GOVT MAY CUT CAPITAL GAINS TAX ON PE INVESTMENTS

To attract more foreign capital, the Finance Ministry may cut long-term capital gain tax from 20 per cent to 10 per cent on investments made by private equity funds into shares of unlisted companies. Several PE investors have appealed to the Ministry to bring them at par with foreign institutional investors (FIIs) as far as tax treatment is concerned. “For PEs investing in unlisted securities, currently they are charged higher rate of tax than FIIs. So they have requested to be brought on a par with FIIs. Let us see,” the Finance Secretary, Mr R. S. Gujral, said. According to the provisions of the Finance Bill 2012, while FIIs pay a long-term capital gain tax of 10 per cent for investment in unlisted securities, private equity (PE) investors pay 20 per cent. For listed securities, however, there is no tax on long-term capital gains. Experts say if the tax structure of the PEs is relaxed, it would help them exit their investment in India without worrying much on the tax payout. PE investors usually invest largely in start-ups, and for the longer term, usually a 5-8 year horizon, and they prefer to exit their holding at the time of listing of the company. However, volatile stock market conditions are delaying the listing plans of several companies and PEs are now going for private share sale to exit their holdings. 

– www.thehindubusinessline.com

Tax amendments will hit investment, says CII

The Confederation of Indian Industry (CII) has taken up the issue of retrospective amendments to the Income Tax Act and the General Anti-Avoidance Rule (GAAR) negatively impacting investment sentiments with the prime minister and the finance ministry, the chamber’s new president, Adi Godrej, said on Thursday.

Even as the Reserve Bank of India (RBI) has hinted the scope of future rate cuts might be limited, Godrej, who succeeded B Muthuraman as the president, called for additional reductions of 100 basis points in the repo rate and the cash reserve ratio this year to spur investment.

“We are very clear the retrospective amendments have created very strong negative sentiments on investments in India both internationally and domestically,” Godrej said. He added these sentiments at such critical times were best avoided, and CII has suggested the proposals, including some provisions in the GAAR, should be amended.

“We have expressed our views to the finance ministry, as well as at our meeting with the prime minister yesterday,” he said.

The chamber had also told the prime minister the perception about brand India should be improved by carrying out further economic and governance reforms.

Even as retail price inflation rose to double digits in urban areas in March, CII said it wanted RBI to cut the repo rate and the cash reserve ratio further and manage inflation by augmenting supply.

CII expects the economy to grow 7.4-7.8 per cent this financial year, against the government’s projection of 7.6 per cent. It also expects industry to grow 6.5-7.0 per cent, against the estimated 3.9 per cent in the previous financial year. However, it estimates services sector growth to slow to 9-9.2 per cent, from 9.4 per cent in 2011-12.

CII’s new president designate and Infosys co-chairman S Gopalakrishnan said European economies and, to some extent the US economy, would see muted growth in next three-five years, and this would hit growth in services exports from India.

Infosys’ earnings were hit by slow growth in Europe and the US. Gopalakrishnan, however, refused to entertain any query on Infosys.

Courtesy: www. business-standard.com

Here’re the key takeaways for banks in RBI’s policy doc

The Reserve Bank of India governor D Subbarao’s 50 basis point cut  in the repo rate came as a pleasant surprise to economists, analysts, banks and the markets. The markets had expected only a 25 basis point cut.

Here are the key takeaways for banks from the policy statement:

1. A cut in the repo rate. This, of course, is the big positive for banks.  The repo rate is the rate at which the RBI lends money to scheduled banks for the short term. A rate cut will reduce the cost of funds for banks, who can then pass it on their borrowers.

That, however, works mostly in theory, not reality. Sailendra Bhandari, managing director and CEO, ING Vysya Bank toldCNBC TV18, that in the past year, despite repeated hikes in the repo rate, most banks did not raise their base rates. Now, with a single repo rate cut, there is little chance of a steep reduction in base rates. As most banks might pass on a 25 basis point cut to lending rates to borrowers.

2. An increase in the marginal standing facility from 1 percent to 2 percent will also help banks with immediate liquidity.

3. While aggregate deposits of banks are projected to grow by 16 percent, growth in non-food credit of scheduled commercial banks is projected at 17 percent. Money supply is also estimated to rise by by 15 percent.

4. There were enough concrete statements on Basel III, the new capital adequacy regulation that the banks will need to adopt to align themselves to international standards. The central bank said the final guidelines will be released by the end of April, while the final guidelines on liquidity risk management will be out by the end of May.  According to a Crisil estimate, banks in India will reportedly need up to Rs 2.7 lakh crore in fresh capital if Basel III guidelines are implemented.

5.Non-bank finance companies that are big providers of gold loans, like Manappuram Finance and Muthoot Finance, will be hit hard as it said that banks’ with exposure to NBFCs that have more than half of their assets exposed to gold loans will have to lower their exposure from 10 percent to 7.5 percent of a bank’s capital funds. The exposure can, however, go up to 12.5 percent if the additional exposure is on account of funds lent to NBFCs that have, in turn, been lent to the infrastructure sector.

The RBI has also constituted a working group to study the intricacies and present condition of the gold loan business in details and come out with recommendations when required.

6. The RBI also made a significant change to the prepayment penalty clause for banks, which is likely to affect banks with large home loan portfolios, such as ICICI Bank.

A few months ago, an RBI ombusdman’s report recommended that no bank be permitted to  levy foreclosure charges or pre-payment penalties on home loans taken on a floating interest rate basis. These charges are applicable when home loan borrowers get existing loan refinanced by cheaper loans. RBI explained this charge needed to be abolished as “foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.”

7. The RBI has also mandated banks to take the financial inclusion process further. It has asked the state level bankers’ committees to “prepare a road map covering all unbanked villages of population less than 2,000 and notionally allot these villages to banks for providing banking services in a time-bound manner.” Such branches typically have long gestation period for banks as it takes longer time to recover investment made and start earning profits.

8. The RBI has observed that banks offer varied interests on retail and bulk fixed deposits and said that it was unfair to retail depositors. Further, banks are offering significantly different rates on deposits even when the maturity periods are not significantly different. The RBI has asked banks to ensure that the variation in interest rates on single-term deposits of  Rs 15 lakh and above and other term deposits stays minimal.

9. The RBI has also mandated that banks should offer a ‘basic savings bank deposit account’ with certain minimum common facilities and without any requirement of maintaining minimum balance to all of their customers. The RBI will issue separate guidelines on this.

 Courtesy: www.firstpost.com

http://www.firstpost.com/business/herere-the-key-takeaways-of-rbis-policy-doc-278246.html