Tag: Banking

Facing tough times in its attempt to get its Chief Subrata Roy out of jail, Sahara Group on Tuesday landed in a soup again as the Supreme Court asked it to explain how it encashed securities, deposited with RBI, and diverted them to pay depositors to the tune of Rs 484 crore without the court’s nod.

The apex court also allowed Reserve Bank of India (RBI) to initiate action against Sahara India Financial Corporation Ltd (SIFCL), a non-banking financial firm, for allegedly “breaching” the central bank norms by encashing securities and diverting them to Sahara India, a partnership firm, for paying the depositors instead of depositing the amount in the SEBI- Sahara refund account as directed by it.

A bench headed by Justice T S Thakur, which restrained the Group from further alienating and transferring remaining “directed securities” of SIFCL, sought a response as to how they diverted the money to the tune of Rs 484.67 crore despite a specific direction against it by the court on July 4, 2014.

“We never allowed you to encash the securities and to pay the amount to the depositors. Rather, you should have deposited them into the SEBI-Sahara account,” the bench, also comprising justices A R Dave and A K Sikri, said.

This has been specifically mentioned in the auditor’s report of the firm, the court said but senior advocate S Ganesh, appearing for Sahara, disputed the auditors’ findings.

The bench took serious note of the diversion of funds saying, “how could you sell the identified securities? How can you touch these securities?…You should have come to us seeking permission to pay to the depositors.

“We had vacated the order to enable you to deposit the money in the SEBI-Sahara account. You should have come clean on that.”

The court further asked the counsel for Sahara to file an additional affidavit indicating as to how the disbursements of the money to the depositors have been made and what was the mode of payment–cheque or cash–and the company will also disclose the identity of the recipients.

The details have to provided by the Sahara Group in the form of compact discs to the court, SEBI, RBI and senior advocate Shekhar Naphade who is amicus curiae in the matter.

The bench, which asked RBI to pass an order after hearing the Sahara Group, however, did not give any relief to Roy for further using Tihar jail’s conference room and facilities for negotiating deals with prospective buyers of the Group’s properties for raising money to the tune of Rs 10,000 crore to ensure his release.

MUMBAI (TIP): In a bid to improve efficiency of banks and to bring down their operational costs, the Reserve Bank of India (RBI) has asked banks to make all possible efforts to enable customers to get onboard the mobile banking platform. Henceforth, mobile banking PIN can be generated from ATMs, mobile phones, internet banking and mailers. RBI has also asked banks to promote mobile banking and go all out to acquire mobile numbers of customers.

In its new circular detailing mobile banking norms, RBI has sought to standardize procedures across banks. “There are differences in procedures adopted by banks for registering customers for mobile banking as well as in the channels of delivery and authentication process. Lack of awareness as well as standardization of procedures at banks also adds up to the problems, which has led to a slow pickup of mobile banking service despite the high mobile density in the country.” Banking sources said that the RBI has suggested to banks that since mobile banking is one of the cheapest alternate channels, banks could look at incentivizing customers who use this channel.

New bank account-opening forms will mandatorily include a section that will allow people to opt in for mobile banking. RBI has asked banks to make serious efforts to increase awareness and has said that efforts should be made at every interaction – ATMs, branches and passbook printing counters to obtain customers mobile number. The central bank’s move on mobile banking comes at a time when banks are expected to add 15 crore new customers, most of whom will not have any minimum balance requirement.

Bankers say that unless there is a heavy use of technology, banks will see their operational costs soar if they use traditional infrastructure to service all customers. “If all customers come on board the mobile banking platform, a significant load will be taken off bank branches if customers use mobile banking for balance enquiry and remittances,” said a bank official. Speaking at FICCI’s annual banking summit FIBAC in September, RBI deputy governor H R Khan had said that while there are over 900 million mobile users in the country, there are only 40 million mobile customers.

“This underscores the need for active collaboration between banks and telcos irrespective of the platform, whether it is SMS, smartphone applications or USSD,” said Khan. The deputy governor also said that banks need to see mobile banking channel as a cost-saving avenue as it would eventually bring down cash-handling charges rather than as a revenue-generation vertical.

MUMBAI (TIP): In the first ever ruling relating to taxation of black money stashed in overseas tax havens, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has given the taxman a lot to cheer. Funds aggregating $2.4 million (Rs 11.73 crore approximately) as of December 31, 2001, held in a Liechtenstein bank account of Ambrunova Trust (a discretionary trust), were held to be undisclosed income of beneficiaries, who are Indian residents. The ITAT held that the funds were taxable in India in the hands of the beneficiaries. The ITAT observed, “Discretionary trusts are created for the benefit of specific persons and those persons need not necessarily control the affairs of the trust.

However, they remain the sole beneficiaries of the trust. As the beneficiaries had not disclosed the Liechtenstein bank account in their income-tax (I-T) returns, it was their undisclosed or unaccounted income.” Black money typically refers to unaccounted money on which tax has not been paid. The ITAT upheld the additions made by the tax department to the taxable income of the beneficiaries of Ambrunova Trust. The ruling came in the case of Mohan Manoj Dhupelia and two of his relatives who were beneficiaries in the overseas trust.

Dhupelia had filed a tax return on August 1, 2002, showing a total income of Rs 1.97 lakh. The tax officer, based on documents and information received subsequently by the tax department, reopened the assessment and added Rs 2.34 crore (nearly 25% of the total funds in the trust’s bank account of Rs 11.73 crore) to Dhupelia’s taxable income. The beneficiaries filed an appeal and the matter reached the ITAT. Dhupelia submitted to the ITAT that re-opening of the assessment was bad in law as the principal of natural justice was violated. He claimed the documents based on which his I-T case was re-opened were unauthenticated and unverified.

Since it was a discretionary trust, no income accrued or was credited to him as the beneficiary, he contended. In fact, his name was not among the beneficiaries of the trust and he was not liable to pay any taxes on the trust funds, he claimed. He also argued that there was no evidence to show that he had made these deposits (stashed money overseas) in the name of the trust. He also contended that if at all tax was to be charged, it could be levied only on $13,500 (Rs 6.58 lakh approximately) earned by the trust and not the entire fund standing in the trust’s Liechtenstein bank account. In the course of the appeal proceedings, the ITAT referred to exhibits from earlier investigations and hearings of a US Senate Sub-Committee in the context of funds held in Liechtenstein banks. Based on facts and evidence submitted by the tax department, the ITAT set aside the arguments of Dhupelia.

The ITAT also observed that Liechtenstein qualifies as an offshore financial centre due to a very modest tax regime, high standard of secrecy laws, which enables foreign investors to set up trusts under Host Trust regulations. While the trust initially pays a nominal tax, profits made and distributions to the beneficiaries are not subject to any tax at all. Interestingly, in November 2013, Liechtenstein became a signatory to the OECD Multilateral Convention on Mutual Administrative Assistance on tax matters, which allows countries, including India, to gather required banking information of tax evaders.

Today, India’s domestic tax laws are also more stringent. From fiscal 2012-13, tax authorities have a time period of 17 years (opposed to the earlier seven years) within which they can reopen assessments if assets are held outside India (including overseas bank accounts). From 2012-13 onwards, taxpayers are also required to disclose details of overseas assets in their income tax return.

COIMBATORE (TIP): The Supreme Court’s (SC) decision to cancel all but four coal blocks allocated since 1993 could adversely affect the nascent economic recovery, India Ratings and Research has said. The impact of this ruling will be felt across various channels and lead to a rise in nonperforming assets of the banking sector, an increase in the cost of coal and in turn a rise in power tariffs, the agency said.

This would also put pressure on current account/currency as coal would have to be imported at higher costs. “Besides impacting economic recovery, this could also pose challenges for macroeconomic stability. While the ruling will have a direct impact on corporates with allocated coal blocks, the tremors will be felt on state governments as well,” India Ratings said.

The SC ruling on coal blocks is similar to its earlier ruling of cancellation of 2G licences in February 2012, the agency said. “While the SC ruling may help in cleaning the rot and could pave the way forward for a transparent system of selling natural resources, it will have an immediate effect on a number of stakeholders and also the overall economy,” it said. Though there would be some windfall gain for the Central Government in the current fiscal from the additional levy imposed, the finances of six state governments would be affected by this ruling. “West Bengal is likely to be the worst affected, as six operating coal blocks allocated to various state government companies have been cancelled,” India Ratings stated.

“These companies’ accounts are not consolidated with the state’s balance sheet,” it said. However, in case of stress on the individual balance sheet of these companies, the state governments have to support them for their operations, the agency said. The demand-supply mismatch has increased India’s dependence on import for coal supplies. India imported 171 million tonnes (mt) of coal valued at $16.41 billion in 2013-14 and 145 mt valued at $17.01 billion in the previous fiscal.

“A halt in domestic production of coal would increase import dependence further,” India Ratings, which is part of the Fitch Group, said. In a situation where Coal India is not able to extract coal from captive coal mines of cancelled coal blocks, India’s dependence on imported coal would increase significantly. The coal import bill is likely to widen by $6.22 billion for 2015-16 exerting pressure on currency and affecting macroeconomic stability, India Ratings stated. Banking and financial institutions’ exposure to these coal blocks is pegged at around Rs. 2.5 lakh crore.

“The banking sector is already under stress. Apart from commercial banks, Rural Electrification Corporation and Power Finance Corporation will also be impacted by the cancellation of coal blocks,” India Ratings said.