Modiji-4-Banks

Modiji-4-Banks 

Our Public Sector Banks (PSBs)  are crumbling under the pressure of Non-Performing Assets (NPAs). 10 Lac crores of mounting Stressed Assets are threatening the very survival of PSBs. The haunting question.......'Whether Vijay Mallya can be brought back' has become a national obsession.                                                        

Incidents like the arrest of top officials of IDBI Bank in connection with Mallya's NPAs has made top PSB executives jittery and they are scared of taking decisions leading to paralysis of the banking system.  Neither the lending is picking nor the solution to zooming NPAs seems to be in sight.

What is the Modi Government doing?  This question is being asked not by Modi-critics, but by his most ardent admirers!  Let us examine Modiji's initiatives one by one.

1.Bad Loan Ordinance - 2017 

Last week President of India has given his assent for the Bad Loan Ordinance empowering Reserve Bank of India (RBI), the regulator by inserting two new sections in Section 35A of Banking Regulation Act.

• Section 35AA authorizes RBI to direct Banks to commence insolvency proceedings against chronic NPA parties under the Insolvency & Bankruptcy Code 2016 (IBC). Fear of quicker insolvency proceedings is expected to tighten the noose, especially on willful defaulters!

• Section 35AB authorizes RBI to direct Banks to set up committees for resolution of stressed Assets.

The latter step is aimed at instilling confidence in the minds of top bank executives in expediting decisions connected with NPA resolution.  Moreover as per this latest ordinance a consortium of bankers can approve a restructuring plan for an NPA by a simple majority which will become binding on the entire consortium.  No single bank can put obstacle to the process as it used to happen till now, often by the back-room tactics of concerned defaulters. Moreover there would be stringent fines on Bankers who refuse to fall in line.

2.Insolvency & Bankruptcy Code 2016 (IBC) 

This Act involves...............

• separate insolvency resolution process for individuals, partnership firms and corporates. 
• a  maximum time limit for completion of insolvency proceedings is set at 180 days (with a provision of 90 days extension with the consent all parties concerned).

IBC is expected to bring great pressure on willful defaulters.  The fear of acquiring the label of 'insolvency' and the consequent loss of control over the company/unit is expected to  force the defaulters to fall in line.  Moreover the provision for speedier disposal of available assets has raised the hopes of faster recovery for bankers.

3.Real Estate Regulation Act - 2016 (RERA) 

RERA seeks to bring clarity and fair practices that would protect the interests of buyers and impose penalties on errant builders. According to RERA, each State will have its own regulator and set of rules to govern the functioning of the regulator. States like Uttar Pradesh, Maha and Haryana have already completed the process of setting the rules and appointment of the regulator.

RERA will address issues like delays, price, quality of construction, title of the property.  We all know that these are the issues haunting the minds of hapless buyers.  RERA regulator will have power to fine and imprison errant builders. The imprisonment can up to a period of 3 years for a project.

RERA is expected to boost the real estate market in a big way leading to a big demand for Home Loans from Banks.  Moreover it will also address the problem of existing and future NPAs under this sector.

4.Goods & Services Tax - 2017 (GST) 

All decks seem to be cleared for the implementation of GST from 1st July 2017.  Full credits to Modiji and his team! It was an act of exemplary statesmanship of enlisting the needed support from all stakeholders.

Proposed GST is a single tax on the supply of Goods and services.  GST will replace almost all indirect taxes levied on goods and services both by the Central and State Governments. GST is going to replace all these taxes about 17 in number.

Alcohol for human consumption and Petroleum products are out of GST purview.  Remember that both these items are major income earners for State Governments.  Also for the time being food grains which are most essential for citizens will have zero tax under GST.

Goods and services delivered within a state are liable for both Central GST and State GST.  Goods and services provided outside the state are liable for Integrated GST which is a combination of CGST and SGST.  Thus GST works on the basis of dual control of both the Centre and the States.

GST is collected at the destination where Goods and services are delivered and consumed.  This is a great boost to the revenue and business of consuming states.  If a Hyundai Car is manufactured at Chennai and sold at Bihar, GST will be collected at Bihar enriching that state too.  However the total GST collection is shared between manufacturing, consuming states and also the Centre.

Let us make a list of benefits from GST.

i) For consumers life becomes easier with elimination of 17 taxes.  Prices are also expected to come down on many items with the implementation of GST.

Also for entrepreneurs,  business is going to become an easy process. Corruption levels are expected to come down.  India’s position in the ladder of ease of doing business is going to improve.  Entrepreneurs both local and foreign will be encouraged to start new businesses. 

ii) For Governments both Centre and States, it is a revenue booster.  Tax evasion is going to come down and collections are expected to go up. 

iii) Transportation of Goods is going to become cheaper and faster.  Waiting time for paying entry taxes of various states is causing great delay in movement of goods.  You will be surprised to know that in India trucks cover only 280 Kms. per day when compared to 800 kms at US.  With GST this situation is expected to improve for the better.

iv) Make in India is going to get a big boost.  Capital Goods are going to become cheaper and because of this both domestic and foreign entrepreneurs will be encouraged to start new businesses  in India. 

v) GST is a boon to less developed States as GST is a destination based tax.

vi) GST will provide a great boost to e-commerce as entire country will now become an uniform platform.

Overall GST would be a big game-changer for the entire country.

A few important questions:

1. Who will monitor GST implementation and administration?

GST Council will be in charge of GST.  GST council is headed by Central Finance Minister and finance ministers of all states and UT would be its members.

2) What are the Tax slabs agreed under GST?

They are............. 5%, 12%, 18% and 28%.

5% slab is for goods and services essential for common man.  It is kept at a low level to see that the effect of GST on common man items will be least.

28% is on luxury goods like BMW car.  With additional cess GST on super luxury goods, it may go up to even 40%.

3) What is the impact of GST on Banks?

With the implementation of GST, service charges on bank services and interest rates on loans may slightly go up.

But on the positive side, GST will benefit banks in a big way.  With the implementation of GST, GDP growth rate of the country is likely to go up by about 2%.  GST will provide a great boost to countries trade, industry and commerce. With this in  the coming 5 years time, Banking business is expected to be tripled.  This will result in big employment opportunities in banks.  Also it will provide much better career growth opportunities for budding bankers.

Critics and admirers have already witnessed the silver lining by way of a well performing stock market. Besides India's impressive performance in registering better GDP growth is also raising hopes. At this juncture, let us resolve to play our role positively in fulfilling this great task of nation building.

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