The Reserve Bank on 26 December 2011 tightened the prudential norms for the non-banking financial companies Non-banking Financial Companies under which the NBFCs will have to account for risks towards off-balance sheet items while computing capital adequacy requirement.
The Non-banking Financial Companies can thus participate in the credit default swap market only as users. As users, the NBFCs would be permitted only to hedge their credit risk on corporate bonds they hold. However, they are not permitted to sell protection. They are therefore not permitted to enter into short positions in the credit default contracts. NBFCs are however permitted to exit their bought CDS positions by unwinding them with the original counter party or by assigning them in favour of the buyer of the underlying bond.
RBI also tightened the capital adequacy norms for all Non-banking Financial Companies. The rule tightening exercise comes in the wake of their stepped-up exposure to off- balance sheet items.
The RBI revised capital adequacy norms for non-banking finance companies Non-banking Financial Companies with an objective to improve their capacity and help manage off-balance sheet exposure.
The regulatory framework was expanded to have greater granularity in the risk weights and credit conversion factors for different types of off-balance sheet items.
The RBI prescribed that the total risk-weighted off-balance sheet credit exposure will be calculated as the sum of the risk-weighted amount of the market-related and non-market related off-balance sheet items. The RBI specified that for the off-balance sheet items already contracted by NBFCs, the risk weight shall be applicable with effect from the financial year beginning 1 April 2012.
As per the apex bank, off-balance sheet exposures of Non-banking Financial Companies have increased with the increased participation in the designated currency options and futures and interest rate futures as clients for the purpose of hedging their underlying exposures.
Asset liability management for NBFCs had become complex and large, requiring strategic management with a greater use of derivatives.
In the normal course of their business, NBFCs are exposed to credit and market risks due to asset-liability transformation as the Indian markets are now more integrated with global ones.
The following are the main components of the Energy efficiency Mission. These programs have resulted in avoided generation capacity of over 7,500 MW during the first four years of the Eleventh Plan.
Standards and Labelling of Equipment & Appliances
Labelling has been introduced for 16 major energy-consuming appliances, providing users with information on the energy use of a model, and its relative efficiency as compared to others. It has been made mandatory for air-conditioners, refrigerators, distribution transformers and tube lights.
A national Energy Conservation Building Code (ECBC) has been prepared for the design of new commercial buildings. Over 700 ECBC-compliant buildings are at various stages of construction. Two States have adopted ECBC, making it mandatory for all new, large commercial buildings to comply with the Code. Performance contracting through Energy Service Companies (ESCOs) is being promoted to enable the retrofit of existing buildings so as to reduce their energy consumption.
Energy Efficiency in Industry
467 industrial units from 8 sectors have been declared as Designated Consumers. Together they account for about 35 percent of the total energy consumption in India. Each designated consumer has been prescribed a target percentage reduction in its specific energy consumption to be achieved by 2014-15. Those who exceed their targets would receive tradable Energy Saving Certificates for their excess savings, which could be used for compliance by other designated consumers, who find it expensive to meet their targets through their own actions. A major programme to enhance the energy efficiency of small and medium enterprises is also being launched, focusing on SME clusters, and the development of local consultants, equipment vendors, and financial institutions through replicable pilot projects.
The penetration of energy-efficient compact fluorescent lamps (CFLs) in the domestic sector has been relatively limited because of the high costs of CFLs. The Bachat Lamp Yojana (BLY) provides CFLs to households at the cost of incandescent bulbs. Distribution Companies select qualified investors to sell high-quality CFLs in their region. The investors earn carbon credits due to the lower energy use by the CFLs. The BEE has registered a country-wide Programme of Activities (POA) under the Clean Development Mechanism (CDM) which enables the quick registration of each investor-led project as a CDM project under the POAs. Currently, over 20 million CFLs have already been distributed under the BLY programme.
Energy Efficiency in Agricultural Pumping
Replacement of inefficient agricultural pumps by efficient pumps is enabled through the performance contracting mode. Pumps on designated feeders (which have no other loads) are evaluated for their current energy consumption, and then the existing pumps are replaced with efficient pumps by an ESCO. The resultant energy savings are evaluated, and the ESCO is paid a share of the savings. Six pilots have been launched to assess the viability of this model.
A currency is said to be convertible when it can be freely exchanged for other currency at market rates. Current account transactions are those dealing with payments relating to foreign trade, travel, and other services. Capital account deals with the transaction of financial assets. While India has made the Indian rupee fully convertible on current account, it is yet to accept capital account convertibility as a goal.
One reason prompting the policy makers to go slow on capital convertibility is the experience of Mexico. It was one of the largest recipients of foreign private capital ($28 billion in 1993). But with the devaluation of the peso and the collapse of the exchange rate, much of the capital fled the country. This catastrophic collapse was made possible by capital account convertibility, which encouraged even Mexican residents to convert their capital into dollars, precipitating the crisis. The similar situation arose in late 1997 in South East Asian countries also where their local currencies were hammered by speculators leading to devaluation of Indonesian rupiah by almost 58 per cent in one month.
While India made rupee fully convertible under current account, it was felt that the economy was not yet ready for capital account convertibility. The countries which went in for hasty Capital Account Convertibility in the 1980s had to face financial crisis. The thinking was that trade and domestic liberation process should be completed before CAC can be thought of. Many economists feel that Capital Account Convertibility will only help the drain of the Indian capital, which will get invested abroad. The present policy is to go slow on Capital Account Convertibility.
There is a school of thought represented by Prof. James Tobin, which even advocated an international tax on the financial transaction to prevent speculative flight in capital. After the 1994 Mexico crisis, the idea of a ‘Tobin Tax’ received fresh attention.
This is the most popular exemption as you can claim up to Rs. 1 lakh in deductions. The investment options include Employee Provident Fund (EPF), Public Provident Fund (PPF)- up to Rs.70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, Life insurance policies, Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), school fees, and home loan principal repayment. For making investments in this section you will have to decide on the ideal debt vs. equity mix that is right for you based on your age, risk-return profile, and goals.
If you have taken a medical insurance plan for yourself, your spouse, dependent parents or children, you can claim deductions up to Rs 15,000 (and additional Rs 15,000 for your parents’ medical insurance) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.
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SECTION 80DD
Expenses on the medical treatment of a dependent with a disability qualify for tax benefits under Section 80DD. In this case, deductions up to Rs 50,000 or 75.000 can be claimed based on the severity.
Investment options under Section 80C can be broadly categorised as market linked, fixed income and insurance. The fixed income category includes investment options such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), tax-saving bank fixed deposits, National Savings Certificate (NSC) and senior citizens savings schemes.
While it is the most popular tax saving category, market-linked instruments including tax-saving equity mutual funds (ELSS) and unit-linked insurance plans (ULIPs) are gradually catching up.
PUBLIC PROVIDENT FUND (PPF)
One of the oldest investment options, PPF scores on all grounds as it is one of the very few investment options that fall under EEE (exempt-exempt-exempt) tax regime.
This implies that not only the investor can enjoy deduction on the amount invested in this scheme but the interest received on maturity is also exempt from tax.
PPF offers an interest rate of 8% compounded annually, with the maximum investment restricted to Rs 70,000 a year and mandatory investment tenure of 15 years.
An investment of Rs 70,000 every year in PPF for 15 years will amount to a tax-free maturity sum of Rs 20.5 lakh at the end of the 15-year tenure.
Under the current norms, 12% of the employee’s salary is contributed towards EPF, which is exempt from income tax. Any contribution over and above the 12% limit by the employee towards EPF is considered as a voluntary provident fund (VPF) and the same is also exempt from tax, subject to the overall 80C limit of Rs 1 lakh per annum.
Like PPF, EPFÂ also falls under the EEE tax regime wherein the interest received (on retirement from service) is tax-free in the hands of the investor. The interest payable on EPF is determined each year by the Employee Provident Fund Organisation (EPFO). After having maintained a steady interest rate of 8.5% per annum for quite some time, the EPFO has enhanced the rate of interest to 9.5% for the financial year 2010-11.
While it is still not sure whether such an attractive interest rate will continue in the following years, those who have been contributing to EPF for quite some time now and have accumulated a large corpus are bound to benefit immensely with this year’s higher interest as interest is compounded annually.
NATIONAL SAVINGS CERTIFICATE
Similar to PPF, NSC also earns an interest rate of 8% per annum and investment up to Rs 1 lakh is exempt from tax under section 80C. However, unlike PPF, interest received on NSC, at the time of maturity, is taxable in the hands of the investor which makes it comparatively less attractive.
On the positive note, however, NSC has a relatively shorter lock-in period of just about 6 years and the interest here is compounded half-yearly. Thus, every Rs 100 invested into NSC will grow to Rs 160.10 on maturity.
Investment up to Rs 1 lakh in these special tax saving bank fixed deposits also entails an investor tax deduction under Section 80C.
These fixed deposits mandate a lock-in period of five years and interest is compounded quarterly, just like any other ordinary bank fixed deposit.
The drawback is taxability of interest income upon maturity. As most banks are currently offering attractive interest rates, tax-saving bank fixed deposits are currently offering interest rates as high as 8.5% to its investors.
SENIOR CITIZENS SAVING SCHEME
Indian citizens who have attained 60 years of age or those who have attained at least 55 years of age and have opted for voluntary retirement scheme are eligible to invest in senior citizens saving scheme, which offers a fairly attractive interest rate of 9% a year, payable on quarterly basis.
While investment in this scheme is eligible for tax deduction under Section 80C, interest earned shall be taxable in the hands of the investor.
EQUITY LINKED SAVINGS SCHEME (ELSS)
These tax saving mutual fund schemes do carry an embedded market risk and calls for investor prudence before making an investment decision. However, their returns are equally rewarding and tax-free in the hands of the investor.
As ELSS has a mandatory lock-in period of three years, they are positioned as long-term equity assets and thus returns are tax-free in the hands of the investor. And though these schemes mandate a three-year lock-in period, investors are likely to be better off if they continue to stay invested for a longer term as equities generate best returns over a longer time frame.
Hello, everyone i am joining as a new article writer, wish you all a very very HAPPY NEW YEAR and I’d like to thank co-writer and the owner of the blog Mr. K Prafull for letting me contribute. Let us check out the service sector at the very first day.
The service sector is the backbone of the socio-economic growth of the country. It is the largest and fastest growing sector around the globe and the biggest employer too. The real reason behind this robust growth is the increase in urbanization, privatization and increased demand for the consumer services – be it intermediate or final consumer services. Indian services sector witnessed a boom and it is one of the major contributor to GDP and employment within in recent times. The trends are changing here in our land, the service sector not only account for more than half of India’s GDP and a contributor of the quarter of employment in the country. There is a wide range of the activities in the services sector but one of the key service industry is to be looked upon would be HEALTH AND EDUCATION. Having a wide range of activities and looking at the robust growth and LIONS SHARE in India’s GDP the Finance Ministry for the first time put a separate chapter in Pre-Budget Economic Survey for a better and more regular data on the sector.
The share of services in India’s GDP at factor cost rose rapidly from 30.5% in 1950-51 to 55.2% in 2009-10. if construction segment is also included in it will add up to tall 63.4% but as p[er national accounts classification in its secondary sector though RBI and international institutions like WTO included it under service sector. Central Statistical Organisation (CSO) classified this sector into four main categories:
1. trade, hotels, and restaurants;
2. financing, insurance, real estate and business services;
3. transport, storage and communication; and
4. community social and personal services.
According to WTO, India is the net exporter of services. We need to work on our service sector to maintain the growth or robust growth in other words for upcoming years. It has been seen that the top 12 countries logged a negative growth due to getting struck in the swirls of financial crises but India (2.6%) and China(9.4%) has recorded positive growth.
1. The need is for retaining the country’s competitiveness in those services sector where it has already distinguished such as IT and ITeS and telecommunication.
2. Tourism and Shipping industry where other nations have already established, we need to do more homework there in respect of tourists friendly milieu and to match the standards of facilities provided there of international level.
3. Niche areas such as financial services, healthcare, education, accountancy, legal and other services where country have a huge domestic market has shown some dents in global markets. This requires reciprocal movements on the part of India in opening up its own markets, liberalizing FDI not only to improve infrastructure but also to absorb best practices universes that are so universally acclaimed.
Another important factor playing the important role in the service sector. The continued growth of the services sector is predicted on certain reforms and these, unfortunately, have all run into controversies, political differences and look increasingly uncertain . The single one factor that can add up to the expectations of service sector or that can contribute most to the further growth is the flow of FDI. Despite severe restrictions, the services sector has attracted no less than 44% of the total equity flows between April 2000 and December 2010, in only four sectors namely, financial and non-financial services, computer hardware and software, telecommunication and housing and real estate.
including construction flows will jump to 51%
It should be noticed that greater integration with large global players through investment and international relationship building could help in overcoming these challenges and making India a services superpower.
According to paper published by Union Finance Ministry, top priority area relating to FDI are:
2. raising FDI cap in insurance and banking sector ; and
3. FDI in railways.
let us now have a look at the issue which made a huge hubbub few months back, yeah you got it right FDI in retail.
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The opposition to FDI in retails by political parties and others is somewhat misplaced. Indeed, the entry of large organised retail chains could benefit the small time farmers to the unemployed youth in the cities and towns. The govt. is reportedly working out a set of rules for the operation of foreign retail chains. These will understandably include the requirement of local procurement. According to the reports, the foreign retailers will be obliged to procure at least 30% of their own wares locally. the large retailers could as well help in stabilizing prices by going directly to the farmers for the purchase of food, vegetables, and other eatables, thereby cutting out the tiers of middlemen. It is well known how the traders had jacked up the prices of onion during a temporary shortage of the onions in the North Indian markets.
Unless the service sector growth quickens, India cannot attain the professed double-digit growth. Attracting FDI and forging more effective international linkages are the key to this objective. At last not going in very much detail of this large sector we should halt our activities here and will come up with the analysis of sub-sectors of this LIONS SECTOR discussing various pros and cons. once again wish you all a very very HAPPY and PROSPEROUS NEW YEAR. ENJOY THIS NEW YEAR WITH YOUR LOVED ONES.
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