to pick up.”

Private indicators published over the past week signal that the $2 trillion economy will be hurt by the cash clampdown. Economists have also slashed India’s growth forecast for October-December, imperilling the nation’s status as the world’s fastest-growing big economy.

‘Defeats the Theory of Black Money’

Finance Ministry spokesman D.S. Malik wasn’t available for comment. The rupee ended little changed at 68.22 a dollar in Mumbai on Monday, the benchmark stock index rose 0.5 percent and the yield on the 10-year sovereign bond fell to 6.22 percent from 6.24 percent.

“Markets are not too worried at the moment,” said Chakri Lokapriya, Mumbai-based managing director at TCG Advisory Services, which manages about $3 billion. “But if 12-13 trillion rupees comes back into the system it defeats the whole theory of black money.”

In such a situation where the gains of demonetisation aren’t apparent, individuals will more closely analyse the pain. A slump in demand due to the cash shortages will hurt company revenues and government tax collections, widening the budget deficit and ultimately weakening the rupee, Lokapriya said.
- Bloomberg