BIG BANG : 10% Voting Cap in Banks Set to Go

5^th April, 2005 The Government gave a big push to banking reforms by lifting the voting cap of 10% for private banks, empowering the RBI to supersede bank boards and allowing banks to issue preference shares. RBI will also be provided with more flexibility on the monetary policy front with the removal of lower bounds of the Statutory Liquidity Ratio (SLR) and greater leeway to fix the Cash Reserve Ratio (CRR). The twin measures will enhance credit flow and reduce cost of credit.

Private Equity Funds not Promoters, Says Finmin

25^th April, 2005 The Finance Ministry has broadly endorsed the line that private equity investors must not be treated as promoters when they make substantial investments in competing Indian firms. The ministry’s clarification has come in the context of permitting the consortium of Singapore Technologies Telemedia (STT) and TM International, the investment arm of Telecom Malaysia, to pick up a 47.7% stake in Idea Cellular.

Micro-Finance NGOs Allowed to Tap ECBs

26^th April, 2005 The RBI has allowed non-government organizations involved in micro-finance activities to go in for external commercial borrowings up to $5 million under the automatic route.

States to Levy 4%VAT on Inputs, Capital Goods, Drugs

27^th April, 2005 The empowered committee of state finance ministers on the value-added tax (VAT) has decided that all industrial inputs, medicines, medical equipment and devices will attract a uniform 4 per cent tax. The VAT panel met today to work out common tax rates for states. The 4 percent rate will also apply to capital goods, barring a small negative list of items like building materials.

Managing Inflation is Main Task : RBI

29^th April, 2005 The Indian economy is expected to grow at 7% this year, compared to 6.9% in 2004-05, provided the monsoon is normal. The rate of inflation is likely to be between 5% and 5.5% for 2005-06, RBI said in its Annual Policy Statement for 2005-06, known as credit policy. The Central bank said that its outlook might change because of the global crude oil prices, currently near record high level.

Mr Y V Reddy, Governor, RBI said that managing inflation was the main task of the country’s monetary authority which in turn would decide the interest rate. With this objective, the Central Bank raised the reverse repo rate (the rate at which RBI borrows from the commercial banks against government securities) from 4.75% to 5%, effective Friday. However, it left the bank rate and Cash Reserve Ratio unchanged.

It’s Time to Go Global, Says India Inc

29^th April, 2005 By permitting Indian companies to invest in overseas JVs or wholly-owned subsidiaries up to 200% of their net worth, RBI has raised as pirations of the corporate world. Corporate czars maintained that the move would provide the much needed fillip to globalisation of Indian companies. The industry felt that while the policy would, overall, spur GDP growth and promote export activity, it may also lead to inflation.

Fringe Benefit Tax Trimmed

3^rd May, 2005 Finance Minister P Chidambaram retained both his controversial tax proposals – the Fringe Benefit Tax and the Cash Withdrawal Tax – but made modifications to offer some relief to individuals as well as corporates.

While retaining the fringe benefit tax rate at 30 per cent, Chidambaram reduced the taxable value under six categories, including entertainment and hospitality, from 50 per cent to 20 per cent. He, however, doubled the taxable value on the use of phones, other than leased lines, to 20 per cent.

3^rd May, 2005 Savings account holders will be exempt from the Fringe Benefit Tax (FBT). There’s relief for senior citizens and women too. The income-tax exemption limit has been raised from Rs. 1,50,000 to Rs. 1,85,000 for senior citizens and from Rs. 1.25 lakh to Rs.1.35 lakh for women. Expenses on advertising have been exempted from FBT. For use of telephones, including mobile phones, the base for valuation will be 20%. Expenses on leased lines will, however, be exempt.

Divestment in 13 PSUs called off

4^th May, 2005 The sale of controlling stake in 13 public sector companies, which had been cleared by the previous government, has been called off. No decision had been taken for disinvestments in any other specific public sector enterprise so far.

The NDA government had identified 13 profitable PSUs for disinvestment, including National Aluminum Company Limited, Shipping Corporation of India, Hindustan Petroleum Corporation Ltd, State Trading Corporation, Engineers India Ltd and Balmer Lawrie Ltd.

Voting Rights in Banks Linked to Shareholding

5^th May, 2005 The Government went on an overdrive by pushing through long-pending reform measures and clearing as many as 11 bills including the Special Economic Zone Bill and amendments to the Banking Regulation Act that would link voting rights to shareholding in private banks.

The Cabinet, also approved amendments to the Reserve Bank of India Act and Credit Information Companies Regulation Act and vetted the Small and Medium Enterprises Development Bill and the Taxation Laws Amendment Bill.

RBI Eases Banks Dividend Norms

6^th May, 2005 The Reserve Bank of India (RBI) has raised the ceiling on the dividends that commercial banks are permitted to pay to 40 percent of a bank’s net profits, from the earlier 33.33 percent.

Commercial banks can now pay dividends if their net non-performing assets (NPAs) are less than 7 percent of their total advances and they have had a Capital Adequacy Ratio (CAR) of at least 9 percent for three consecutive years, including the latest accounting year.

SEZ Bill Clears House Sans Labour Clause

11^th May, 2005 The Lok Sabha today passed the Special Economic Zone Bill, 2005 and deleted a clause giving powers to states to put in place a special labour law dispensation for units and developers of designated areas.

Commerce and Industry Minister Kamal Nath agreed to delete Section 50(b) of the Bill that proposed to vest the powers with states to exempt SEZs from provisions of state laws related to trade unions, working conditions, provident fund, employers’ liabilities, maternity benefits and invalidity and old-age pensions. The clause also proposed that states could provide special legal benefits to SEZs.

LS Okays Bill on Right to Information

12^th May, 2005 A path-breaking Bill seeking to provide right to information was passed by the Lok Sabha with Prime Minister Manmohan Singh asserting that the measure would see the dawn of a new era in governance and eliminate corruption.

The Prime Minister wanted the bureaucracy to consider the Bill as an instrument for improving the government citizen interface resulting in a friendly, caring and effective government.

The Bill was passed by a voice vote after the government got a huge 150 amendments to the draft approved by the House.

Overseas Investment Ceiling Raised to 200 pc of Networth

13 May, 2005 The Reserve Bank of India has announced that the ceiling of overseas investment for Indian companies has been raised from 100 percent of their networth to 200 percent.

The ceiling is not applicable to the investments made out of balances held in EEFC accounts and out of the proceeds of ADR / GDR issue.

Reserve Bank Lays Down M & A Norms for First Time

13^th May, 2005 The Reserve Bank of India (RBI) has, for the first time, laid down the rules of the game in the tabooed world of bank mergers and acquisitions (M & As). The new norms released today also say that the regulator cannot be sidestepped to push through a merger between a non-banking finance company and bank by moving the court of law.

RBI Okays Remittance of Family Property Share for NRIs / PIOs

14^th May, 2005 The RBI has said that non-resident Indians (NRIs) and persons of Indian origin (PIO) can take abroad their share of family property in India received by way of settlement during the life-time of the family head. However, strangely, the RBI has said that the remittance will be allowed only upon the demise of the family head.

On the face of it, the new norms appear to be further liberalization of a measure announced by the RBI two years ago that allowed remittances of $1 million per year out of sale of assets arising out of inheritance or legacy. This remittance was allowed subject to the production of certain documents. The new norms allow NRIs to remit overseas funds received in India as a result of a family head dividing his estates among family members.