Money & Banking
RBI extends e-payment facility for imports
A new set of consolidated guidelines are applicable to both the export and import transactions
 
In order to exercise regulatory control over e-commerce transactions, specifically to the cross border transactions, Reserve Bank of India (RBI) vide its circular dated November 16, 2010 on “Processing and Settlement of Export related receipts facilitated by Online Payment Gateways” had issued a set of guidelines. Under these guidelines the Authorised Dealer Category- l (AD Category-l) banks were permitted to offer the facility to repatriate export related remittances only by entering into standing arrangements with Online Payment Gateway Service Providers (OPGSPs) in respect of export of goods and services.
 
However, in order to expand the ambit of e-commerce transactions, RBI has recently come up with the circular dated September 24, 2015 on “Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers” wherein “it has been decided to permit AD Category-l banks to offer similar facility of payment for imports by entering into standing arrangements with the OPGSPs”.
 
This article discusses the new set of consolidated guidelines applicable to both the export and import transactions routed through standing arrangement between AD Category-l and OPGSPs.
 
The AD Category-I banks entering into standing arrangements are firstly required to report the details of each such arrangement as and when entered into to the Foreign Exchange Department, Central Office, Reserve Bank of India, Mumbai. In order to operationalise such arrangement/arrangement(s) AD Category-I banks shall ensure the following:
 
  1. carry out the due diligence of the OPGSP;
  2. maintain separate Export and Import Collection accounts in India for each OPGSP;
  3. satisfy themselves as to the bonafides of the transactions and ensure that the related purpose codes reported to the Reserve Bank are appropriate;
  4. submit all the relevant information relating to any transaction under such arrangements to the Reserve Bank, as and when advised to do so; and
  5. conduct the reconciliation and audit of the collection accounts on a quarterly basis.
Mandates for operating as OPGSP
 
Foreign entities:
 
Before entering into an arrangement with the AD Category-I banks, foreign entities would be required to open liaison office in India with the prior approval of the RBI. In this regard, it will have to adhere with the following:
 
  1. ensure adherence to the Information Technology Act, 2000 and all other relevant laws / regulations in force;
  2. put in place a mechanism for resolution of disputes and redressal of complaints;
  3. create a Reserve Fund appropriate to its return and refund policy and
  4. onboard sellers, Indian as well as foreign, following appropriate due diligence procedure.
 
Also, resolution of all payment related complaints in India shall remain the responsibility of the OPGSP concerned.
 
Domestic entities:
 
Indian entities functioning as intermediaries for electronic payment transactions intending to undertake cross border transactions are required to maintain separate accounts for domestic and cross border transactions. 
 
Guidelines for import and export transactions
 
The following table enumerates the salient features of the export and import transactions undertaken through standing arrangement between the AD Category-I banks and OPGSP:

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“Corporatising” state-run firms is an alternative to improve their viability: PM Modi
PM Modi, while criticising divestment or closure of loss-making state-run firms, said that if labour strike happens then there will be a photo on the front page saying 'Modi murdabad, Modi murdabad'. This will not do.
 
The government can look at corporatising state-run firms as an alternative in order to improve their viability, since divesting them or closure were not the only available options, pointed out PM Modi in an interaction with the press. "Do we have only two ways to improve things one either disinvest them or shut them down? But there is a third way which is to corporatise it and change its work culture. Bring efficiency and make it apolitical and we can change things," he said while speaking at the Hindustan Times Leadership Summit in New Delhi. He proudly claimed that shipping companies which were in distress earlier have become profitable. "In our country reformists would say that you do disinvestment. If we do, then they would say this government has done 'very good'. If strike happens then there will be a photo on front page saying 'Modi murdabad, Modi murdabad',” the Prime Minister pointed out in distress. This will not do. It is not clear what Modi meant by “corporatising” because public sector companies are indeed companies. Maybe he meant restructuring their operations.
 
The PM added that he had reviewed stalled projects and found that about 60-65 projects had started working satisfactorily. Dabhol power plant in Maharashtra, which was also not working for past two years, has also started working and power generation has begun from there, pointed out PM Modi. 

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COMMENTS

MG Warrier

1 year ago

Let us not debate ‘corporatizing’ and divestment or their merits and demerits. The issue is, nation’s resources need to be managed better, whether they are owned in ‘public’ or private sector.
For historic reasons, GOI has been able to retain the management of funds with statutory bodies and to some extent even bank deposits. This is a healthy feature and has saved the country from financial sector turmoil of the kind faced by emerging economies in recent times.
But, there are some unhealthy practices followed by government in regard to management of public resources including finance, which, if not corrected at this stage of economic development can invite future trouble. To be specific, they relate to the assumed ownership rights being exercised by finance ministry in regard to nation’s savings.
It is in this context, we have to view the transfer of resources from organisations like LIC or EPFO to organisations in public/private sector or use of legislation to create captive sources for funding public debt with caution. Gradually, GOI should try to make their own transactions market-related and institutions like LIC, EPFO and banks should be guided to manage their funds efficiently on par with their counterparts in the private sector. Simultaneously private sector which is also dependent on ‘public’ resources should be guided to infuse prudence and professionalism in management of resources.
M G Warrier, Mumbai

Is IRFC tax-free bonds offering 7.53% an opportunity for investors?
Tax-free offer of 7.32% to 7.53% may attract retail investors based on recent trends even though the coupon is lower than what was offered in 2012-13 and 2013-14. Interest rates in future will determine if the offer is an opportunity or not
 
Indian Railways Finance Corporation (IRFC) issue size of Rs4,532 crore, which is six times more than that of earlier issues, should help the hungry investors of tax-free bonds, who were allotted merely 15%-20% of their investment in NTPC and REC. Tax-free bond is a good option for those in the higher tax bracket who are investing for long-term. Awareness of tax savings by investing in government owned companies tax-free bonds issues has helped recent issues offering around 7.5% when offering of nearly 8% in 2012-13 found difficulty in subscribing quickly.
 
What’s on IRFC tax-free bonds offer from 8th December?
 
 
IRFC bonds offering 20-year bonds with 7.5% is less than 15-year bonds of 7.53%, which is something seen for the first time. Till now, 20-year bonds always offered higher coupon than 15-year tenure. With the one to 10 years bank FD offering 7.25%-7.75% taxable interest, tax-free bonds with 7.5% coupon are attractive for those in 20% or higher tax bracket. There will be an opportunity of big size tax-free bond issues from Housing & Urban Development Corporation (Hudco) and National Highways Authority of India (NHAI) in the near future.
 
Interest rate cycle is difficult to predict. Investors who have purchased tax-free bonds in 2012-13 at a coupon of nearly 8% may have missed 2013-14 issues of over 9% coupon if they had not kept funds ready for it. So, invest in upcoming tax-free bonds, but do not exhaust all the funds. If there are tax-free bond issues one year from now, it will be almost impossible to guess whether future coupon rate will be higher or lower.
 
The future tax-free bond rates will depend on G-Sec rates which have been holding up even after the 50 basis points (bps) cut in repo rate by Reserve Bank of India (RBI) in September. The 10-year G-sec yield has actually increased in last month to 7.76% primarily on sustained selling pressure from banks and corporates. However, going forward, the yields will gradually soften says State Bank of India (SBI) in its Ecowrap report. Net supply is one of the reasons why G-sec yields are not coming down. 
 
There are predictions about RBI holding the repo rate till end of financial year and other reports claiming that change is not possible till end of 2016. As expected, RBI kept the rates unchanged on 1st December awaiting more signals from the inflation, Pay Commission proposals and the Centre’s fiscal path. A hike of 23.55% in emoluments, including pay, allowances and pension, for the 47 lakh serving employees of the Central government and 52 lakh pensioners has been proposed by the Seventh Pay Commission. If the recommendations are accepted, it will push up the fiscal deficit to 4.7% of the GDP from this year's 3.9%. Impact on inflation will have to be seen.

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COMMENTS

Srikanth Shankar Matrubai

1 year ago

[12/8/2015, 14:06] +91 99725 20155: The MOST important point for me is that TAX TREATMENT ALONE should never be the ONLY criteria for any investment and if someone is investing in Tax Free Bonds with only Tax Benefit as backdrop, he is making a huge huge mistake.
Thats my takeInvestments should always be Goal Based

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