RBI to announce draft guidelines on Pvt. Bank CEOs’ Package soon

 March 2,2010

The Reserve Bank of India is likely to announce draft guidelines 

on the compensation packages of the private sector bank 

chiefs by next month, a move aimed at aligning the salary 

structures with business performance.

“The indications are that the draft paper will be out by March. 

This would be aimed at putting a framework in the way banks

compensate their CEOs and 

other top executives,” a source in the know said.

 

In mid-term policy review, Reserve Bank Governor D Subbarao 

had said that the apex bank was working on the principles 

outlined in the Financial Stability Board for sound 

compensation and will come out with norms to ensure 

healthy practices in compensation policies of private and foreign banks.

The Governor had highlighted compensation practices, 

especially those of bigger financial institutions, 

as one of the factors that contributed to the recent global financial crisis.

In the G-20 meet last year, the world leaders expressed 

concerns over the high compensation packages of top bank 

executives, which, they argued was a not positive sign in a healthy financial system.

TDS deposited before Filing of Return of Income then No Disallowance

 

It is proposed that no disallowance of the expenditure 

which is subject to TDS provision will be made, if a

fter deduction of tax during the previous year, tax has 

been paid on or before the due date of filing of return of 

 income. 

This is effective from Assessment Year 2010-11 onwards

Increase in Rate of Interest for late deposit of TDS

The rate of interest on late deposit of tax deducted has 

been increased from 12% p.a. to 18% p.a. with effect from July 1, 2010.

Rationalisation of provisions relating to TDS

 Threshold for the purpose of deducting TDS has been increased with effect from 

July 1, 2010 in view of rising inflation and reducing compliance burdens.

Pranab Sets Aside Rs 25 Cr To Restrain Home Loan Frauds

March 2nd, 2010 
 
ET
 
Fraudsters would soon find it difficult to raise multiple loans

against the same property with the 

budget setting aside Rs 25 crore for a Central Electronic Registry.

The Central Electronic Registry (CER) would be a database

of all all mortgages and the banks that have a charge. 

So in future when a borrower seeks to avail a loan against Property,

an apartment or a house, the lender will be able to verify 

whether anyone has already got a charge on the property.

Today a majority of home loan frauds are in cases where 

borrowers raise multiple loans using forged documents.

In some cases the fraud is perpetuated by the developer 

who sells an apartment under construction to two different

buyers.

Earlier this month ET had reported that the

government may announce plans to set up such a registry 

to mitigate home loan frauds.

All banks and housing finance companies will 

provide data on title deed and home loans borrower

to the central registry. 

Next time, a bank processes

a home loan proposal, it will first verify with the central registry

if the title deed is clear and not registered in any other entity’s name,

or if any other bank has taken it as a security.

It is estimated that the banking sector has reported 

over to Rs 400-crore home loan frauds. 

These issues could be well tackled once a 

registry is formed. 

As of now, the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interests (SARFAESI)

Act in India has enabled provision to set up a central registry.

Thus, the government will have to issue a notification which 

will be the first step to the formation of the registry.

However, the budget has not given more information 

about other stake holders in the registry. 

IBA has already submitted a feasibility report on the matter.

Individual tax-payers will now have more money to save or splurge

Sanket Dhanorkar 
and Pratibha Kamath

Revised income-tax slabs to increase disposable

incomes; consumers, who have been feeling the 

pinch of rising prices, now have something to cheer about.

Amidst all the debate about fiscal consolidation and roll-back 

of excise duty concessions, the finance minister has created

quite a flutter in an unexpected area. 

The Union Budget for 2010-11 has provided 

individual taxpayers with some welcome revisions

in tax slabs that would effectively put more money 

into their wallets. Consumers, who have been feeling 

the pinch of rising prices, now have something to cheer about.

The revised tax slabs will be as under:

Income upto Rs 1.6 lakh	Nil
Income above Rs 1.6 lakh and upto Rs. 5 lakh	10 per cent
Income above Rs. 5 lakh and upto Rs. 8 lakh	20 per cent
Income above Rs. 8 lakh	30 per cent

                                           
While the primary threshold (amount up to which no tax is payable) 

remains unchanged at Rs1.6 lakh, the income bracket falling under

the 10% tax slab has been revised to Rs1.6 lakh-Rs5 lakh. 

Previously, this bracket was fixed between Rs1.6 lakh-Rs3 lakh.

Similarly, the second slab of 20% tax has been fixed at Rs5 lakh-Rs8 lakh 

(from Rs3 lakh-Rs5 lakh earlier). The highest tax slab of 30% will now 

be charged on income in excess of Rs8 lakh, compared to Rs5 lakh earlier.

This dramatic shift in the direct tax policy means a savings

bonanza for the inflation-hit consumer.

Here is how your savings will shape up under the new tax system:
Suppose you earn an annual income of Rs4lakh,

your tax incidence (excluding education cess) will now 

amount to Rs24,000, instead of Rs34,000 earlier—a saving of Rs10,000.

A person earning Rs6 lakh will shell out Rs54,000 in taxes. 

In this case, the savings compared to the earlier tax 

code will amount to a whopping Rs30,000.
Similarly, a person in the highest tax slab, earning say, Rs9 lakh, 

will be able to save a phenomenal Rs50,000 from the tax differential.

This is not the only carrot extended by the government, either. 

The existing tax-saving limit of Rs1 lakh has also

been raised by an additional amount of Rs. 20,000 for

investment in long-term infrastructure bonds.

Industry experts have welcomed the move. Ranjeet Mudholkar,

principal advisor, Financial Planning Standards Board India, 

said, “The further slackening of income-tax slabs will benefit 60% of tax-payers. 

Apart from these, a tax payer can also avail deduction of Rs20,000 for

investment in infrastructure bonds as notified by the Government, 

in addition to the limit of Rs1 lakh under Section 80C. 

Hence, from the perspective of financial planning, a tax-payer

can channelize more funds towards their chosen financial 

goals despite earning the same income.

Also, to optimise the use of excess disposable 

income, a tax-payer should employ strategic asset

allocation towards better asset-creation in future.”

Nikhil Bhatia, executive director at PricewaterhouseCoopers 

believes this is an indication of how the slab rates will move from 

here onwards. “I think it is a step in the right direction.

Under the direct tax code (DTC), the tax slab rates are 

expected to go up substantially. In that sense, it is not much 

of a surprise because an indication of this was coming through 

from the DTC itself, where the marginal tax rate has been 

proposed at Rs25 lakh. It is a populist move; one which 

will leave more money in the hands of the individual”, he said.

Dr Suresh Surana, founder, RSM Astute Consulting Group, 

agreed, “The finance minister has attempted to take the tax-payer

on the road to the new Direct Tax Code (DTC) (proposed

to become effective from 1 April 2011), by bringing the income-tax

slab rates in sync with those proposed in the DTC.”

Contributions to the Central Government Health Scheme

have also been allowed as deductions within the overall 

ceiling for tax rebate, besides contributions to health insurance

schemes which are currently allowed as deductions under the Income Tax Act.

The proposals on direct taxes are estimated to result in a

revenue loss of Rs26,000 crore for the government.

Wipro's stunning silence over death of an employee

Yogesh Sapkale
 

The IT giant had reportedly admitted that one 

of its employees committed suicide after the company 

caught him embezzling $4 million in December. 

However, till date no criminal charges have been filed

against the employee.

It has been over two months since the body of 26-year-old

Anup Kumar Agarwal was recovered from railway

tracks between Byappanahalli and Krishnarajapuram stations. 

Mr Agarwal was working with IT giant Wipro Ltd

as an assistant manager in the finance department.

According to media reports, Mr Agarwal 

committed suicide shortly after the company

caught him embezzling $4 million (about Rs18 crore)

from its account.

Last week, Wipro had said it was conducting

internal investigations into alleged fraud by the 

employee who had gained access to a colleague's 

online password, and had embezzled funds for over a year.

The entire team of six employees that worked with 

Mr Agarwal has been sacked for negligence, said a news report.

Wipro had managed to recover around 50% of the 

embezzled amount and was not sure whether to file

charges in the case. However, there is a stunning 

silence over the whole episode and netizens are

raising questions over the company's responsibility.

From the limited facts narrated in the newspapers,

it appears that the offence is made out at least under

Section 379 of the India Penal Code (IPC) and 

Section 66 of the Information Technology Act, 2000.

Depending upon the facts to be revealed in this case,

Section 381 IPC (Theft by clerk or servant of property

in possession of master) may perhaps also be invoked and 

there could also possibly be a forgery-related offence. 

"However, none of these offences is covered in the legal 

obligations cast on members of the general public under 

Section 39 of the Criminal Penal Code, to report the 

offence to the police. Therefore, it may be difficult to hold 

Wipro legally responsible for not reporting the matter to the 

police, its moral obligation notwithstanding," said a legal expert.

Wipro officials were not immediately available for comments. 

We are not sure whether by not reporting the matter to the

authorities, the company was trying to recover its money or

shield its employee and reputation.

"The issue of non-reporting of such a matter to the police

may perhaps be stretched and called an act of 'mismanagement',

more so if a mala fide intention to save the employee (or the like) 

could be attributed to the management," said the legal expert.

According to a PTI report, the police had said that

Mr Agarwal has committed suicide, and his wife had 

given a statement in writing that her husband was going

through financial problems and was worried and hence 

had resorted to the extreme step.

The post-mortem report said he had died of shock and 

haemorrhage and had suffered multiple fractures.

DC Rajappa, Railway SP, Bangalore, told PTI that

Wipro had so far neither registered any complaint with 

the Railway Police nor asked for a probe. 

On the next course of action, he said no complaint 

was filed until now and the police will act on receiving one.

However, the death of Mr Agarwal and Wipro's silence

over the period has once again raised questions about corporate

governance procedures, especially after the Satyam fiasco.

Duped Depositors?

Banks are refusing to show details of gross interest 

and tax deducted as separate entries in the passbooks 

of fixed deposit-holders. 

This amounts to short-changing customers, 

finds one of our readers, BG Baliga

Core banking has conferred many benefits on customers 

and the banking system, but some loose ends still need tying up. 

For instance, some banks are refusing to show details of gross

interest and tax deducted as separate entries in the passbooks 

of fixed deposit-holders.

In cases where customers give standing instructions to 

banks to credit the quarterly interest on their fixed 

deposits to their accounts, banks like Canara Bank, 

Dhanlakshmi Bank, South Indian Bank, Indian Overseas Bank,

State Bank of Travancore, etc, are no longer showing 

separate entries in the passbooks. 

They now show only the net interest.

The standard explanation given is that it would amount to

not deducting tax at source. 

This goes beyond one’s imagination. 

Don’t they calculate the interest first and then deduct 

the tax, the entries being made simultaneously?

Does this procedure amount to not deducting the tax at source? 

What harm is there in showing these details in the passbooks as before?

  Besides, even now, are they not showing the separate 

entries in branches that are computerised but have 

not come under core banking?

 Each depositor would want to know what is the 

gross earning on his deposits. If there are deductions,

he would want to know how much and what for. 

The depositor has a right to get these details from the

banks as and when the entries are made.

Banks have a duty to give these to the depositors 

on the spot. The only practical and efficient way to

communicate these details to depositors is through 

the passbook. But, now, each depositor has to calculate

the interest himself, estimate the tax deducted and be 

satisfied (or not) with the net amount credited.

 Banks are expected to be transparent in their

transactions with customers. Where is the transparency here?

There is apprehension that banks are short-changing customers 

with these shortcuts. Core banking cannot override banking

transparency and prudent banking practices.

 When the customer wants to calculate his income,

the passbook used to be a record of income and tax already paid. 

When these details are denied in the passbook, he will have difficulty

in estimating his annual income and the advance tax to be paid.

Even the income-tax officials would not get these details when inspecting passbooks.

 Some bank officials have become so blasé as to reply: 

“If you want these details you have to ask for them.”

No doubt, they will take their own sweet time to reply.

In other words, for what used to be given as a matter 

of routine, they now want customers to appear before 

them as applicants or supplicants! 

They would have clean forgotten that deposits 

form the backbone of banking!
 Banks have not disclosed, until now, who has given this

strange interpretation—that giving these details to 

depositors in their passbooks, as was being done earlier,

amounts to not deducting the tax at source.

Section 194(A) of the Income-Tax Act relating to this has not changed.
Complaints have now reached the chief general manager, RBI, 

customer service department, central office, Mumbai. 

An appeal is pending before the appellate authority, 

Banking Ombudsman, Mumbai. An earlier appeal 

was rejected by the Banking Ombudsman, Thiruvananthapuram,

as being untenable. No reasons were given.

 Let us wait and see whether these august bodies will now

be able to give relief to depositors, or whether depositors 

have to go to court to get a legal view on customers’ 

rights vis-à-vis banks and banks’ duties to customers.

Tata Group studying AIG Asia sale to Prudential

March 02, 2010 06:20 PM

The Tata Group has a joint venture with the now 

bankrupt AIG for both life as well as non-life 

insurance businesses, in which AIG holds 26% stake

The Tata Group on Tuesday said that it was studying the 

decision of its insurance partner American Insurance Group 

(AIG) to sell the Asian operations to British insurance major Prudential.

The Tata Group has a joint venture with the now 

bankrupt AIG for both life as well as non-life insurance 

businesses, in which AIG holds 26% stake.

"Any comment will be made post-studying the statement made 

by AIG in the US. For Tata AIG, it's business as usual," 

a Tata Group spokesperson told PTI.

Prudential, which would acquire the Asian operations of AIG (AIA)

is already present in the life insurance space in the country 

with a joint venture with ICICI Bank.

ICICI Prudential Life is a 26:74 joint venture between 

Prudential and the country's largest private sector lender ICICI Bank.

As per the norms, an insurance player cannot hold stakes

in two insurance firms in the country. 

So by that yardstick, Prudential cannot have stake in 

Tata AIG Life. However, it is not yet clear whether the

deal includes the Indian operations of AIG or not.

Yesterday, Prudential snapped up AIG's Asia operations

(AIA) for $35.50 billion in a cash-stock deal.

Announcing the deal in New York, AIG president and 

chief executive Bob Benmosche had said that the sale 

is an effort at restructuring the bankrupt company's

business and pay back US taxpayers.

More bank licenses.. Boom to Bust?

March 01, 2010 06:39 PM

R. Balakrishnan

The ‘good’ news is that the banking market

will be opened up for a few more private players.

But how many of these new entrants actually pass muster?

The Budget talks about re-opening the window for letting

more private banks in play. Most market participants and 

commentators have welcomed the move. 

I have some reservations on this. Of the many 

hopefuls who the market thinks should be interested,

how many are fit to run a bank ethically and professionally

without a conflict of interest? Very few names will actually 

pass muster. Reading the market commentaries,

I shudder when I see some names being put forward.

Especially in the context of the fact that the Reserve Bank of India

never lets any bank go bust, but encourages bank 

delinquencies by arranging for subsequent adoption

and marriage.

If market gossip is to be believed, a couple of industrial houses

already own substantial stakes in a couple of 

small private banks. While the shareholding is

not fully transparent yet, management control is

apparently with the hidden owners. 

The informed gossip is that this Budget has re-opened 

the window of giving more licenses—specially to enable 

these houses to legitimise their holdings.

India is a large country. 

Every bank does not have to be pan-India in nature. 

The regional banks can thrive.

It may be a good idea for the government to

actually permit takeover of such regional banks

by foreign banks, with the proviso that they have to

remain listed entities. This would enable infusion of 

capital and technology into these banks and also

increase domestic shareholder wealth. 

Let the government permit one or two banks

in each region to be acquired by foreign banks like

HSBC or Standard Chartered. 

They can increase their coverage and the regional banks

can benefit with better management and technology.

The PSU banks are surely headed for disaster. 

It is a matter of time. 

Consolidation or mergers between two bad apples 

will not produce one good apple.

Also, I have always maintained the view that creating a large

balance sheet merely by merger, will not lead to credit expansion. 

A better idea would be to offer PSU banks to be taken over by

larger private banks or foreign banks. 

That can enhance the quality of the banking sector

and also stem the rot of poor quality lending from

domestic banks. Of course, the government will not

permit this, since it would mean an end to the business 

of loan melas and loan-waiver melas.

The political agenda of the government is systematically 

destroying the fabric of banking.  Look at the latest attempt

by the government to define the lending rate. It is ludicrous

and whilst every PSU banker talks against it in private, 

none have the gumption to even write a ‘letter to the editor’.

Coming back to the Budget, the move to permit more

private licenses is being seen by a few as a resumption of 

economic liberalisation. I hope they are right. 

To me, it seems more a case of political expediency to 

accommodate a few. In the process, a few bad banks 

will get created and will have to be bailed out in the future. 

The other favourable spin-off is that more private banks 

will bring in lots more FDI (if foreign investment is liberally permitted) 

and FII investments, which is always good for the markets.