Amnesty scheme to deploy 40% black money in Elephant Bond
The High Level Advisory Group (HLAG) set up by the Minister of Commerce has recommended Elephant Bond, an amnesty scheme to bring black money back in India.
 
Under this proposed scheme, unaccounted wealth holders can disclose their assets by paying minimum tax.
 
Under the scheme, they have to invest 40 per cent of such wealth in long-term infrastructure bonds called as Elephant Bonds. The proceeds from issuance of such bonds will be utilized for development of Infrastructure in India. The HLAG was asked to give recommendations on ways to promote the country's trade, investments.
 
A person who invests his black money in an Elephant Bonds will have to pay 15 per cent of unaccounted wealth as tax. The 40 per cent of wealth so declared will have to be invested in long term bonds.
 
The coupon rate of interest on such bonds will be linked to LIBOR (LIBOR plus 500 basis points) and the coupon rate would be 5 per cent. Interest earned on elephant bond shall be chargeable to tax at the higher rate of 75 per cent.
 
The maturity period of these bonds would be around 20 to 30 years. The scheme will be open for anyone who wants to disclose the unaccounted wealth and to get immunity from penalty and prosecution under various laws can opt for this amnesty scheme.
 
The High Level Advisory Group (HLAG) has recommended that a subscriber to an Elephant Bond would get immunity from penalty and prosecution under all laws including foreign exchange, black money laws and taxation laws.
 
'Elephant Bonds' are different from earlier schemes as it gives immunity from all laws on disclosing of unaccounted wealth and on the other side, the Government would get the enough amount in form of tax and investment in bonds to channelize funds of infrastructure development in India.
 
This will be, if it gets the government nod, not the first time that an amnesty scheme has been proposed to bring the black money back in India.
 
In 2016, Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS) was introduced under which a person could declare his undisclosed cash by paying tax, surcharge and penalty. However, that scheme did not turn out to be attractive owing to exorbitant tax rate and non-immunity from certain criminal legislations such as Prevention of Money-Laundering Act, 2002, Prevention of Corruption Act, 1988.
 
Similarly in 1981, the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 was brought in to channelize the black money for effective economic and social planning. This scheme also had certain shortcomings such as bond holders were not entitled to avail any setoff in any tax proceedings on the ground that he has subscribed to the bonds which in effect didn't isolate the bonds from the regular tax proceedings.
 
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

    VIVEK SHAH

    2 weeks ago

    If the interest rate would be linked to LIBOR + 5% and the income so generated would be taxed @75 % it would be interesting to see what effect these bonds would have if the negative interest rates hits UK.

    Sukhvir

    2 weeks ago

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    IDBI Bank issues public notice on 'wilful defaulter' Vijay Mallya
    IDBI Bank has declared Vijay Mallya a wilful defaulter and issued a public notice on Wednesday with his old passport size photograph for default on payments worth Rs 1,566 crore in respect to Kingfisher Airlines.
     
    IDBI Bank NPA Management Group in Mumbai issued a public notice about wilful defaulter with the now defunct Kingfisher Airlines as the borrower and Vijay Mallya as the director and guarantor.
     
    The notice carries an old black and white photograph of Vijay Mallya with his address given as UB Tower, Bangalore.
     
    Vijay Mallya is currently in London and the Indian government has initiated legal proceedings to seek his extradition.
     
    The pooled security charged to the consortium of banks, including IDBI Bank, includes the first pari passu charge on current assets of Kingfisher Airlines, hypothecation of 2 helicopters, mortgage of Kingfisher House, Mumbai owned by Kingfisher Airlines, first charge on the fixed assets including ground support and equipment, computers, office equipment, furniture, fixtures of Kingfisher Airlines, residual charge on shares of United Spirits and McDowell Holdings pledged to SREI and J&K Bank, charge over Kingfisher Airlines brand including trademarks, personal guarantee of Vijay Mallya, corporate guarantee of United Breweries Holdings.
     
    IDBI Bank has informed and cautioned the public through the notice that "no person shall deal with any of the properties of the borrower/guarantor as huge dues are to be recovered from them".
     
    IDBI Bank said these borrowers and guarantors failed and neglected to pay the instalments of principal, interest to IDBI Bank.
     
    The borrower/guarantor are required to pay an outstanding sum of Rs 1566.61 crore as on October 1, 2018 together with interest till the date of payment.
     
    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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    Exclusive: RBI Inspection Had Red-Flagged PMC Bank Fraud Five Years Ago!
    Did the Punjab and Maharashtra Cooperative Bank (PMC Bank) audit show the first signs of fudging data to hide beneficiary accounts as far back as 2014-15? It certainly looks like it. 
     
    It is true that hindsight is always 20:20, but perusal of a five-year old inspection report of the Reserve Bank of India (RBI) suggests that the fraud was already well underway then. The RBI inspector had flagged all the key elements of the deception that allowed HDIL (Housing Development and Infrastructure Ltd) to help itself to the Bank’s money without being detected. However, the inspector failed to find out that the HDIL group accounted for over half of the Bank’s business making it a captive bank of the realty group. 
     
    Did RBI then fail to follow up on its own findings? Or did its inspectors turn a blind eye to what was going on? Unfortunately, we do not know, as yet. This is because RBI has only parted with the inspection report for one year, viz., 2014-15. 
     
    Activist Girish Mittal had filed a Right to Information (RTI) request asking for certified copies of inspection reports of PMC Bank and Maharashtra Cooperative Bank for 2014-15, 2015-16, 2016-17 and 2017-18.  Since Mr Mittal has won a case in the Supreme Court forcing RBI to provide him with bank inspection reports, his applications seem to get a better response than those of an average person. But even here, 
     
    RBI resorted to its usual chicanery and sent him only one report of PMC Bank for 2014-15 (that too heavily redacted), but has sent all four reports for the other bank.
     
    The activist has filed a first appeal asking for the other reports; but until RBI responds, the details in the 2014-15 report show that RBI had caught enough red flags to have imposed stringent checks on PMC Bank in subsequent years. 
     
    Here are some of the issues raised by this report that eventually formed the main components of the scam and ought to have merited a detailed follow-up in subsequent years. 
     
    1. The inspector says that the Bank’s credit policy was reviewed on 30 August 2014. “A serious flaw detected in the credit policy was the fact that the cash-credit limits were sanctioned for three years at a stretch and were not subject to an annual review as envisaged (in RBI’s master circular),” he notes.  
     
    Remember, the confession letter of Joy Thomas, the Bank’s former managing director (MD), says that the Wadhawans of HDIL, used to ‘overdraw’ funds through current accounts of their companies and ‘regularise’ them subsequently? He justified this on the grounds that the Bank earned high interest on this amount.  
     
    So, it would seem that lax rules regarding cash-credit limits and the failure to review them for three years at a stretch could have been a deliberate ploy to allow HDIL group entities free use of Bank funds. 
     
    Mr Thomas’s confession also indicates that HDIL’s business problems escalated in 2013, after the Maharashtra government changed the policy on transfer of development rights (TDR) and its key airport project was cancelled. It led to a liquidity crunch at HDIL which began to use PMC Bank as its cash machine. 
     
    This particular RBI report is immediately after the Bank began its downward slide but kept it hidden. But that isn’t really material. Mr Thomas has confessed that, since 2011, over half the exposure of the Bank was to HDIL.  
     
    2. “Credit appraisal and post-disbursement supervision in the Bank needed improvement,” says the report. Further, the Bank did not obtain “statutory dues certificates from borrowers, certified by their auditors and commenting on the loan proposal before sanctioning cash-credit limits.” The report says, some loans turned bad within a year of sanction, but staff accountability was not examined, despite such quick mortality.
     
    3. While PMC Bank “maintained a list of directors and their relatives on the Bank’s intranet website… it did not maintain the names of entities in which the directors were interested” in the system. And there was only one recorded loan to directors' relatives, that, too, a paltry Rs8.52 lakh. 
     
    We now know about how chairman Waryam Singh was a part of the promoter group of HDIL. Also, since the MD has confessed to 60% of the loans going to HDIL, clearly there was large-scale fudging of directors’ interest. Details will only be available in the forensic audit by Grant Thornton.
     
    4. The Bank’s audit committee was not constituted as per RBI guidelines; its functioning was ‘not considered effective’ because it had not even bothered to review and close the pending audit observations, says RBI. In another section, titled ‘systems and controls’, it notes that the audit policy itself was ‘considered deficient’ since it did not even “envisage the monitoring of audit observations as well as age-wise outstanding observations of the audit report.”
     
    Given how every corporate governance report places onerous responsibilities on members of the audit committees of the board, it would be interesting to know whether RBI followed up this observation and sought a change in composition of the audit committee to ensure compliance with its observations. That fact that PMC Bank’s operations were virtually halted just a few years later probably is an answer in itself.
     
    5.The “Bank’s executive team needed to be more pro-active towards enduring adherence to Master Circulars and effective internal control through the audit machinery and the review processes of MIS,” says the report. Elsewhere, it notes that the scope and coverage of both the internal audit and statutory audit needed to be aligned to look into the ‘irregularities pointed out’ by RBI inspection reports and the statutory audit simply ‘needed improvement’. The report further records a ‘large-scale inter-group fund transfer’, having been done without confirming bonafide need. Temporary overdrafts, sanctioned as working capital loan accounts by branch managers, were not reported to the head office for information and ratification. 
     
    One wonders how this could happen when the Bank used a core banking solution. There is no news about the statutory auditor Lakdawala & Company being questioned to find out whether the firm had been given access to the observations of the inspection report. 
     
    6. The report noted deficiencies in the ‘KYC identification/documentation. Stunningly, it says,
     
    “The Bank had not allotted unique customer identification code (UCIC) to all its customers. A massive 108,807 customers, accounting for 13.02% of the total customer base, were not allocated UCIC.
     
    Clearly, this was the genesis of the scam. It would be interesting to know if these customers were entered into the core banking system at all. Remember, a complaint against the Bank says that 21,049 accounts were created as “mere entries in the advances master indent submitted to the RBI” during inspection and were not created in the core banking software at all. 
     
    Add to this, Mr Thomas’s confession where he said, "In the RBI inspection prior to 2015, officers use to check mostly top few borrower accounts reported by the Bank branch wise, therefore, these accounts did not come into the picture until around 2017 onwards, when the RBI started asking for indent for the advances master. The stressed legacy accounts belonging to this group (HDIL) were replaced with dummy accounts to match the outstanding balances in the balance sheet. As the loans were mentioned as loans against deposits and were of lower amounts, they were never checked by RBI." 
     
    Clearly, the 2014-15 report was already very close to finding out the truth; but RBI shockingly missed the fact that over half the Bank’s lending was to the HDIL group. This was never detected, even when a general manager from RBI’s urban banks department, LM Kamble, moved over as general manager of PMC Bank and remained among the top three officials of the Bank until last week.
     
    7. RBI says that the Bank did not follow the policy of ‘having two independent valuations’ for property above Rs50 crore as required by RBI’s July 2014 circular. 
     
    The Bank has repeatedly claimed that it holds 2.5 times security for loans to HDIL group. The true value of these loans and the adequacy of security will be evident only when RBI attempts to sell assets. 
     
    Having documented the red flags raised by RBI, it is also important to note what it missed. While Mr Thomas has confessed that 60% of the Bank’s loan exposure was to HDIL, the inspection report says that “exposure to housing and commercial real estate was 6.86% of total assets.” This included home loans of up to Rs25 lakh, keeping the total exposure to the sector at under 15%, finds the inspector. How did this happen? Also, while it flagged major issues with unsecured advances and ad-hoc cash credit, the inspector was satisfied that these were within permissible limits.
     
    RBI’s information officer has dedicated himself to painstakingly redact every single name from the report which would provide specific details of the beneficiaries of PMC Bank’s largesse; so it is unclear if any HDIL group companies were even flagged by him. If only RBI officials showed the same dedication in their inspections and supervision, a few lakh depositors’ lives would not have been shattered. 
     
    Here is the copy of RBI Inspection Report on PMC Bank as on 31 March 2015...
     
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    COMMENTS

    Suketu Shah

    2 weeks ago

    We donot need RBI to guide us.We ,Modishah,what we say is final.We always blame Nehru,etc for our mistakes.We,Modishah, are never at fault.

    Ramanath nakhate

    2 weeks ago


    It is gratifying to learn that the Finance Minister Nirmala Sitharaman is going to extend helping hand of Rs.25K crore to rescue shattered housing projects numbering about 1600. If and when projects are completed it would bring immense relief to those who have invested in housing since long. If the Government extends Rs.6K crore to the HDIL / the PMC, it would go long way to help the beleaguered thousands of suffering depositors. In such emergencies, the arrows in the armour / quiver of RBI could and should be put to use. The requisite minimum amount from some reserves from the Central Bank may be utilised and restored in next couple of years.

    manojkamrarti

    2 weeks ago

    Very poor supervision of RBI and no accountability of supervision staff in not timely penalising defaulter banks.

    B. Yerram Raju

    2 weeks ago

    This hindsight should lead to better foresight and quick solution to the imbroglio. We have a history of cases pending in courts for decades. Attachments before judgments - euphemism for action by the CBI/ACB/various tiers of Courts should also be legally resolved for quick realisation of the seized asset.
    While responding to Depositors' claims, all senior citizen claims should be done expeditiously.

    REPLY

    Suresh

    In Reply to B. Yerram Raju 2 weeks ago

    To settle the depositors faster, I suggest securitized asset sale ( all properties and assets seized in this matter may be bundled up in special lot to be handed over to willing takers in the private banks, PSBs like the UTI NPAs were transferred years ago.
    Auction route may not yield good price and may take much longer than anticipated.

    Suresh

    2 weeks ago

    It appears that with the prior knowledge of the fraud now, we have the benefit of hindsight and relate these general observations to the gravity of issues involved. May be, the inspector never really tracked the specific instances of dummies pertaining to HDIL , which can be seen from his observation regarding percentage credit to real estate sector (noted to be under permissible limits).

    Shravan Shah

    2 weeks ago

    Can these reports be uploaded on the website please, as have been done for other banks i.e. Axis, ICICI, HDFC and SBI?

    SuchindranathAiyerS

    2 weeks ago

    I do not wish to exonerate anybody, but borrowers over drawing limits is a common phenomenon in Public Sector Banks, so inthe highly politicized and more incompetent co-operative environment?

    Nithin lakshmanan

    2 weeks ago

    More importantly, if you could find out the other banks that it has red flagged but yet to publicly fall, it would be great. We can proactively avoid them

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