Friday, February 12, 2010

Anyonya Co-operative Bank Ltd (ACBL) that is facing financial crisis sacked 46 employees

Anyonya sacks 46 employees
 12 February 2010,



VADODARA: Asia's oldest co-operative bank, Anyonya Co-operative Bank Ltd (ACBL)
that is facing financial crisis sacked 46 employees after paying

them all the legal dues on Thursday. The management took this extreme
step to save depositors' money and the bank from going into liquidation.
The staff strength of ACBL was 109 till Thursday which means the bank
removed about 40 per cent of its staff.

The stern action has come in the backdrop of ACBL's failed
 merger process with Mumbai-based Saraswat Co-operative Bank
 Ltd (SCBL) some days ago. TOI had reported on February 4 that
ACBL was planning to sack its employees after the merger process
got derailed.

SCBL had agreed to carry out merger with ACBL two years ago and
 all the procedures were on the verge of completion.

However, members of the Co-operative Banks Union shot
off a letter to SCBL top management that they were not
 in favour of some merger provisions that required
employees to be sacked.

"We had no option but to terminate the employees as
we have to save the bank and the money of the depositors.
This way, we will be able to save lot of money every month.
 Certain elements in the staff and the union for their vested
interests are trying to disrupt all the activities we were doing
for betterment of the bank. And, such activities cannot be tolerated,"
 said ACBL president Dilip Kelkar.

"We have relieved all of them from their duties with effect from
Thursday after paying off all the legal dues. Some of the employees
haven't still accepted the termination letters," Kelkar added.

ACBL and SCBL were all set to merge this year, but the latter
had kept a condition that it will only pick up 25 ACBL employees.
 The employees' union faxed a letter to SCBL on January 30
that it was against this provision which apparently upset
the management. SCBL immediately called off the merger process
and even notified Reserve Bank of India (RBI) about it.

The incident left ACBL management fuming and hence it decided to
 sack its employees. Now with the staff reduced, ACBL will save
almost Rs 54 lakh annually. ACBL has managed to recover dues
worth Rs 8.84 crore in 2008-09, but its current non-performing
assets (NPAs) still amount to a staggering Rs 26 crore.

RBI Rules out Restructuring Bad Real Estate Loans


9 February 2010

The Reserve Bank of India (RBI), worried about soaring asset
prices, has ruled out one more round of restructuring of 
bad real estate loans which may increase non-performing assets
of banks, but bring down prices of homes as developers sell 
off properties to pay lenders, said at least two people familiar
with the matter.
“Let them lower the prices and clear their inventory,” a senior
RBI official had told bank 
chief executives ten days  
back. The banks were
seeking permission continue classifying 
some bad real estate loans as
standard assets even after
developers failed to pay.
One more restructuring
would rather be a boon
for developers to hold on 
to prices and profit, while
hurting consumers, the official had said.

“Banks are wary of the risk associated with commercial real estate because 
demand for commercial space such as malls has come down and 
(at the same time) there is a decline in demand in the residential 
sector across all income groups,” said AC Mahajan, chairman 
and managing director of Canara Bank. “This problem cannot be 
solved by repeatedrestructuring of loans, but by reviving the market 
by lowering the price, making property more affordable and showing 
the customer some economic value in their purchases.”
The RBI allowed banks to restructure loans to both
manufacturers and developers and continue showing bad
loans as standard assets to save banks and developers 
from financial strain after the collapse of Lehman Brothers in 2008.
That was for only those loans where the borrower was regular in 
repaying dues until September 1, 2008 and where the bank was 
able to restructure it by March 31, 2009.

While this helped banks and developers, consumers
were at the receiving end since real estate companies 
held on to properties at high prices as they were not
obliged to pay immediately.

The subsequent pick up in economic activity and the 
re-election of Manmohan Singh as the prime minister in 
May 2009 pushed up all asset prices, including real estate,
to levels almost close to those prevailing before the credit crisis.

“There are signs that high levels of global liquidity are 
contributing to rising asset prices,” RBI governor 
Duvvuri Subbarao said on January 29 while reviewing the monetary policy.

The total outstanding loans of banks to the real estate sector 
stood at Rs 88,581 crore as of November 2009, according 
to RBI data. The asset classification norms, which decide 
when a loan is to be treated as a non-performing asset, 
are much stricter for non-manufacturing companies 
which includes property developers.

For a manufacturing company, it is only after a loan 
is restructured for the second time that lenders are
required to classify it as an NPA. But if it is for 
non-manufacturing, which includes real estate, personal 
loans or loans to brokers, it has to be classified as NPA 
the moment it is restructured. Typicallyrestructuring of a 
loan involves reducing the rate of interest and giving the
borrower more time to pay. 

Banks can still go ahead and restructure real estate 
oans without any special dispensation, but they have to 
downgrade the account as substandard and set aside 
10% as a provision for bad loans. 

Manyreal estate companies survived the downturn 
thanks to the RBI’s relaxation and the revival of the 
secondary market. Firms such as Unitech, 
DLF and Sobha Developers have raised funds
selling shares and pared down their debt.

Bankers believe that there are more deserving 
candidates such as textiles for restructuring, than 
real estate, as they continue to face demand shortfall 
as the consumer in the West is still not back to his old way of spending.

“There are some sectors still under pressure like textile, 
gem & jewellery, leather export and handicraft and 
are more deserving for second time dispensation onrestructuring , 
if at all it is being considered,” pointed out TY Prabhu, 
CMD of Oriental Bank of Commerce. 
He declined to comment on matters related 
torestructuring of real estate loans.

14 tax-free incomes for FY 2009-10



  By Balasubramanya
In a few months' time the taxman will coming knocking on your door. However, he cannot tax you on the following 14 important items of income and receipts, as they are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.
1. Agricultural income
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.
Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:

Illustration
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income: Nil


On the next Rs 40,000 of agricultural income (falling under 10% slab): Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10%: Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000): Rs 200

2. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).
3. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).
This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
4. Gratuities
Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.
The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).


5. Commutation of pension
The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.
However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely:
(a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
6. Leave salary of central government employees
Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.


7. Voluntary retirement or separation payment
Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.
The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
8. Life insurance receipts
Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.


9. Payment received from provident funds
Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
10. Certain types of interest payment
There are certain types of interest payments which are fully exempt from income tax u/s 10(15). These are described below:
(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified, and
(viii) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(ix) Stipulated new tax free bonds to be notified from time to time.


11. Dividends on shares and units - Section 10(34) & (35)
With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.
12. Long-term capital gains of transfer of securities - Section 10(38)
With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.
Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.
This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.


13. Amount received by way of gift, etc - Section 10(39)
As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative, etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.
Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)
Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.