PAYMENTS BANKS IN INDIA: BANKING ON THE UNBANKED

After a series of setbacks—like the recent withdrawal of three ‘in-principle’ licence-holders, eventually leaving only eight in the fray—the concept of payments banks seems to be finally inching closer to reality

CLOSE TO a year after the Reserve Bank of India (RBI) gave ‘in-principle’ licences to 11 entities (only eight are in the fray now) to launch payments banks in the country, the concept seems to be finally inching closer to reality. Several licence-holders are accelerating preparations for the launch of their ambitious payments banks—a financial ecosystem that is said to redefine banking and push for India’s journey into a cashless economy. On June 30, Reliance Industries (RIL) signed a shareholder agreement with banking major State Bank of India (SBI) to set up their payments bank joint venture. The two entities had, in February this year, entered into a non-binding memorandum of understanding to set out the principal terms. This would bring together the nation’s largest banking network and a pan-India telecom and retail set-up. While RIL signed the subscription and shareholders’ agreement as the promoter with 70% equity contribution, SBI will contribute the remaining 30%.

A few weeks before that, the Union Cabinet approved a proposal to set up India Post Payments Bank (IPPB) as a public limited company under the department of posts with 100% government equity. The total corpus of the payments bank is R800 crore, which will have R400 crore equity and R400 crore grant. As per then telecom minister Ravi Shankar Prasad,650 branches of the postal payments bank will be set up initially across India, which will be linked to rural post offices—India has 1.54 lakh post offices, of which 1.39 lakh are rural ones. The IPPB will obtain a banking licence from the RBI by March next year and, by September that year, all 650 branches of the postal payments bank will become operational, say reports. All geared up Noida-based Paytm, another in-principle licence-holder, is all set to launch its payments bank before Diwali and
is readying a budget of  R350-500 crore to roll out the venture, say reports. “We are looking at launching some time between August and November. Our goal is to stay focused on our twin objectives: to digitise cash and to provide access to small-income households,” says Shinjini Kumar, CEO-designate, Paytm Payments Bank.

A former RBI executive and former partner at global consultancy firm PricewaterhouseCoopers, Kumar was brought into the fold of the Alibaba-backed mobile wallet and e-commerce firm to head its payments bank in March this year. She is expected to build a 2,500-strong team to roll out the venture. “We expect the benefits from this inclusive digitisation will accrue to the users of financial services, who have traditionally not been serviced due to high costs of distribution and associated risks of not having enough data points to understand consumer behaviour,” she adds.

In the first week of June, Airtel Payments Bank appointed Shashi Arora as the CEO and managing director of the company subject to the approval of the RBI. He replaced Manish Khera, who reportedly left the company to pursue an entrepreneurial journey. In an official statement, Airtel Payments Bank chairman Sunil Bharti Mittal said, “I am delighted to announce the appointment of Shashi Arora as the CEO and MD designate of the bank… I am confident that under Shashi’s leadership, our launch plans will gather further momentum, and we look forward to delivering an outstanding banking experience to millions of customers across the country.” Only in April this year, the telecom major’s wholly-owned subsidiary, Airtel M Commerce Services—as Airtel Payments Bank was known before being re-branded in May—became the first to be issued a payments bank licence by the RBI.

In February, Kotak Mahindra Bank signed an agreement to pick a 19.9% stake for R98.38 crore in Airtel M Commerce Services. After having gained a national footprint post its acquisition of ING Vysya Bank towards the end of 2014, Kotak Mahindra Bank is setting its eyes on grabbing a large pie of the payments bank business. The new payments bank will help Kotak Mahindra—the fourth-largest private-sector bank by assets—to break new ground among the unbanked and expand its reach in the huge rural market.

Concerns & challenges

The concept of payments banks came into being when, in February 2015, the RBI released the list of entities that had applied for a payments bank licence. There were 41 applicants. After examining the applicant entities for their financial track record and governance issues, the RBI finally gave ‘in-principle’ licenses to 11 entities to launch payments banks on August19,2015.However, by May this year, three applicants—Tech Mahindra, Cholamandalam Finance and Dilip Shanghvi-IDFC Bank-Telenor JV—dropped out, leaving only eight in the fray: India Post, Airtel Payments Bank, Reliance Industries, Paytm Payments Bank, Aditya Birla Nuvo, Vodafone M-Pesa, Fino PayTech and National Securities Depository.

The ‘in-principle’ licence would be valid for 18 months from the day of granting, within which the entities must fulfill the requirements—they are not allowed to engage in any banking activity within that period. The RBI was to consider granting full licences under Section 22 of the Banking Regulation Act, 1949, after it was satisfied that the conditions were fulfilled.

This is for the first time in the history of India’s banking sector that the RBI has given out differentiated licences for specific activities. The move is seen as a major step in pushing financial inclusion in the country. The RBI expects payments banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.

Why are then some firms shying away from their plans? “The fundamental premise was that we needed differentiated financial institutions—more nimble and focused—to unleash financial innovation and inclusion in India. Payments (banks) could be the ‘highway’ on which other financial services could ride,” says Varad Pande, a partner at Dalberg Global Development Advisors, a global strategic advisory firm that works to raise living standards in developing countries and address global challenges. Pande also co-leads Dalberg’s financial inclusion practice area. “The RBI deliberately gave licences to a wide range of applicants, as it didn’t want to pre-judge where innovation would come from. So we had telcos, NBFCs, wallet players and India Post in the picture. It is true that since payments banks won’t be able to disburse loans, their net interest income will be limited. So traditional banking economics isn’t so attractive. As some licensees delved deeper, they found that the economics didn’t make much sense for them or that there were other priorities they wanted to pursue,” explains Pande.

Clearing the air on its withdrawal from the payments bank race, IDFC Bank MD and CEO Rajiv Lall had recently said they were still open to any kind of partnerships, including for a payments bank. “Telenor, one of our significant partners, is re-evaluating its strategic footprint in India. So that was one factor. Likewise, (their other partner, industrialist) Dilip Shanghvi was also reviewing the competitive landscape that a payments bank would unveil in India, re-visiting his earlier plan for such a bank. We had been planning to put together a business plan in the light of what we learnt about the competition as it began to unfold. I would say a combination of all these reasons led us to not pursue,” he was quoted as saying in a media interview.
Of late, the industry is also talking about profitability and rising competition, among several other reasons. Is there really a cause for concern? “Competition is not a point to worry about. In fact, with 97% cash transactions in the economy and with a fast-growing population of smartphone and data users, we think everyone who does their bit to make the system cashless will help by shaping behaviour and reducing cash. In that sense, our competition is with cash,” says Kumar of Paytm Payments Bank.

As per Kumar, that is also her major challenge because while cash can be acquired, exchanged and used by anyone for any purpose, digital money can only be accessed after KYC (‘know your customer’, the process of a business verifying the identity of its clients) and requires behavioural change on handling security, etc. “Unfortunately, despite tall claims, policymakers have higher comfort with paper than with the digital medium. e-KYC is our commitment, but in many of our target geographies, data availability and Aadhaar penetration are not seamless. Traditional approach to KYC and cash management remain the biggest challenges. If we have the same requirements as large banks and can’t play to our digital connect with the consumer through the mobile, it is not easy to truly differentiate and achieve a different level of scale,” she adds.

Courtesy Financial Express and By: Kunal Doley | New Delhi |

CAR AIR CONDITIONING

Subject: FW: Car Air-conditioning !!!

Date: Wed, 28 Apr 2010 10:38:31 +0530

No wonder more folks are dying from cancer than ever before. We

wonder where this stuff comes from but here is an example that

explains a lot of the cancer causing incidents. Hmmm. Many people

are in their cars first thing in the morning and the last thing at

night, 7 days a week. As I read this, it makes me feel guilty and

ill. Please pass this on to as many people as possible. Guess its not

too late to make some changes

Car A/C (Air Conditioning) MUST READ!!!

Please do NOT turn on A/C as soon as you enter the car.

Open the windows after you enter your car and turn ON the AC after a

couple of minutes.

Here's why:

According to a research, the car dashboard, sofa, air freshener emit

Benzene, a Cancer causing toxin

(carcinogen - take time to observe the smell of heated plastic in your car).

In addition to causing cancer, Benzene poisons your bones, causes

anemia and reduces white blood cells.

Prolonged exposure will cause Leukemia, increasing the risk of cancer.

Can also cause miscarriage.

Acceptable Benzene level indoors is 50mg per sq.ft. A car parked

indoors with windows closed will contain 400-800 mg of Benzene.

If parked outdoors under the sun at a temperature above 60 degrees F,

the Benzene level goes up to 2000-4000 mg, 40 times the acceptable

level.

People who get into the car, keeping windows closed will inevitably

inhale, in quick succession, excessive amounts of the toxin.

Benzene is a toxin that affects your kidney and liver.. What's worse,

it is extremely difficult for your body to expel this toxic stuff.

So friends, please open the windows and door of your car - give time

for interior to air out -dispel the deadly stuff - before you enter.

A mail received by me published for public benefit only.

13 BANKS RECAPITALISED WITH RS 22,915 CRORE, ANALYSTS SAY MORE NEEDED

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The Finance Ministry on Tuesday announced the much-awaited capital infusion of Rs 22,915 crore towards the recapitalisation of 13 public sector banks during 2016-17.

However sectoral analysts are of the view that the quantum of capital infusion will provide some stability to the weak financial profiles of state-owned banks but may not go a long way to help them achieve growth.

The largest amount of Rs 7,575 crore was earmarked for the country’s largest lender, the State Bank of India.

“In line with the announcements made under ‘Indradhanush’ and the Union Budget, the government has undertaken an exercise to assess the capitalisation needs of public sector banks during 2016-17,” a ministry statement said.

“The capital infusion exercise for the current year is based on an assessment of need as calculated from the compounded annual growth rate of credit for the last five years, banks’ projections of credit growth and an objective assessment of the growth potential of each public sector bank.”

Following this assessment, 75 per cent of the amount collected for each bank is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market, it said.

The remaining amount, to be released later, is linked to performance, with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations, it added.

Among others, Indian Overseas Bank will get Rs 3,101 crore, Punjab National BankRs 2,816 crore, Bank of India Rs 1,784 crore, Central Bank of India Rs 1,729 crore and Syndicate Bank Rs 1,034 crore.

In his response, Saswata Guha, director, Financial Institutions at global credit rating agency Fitch Ratings, told IANS: “What the government is providing banks currently is simply part of the amount it had budgeted for. It will provide some stability to the weak financial profiles of state-owned banks but may not go a long way if banks have to pursue decent growth in a scenario where some more amount of asset quality stress is yet to filter through.”“In our estimate, the government will likely have to provide at least double of its budgeted $11-12 billion to state-owned banks but there is also a risk that this could go up if the government banks are unable to raise their share of capital (in various forms) independently from the capital markets,” he added.

In a recent report, Fitch Ratings had said it expects Indian banks to require around $90 billion of capital to meet new Basel III capital standards that will be fully implemented by the financial year 2018-19.

Resolving the asset quality and capital issues will be important for some banks to regain market access, which is now difficult for the majority of state banks, it had said.

Fitch Ratings said it expects Indian banks’ stressed asset ratio to peak around 2016-17, although the recovery will depend on resolution of non-performing loans (with state banks having average stressed asset ratio of 14.5 per cent compared to 4.5 per cent for the private banks) and credit growth.

The ‘Indradhanush’ scheme was announced on the eve of the Independence Day in 2015, covering seven areas – appointments, setting up of a Bank Board Bureau, capitalisation of banks, de-stressing their assets, empowerment, accountability and governance reforms.

The preparations for the first tranche of capital infusion for this fiscal began soon after the state-run banks made presentations to the Finance Ministry on their balance sheets, especially the extent of stressed assets and measures being taken to recover them, officials said.

In his Budget speech this year, Finance Minister Arun Jaitley said that while the problem of stressed assets and bad loans was a “legacy of the past”, the structural issues were already being addressed, and promised adequate infusion of funds, to the tune of Rs 25,000 crore.
“If additional capital is required by these banks, we will find the resources for doing so,” he added.

In fact, in anticipation of such capital infusion, as also because of the steps being taken by the banks to tackle the debt issue, banking stocks have been on the rise in recent weeks.Since June 1, the banking index of the Bombay Stock Exchange, in fact, has risen nearly 10 per cent. Some stocks, like those of Punjab National Bank, have flared up by over 50 per cent during the period.

Courtesy The Financial Express
 

NEW CIVIL AVIATION POLICY: HOW FLYING MAY GET MORE EXPENSIVE

With the new civil aviation policy proposing to extend the so-called hybrid till model for determining airport charges to state-run (Airport Authority of India-operated) airports also, passengers will have to fork out more as user development fees (UDF). Besides, they could also suffer from airlines deciding to treat their share of the extra cost as a pass-through to the passengers, analysts said.

This runs contrary to the new policy’s objective of making air travel more affordable.

Airport charges are universally determined under single till, double-till and hybrid-till mechanisms. In all cases, airport operator gets a predetermined internal rate of return (IRR) as per the concession agreement. Under single-till mechanism, revenues from both aeronautical (landing, parking and ground handling) and non-aeronautical (duty-free shops, hotels, restaurants and airport infrastructure) segments are taken into account to determine the IRR.

However, under the hybrid till method, which is currently being used by joint venture (public private partnership) airports, only 30% of non-aeronautical revenue is taken towards IRR, allowing the operator to pocket 70% of the non-aeronautical revenue. The idea is to encourage the operators to expand airport infrastructure. But the lower revenue base compared to single-till method practically prompts the operators to levy higher charges (UDF) on passengers and airlines.

For instance, the Airport Economic Regulatory Authority (AERA) in 2014 determined tariffs on the basis of single-till for the Hyderabad airport and ruled that the UDF be made zero, still allowing the airport operator to achieve the targetted annual revenue. The airport operator GMR was later allowed by the Andhra Pradesh High Court to collect charges as per hybrid-till method. This resulted in UDF of Rs 1,938 for international passengers and Rs 491 for domestic passengers, corresponding increase in airfares.

Some experts say that the new aviation policy has ignored the conclusions reached by the AERA and the ministry of finance after an extensive evaluation that single-till method is the most suitable for India. However, the aviation ministry defended its decision to extend the hybrid till model to AAI airports. “It (hybrid till) won’t lead to an increase in UDF; on the contrary, the method will attract private investments and boost commercial development at the airports,” RN Choubey, secretary at ministry of civil aviation said. He added the decision was based on the success of this model at international airports run by private operators in joint venture with AAI namely Delhi, Mumbai, Hyderabad and Bangalore airports.

“This change makes AERA a toothless entity. Passenger charges in India will increase, making air travel more expensive. And it contradicts one of the stated intentions of the civil aviation policy to make flying affordable,” Conard Clifford, regional vice president, Asia Pacific, IATA said. He added that the UDF charged at Hyderabad airport seems to have no correlation to what is the targeted annual revenue requirement for the airport and is a case example which establishes that single-till is in the best interest of the Indian passengers.

“There is no fixed mechanism to find out how the charges will increase under the hybrid-till method. Moreover, it will depend on AAI if it wishes to increase the UDF; it may choose to charge the airlines instead,” Amrit Pandurangi, senior director at Deloitte said.

The final civil aviation policy stipulates that under the hybrid-till mechanism if the tariff in one particular year or contractual period turns out to be excessive, the airport operator and regulator will explore ways to keep the tariff reasonable, and spread the excess amount over the future.

^{By: Bilal Abdi | New Delhi} 

^{Courtesy The Financial Express}

Text of PM Modi's address to the joint session of US Congress

Text of PM Modi's address to the joint session of US Congress

STRIKE AGAINST MERGER OF SBI ASSOCIATE BANKS FROM JULY 12

The State Sector Bank Employees’ Association (SSBEA) has decided to go on a two-day strike from July 12, to protest the move to merge five associate banks with State Bank of India (SBI).

Opposing the merger decision, nearly 45,000 employees in the Associate Banks, with 6,700 branches and 9,000 ATMS, will go on strike on July 12 and 13, since the merger will hit the customers and the business badly, SSBEA General Secretary, K S Krishna told reporters here today.

The total business of these banks as on March 2016 stood at Rs 900,000 crore with operative profit of Rs 10,500 crores, he said adding that the association will request the government to reconsider the decision.

The merger is to make SBI a very big bank of global standards, for the benefit of corporates and big companies.

Also Read: Bad loans crisis in SBI to go from bad to worse? Find out here

Such banks in USA had collapsed like a pack of cards.

“If the merger takes place, the customers will face hardship, as they will be forced to wait for several hours for a single transaction,” he claimed.

Even the state governments of Kerala, Karnataka, Rajasthan, Telengana and Punjab, with stake in the banks, have raised concern over the merger, for fear of losing share of profits paid by the banks, he said.

Stating that there will be no rectuitment for five years, he said delinking of associate banks from SBI would ensure independence, functional autonomy, further growth and its progress, Krishna added.

The managements of the associate banks, including State Bank of Mysore and State Bank of Hyderabad, have given nod for the merger at a meeting held on May 17 last.

Courtesy The Financial Express

BANK NPA CRISIS: HERE’S WHAT IS CRUCIALLY MISSING

RBI Governor Raghuram Rajan will be remembered for his relentless pursuit of India’s monetary policy reforms, controlling inflation and advocating a stable policy framework. His precise diagnosis and direction for “deep surgery” for the chronic NPA problems of the banking sector, especially in public sector banks, is also noteworthy. He minced no words when he said that routine “band-aid” would not clean up the balance-sheet mess and put them back on a healthy trajectory.

RBI has been issuing master circulars from time to time, encompassing entire aspects of ensuring true and fair financial statements of banks. RBI has insisted that the new restructured loans, where the borrower has renegotiated the terms of repayment, must be classified as non-performing assets (NPA) from April 1, 2015, with provisioning of 15% of the outstanding instead of 5% for restructured loans, so that banks can take early recovery action or sell NPAs to asset restructuring companies (a loan turns into an NPA when interest repayments remain due on the 91st day).

Financial audit of banks are done by statutory central auditors (SCAs) and statutory branch auditors (SBAs). On the basis of prescribed eligibility criteria determined by RBI, the CAG prepares graded panel for empanelment and selection of eligible SCAs and the The Institute of Chartered Accountants of India (ICAI) prepares a panel for eligible SBAs in PSBs and send the panels for RBI’s scrutiny before finalisation of the lists. RBI has prescribed the number of SCAs and SCBs to be appointed to audit large, medium and small PSBs, and for audit of their branches.

The government had delegated selection and appointment of SCAs and SCBs to individual PSBs from 2014-15 from the eligible list of firms, giving enough freedom to choose the auditors of their liking. Banks are free to select statutory auditors from the list with the approval of the Audit Committee of Board (ACB). The selection of audit firms as SCAs and SBAs is subject to RBI approval. The independence of auditors/audit firms is ensured by appointments of SCAs for a continuous period of three years, subject to satisfying the eligibility norms by the firms each year; PSBs cannot remove audit firms during the above period without the prior approval of RBI.

The option to consider whether concurrent audit should be done by bank’s own staff or external auditors is left to the discretion of individual banks. A critical issue is that auditors should be experienced, well-trained and, most importantly, adhere to applicable accounting and auditing standards, mandatory guidelines and the ethical code of conduct. Auditors must be able to function independently with professional autonomy and judgement. Adequate facilities and the requisite records must be made available to auditors with initial and periodical familiarisation of the process. Relevant internal guidelines or circulars or important references including the circulars issued by RBI and/or Sebi and other regulating bodies must be made available to the concurrent auditors.

Remuneration of auditors may be fixed by banks following the broad guidelines framed by the ACB, taking into account coverage of areas, quality of work expected, number of people required for the job, number of hours to be spent on the job, etc. Banks may devise a proper reporting system and periodicity of various check-list items as per risk assessment. Serious irregularities pointed out by the audit should be straight away reported to the controlling offices or head offices for immediate action. The findings of the concurrent audit must be placed before the ACB. An annual appraisal or report of the audit system should also be placed before the ACB.

Whenever fraudulent transactions are detected, they should immediately be reported to the inspection and audit department, and the chief vigilance officer and controlling officers. Follow-up action on the concurrent audit reports must be done promptly by the controlling office and inspection and audit department. When RBI has been insisting on true and fair financial statements by banks through various notifications, master circulars, guidelines and directions time and again, why has the banking sector, especially PSBs, been pursuing window dressing so consistently for years till the position reached the current imbroglio? Statutory auditors finally certify the accounts true and fair. Whenever any falsification of accounts on the part of the borrowers is observed by the banks or financial institutions, the auditors are responsible to bring it to the notice of the management. Auditors must have to follow auditing standards, applicable accounting standards, rules and the professional code of ethics. Being the regulator of chartered accountants, ICAI is duty bound to fix accountability of auditors if they are found lacking in professionalism and ethics.

There should be disciplinary action by ICAI. In fact, ICAI, RBI, the Department of Banking Supervision and Indian Banks’ Association are mandated to circulate the names of guilty chartered accountant firms. RBI is required to share such information with other financial sector regulators, ministry of corporate affairs and CAG. The lenders can obtain a specific certification from the borrowers’ auditors regarding diversion/siphoning of funds by the borrower. The rules also specify that banks and financial institutions may ensure incorporation of appropriate covenants in the loan agreements to facilitate such certification by auditors. RBI stipulates that lenders may engage their own auditors for such specific certification purpose without relying on certification given by borrowers’ auditors for ensuring proper end-use of funds and preventing diversion/siphoning of funds by the borrowers. Bank must invariably exercise basic minimum own diligence in the matter.

Master directions issued by RBI in January 2016 consolidate all regulatory matters under various Acts and are put on the RBI website. Proper medicine is prescribed for chronic NPA infection, but what is missing is strict implementation. Creating more rules, regulators and watchdogs may lead to overlaps, confusion and would prove to be counterproductive. If prompt administration of extant rules is taken care of and due diligence is exercised by regulators, bank management, auditors, audit committee and the board of directors, the NPA crisis can be resolved.

Courtesy The Financial Express. 

By: KP Shashidharan The author, a former director-general in the office of CAG, is working as advisor and consultant to the Institute of Public Auditors of India

BREXIT: IS IT DEFECT OF LOGIC AND STATISTICS?

The people of Britain voted for a British exit, or Brexit, from the EU in a historic referendum on Thursday, June 23. From hindsight perceptive, if you analyze this entire Brexit, you may have to comprehend that it is extensively more complex than what is looks like at the surface.

The UK leaving the European Union will have an impact on all industrial sectors and on the whole economy of UK as well as the definite trivial impact on other countries. Let’s first see—

What was battle about..? 

I think, the fight was about following 5 points.

1.    Migration Policy –Principal assessment is that it was about UK’s losing control over its own migration policies as it has to support an EU framework for immigration within EU

2.    Job Market —Another significant part is job market inside the UK. Immigrants with EU framework are getting “white” and “blue collar” jobs which are impacting job prospects of UK citizens

3.    Contribution/It’s about money — UK’s contribution to EU is around 13.5billion in 2015. They got specific concession from paying 18 billion. From 1973, they paid around 500Billion to the EU and on average they pay around 8.5Billion per year. EU pays back by helping poor farmers in the UK and few other areas. How much the UK got back last year..? Around 6.5Billion and may be more indirectly as companies invested in the UK due to EU framework. This payment made by the UK to EU  not a loss as numbers tend to suggest.

4.    Trade and travel – UK is regarded as the gateway to Europe and all EU countries have free trade with the UK, and this actually benefits the UK economy and was a principal point on the agenda of the people who voted to stay within EU.

5.    Battle of classes and age –groups – It was broadly argued that it was a battle of age groups. People with old age wanted to leave the EU where the old wanted to stay, but we cannot count on this trend as this is not consistent across the UK states. Few leaders managed to paint this as “Rich and Poor” battle. Was it really a rich and poor battle? Well this can be debated at length and cannot be concluded in the absence of data.

Is it a Defeat of logic and statistics? 

This battle was fought with enormous passion, aggression and both sides made an attempt generate fear in the minds of people. The team which conceded passionate and ambitious leadership and created a populous framework has won. The Vote difference is around 3.8% which is not great. If you look at the arguments that were presented on the battlefield, only one side had numbers with them and they believed that they need to “Stay In.” The reason is economy was well accustomed to EU framework, and there was a future vision offered aligning the EU frame.

The other side which has said “Yes” for Brexit had a lot of emotions and fewer numbers in hand and masses got carried away with passionate leadership. If you look at all Brexit movement, nobody still doesn’t know, how will it impact Britain economy…? Nobody has substantial statistics in hand. This is a very complicated process and only time will articulate if Brexit is serving Britain?. Hence I feel this could be a probable defeat of logic and statistics at the hands of passionate leadership with more emotions in hand than figures.

Let’s look at few hardcore facts which support that Brexit is a very convoluted scenario in the absence of any projected actualities.

1.       UK out of EU means EU may not allow the UK to have free trade, and it means the UK no longer a gateway to Europe. So in layman’s term if I manufacture a car in the UK and want to sell in Germany I will have pay tax as well as few other service tax which means additional cost to customer and loss of competitive advantage.  If I am an Indian manufacturer, the best solution to me is moving my headquarters to Germany or France and evade taxes in 27 countries and open a small separate company for the UK which will manufacture and sell in the UK only and hopefully the law will permit it. Which companies will choose this option and how much impact it will have, cannot be projected at this stage.

2.       All the USA and EU companies who had invested in the UK due to EU rules may start reevaluating their decisions due to new trade law as that EU may set forth and this may be a potential loss of investment to the UK.

3.       UK’s automobile industry and manufacturing sector and all others have major outside players in it, and all might get impacted.

4.       Does this mean Britain is giving anti-migrant and isolated market message instead of the open market, and this is not right from branding perceptive?

5.       Travel agencies of UK will get major hit with all free Europe package will have to start from Paris (France) and Frankfort ( Germany) instead of London. If I ask Europe tour from London, it may cost 1000GBP but from Paris, it may cost 800GBP as UK has lost EU status.

6.       Indian students may perhaps benefit as EU student and Indian student may be treated likewise as Britain is a no-longer member of EU.

If you look at above points, which companies and investors will select which scenario and how they will baseline their decisions is very uncertain. Hence, nobody has any numbers around Brexit here as well.!

Britain – Searching for Greatness via Brexit 

Well, if you want to make Britain’s situation resilient subsequently to Brexit, you will have limited options in hand. Hang onto to the “Open Market” concept.  Keep all the possibilities open for Immigration laws within EU. This way, you will not pay around 13 Billion per year to EU however still succeed to attract investment. Nevertheless, what about trade framework..? Germany and France are not going lose this advantage and treat the UK as an Asian country to make more benefits as everybody mean business.

Now, to bring this discussion to a conclusion, it’s an open secret that UK wants to move out of EU and keep trade and travel and tax framework as it is..? Will EU countries permit it? Germany and France know few companies moving headquarters to their country means paying tax in their country instead of UK for free access to EU. Also, start using Frankfurt or Paris as a gateway to EU instead of London.

During the exit period, UK will negotiate to enjoy same trade and access to EU without being a member? This is million dollar question! Which privileges will go off? Perhaps EU will make the UK pay more for similar rights as it’s not member, who knows..?

Only time will tell…if the UK is able to rise to the occasion and its leadership deliveries the excellent on the negotiating table and find an amicable solution to maintain trade and investment in the UK.

For me, receiving voting for Brexit was just one step and negotiating with EU without having an impact on trade is a real challenge which hasn’t started as yet. The real battle is ahead and what we saw is just a promo.

Wait and watch and hope this is indeed an upsurge of new Great Britain which is more accessible and beneficial to India.! Hopefully, we will get precise numbers by 2018-19, and we can have a genuine conversation about Brexit.

Virendra  Dafane

Author is an IITB alumnus and working in software Industry can be reached on virendra.dafane@hotmail.com

Courtesy The Financial Express

INDIA OPENS FDI FLOODGATES; APPLE TO QATAR AIRWAYS GAIN, BUT GREY AREAS REMAIN

In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors. Showing scant signs of legacy inhibitions, it virtually paved the way for even foreign airlines to acquire their Indian counterparts, removed the condition of domestic access to state-of-the-art technology for 100% FDI in the defence sector and put in abeyance the fractious 30% local sourcing norm for FDI in single-brand retail of advanced-technology products.

Despite the local pharma industry’s oft-expressed fear of being swamped by Big Pharma, foreign firms can now take majority (up to 74%) ownership in Indian drugmakers via the automatic route, which could again catalyse big-ticket M&A activity in the sector.

With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an India airline company by working in concert with a related party, according to some analysts. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation’s sovereign wealth fund, Qatar Investment Authority.

Analysts, however, said the government seems to have tightened the sourcing rule in single-brand retailing, instead of giving a blanket exemption from such a rule for entities having “cutting-edge” technology, as was the case earlier. For instance, Apple will be exempted from the local sourcing rule for three years and have a relaxed sourcing regime for another five years if it wants to set up its own retail store, as its technology has already been described as “cutting edge” by a government panel. However, the company will still have to start local sourcing from the fourth year itself, thanks to the insistence of the finance ministry, which wanted that the Make in Indiaprogramme get a boost. Similarly, Chinese company LeEco will be subjected to the same conditions if its claim of having “cutting edge” technology is endorsed by the panel headed by department of industrial policy and promotion secretary Ramesh Abhishek. However, another Chinese smartphone maker, Xiaomi, which recently withdrew its application for such a waiver, will have to comply with the mandatory 30% sourcing rule from the beginning should it wish to set up its own retail store.

Commenting on the new FDI policy for airlines, Amber Dubey, partner and India head of aerospace and defence at KPMG in India, said: “The avoidable controversies on settling ‘ownership and control’ issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.”

“The likely increase in competition will bring down prices and enhance air penetration in India, both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” he added.

Calling the new norms a “bit tricky”, Amrit Pandurangi, senior director, Deloitte Touche Tohmatsu India, said, “Foreign airline investment is restricted to 49% and FDI investment in this sector has been opened up to 100%, so if the beyond the portion of the equity is by a related entity, then that needs to be tested.”

Among domestic airlines, the Rahul Bhatia-controlled Interglobe Enterprises holds close to 43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet and Naresh Goyal holds 51% in Jet Airways. While Tata Sons holds 51% in both Vistara Airlines and AirAsia India, GoAir is wholly owned by the Wadia Group.

In defence, the decision to scrap the condition of access to “state-of-the-art technology” for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. Already, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its joint venture with a local partner to make the Gripen aircraft in India.

The government’s move to allow 100% FDI through the automatic route (earlier it was up to just 49%) in the broadcast carriage industry, comprising teleports, cable, direct-to-home (DTH) players, HITS (head-end-in-the sky) and mobile TV operators will provide a breather to the cable industry which has been struggling with the process of digitalisation of cable TV. The government has also allowed 74% FDI (49% under automatic route and through government approval beyond this ceiling) in private security agencies. Earlier, only 49% of FDI through government route was allowed.

Also allowed now is 100% FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture under the automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

“For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted,” a PMO statement said..

Monday’s is the second largest FDI liberalisation initiative by the Modi government, after the steps taken in November 2015. Prime Minister Narendra Modi tweeted: “In two years, Govt brings major FDI policy reforms in several key sectors… India now the most open economy in the world for FDI; most sectors under automatic approval route.” He added: “Today’s FDI reforms will give a boost to employment, job creation & benefit the economy.”

In what seemed to indicate that the government’s intention was indeed to let foreign airlines acquire Indian firms and thereby augment their capital and fleet strength for the benefit of air travellers, economic affairs secretary Shaktikanta Das said that Monday’s reforms in the sector were a “game changer”.

India’s FDI inflows increased to $55.5 billion in FY16 from $36 billion in FY14. Net FDI inflows stood at $36 billion in FY16 compared with $32.6 billion in FY15.

Commerce and industry minister Nirmala Sitharaman, however, rejected assumptions that the government decided to announce so many FDI policy reforms in one go to divert public attention from RBI governor Raghuram Rajan’s decision to not continue at the central bank after his current tenure ends on September 4. The reforms are a result of months of deliberations among various departments and are not announced in a hurry to divert attention, she affirmed.

 Courtesy The Financial Express

‘‘BREXIT’ COULD SEND SHOCK WAVES ACROSS US AND GLOBAL ECONOMY

Britain’s exit from the EU could send shock waves across the global economy and threaten more than a trillion dollars in investment and trade with the United States, a leading American newspaper reported today.

The dangers of a British exit from the political and economic alliance that has united Europe for the past four decades carries hefty consequences for American businesses, which employ more than a million people in Britain, the Washington Post reported.

The United States is the largest single investor in Britain, and many firms consider it the gateway to free trade with the 28 nations that make up the European Union.

A Brexit would jeopardise their access to those markets, potentially reducing revenue and forcing some firms to consider relocating their European operations elsewhere. That has put corporate America onto the front lines of the campaign to keep the union together, with several of Wall Street’s biggest names donating substantial sums to the effort.

A Brexit would be “bad for the U.K., it would be bad for Europe, it would be bad for the world, including the United States,” Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said.

“You already have enough uncertainty in the world today. We don’t need more,” the paper quoted Gurria as saying.

The International Monetary Fund on Friday issued one of the most dire forecasts to date, calling the impact of Britain’s departure from the EU “negative and substantial.”

The fund predicted that a Brexit could reduce economic growth by up to 5.6 per cent over the next three years in its worst-case scenario.

Those concerns were echoed by policymakers around the world last week.

In Washington, Federal Reserve Board Chair Janet Yellen said the threat of a Brexit factored into its decision to remain cautious and keep its benchmark interest rate unchanged last week.

While financial markets would bear the brunt of the immediate impact of a Brexit, the referendum raises deeper questions for businesses on both sides of the Atlantic.

If Britain votes to leave, it would spend at least two years working out the terms of its departure, with all signs pointing to an acrimonious negotiation. Britain would also need to procure trade agreements with countries around the world, including the US, a process that could take years. Businesses say the protracted debate would leave them stuck in limbo, the report said.

The US exported USD 56 billion worth of goods to Britain last year, but that number is dwarfed by the USD 588 billion in US investment there, in sectors ranging from banking to manufacturing to real estate.

Likewise, Britain has plowed nearly half a trillion dollars into the US and employs more than a million workers here. Those deep ties mean that trouble on one side of the Atlantic easily can migrate to the other shore.

 Courtesy The Financial Express