Bad loans will shrink in March: RBI

MUMBAI: The Reserve Bank of India (RBI) has said that the ratio of bad loans has improved from last year and is expected to further decline in March 2019’s financial results. RBI governor Shaktikanta Das has, however, said that despite the improvement, the current levels of bad loans are still too high for comfort.

In its biannual financial stability report (FSR) released here on Monday, the RBI said that the gross non-performing assets (GNPA) ratio of banks has declined to 10.8% in September 2018 from 11.5% in March 2018. Further stress tests undertaken by the RBI show that under its baseline scenario, the GNPA ratio may decline from 10.8% in September 2018 to 10.3% in March 2019.

“After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes — the first half-yearly decline in gross NPA ratio since September 2015, and improving Provision Coverage Ratio, being positive signals. Stress test results suggest further improvement in NPA ratio,” said Das in a foreword to the report.

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According to Das, the clean-up through enhanced recognition of bad loans appears to have led to a greater discipline in credit assessment, higher sensitivity to market risk and better appreciation of operational risks.

Among the lenders, public sector banks’ GNPAs may drop to 14.6% in March 2019 from 14.8% in September under a baseline stress scenario, while for private banks the ratio could drop to 3.3% from 3.8%, the RBI said.

Das, however, highlighted the risks being posed by financial conglomerates (FCs) where intra-group transactions create opportunity for regulatory arbitrage. The comment comes in the wake of the IL&FS default crisis where funds were borrowed from one entity but used by other companies in the group.
“The framework for oversight of FCs requires closer attention,” Das said in the report. It called for further coordination among regulators to ensure that such arbitrage did not take place.

The report highlighted that large borrowers account for a bulk of the bad loan problem in banks. Large borrowers took 54.6% of bank loans, but their share was 83.4% of all bad loans. The top 100 large borrowers accounted for 16% of gross advances and 21.2% of GNPAs of all banks.

Here’s how CPP, EI and small business taxes are changing in 2019

Your paycheque might see an adjustment come 2019 as new Canada Pension Plan (CPP) and Employment Insurance (EI) rates kick in.

For many Canadians, the changes will be slight, considering CPP’s cut is rising while EI is falling.

READ MORE: Reality check: Is CPP going to be around when you retire?

Small business owners will see additional changes: the tax rate is set to fall, but passive investment income will be taxed more heavily.

WATCH: Getting ahead of the 2018 tax season

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Here’s a breakdown of some of Canada’s 2019 tax changes.

EI premium rate lowers thanks to strong employment numbers

Canada’s unemployment rate has dropped to 40-year lows, resulting in reduced demand for EI and allowing Ottawa to shrink the amount it collects to keep the fund afloat.

EI rates that employees pay are dropping by four cents per $100 of insurable earnings from $1.66 to $1.62. In Quebec, the rates are dropping five cents per $100 of insurable earnings from $1.30 to $1.25.

The amount employers contribute, which is 1.4 times what employees pay, will also be reduced.

READ MORE: Your debt in 2019: Trends that will affect your finances and how to prepare for them

The changes, announced in September, go into effect Jan. 1.

“This will be the lowest EI premium rate since 1980 — and for most Canadian workers, the lowest they have paid since entering the workforce,” Finance Minister Bill Morneau and Social Development Minister Jean-Yves Duclos said in a joint statement.

The EI rate is set by a commission that has been in place for 75 years. The rate is adjusted according to a seven-year break-even mechanism that aims to provide stable rates as well as to ensure the premium collected goes only to EI purposes.

WATCH: Staggering number of Albertans are without work and without EI

CPP set to increase annually 

The CPP is being “gradually enhanced” over the next seven years by way of increased contributions — meaning you gradually pay more now in order to get more later on. The overall aim is to grow the amount you will receive to one-third of average work earnings, up from a quarter.

READ MORE: Guns, cigarettes and prisons: Are Canada’s pension fund investments ethical?

In 2019, the amount you contribute will increase to 5.1 per cent, up from 4.95 per cent, for earnings between $3,500 and $57,400. These contributions are matched by your employer.

Here’s how much that works out to, according to a Canadian Federation of Independent Business (CFIB) estimate:

  • Someone earning $27,450 will pay $36 more annually,
  • Someone earning $55,900 will pay $79 more annually,
  • Someone earning $85,000 will pay $83 more annually.

READ MORE: 4 important things you probably aren’t noticing on your T4 tax slip

The changes will only impact those currently paying into CPP. Eligibility for CPP is not impacted, nor is the amount people are currently receiving.

You can see how much EI and CPP you are likely to pay by using the Government of Canada’s online payroll deductions calculator.

WATCH: Pension changes will pay more, eventually

The EI and CPP changes will likely make the biggest impact on small businesses and self-employed Canadians, says Monique Moreau, VP of national affairs at the CFIB.

“What the Canadian may see on their pay stub may not seem like a lot to them but they’re not seeing the other end of it, which is what their employer pays on their behalf,” said Moreau.

“You have to keep in mind that anyone who is self-employed actually pays it twice…so those business owners are going to be feeling it even more.”

Small business tax changes

Small business owners are set to get a tax break this year by way of a reduced overall tax rate, falling to nine per cent from 10 per cent.

READ MORE: Hot jobs: Sick of your 9 to 5? Here’s how to design a freelance career that works for you

This will result in annual savings of $7,500 for small businesses, according to CFIB.

Meanwhile, a businesses’ income over $50,000 from passive investments such as real estate, stocks and bonds will be hit with higher taxes. The more a business holds, the more their small business deduction limit will be reduced.

WATCH: New ways fraudsters scam small business owners

With these changes, along with new carbon taxes, Moreau predicts that it’ll be over a year from now when business owners find themselves “holding the bag” over these “complicated tax changes.”

“We know that the average small business owner doesn’t know a lot about these changes,” said Moreau.

“While it may not impact a whole many of them, the government hasn’t done a particularly great job in communicating what those changes mean to business owners who do use it.”

WATCH: Tax changes ahead in 2019

Relief to airlines as govt defers costly move for having GAGAN-enabled planes

NEW DELHI: In a major relief to India’s struggling-to-survive airlines, the government has deferred its order that from January 1, 2019, all planes they import should be equipped to receive signals of the indigenous navigation system GAGAN. Now airlines will need to do so from June 30, 2020, said a senior aviation official.

In another relief, oil companies are going to lower aviation turbine fuel (ATF) prices by over 14% for January. “ATF prices are being lowered about 14.5% effective midnight today. Great respite for airline industry in India,” AirAsia India COO Sanjay Kumar Tweeted on Monday.

The move to defer GAGAN-enabled planes will be especially beneficial to those operating small planes like trainer aircraft and small business jets as equipping them with GPS-Aided Geo Augmented Navigation (GAGAN) would have cost about $3 lakh per plane, say sources. “Retrofitting a small old plane, like when importing one for pilot training here, to make it GAGAN-enabled would have cost more than the plane itself,” said an industry source.

The national civil aviation policy mandated that all aircraft being registered in India from January 1, 2019 should be GAGAN enabled. This GPS-enabled navigation system was launched by Airports Authority of India (AAI) in July 2015. Accordingly, the Directorate General of Civil Aviation (DGCA) had earlier said, “aircraft being imported for registration on or after January 1, 2019 shall be suitably equipped with GAGAN equipment.”

After this, the regulator had received representations from both schedule and non-schedule airlines about deferring the move due to its cost implications. The retrofitting meant having system in aircraft in place to receive the signals of GAGAN, which uses a system of ground stations to provide augmentations to the GPS standard positioning service navigation signal.
The additional costs for GAGAN-enabled planes has been deferred as Indian carriers are reeling under high cost pressures. Rating agency ICRA had recently said Indian airlines are “severely mauled by the twin blows of significant increase in ATF prices and the depreciation of the rupee against the US dollar”.

ICRA’s VP and co-head of corporate sector ratings, Kinjal Shah, had recently said: “The industry’s financial health has nosedived, with the three listed airlines having reported a combined net loss of Rs 3,640 crore in H1 FY2019 (April-September 2018). That means the three listed airlines together have lost Rs 20 crore per day during H1 FY2019.”
“The overall debt levels in the industry remain high and would require equity infusion to bring the same to reasonable levels. ICRA believes an equity infusion of Rs 35,000 crore would be needed over the next 3-4 years. In the near term, the balance sheets of Indian carriers are expected to continue to remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and/or by way of equity infusion,” Shah had added.

Chinese line up for Canada Goose jackets despite anti-Canadian sentiment

Large crowds have flocked to Canada Goose’s new outdoor wear store in downtown Beijing, its first in mainland China, since its opening on Friday, despite sub-freezing temperatures and a chill in bilateral ties.

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A long line of shoppers swaddled in thick winter coats were queuing outside the two-storey store on Monday afternoon, with waiting times for a quick peek at Canada Goose’s 9,000 yuan ($1,300) parkas requiring an hour or more.

Canada Goose staff were seen walking up and down the queue asking shoppers which product they were after and then telling them whether or not they had that in stock.

WATCH: Canada Goose’s stock plummets amidst Canada-China dispute

Ties between China and Canada have turned frosty since the arrest of a top Chinese executive in Vancouver at the request of the United States in December and the subsequent arrest of two Canadians on suspicion of endangering state security.

Canada Goose opened its Beijing store about two weeks later than initially planned. It has made no connection between the delay and the heightened tensions between the two governments, saying earlier this month that the postponement was due to construction work.

On Monday, construction workers were still seen on scaffolding in a cordoned-off area on one side of the store.

READ MORE: Canada Goose opens store in Beijing after construction delay

The Toronto-listed parka maker has made no mention of the Beijing store opening on its Chinese social media platforms, although the store in Beijing’s swanky Sanlitun district is now listed on the company’s global website.

“We are proud of our newest store in China and look forward to welcoming our fans,” Canada Goose said in an email to Reuters on Monday.

“It’s been popular for ages but Beijing didn’t have one, only Hong Kong. So everyone’s come to see it,” said Long Hua, 32, lining up outside the store door with a friend.

A buoyant sales outlook for mainland China has been shaken in recent weeks by some caustic posts on Chinese social media calling for the boycott of Canada Goose products following Canada‘s arrest of Huawei Technologies Co’s Chief Financial Officer Meng Wanzhou.

Shares of Canada Goose have fallen about 37 percent in Toronto trading since Meng’s detention and the ensuing strains between the two countries.

Meng, also the daughter of Huawei’s founder, faces U.S. allegations that she misled multinational banks about Iran-linked transactions, putting the banks at risk of violating U.S. sanctions.

Meng has said she is innocent.

WATCH: Federal government ramping up pressure on the Chinese government to release detained Canadians.

The stakes are high for the maker of high-end goose-down coats, which enjoy significant brand recognition in China’s big cities.

Chinese customers account for more than a third of spending on luxury products worldwide, and are increasingly shopping in their home market rather than on overseas trips.

Earlier this year, Canada Goose opened its first store in Hong Kong.

Investors become poorer by Rs 7.25L cr in 2018

NEW DELHI: Investor wealth eroded by Rs 7.25 lakh crore in 2018 amid volatile broader market conditions. The market capitalisation (m-cap) of the BSE-listed companies slumped by Rs 7,25,401.31 crore to Rs 1,44,48,465.69 crore this year.

The BSE benchmark Sensex has gained 2,011.5 points, or 5.90 per cent, in 2018.

From its all-time peak of 38,989.65 scaled on August 29 this year, the Sensex has fallen by 2,921.32 points, or 7.5 per cent, to 36,068.33.

Sensex, Nifty end 2018 on a flat note

Equity indices on Monday finished the last trading day of 2018 on a flat note after witnessing a volatile session. The benchmark BSE Sensex ended 8 points or 0.02 per cent lower at 36,068, while the broader NSE Nifty closed with a marginal gain of 3 points or 0.02 per cent at 10,863. Both the indexes had opened higher with the 30-share BSE index up nearly 200 points.

“In stark contrast to the bullish opening today, the last trading session of the calendar year, market closed on a flattish note. Mixed cues from global markets, lack of any fresh trigger, ensured that the session remained uneventful,” said Joseph Thomas, head research, Emkay Wealth Management.

The 30-share BSE index fell 8.39 points to finish at 36,068.33 on the final trading session of 2018.

Experts said the later part of the year has been challenging for the equity markets due to both global and domestic triggers.

“In 2019, immediate attention could be on the impending general elections, but the basic direction of the market would be, to a large extent, determined by the interest rate policy of the Fed and the RBI, direction of oil prices, as also further developments in the context of the US-China tariff war, and fears of a hard Brexit,” Thomas added.

“The ongoing volatility may continue in the near-term, due to premium valuation, slowdown in the domestic economy, muted earnings growth in the next two quarters, cascading effect of liquidity crunch in the urban and rural market, short-term effect of national election with risk of populist measures and global effect of current uncertainties, impacting the performance during the initial part of 2019,” Vinod Nair, head of research, Geojit said.

However, as 2019 matures, the above mentioned factors are likely to stabilise and provide a better investment horizon in the long-term, Nair added.

From the 30-share pack, 15 stocks ended lower Monday led by Bharti Airtel, Axis Bank, Hero MotoCorp and NTPC.

Reliance Industries Ltd is the country’s most valued firm with a m-cap of Rs 7,10,584.48 crore, followed by TCS Rs 7,10,532.81 crore, HDFC Bank (Rs 5,77,309.35 crore), Hindustan Unilever Ltd (Rs 3,93,544 crore) and ITC (Rs 3,44,934.39 crore) in the top five order.

On the BSE, 1,503 stocks advanced, while 1,105 declined, and 192 remained unchanged on Monday.

‘Govt not seeking RBI reserves to meet fiscal deficit’

NEW DELHI: Finance minister Arun Jaitley on Monday said the government was not seeking Reserve Bank surplus to meet fiscal deficit but to utilise them for accelerating poverty alleviation programmes and recapitalising the state-owned banks.

Replying to a debate on the second batch of supplementary demands for grants in the Lok Sabha, the minister said that the Modi government has the best track record of keeping fiscal deficit under check.

The house later passed supplementary demand for grants for the current fiscal to provide additional expenditure of Rs 85,948.86 crore, about half of which is for capital infusion in public sector banks.

Referring to the issues concerning the Economic Capital Framework (ECF) of RBI, Jaitley said that central banks of most of the countries keep a reserve of 8 per cent, while some conservative central banks maintain 14 per cent reserves.

The RBI was maintaining a reserve of 28 per cent, he said, adding the expert committee will decide on the appropriate reserve of the central bank so that surplus funds could be utilised for funding poverty alleviation programmes and recapitalising the state-owned banks.

“This government has the best track record than any other previous government in managing fiscal deficit. We do not need RBI reserves to manage the fiscal deficit, Jaitley said.

He said the Modi government has brought down fiscal deficit and kept inflation and the Current Account Deficit (CAD) under check, while India retained the fastest growing economy tag for 5 years.

The finance minister further said that it was only during the Modi government tenure that India became the fastest growing major economy in the world, ahead of China.

Jaitley also said that demonetisation and the Goods and Services Tax (GST) has helped increase the tax base and allocate more funds for poverty alleviation and social sector programmes.

The number of Income Tax return filers have gone up from 3.8 crore during the UPA regime, to 6.86 crore currently.

When the NDA government completes its five year term in 2019, the number would double from 3.83 crore, he added.

With regard to concerns expressed by some members over the agrarian situation, Jaitley said the government will take all steps to support the farmers.

“Whatever steps need to be taken at the end, the Government will take it,” he said, amid sloganeering by Congress over the Rafale issue.

Core sectors’ growth hits 16-month low in Nov

NEW DELHI: Eight core industries grew at its slowest pace in 16 months at 3.5 per cent in November due to fall in output of crude oil and fertilisers, official data showed on Monday.

The previous lowest expansion in output growth of these key industries was recorded at 2.9 per cent in July 2017.

The growth rate of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — was 6.9 per cent in November last year.

Crude oil and fertiliser production recorded negative growth of 3.5 per cent and 8.1 per cent, respectively in November 2018.

The growth rate in the production of natural gas, refinery products, steel, and cement sectors slowed to 0.5 per cent, 2.3 per cent, 6 per cent, and 8.8 per cent in November, respectively.

Slow growth in key sectors would also have implications on the Index of Industrial Production (IIP) number as these segments account for about 41 per cent to the total factory output.

However, growth in coal and electricity output grew by 3.7 per cent and 5.4 per cent in November as against 0.7 per cent and 3.9 per cent, respectively in the same period last year.

During April-November this fiscal, the eight core sectors grew by 5.1 per cent as against 3.9 per cent during the same period last fiscal.

Banking sector on ‘course to recovery’ as NPAs recede: RBI

MUMBAI: The banking sector is on “course to recovery” as the afflicting non-performing assets recede, but state-run lenders need reforms in governance, Reserve Bank of India (RBI) governor Shaktikanta Das said on Monday.

The weaker ones among the public sector banks need to be supported through recapitalisation, the governor said in his foreword to RBI’s half-yearly financial stability report (FSR).

“After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes,” Das, who took charge earlier this month after the sudden exit of Urjit Patel, said.

He pointed out that the period till September has seen a decline in gross NPA ratios — the first such dip in three years — and also pointed out at improving provision coverage ratio, which is the ability of a bank to withstand stress, as a positive.

According to the FSR, gross NPAs ratio declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, while for the state-run lenders, the same improved to 14.8 per cent in September 2018 from close to 15.2 per cent in March 2018.

Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018, the report said.

The governor said even though the current NPA levels are high, stress tests done by the RBI have pointed to an improvement in the ratio in future.

Having done a lot of work on the NPA front, which started with the accelerated recognition through the asset quality review, Das said there is a need for operational improvements at the state-run lenders which account for a bulk of the dud assets.

“The immense effort put in by the stakeholders so far is required to be buttressed with substantive reforms in governance and oversight regime, supported by recapitalisation of weak PSBs,” he said in the comments, which come days after the Centre committed an additional Rs 41,000 crore in FY19 for the recapitalisation.

Eleven of the 20 state-run lenders are under the prompt corrective action (PCA) framework, which restricts their normal lending and is a bone of contention between the conservative regulator and a government that will be facing elections in a few months.

Das, a career bureaucrat who steered the government’s note ban move from the finance ministry, said despite its high costs, the NPA recognition has led to improvements in the operational risk assessment at state-run lenders.

“…it appears to have led to a greater discipline in credit assessment, higher sensitivity to market risk and better appreciation of operational risks,” he said.

Das acknowledged that some of the cases referred for resolution under the two-year-old bankruptcy framework have lagged time-lines, but said the Insolvency and Bankruptcy Code (IBC) will strengthen credit discipline.

“A time-bound resolution of impaired assets will go a long way in unclogging the credit pipeline thus improving the allocative efficiency in the economy,” he said.

Das also touched on the troubled non-bank lending sector, saying the non banking finance companies (NBFCs) need to be more prudent on risk-taking and also underlined the need to rebalance excessive credit growth, especially the one funded by short term liabilities.

The high credit growth is “not stability enhancing”, Das said.

Both the banks as well as non-banks need to be diligent, prudent and follow sound risk management practices as they support the growth needs of the economy, he said.

Das said the slowdown in GDP growth to 7.1 per cent is slower than expected, but pointed out to an uptick in gross fixed capital formation along with the dip in crude oil prices as a positive for a sustained growth going forward.

Globally, the threat of trade war which would have weakened growth prospects has softened, he said.

A stricter enforcement of global trade and investment rules could potentially lead to market stability and win-win bargains in trade, Das said.

Debt-laden IL&FS puts properties up for sale

NEW DELHI: The debt-laden IL&FS group has further put up its properties for sale to garner funds in order to settle loan dues.

It has invited bids from interested buyers for properties (commercial and residential) in Mumbai and one in Kolkata.

Properties on sale include a 1,376 square feet residential property located at upscale Malabar Hill besides three commercial properties in Mumbai and one commercial space in Kolkata.

The embattled infrastructure and financial sector major has asked bidders to submit their bids on or before January 15.

The Infrastructure Leasing & Financial Services (IL&FS) group has loans due of nearly Rs 91,000 crore.

Earlier, it has invited bids to sell its various road, solar energy and education assets to generate funds.

The spree of defaults is continuing with the group, which until Friday said that the company would not be able to service its obligations in respect of the interest of non-convertible debentures due on December 29, 2018.

The group has been resorting to various measures, including selling-off the luxury cars owned by it as well as office furniture and white goods to pay-off its debt.

Sources said the company may be able to fetch nearly Rs 200 crore by selling these properties.

Subsidy for MIG homebuyers extended till 2020

NEW DELHI: First time home buyers with annual income between Rs 6 lakh and Rs 18 lakh can apply for interest subsidy till March 2020.
This was announced by Union housing and urban affairs minister, Hardeep Singh Puri. “The growth and performance of credit linked subsidy scheme for middle income group has been very good and we are on course to having about one lakh beneficiaries by the end of this year,” Puri said.

The commencement of a Credit Linked Subsidy Scheme for the Middle Income Group (CLSS for MIG), to meet the aspirations of young professionals and entrepreneurs of middle class segment, was announced by Prime Minister Narendra Modi on December 31, 2016.
The scheme was originally launched for 12 months and covered beneficiaries of MIG seeking housing loans for acquisition/ construction of houses (including re-purchase) from banks, housing finance companies and other such notified institutions.
Beneficiaries get about Rs 2.5 lakh upfront subsidy, which they can pay for down payment.