RBI has revised the norms for prompt corrective action
As the financial health of banks had deteriorated over the last three years, the Reserve Bank of India (RBI) has revised the norms for prompt corrective action, and has promptly imposed those norms on a couple of public sector lenders.
PCA norms allow the regulator to place certain restrictions such as halting branch expansion and stopping dividend payment. It can even cap a bank’s lending limit to one entity or sector.
Other corrective action that can be imposed on banks include special audit, restructuring operations and activation of recovery plan. Banks’ promoters can be asked to bring in new management, too. The RBI can also supersede the bank’s board, under PCA.
The provisions of the revised PCA framework will be effective April 1, 2017 based on the financials of the banks for the year ended March 31, 2017. The framework will be reviewed after three years.
The PCA is invoked when certain risk thresholds are breached. There are three risk thresholds which are based on certain levels of asset quality, profitability, capital and the like.
The third such threshold, which is maximum tolerance limit, sets net NPA at over 12% and negative return on assets for four consecutive years.
There are two type of restrictions, mandatory and discretionary. Restrictions on dividend, branch expansion, directors compensation, are mandatory while discretionary restrictions could include curbs on lending and deposit.
In the cases of two banks where PCA was invoked after the revised guidelines were issued — IDBI Bank and UCO Bank — only mandatory restrictions were imposed. Both the banks breached risk threshold 2.
Some more lenders are expected to come under the corrective action framework as and when their asset quality worsens, putting profitability under pressure.
Some public sector banks have breached the net NPA parameter as well as the profitability parameter. These banks are comfortable on the capital parameter, thanks to the government’s commitment to ensure the PSU banks are not starved of capital.
However, as the government has its own commitment for maintaining fiscal discipline, it remains to been seen how long it can afford to infuse capital in these banks.
FM will discuss potential areas of boosting cooperation between India and Africa
Finance Minister will discuss potential areas of boosting cooperation between India and Africa. Mr. Jaitley will open the India-Africa Cooperation session being held in conjunction with the annual meeting of the African Development Bank (AfDB).
The sessions will cover areas such as trade and investment, agriculture, renewable energy and manufacturing among others.
Total trade between India and Africa increased almost fivefold between 2005-06 and 2015-16, and stood at $52 billion in March 2016-17.
This is the first time that the African Development Bank is holding its annual meeting outside of the African continent.
Weaker U.S. dollar may help keep the profit momentum rolling
With S&P 500 companies set to notch their strongest quarterly earnings growth in about six years, a weaker U.S. dollar may help keep the profit momentum rolling and support share prices in the coming weeks.
After a dramatic week in Washington that rattled financial markets, one possible silver lining for stock investors was the weaker dollar, which can support earnings of U.S. multinational companies with large foreign operations.
The dollar weakened 0.5% against a basket of currencies following reports that U.S. President Donald Trump tried to interfere with an investigation into his former national security adviser’s ties with Russia, revelations that also sparked the S&P 500’s biggest one-day drop in eight months.
The currency was on track for its biggest weekly percentage drop in a year, and so far in 2017 the dollar has pulled back 5%, erasing post-U.S. election gains.
Dollar movements can be significant for U.S.-based multinationals. The stronger the greenback is against other currencies, the less valuable foreign sales become when translated into the U.S. currency for reporting purposes.
First-quarter profits are on pace to rise 15.2%, according to Thomson Reuters I/B/E/S. Second-quarter earnings are expected to rise 8.5%, a figure that could swell depending on currency moves. The dollar has fallen 3.2% in the second quarter alone.
Companies with significant global operations have already showed strength as the dollar has weakened in the first quarter.
S&P 500 companies with more than half their revenue from outside the U.S. reported a 13.2% increase in earnings, excluding the energy sector, compared with a 10.6% increase for companies with half or more of revenues coming domestically
Cellular Operators Association of India disaapointed over 18% GST rate
The Cellular Operators Association of India has expressed its disappointment over the 18% rate of tax under GST for telecom saying it would make services more expensive for the consumers as the industry is currently taxed at 15%.
The Indian Beverage Association (IBA) has also voiced its dissatisfaction with sweetened aerated water and flavoured water being placed in the highest tax slab rate of 28% combined with an additional cess of 12%.
The IBA, in a statement, said it was “extremely disappointed” at the effective tax rate of 40% on sweetened aerated water and flavoured water.
This will have a negative ripple effect and hurt the entire ecosystem of farmers, retailers, distributors and bottlers.
GST council did not help environmentally friendly goods
GST Council’s treatment of goods such as commercial LPG, hybrid cars, and renewable energy components has missed an opportunity to back environmentally friendly goods.
The GST Councilfinalised the rates and cess for most of the goods under the purview of the tax.
Among these, it set a rate of 18% for commercial LPG, and 5% for all renewable energy devices and spare parts, although the Ministry of New and Renewable Energy had requested exemption for these items.
LPG for domestic use would be taxed at 5% while LPG used commercially and in cars would be taxed at 18%.
This would also encourage theft, since people already transfer LPG from domestic cylinders to commercial containers to avoid the higher tax, Mr. Gupta said.
Under GST, the government will also levy cesses on certain sin and luxury goods, over and above the highest tax rate of 28%.
In this system, it has clubbed together sport-utility vehicles (SUVs), which usually have higher emission levels, and hybrid vehicles, and set the cess at 15%.
At the same time, the cess on ultra-luxury products, like private planes and yachts, has been set at a relatively low 3%.
Ministry of New and Renewable Energy had made a presentation to the GST Council seeking zero rate of tax on the ground that any upward impact on tariffs due to GST would have significant adverse effects on the industry.
Trade ministers of 16 countries, including India and China, to discuss RCEP
Trade ministers of 16 countries, including India and China, will meet on May 21 and 22 in Vietnam to discuss progress in the ongoing negotiations of proposed trade deal, RCEP.
So far, negotiators of the Regional Comprehensive Economic Partnership (RCEP) have held 18 rounds of negotiations.
This will be a crucial meeting in Hanoi. Ministers would deliberate on the single—tier system of duty relaxations, besides issues related to services and investments.
Chief negotiators of all the countries recently held discussions in the Philippines.
India has extended credit totalling $7.6 billion to African nations
India has extended credit totalling $7.6 billion to African nations and aims to use the upcoming annual meeting of the African Development Bank in Gujarat this month to strengthen its trade ties with the continent.
As on March 31, 2017, India has extended 152 lines of credit to 44 African nations amounting to $7.6 billion, Economic Affairs Secretary Shaktikanta Das said. The meeting will take place on May 22-26 in Gandhinagar, Gujarat.
Prime Minister Narendra Modi, who will inaugurate the meeting, had in the India-Africa Summit committed a $10 billion line of credit to African nations.
The African Development Bank (AfDB) has 81 member countries, 57 of which are from Africa. India is among the other 24 non-regional members.
Indian companies have invested $72 billion in African nations as of 2014-15, Mr. Das added, saying that this made up 20% of the total investment in those countries.
Social security law may be implemented in phases
The Labour Ministry may implement its proposed social security law in a phased manner, exempting small factories employing up to 10 workers, from its ambit initially.
The small factories could be covered in the second phase. Factories employing more than 10 workers and informal sector workers can be covered in the first phase.
After two years, factories employing less than 10 workers can also be brought under the framework of the proposed social security law.
The Labour Ministry had, in March, proposed a labour code on social security which will provide social security cover to the entire workforce in the country, including self-employed and agricultural workers. Factories with even a single worker would have had to contribute towards social security benefits, as per the code.
This was the first time that the Central government had proposed a law for providing universal social security to all workers which have been one of the key demands of the central trade unions.
However, small and medium enterprises, which are kept out of social security schemes at present, had raised concerns over the government’s proposal.
The provident fund and pension contribution, administered by the Employees’ Provident Fund Organisation (EPFO), is mandatory only for factories employing at least 20 workers at present.
Further, medical benefits under the Employees’ State Insurance Act apply to factories with at least 10 workers and it is also applicable to shops, hotels, restaurants, cinemas and road transport undertakings.
According to the Sixth Economic Census, 98.62% of the total establishments in India — both agricultural and non-agricultural sectors — employ less than 10 workers.
Providing social security to all workers will be one of the key themes of the 47th Indian Labour Conference (ILC) which is likely to be inaugurated by Prime Minister Narendra Modi later this year.
Rail development authority to set standards of performance and efficiency
India’s first rail regulator, Rail Development Authority (RDA), would not just look at tariff structures for passenger and freight operations but also set standards of performance and efficiency that would be enforceable under the Railways Act.
The regulator will set “standards for efficiency and performance for consumer satisfaction in both passenger and freight” and will also be “authorised to check for deviations and suggest remedial measures.”
The regulator will provide guidance on quantity and quality of service provided to passengers.
These may include setting standards including hours of service, frequency of trains, capacity per coach, cleanliness level, and quality of water, food, furnishing and linen.
The Union Cabinet had last month approved setting up the rail regulator responsible for recommending passenger fares, setting performance standards for rail operations and creating a level playing policy for private sector participation.
The resolution states that the regulator will be mandated to “suggest measures for absorbing new technologies for achieving desired efficiency and performance standards.”
The Railway Board also defined the structure of the RDA with a Chairman along with three members each for tariff, public private partnership and efficiency, standards and benchmarking.
The regulator will, however, not involve itself in policy making of the Indian Railways, operations and maintenance of the rail system, financial management, setting technical standards and compliance of safety standards, the resolution said.
It clarified that the regulator would only make recommendations on tariff and not impose a tariff on the Indian Railways.
Centre plans to provide them financial assistance to 4 million fisherman
With about four million people — mainly small-scale and artisanal fishers — in India depending on marine fisheries resources for livelihood, the Centre plans to provide them financial assistance and introduce norms to improve labour conditions in the sector.
However, it will ensure that the Indian fishing fleet does not engage in ‘Illegal, Unreported and Unregulated’ (IUU) fishing, according to the National Policy on Marine Fisheries, 2017.
The Indian marine fisheries account for an economic wealth of about Rs. 65,000 crore, according to the policy — meant to guide the coordination and management of India’s marine fisheries during the next 10 years.
It noted that fishermen are having difficulties in availing institutional credit to buy fishing implements and crafts, and that the risky nature of returns has led to many fishermen falling into the debt trap of private financiers and middlemen.
Therefore, the Centre, with the help of National Bank of Agriculture and Rural Development, will provide financial assistance to fishermen with liberal terms and conditions.
In addition, the Government will introduce new schemes to skill traditional fishermen.
RBI has imposed sanctions on state-run IDBI Bank
The Reserve Bank of India (RBI) has imposed sanctions on state-run IDBI Bank that include curbs on branch expansion and distribution of dividend after the lender’s financial health weakened.
IDBI Bank is the first lender to be sanctioned by the RBI after the central bank recently revised its prompt corrective action framework and RBI sources said the regulator may shortly take action against another one or two more banks.
Sanctions are imposed if a bank breaches a certain level of net non-performing assets (NPA), Return on Assets (RoA) and capital adequacy ratio.
IDBI Bank informed the exchanges that RBI, in a letter dated May 5, had initiated prompt corrective action in view of high net non-performing assets (NPA) and negative Return on Assets.
Restrictions on dividend distribution, domestic and overseas branch expansion, higher provisioning, are part of mandatory restrictions.
However, discretionary restrictions like curbs on lending or accepting deposits had not been imposed, the sources added.
DIPP and WIPO have inked an agreement to set up TISC
The Department of Industrial Policy and Promotion (DIPP) and World Intellectual Property Organisation (WIPO) have inked an agreement to set up Technology and Innovation Support Centres (TISC).
The WIPO’s TISC programme provides innovators in developing countries with access to locally-based, high quality technology information and related services, helping them to exploit their innovative potential as well as to create, protect, and manage their intellectual property (IP) rights.
Over 500 TISCs operate worldwide and establishing TISC in India will give the host institutions access to the global network, it said.
Banks are still responsible for NPAs
Banks would still be responsible for taking commercial decisions on non-performing assets weighing down their balance-sheets, including possible haircuts, but scrutiny from the Reserve Bank of India (RBI).
And advisories from oversight committees on the processes they adopt should comfort bankers.
The Centre felt the need to empower the RBI to direct banks to take more effective action for unwinding bad loan accounts as NPA resolution efforts failed even in cases where lenders reached an agreement.
As much as 70% of non-performing assets in the banking system stem from accounts where multiple banks have lent to a borrower, as a consortium or individually.
All such bad loan cases above Rs. 100 crore are to be taken up by a joint lenders’ forum (JLF) as per norms.
As per the new norms for JLFs notified by the RBI, just 60% of lenders by value of the loan have to reach a consensus on the course of action to be adopted for an NPA compared with a 75% consensus requirement earlier.
The rest of the lenders are required to follow suit in such cases.
The oversight committees for JLFs, which the RBI has been enabled to constitute, could look into the processes adopted by lenders to arrive at a corrective action plan for specific NPA cases. But their recommendations would be advisory.
All about Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that requires United States persons, including U.S. citizens who live outside the United States.
They have to report their financial accounts held outside of the U.S., and requires foreign financial institutions to report to the Internal Revenue Service (IRS) about their U.S. clients.
India had signed an agreement with the U.S. on July 9, 2015 which enables automatic exchange of financial information between India and the U.S.
The agreement provides that Indian Financial Institutions will provide the necessary information to the Indian tax authority i.e. CBDT, which information will then be transmitted to the U.S. automatically in the case of FATCA. The agreement came into effect on 2015.
The compliance is needed for bank accounts, mutual fund, national pension scheme and other such transactions. The compliance is needed to be done for all individual and entity accounts opened from July 1, 2014 to August 31, 2015.
Individuals and entities need to provide details of their country of birth, country of citizenship, country of residence for tax purposes, among others, to the respective financial institutions.
The self certification can be done online for bank accounts and mutual funds. The Pension Fund Regulatory and Development Authority has said it would come out with revised guidelines on FATCA shortly.
Several regional hubs to be started by Asian development bank
The Asian Development Bank (ADB) has operationally started working to create several regional hubs including New Delhi as one for South Asia, the bank’s President TakehikoNakao said.
Finance Minister Arun Jaitley, India’s Governor to the ADB, had earlier urged the multilateral lender to establish a hub in New Delhi, so that it could expedite lending to development projects across the region.
Observing that the “time required to approve a proposal as well as the time lag between approval and disbursement of loans can be further reduced,” Mr. Jaitley had stressed that speedier financing would help lend an edge to the ADB.
The ADB, given its objective of combating poverty, also needed to sharpen its focus on affordable renewable energy, and in the urban development context, both drinking water and sanitation, Mr. Jaitley said.
“The major challenges remain in the realm of user charges and financial sustainability of urban bodies,” he observed, adding that the bank could leverage its expertise to promote models that would focus on these challenges.
Mr. Jaitley also exhorted the lender to step up its support for climate resilient agriculture and social infrastructure including health and education.
India, is a founding member of the ADB and its fourth-largest shareholder. The bank's current portfolio of financing in the country includes 87 sovereign loans totalling $13.2 billion.
Solar and Wind power still to be explored
Viewed against the backdrop of the energy history of the country, the main-streaming of wind and solar has been rather sudden. Just three years ago, few would have thought of them as meaningful sources of energy.
Today, they account for 7% of the country’s electricity production — small still, but firmly set to grow, by at least ten percentage points in the next five years.
Coal, on the other hand, while still being the dominant player, is on the back foot. Apart from being a source of pollution and global warming, it is also a water guzzler – in ten years, India’s coal-fired power plants will need 12,000 million litres each day,
There is a lot more juice left in wind and solar than has been squeezed out today. Newer materials such as perovskites that can replace silicon are showing up, giving solar panels more bang for the buck; the cost of offshore wind is falling dramatically so as to open up literally new areas — the seas.
The search for clean energy has not stopped with wind and solar. A phalanx of sources is waiting to be tapped into. Some—like Helium 3 from the moon—are on the very edge of science. But there are others that are not so far away.
Japan is ahead in hydrogen use, but more for automotive applications, with around 90 hydrogen filling stations to serve fuel cell powered cars made by Toyota.
But fuel cells are a lot more efficient, easier and cleaner way than burning it in combustion engines. Fuel cells are devices that split the hydrogen atoms into protons and electrons and get the electrons to flow through a circuit — flow of electrons is electricity.
Smaller fuel cells can be used in vehicles and in applications such as powering telecom towers — a Bengaluru-based company called Intelligent Energy is selling such products. Larger fuel cells, or stacks of them, can used for electricity for the grid.
There are many tricks to steal energy from the oceans. For instance, the Swansea Bay project, U.K., is to build a U-shaped wall — or, breakwater — on the coast where there is a tide, with the mouth open to the sea and place an array of turbines along the mouth.
Water comes in when the tide flows and goes out when it ebbs — it turns the turbines both times.
Cold fusion, as low energy nuclear reaction is commonly called, is not yet established science, but there is too much happening for it to be unreal.
Recently, the Anthropocene Institute brought out a list of 100 entities, half of them commercial R&D that have raised $250 million.
Commercial hydrogen, ocean energy and LENR could be a decade away, but they are all happening technologies that have the potential to replace coal. Extremely cheap, clean power is no longer unthinkable.
The new urbanised region along the Bohai sea coast could rival the Yangtze river delta around Shanghai and the Pearl River Delta, the heart of China’s industrial belt.
Centre asks for reforms from PSBs before providing capital
Public sector banks (PSBs) seeking fresh capital from the Centre would have to commit to reform their own operations and take immediate steps to improve their balance sheet position.
The lenders will also have to close unprofitable branches and put in place stronger systems for credit appraisals and management of non-performing assets (NPAs).
“There are some other steps also being taken, which once decided… we will convey it to you. We are planning in the process of signing memorandums of understanding with public sector banks which seek capitalisation, specific provisions that will be incorporated,” FM said.
While the resolution of NPAs is an ongoing process, the government wants to speed it up and see resolutions of specific bad loans.
As per the new provisions incorporated in the banking regulation law allow the government to authorise the RBI to initiate insolvency and bankruptcy proceedings in relation to any stressed assets under Section 35 AA.
A separate clause 35B allows the RBI to issue specific directions, including the formation of oversight committees (OCs) to resolve bad loans.
Currently, the OC mechanism functions only in relation to the scheme for sustainable structuring of stressed assets (S4A) for banks.
A corollary benefit and objective of such oversight committees, Mr. Jaitley pointed out, is that bankers will have more comfort while taking tough decisions to write off or take haircuts on existing bad loans.
Debt to GDP ratio of 60% for the union and state can be achieved by 2023
The Centre is confident that the 2023 goal of a debt-to-GDP ratio of 60% for the Union and State governments combined can be achieved thus meeting a key recommendation of the N.K. Singh-headed fiscal discipline panel.
Even with the 3.2% [fiscal deficit target] spelt out in budget of current year and 3% in next two years, it should be possible for the government to achieve a debt-to-GDP of 60% for general government by 2023.
The principal anchor of the committee’s recommendations on fiscal roadmap is debt-to-GDP of 60%. So it should be possible to reach 60% in 2023.
The Fiscal Responsibility and Budget Management Review Committee chaired by Mr. Singh has recommended that the Centre should target a fiscal deficit of 2.5% of GDP by 2023, with the Union government simultaneously narrowing its debt-to-GDP ratio to 40% from 49.4% in 2016-17.
The panel, which had allowed for a pause along the path of fiscal consolidation, recommended that the debt-to-GDP target for the government as a whole (Centre plus States) be pegged at 60% by fiscal 2023.
Govt has slammed global credit rating agencies for failing to acknowledge India’s sustained economic progress and reform trajectory in the past couple of years.
“With India remaining still a 7% plus GDP growth country, with the ease of doing business improving considerably, if the rating agencies do not give an upgrade to India, if they do not give any weightage to it, I think they are probably far detached from the ground realities. So, it is for them to really introspect.”
Banks to act within set time frame on NPAs
Following the executive order by the government to empower the Reserve Bank of India (RBI) for the resolution of stressed assets, the central bank is expected to announce detailed guidelines for banks.
This may include time-bound resolution to such assets.
RBI will give banks specific time-frames within which they have to either decide the borrower is bankrupt or restructure the debt while taking a haircut, bankers said.
In a statement, following the government announcement, RBI reiterated that lenders must scrupulously adhere to the timelines prescribed in the Joint Lenders’ Forum framework for finalising and implementing the corrective action plan.
The banking regulator said non-adherence to the instructions and timelines specified under the framework will attract monetary penalties.
Empowering the RBI with an explicit mandate should reorient various stakeholders for effective NPA resolution.
According to bankers, the final decision will be taken by a bank within the RBI’s guideline framework. However, the process will make it explicit that such a decision has the central bank’s and the government’s backing.
Bankers are hesitant to take a decision on haircuts while restructuring loans or going for one-time settlement for fear that such a decision could prompt investigation by agencies.
Steel Policy aims to achieve 300 million tonnes of capacity by 2030
The government plans to set up new steel plants on surplus land available with PSUs by forging partnerships with the private sector to help more than double steel production capacity to 300 million tonnes by 2030.
The Cabinet approved the New Steel Policy that aims to achieve 300 million tonnes of capacity by 2030 with an additional investment of Rs. 10 lakh crore. At present, the steel production capacity is 126 million tonnes.
Stating that the land acquisition is an issue under the new law, Steel Minister Chaudhary Birender Singh said the government plans to utilise the surplus land of steel PSUs to set up new plants through joint ventures with private firms.
The proposed joint venture between state-owned SAIL and ArcelorMittal to set up a Rs. 5,000 crore auto-grade steel plant may be finalised this month, the minister said.
Centre will soon frame a policy on integration of various modes of transport
The Centre will soon frame a policy on integration of various modes of transport aimed at smooth transition of cargo, Road Transport, Highways and Shipping Minister Nitin Gadkari said.
“We will frame a policy for an integrated approach for our transportation network. We will take stakeholders’ views, hold meeting with the Prime Minister’s Office and if necessary, go to the Cabinet,” he said.
Railway Minister Suresh Prabhu proposed a single company for multi-modal transportation of cargo. Railways is targeting an increase in freight traffic on routes beyond 400 km.
IMF report says there are various benefits of increase in tax
An annual Rs. 150 per tonne increase in tax on coal from 2017 to 2030 could prevent over 2.7 lakh deaths from air pollution, raise GDP by 1% by 2030, reduce carbon dioxide emissions by 12% and generate net economic benefits of about 1% of GDP, according to IMF.
Outdoor air pollution from fossil and non-fossil sources prematurely killed an estimated 0.53 people per 1,000 of the population in 2010 in India, or about 6.5 lakh in total.
Fossil fuel taxes can provide a significant source of easily-collected revenue, which is especially valuable when revenues from broader taxes on labour, capital, and consumption are insufficient due to a large concentration of economic activity occurring in the informal sector.
The paper also says that, in the event of political reasons not permitting any increase in coal tax, the government should implement subsidies or other incentives to encourage the shift away from coal generation.
Business activity in service sector expanded for third month
Business activity in the services sector expanded for the third consecutive month in April bolstered by growth in new orders, according to a private sector survey.
The Nikkei India Services Purchasing Managers’ Index registered a reading of 50.2 in April, down from 51.5 in March.A reading above 50 implies an expansion while a number below 50 denotes a contraction.
Indian service sector activity continued to expand during April, supported by ongoing growth of new work, and companies hired additional staff over the month.
The new orders, the report said, came mainly from advertising campaigns. However, competitive pressures could have stymied growth in this area, it added.
Govt cleared a package to resolve the persistent rise in non-performing assets
The government cleared a package to resolve the persistent rise in non-performing assets that is plaguing public sector banks and denting credit growth.
The package, which includes an ordinance to amend the Banking Regulation Act of 1949 to empower the RBI to take more actions to check bad loans, is learnt to have been cleared by the government during the meeting of the Union Cabinet.
Bad loans in the Indian banking system have gone up sharply in the last one year.
According to Reserve Bank of India data, gross NPA, as a percentage of gross advances went up to 9.1% in September 2016 from 5.1% in September 2015.
During the same period, stressed assets (which is gross NPA plus standard restructured advances and write-offs), moved up from 11.3% to 12.3% and some estimates suggested it had doubled since 2013.
Public sector banks share a disproportionate burden of this stress. Stressed assets in some of the public sector banks have approached or exceeded 20%.
Some estimates suggest the total stress in the Indian banking system is about Rs. 14 lakh crore.
The economic survey of 2016-17 has pointed out the twin balance sheet problem — that is, stressed companies on one hand and NPA-laden banks on the other — and advocates that a centralised Public Sector Asset Rehabilitation Agency (PARA) be established to deal with the problem of bad loans.
The Union Cabinet also kicked off the disinvestment process for hotels owned by the India Tourism Development Corporation (ITDC). The government’s stakes will be offloaded in Ashok Hotels in Bharatpur, Guwahati and Bhopal.
The Cabinet approved also a policy to give “preference to domestically manufactured iron and steel products” for government’s infrastructure policy.
The Centre also approved a National Steel Policy 2017 aimed at attracting Rs. 10 lakh crore investments in the steel sector by 2030-31.
The policy projects creating crude steel capacity of 300 million tonnes (MT), production of 255 MT and “a robust finished steel per capita consumption of 158 kg by 2030-31, as against the current consumption of 61 kg.”
All you need to know about Infrastructure Investment Trusts
The initial public offering (IPO) for IRB InvIT, India’s first infrastructure investment trust fund will open for subscription. Sponsored by road developer IRB Infrastructure Developers Ltd., the trust aims to raise up to Rs. 4,035 crore.
Reliance Infrastructure, Sterlite Power Grid Ventures and other infrastructure firms are also gearing up to unveil InvITs.
InvITs are similar to mutual funds. While mutual funds provide an opportunity to invest in equity stocks, an InvIT allows one to invest in infrastructure projects such as road and power.
InvITs raise funds from a large number of investors and directly invest in infrastructure projects or through a special purpose vehicle.
Two types of InvITs have been allowed: one, which invests in completed and revenue generation infrastructure projects; the other, which has the flexibility to invest in completed or under-construction projects.
InvITs which invest in completed projects take the route of public offer of its units, while those investing in under construction projects take the route of private placement of units. Both forms are required to be listed on stock exchanges.
InvITs allow developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity (trust structure).
For instance, IRB InvIT constitutes six special purpose vehicles consisting of toll-road assets aggregating to 3,645 lane kilometres of highways located across the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.
Infrastructure projects suffer from lack of availability of long-term capital and have depended on bank finance which typically has a short tenure.
InvITs are designed to attract low-cost, long term capital and the underlying focus is to reduce the funding pressure on the banking system as well as generating fresh equity capital for infrastructure projects.
InvITs are registered as trusts with SEBI and there are four parties — trustee, sponsors, investment manager and project manager.
In the case of IRB InvIT, IRB Infrastructure Developers Ltd. is the sponsor, IDBI Trusteeship Services Ltd. is the trustee, IRB Infrastructure Pvt. Ltd. is the investment manager and the project manager is Modern Road Makers Pvt. Ltd.
Sponsors are the firms which set up the InvITs. Investment managers manage assets and investments of InvITs and undertake activities of the InvIT. The project manager is responsible for executing the projects.
The trustee oversees the role of InvIT, investment managers and project manager and ensures that all rules are complied with.
As per present regulations, InvIT investments are not open for small and retail investors. The minimum application size for InvIT units is Rs. 10 lakh.
The main investors could be foreign institutional investors, insurance and pension funds and domestic institutional investors (like mutual funds, banks) and also super-rich individuals.
According to SEBI rules, at least 90% of funds collected, after paying for expenses, taxes and repayment of external debt, should be passed on to investors every six months. IRB InvIT is expected to pay about 12% as returns to investors.
Dividend income received by unit holders is tax exempt. Short-term capital gain on sale of units is taxed at 15%, while long-term capital gains are tax exempt. Interest distributed to unit holders is taxed.