Money & Banking
RBI's large borrower framework unlikely to hurt banks
The Reserve Bank of India (RBI) is planning to put in place risk recognition measures that could lead to banks charging higher interest rates on borrowings beyond permissible limits. This, the central bank feels will limit the banking sector’s exposure to highly leveraged corporates. However, since the investment cycle is weak, this move by the RBI will not impact banks or corporates in the short-to-medium term, says a research note.
 
Religare Capital Markets Ltd, in its report says, "We note that higher risk weights and standard asset provisioning is applicable only if a borrower raises more than 50% of the credit limit set in the previous year. This is mainly to check excess leverage or borrowings by corporates. In the absence of a strong bond market, these corporates will have no choice but to borrow from the banking system. Thus, the impact of credit growth will be limited."
 
In a release, the RBI says, "...absence of an overarching ceiling on total bank borrowing by a corporate entity from the banking system has resulted in banks collectively having very high exposures to some of the large corporates”. 
 
The central bank's proposal is part of a discussion paper released by RBI in March 2015, on evolving a framework to manage risks arising from the credit exposure of the banking system to a single large corporate. The paper had focussed on the need to encourage sources of funding other than bank credit for the corporate sector to finance growth. Specifically, it proposed ways to encourage large corporates with borrowings from the banking system above a cut-off level to tap the market for their working capital and term loan needs. 
 
Religare says, the RBI's analysis of 77,000 borrowers with a credit limit of over Rs1 crore points to a build-up of high concentration credit risk at the system level. Risks are quite high in power, infrastructure, housing and steel, as several corporates from these sectors are excessively leveraged.
 
According to RBI, there are two ways to address the risk, one to impose a hard monetary ceiling or second put in place prudential measures to recognise and provide for risks. The central bank feels that the second option is preferable because sudden imposition of a hard ceiling is not prudent as it can destabilise the credit market (given that alternate channels are not well developed), hamper credit growth and adversely impact the business cycle.
 
Any borrower with aggregate fund base credit limits (ASCL) of over Rs25,000 crore, Rs15,000 crore and Rs10,000 crore at any time during FY18, FY19 and FY20 or beyond are considered large borrowers. These borrowers will have a normal permissible lending limit (NPLL) of 50% of ASCL in any given year, the RBI says in its framework.
 
As per the framework, incremental exposure will carry higher provision and risk weight. It says, any incremental exposure to large borrowers in excess of NPLL will carry a standard asset provision of 3% (as against 0.4% currently) and an additional risk weight of 75% over and above the applicable risk weight. To compensate for the additional provisioning and risk weighted assets, the RBI says it will provide specific exemptions enabling banks to charge a differentiated interest rate to such borrowers.

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ASJAD NAIYAR

1 year ago

What is single window system?

India unveils new, modern intellectual property protection
India has unveiled a new National Intellectual Property Rights Policy to safeguard commercial interests arising from creativity -- like music, books, industrial drawings, software and even drugs and pharmaceuticals.
 
The country, in the process, also wants to meet global obligation towards protecting innovation, while also placing it at the core of industrial progress. The new policy will serve as a vision document to ensure synergies between the statute and institutional mechanisms.
 
"When there're new inventions, when there is growth in trade, commerce, industry, an intellectual property rights regime must be there for protection," Finance Minister Arun Jaitley said on Friday, a day after the cabinet gave its nod to the proposal.
 
"We have a robust trademark law in place that deals with commercial identity of products. The one underlying principle is a person should sell products under his own identity and name -- stealing identity should not be possible," Jaitley added.
 
"If you steal somebody's identity and piggy-back on it, it's called commercial theft," he said, but assured intervention when needed. 
 
"We need this so that medicine costs don't get affected. Patents may give rise to a monopolistic situation. Hence a balancing act is needed."
 
He said unlike earlier where copyright was accorded to only books and publications, the recast regime will cover films, music and industrial drawings. A host of laws will also be streamlined -- on semi-conductors, designs, geographical indications, trademarks and patents.
 
A strong regime on the subject was among India's commitment to the World Trade Organization under the Trade Related Intellectual Property Rights (Trips) agreement. At the same time the new policy also has flexibilities to protect its developmental concerns, an official statement said.
 
On one hand it seeks to foster creativity and promote entrepreneurship. On the other, it wants to enhance access to healthcare, food security and environmental protection, among other sectors of vital social, economic and technological importance, the statement added.
 
"These objectives are sought to be achieved through detailed action points," the statement said.
 
"The action by different ministries and departments shall be monitored by the Department of Industrial Policy and Promotion, which shall be the nodal department to coordinate, guide and oversee implementation and future development of intellectual property in India."
 
Jaitley also said that by 2017, the time taken for trademark registrations, "which takes very long, sometimes years", would come down to one month.
 
Protection of intellectual property has been an assurance which Prime Minister Narendra Modi has been giving to the global investor. "I am personally convinced and want to assure you that India is committed to protect Intellectual Property Rights of all innovators and entrepreneurs."
 
Noted expert on intellectual property rights, Pravin Anand of law firm Anand and Anand told IANS that he was pleased to see a huge change in India's approach in this area in the past two years. "One of the most powerful things being done in 50 years is on intellectual property rights."
 
The new policy lays down seven objectives:
 
- Create public awareness about the economic, social and cultural benefits
 
- Stimulate Indians to generate material for intellectual property protection
 
- Have strong, effective laws, balance the individual and national interests
 
- Have a modern and service-oriented administration
 
- Create value from protected innovations through commercialisation
 
- Strengthen enforcement and adjudicatory mechanisms
 
- Promote capacity building through human resources, institutions training and research.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Chhattisgarh government paid commission for Agusta chopper: Swaraj Abhiyan
NGO Swaraj Abhiyan on Thursday accused the Raman Singh government in Chhattisgarh of inviting a "fraudulent" tender and paying a hefty commission of $1.57 million on the purchase of one AgustaWestland chopper in 2007.
 
A court-monitored investigation be conducted to probe the deal and find out those who took kickbacks, Swaraj Abhiyan leaders Prashant Bhushan and Yogendra Yadav demanded at a joint press conference here.
 
"The Central Bureau of Investigation and the Enforcement Directorate are toys controlled by the central government. A former Supreme Court judge should be appointed to investigate the matter," Yadav said.
 
As per documents shown by them, the state civil aviation department prepared a note on the need for a VIP helicopter on December 19, 2006.
 
Within days, they said, a meeting was held between state government officials and representatives of OSS (service provider of AgustaWestland in India), where the latter gave a presentation on the A-109 chopper model of the company.
 
The Swaraj Abhiyan leaders said the state government then approached AgustaWestland directly, which said it would take two years to deliver the chopper and suggested (the government) to purchase it from its Hong Kong-based dealer Sharp Ocean, which had already quoted a price of $6.31 million through its subsidiary OSS.
 
Bhushan and Yadav said the price included a "premium" of $2,00,000. 
 
They said the government sent a team to Hong Kong to negotiate the premium amount but in vain after which the state government floated a "global tender" calling for suppliers who could provide 'Agusta 109 Power E Helicopter'.
 
"The tender itself was fraudulent. The government mentioned the name of the product and company in the tender notification itself. No attempt was made to find out different manufacturers. There are at least 10 similar helicopter manufacturers who supply at cheaper rate than AgustaWestland. Why did the government favour it?" Bhushan asked.
 
Interestingly, companies that are said to have bid for the tender were AgustaWestland, Sharp Ocean (Hong Kong dealer of AgustaWestland) and OSS (service provider of AgustaWestland and subsidiary of Sharp Ocean), which quoted the lowest price of $ 6.57 million. The tender was finally awarded to OSS.
 
"It is important to note that the initial price quoted by OSS was 6.31 million. However, the tender was awarded to it at $6.57 million, which also included commission of $1.57 million (around 30 percent of the deal). Who all shared the premium amount which was paid to AgustaWestland? The Comptroller and Auditor General had also indicted the Chhattisgarh government in its 2011 report for wasting public money by signing this deal," Bhushan, a senior Supreme Court lawyer, added.
 
The then United Progressive Alliance government had signed a deal with the AgustaWestland company to buy 12 VVIP choppers in 2010, which was cancelled in January 2013.
 
The deal came into public focus again after an Italian court referred to Congress president Sonia Gandhi and the then prime minister Manmohan Singh, among others, in its judgment last month but gave no details of any wrongdoing by the two leaders.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

D S Ranga Rao

1 year ago

Whatever it's worth for, the allegations against the Chattisgarh government must be probed and the alleged pecuniary loss to government must be fixed and recovered to the last rupee and the guilty punished without any compunction. When the present incumbent government at the centre smelt a rat in the proposed Augusta chopper purchase and when it is going hammer and tongs against all the parties involved in it, how can it ignore it though it is on the sidelines? Therefore, the central government should demonstrate that it means it can walk the talk too.

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