MINIMUM BALANCE IN BANK ACCOUNTS
918 . Karunakaran Shri P.
Will the Minister of FINANCE be pleased to state:-
(a) whether the Reserve Bank of India (RBI) has issued guidelines to Bank to inform their customers about fall in minimum balance in their accounts in advance;
(b) if so, the details thereof; and
(c) the status of implementation of said guidelines by banks?
ANSWER
The Minister of State in the Ministry of Finance (SHRI JAYANT SINHA)
(a) to (c) Reserve Bank of India (RBI) has issued guidelines dated 20.11.2014 specifying that while levying charges for non-maintenance of minimum balance in their savings bank accounts, banks shall adhere to the additional guidelines given in the Annexure. The guidelines come into effect from April 1, 2015.
All banks have been advised to take immediate steps to update customer information so as to facilitate sending alerts through electronic modes (SMSs / e.mails etc.) for effective implementation of the guidelines.
ANNEXURE
LOK SABHA ANNEXURED UNSTARRED QUESTION 918 DATED 27.02.2015
Levy of charges for non-maintenance of minimum balance in savings bank account shall be subject to the following additional guidelines:
I. In the event of a default in maintenance of minimum balance / average minimum balance as agreed to between the bank and customer, the bank should notify the customer clearly by SMS / email /letter etc. that in the event of the minimum balance not being restored in the account within a month from the date of notice , penal charges will be applicable.
II. In case the minimum balance is not restored within a reasonable period, which shall not be less than one month from the date of notice of shortfall, penal charges may be recovered under intimation to the account holder.
III. The policy on penal charges to be so levied may be decided with the approval of Board of the Bank.
IV. The penal charges should be directly proportionate to the extent of shortfall observed. In other words, the charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening of account. A suitable slab structure for recovery of charges may be finalized.
V. It should be ensured that such charges are reasonable and not out of line with the average cost of providing the services.
VI. It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.
Benefits to Middle Class Tax Payers in the Budget 2015-16
No Change In Rate Of Personal Income Tax
Rationalization And Removal Of Various Tax Exemption
Exemption To Individual Tax Payers To Continue To Facilitate Savings
Atal Pension Yojana For Defined Pension, Government To Contribute 50% Of The Premium
Payments to the Beneficiaries Including Interest Payment on Deposit in Sukanya Samriddhi Scheme to be Fully Exempt
The Union Minister of Finance Shri Arun Jaitley in his Budget Speech in Lok Sabha today proposed rationalization of various tax exemptions and incentives to reduce tax disputes and improve tax administration. He said, with a view to encourage savings and to promote health care among individual tax payers, it is proposed to increase the limit of reduction of health insurance premium from Rs 15,000 to Rs 25,000 and for senior citizen this limit is increase from Rs 20,000 to Rs 30,000.
For senior citizen above the age of 80 years, not eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical expenditure. Deduction limit of Rs 60,000 on expenditure on account of specified diseases is enhanced to Rs 80,000 in the case of senior citizens.
Additional deduction of Rs 25,000 is allowed for differently-abled persons, increasing the limit from Rs 50,000 to Rs 75,000. It is also proposed to increase the limit of deduction from Rs 1 lakh to Rs 1.25 lakh in case of severe disability.
The Finance Minister Shri Jaitley also proposed to provide that investment in Sukanya Samriddhi Scheme will be eligible for deduction under section 80C of the income-tax and any payment from the scheme shall not be liable to tax.
Limit on deduction on account of contribution to a pension fund and the new pension scheme is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh.
Additional deduction of Rs 50,000 will be allowed for contribution to the new pension scheme u/s 80 CCD increasing from Rs 1 lakh to Rs 1.5 lakh.
New PF Rules May Lower Your Take-Home Salary-NDTV
New Delhi: Employees as well as employers may have to shell out more towards Employees Provident Fund (EPF), with the government proposing to include all allowances in the wages for deducting PF contribution.
According to the new definition of the wages, as proposed in a draft bill, for the purpose of computing provident fund contributions by employers as well as employees, the wages would include basic pay and allowances.
At present, the PF liability is computed on the basic wages of the workers which include basic pay and dearness allowance only.
The employees contribute 12 per cent of their basic wages towards EPF contribution, with employers pitching in equally. Out of employers' contribution 3.67 per cent goes towards EPF, 8.33 per cent towards Employees' Pension Scheme and 0.5 per cent towards the Employees' Deposit Linked Insurance Scheme.
The draft bill to amend the Employees' Provident Funds Miscellaneous Provisions Act 1952 provides that "Wages", means all emoluments or remunerations including all allowances payable to an employee in cash.
"The employers split wages of workers into numerous allowances to reduce their PF liability. The proposed definition of wages in the bill will check such practices," General Secretary Bharatiya Mazdoor Sangh and an EPFO trustee Virjesh Upadhyay said.
The Labour Ministry is in the process of finalising the bill as it has concluded a tripartite consultations on the bill and received views of trade unions, employers' representatives and government bodies, he added.
A senior official said that earlier the Employees' Provident Fund Organisation had issued a notification for clubbing of wages in November 2012.
But the notification was kept in abeyance after uproar by the industry. A panel was also constituted on issue which had favoured clubbing of wages to provide adequate social security cover to workers, the official added.
He further informed that the Labour Ministry has decided to constitute a committee to work on workers' bank to provide easy finance to its members and manage its investments.
The decision to constitute a committee was revealed by the Labour Minister Bandaru Dattatreya during an EPFO trustees meeting held on March 11.
Income Tax Rules Tightened on PF Withdrawals
Finance Minister Arun Jaitley in his Budget proposals tightened the income tax law on withdrawal of provident fund. Under the proposed tax law, provident fund withdrawal before five years of continuous service will attract a TDS (tax deducted at source) of 10 per cent.
While calculating the period of continuous service of five years, the previous employment can also be included, provided the balance from the previous PF account is transferred to the new PF account. Under tax laws, provident fund withdrawal after continuous service for more than five years is not taxed in the employee's hands.
The new proposal of TDS deduction will not be applicable in cases where the provident fund withdrawal is less than Rs. 30,000. The new proposal will not apply to those persons who give a declaration that their income does not fall under the tax bracket, said Mayur Shah, executive tax director at EY.
In another provision, if PAN number is not quoted to provident fund authorities when seeking withdrawal, the entire amount will attract "maximum marginal rate" which is the income tax rate of highest slab of nearly 35 per cent.
Mr Shah says Budget proposals clear the ambiguity in tax laws on deduction of TDS by the Employee Provident Fund Organisation.
Unused priority sector lending funds to be diverted to MUDRA Bank-Indian Express
Unused priority sector lending funds of commercial banks will be used to set up the Rs 20,000 crore corpus of the proposed MUDRA Bank. The bank will use at least 65 per cent of its funds for lending to micro enterprises run by members of scheduled castes and tribes.
Typically, domestic commercial banks deposit their lending shortfall from priority sector to the Rural Infrastructure Development Fund of the NABARD while foreign banks are mandated to deposit an amount equal tot he shortfall in priority sector lending with the Small Enterprises Development Fund of the Small Industries Development Bank of India (SIDBI).
“The Rs 20,000 crore corpus will not come from the Budget but out of the priority sector shortfall. The Reserve Bank of India will give this money, which will be used for re-financing,” said Hasmukh Adhia, secretary, department of financial services.
However, the related Rs 3,000 crore credit guarantee fund for the Bank would be set up through Budgetary allocations.
Finance minister Arun Jaitley had in the Union Budget 2015-16 proposed setting up the Micro Units Development Refinance Agency (MUDRA) Bank. “In lending, priority will be given to SC/ST enterprises,” he had announced.
The Bank, which is expected to start operations this fiscal, would initially be set up as a subsidiary of SIDBI, but the finance ministry would later enact a separate law for it.
“We have to ultimately come out with a statute or Act of Parliament to create the MUDRA Bank, but in the meantime, we will create an agency called MUDRA as a subsidiary of SIDBI initially. It will start doing its business as early as possible,” Adhia said, adding that the statute would define the functions, responsibilities, procedure for refinancing as well as recovery.
The finance ministry plans to rope in non-banking financial companies, small banks and MFIs for lending at the local level while it will also use state cooperative banks and regional NBFCs as an intermediate.
“We only use commercial banks as financing source but they are not very familiar on how to lend to micro enterprises. The MUDRA Bank will use anybody in the last mile and intermediate agencies at the regional level,” Adhia explained.
The finance ministry also plans to bring in stringent penal provisions to deal with defaults. Just 75 per cent of the loan amount would be guaranteed through the credit guarantee fund while the remaining 25 per cent would have to be guaranteed by the MFI.
The Bank will also levy an initial penalty of 0.5 per cent of the default amount on the lender, and the amount could increase for repeat defaulters.
A survey of the National Sample Survey Organisation that revealed that 5.77 crore such micro enterprises, 65 per cent are owned by SC/ST and OBC members.
Payments bank to generate revenues from transaction: Dipak Gupta-Financial EXpress
The Reserve Bank of India (RBI) has proposed setting up of payments bank to further the ambitious financial inclusion plan of the government.
However, with limited means to raise revenues, the transactional aspect of the yet-to-be launched payments bank would be the most significant characteristic of the new system, says Kotak Mahindra Bank joint managing director Dipak Gupta. Excerpts:
What is the major attraction of the payments bank model?
The payments bank model provides an opportunity to explore a new product market. As a commercial bank, it is usually not the top priorities to cater to the segment that payments bank is targeting. But, it is a huge market. Normally, it would have taken 3-5 years to look at this segment. The problem, however, is reaching out to this segment. The payments bank would need a product suit that is convenient for the customer to like and adopt.
Which part of the offerings would you focus on — deposits, transactions or sale of financial products?
It is not going to be a savings-account-interest-rate attraction. This segment of customers is not worried about 4% or 6% interest rate. This segment wants to make a transaction. The opportunity for deposits will be limited initially as it is not a part of the mainstream money flow. It is small-ticket segment with huge money flow. It will be a low-margin business. Banks earn in three ways, deposits, lending and fee. The bank is not allowed to lend, and deposits will be difficult because of the cost over-run. It necessarily has to be the fee on transactions.
How do you intend to get the required volumes?
If you look telcos, the top three companies have a customer base of around 15-20 crore people each. If I can get at least 5% as the additional customers, say 75 lakh, that would be roughly 10 times more than my current asset lending customers today. That would not be a big deal in three years. Airtel has about 22 crore customers that go for a top up every third day. So, on an average, 7.5 crore customers conduct a cash transaction every day.
How will you fulfil KYC requirement?
In the beginning, KYC will not be a challenge as it depends on the size of deposits. There will be one segment which will be the low-end segment, typically the R10,000 segment and another segment will be less than R1-lakh segment. The moment Aadhar adoption happens, KYC can take place very fast. The government says 50% of people already has Aadhar card. Also, mobile companies do an elementary level of KYC.
What would be the set-up cost?
You don’t much to set up payments bank. All you need is technology. That would be approximately R10-crore of investment. The most important aspect will be distribution and convenience.
Government plans radical changes in EPF law-Times of India 13.03.2015
NEW DELHI: The government is looking at sweeping changes to the law governing Employees Provident Fund (EPF) and has suggested doing away with the mandatory 12% contribution by employees in certain cases, while retaining the outgo for employers.
At the same time, the labour ministry is expanding the scope of wages beyond the basic salary to include all allowances, including those paid for authorized leave, strikes and layoffs or other allowances that are paid at intervals not exceeding two months. The move proposed in the draft legislation, circulated internally, was proposed a couple of years ago as well but had to be dropped after industry chambers protested against it, citing higher salary burden on companies.
The Centre is now trying to reintroduce the proposal, which will result in higher transfer to the provident fund but will reduce the take home salary. This can be tackled by allowing employees in certain industry segments or companies — to be notified by the government — to make lower contribution.
The draft legislation also seeks to increase the coverage of EPF to companies that employ less than 20 employees, again a proposal that has been discussed in the past.
Further, there are also proposals to strengthen the appellate tribunal, tone up recovery in case of defaulting companies and increase the penalty that can be levied.
The draft bill has run up against a wall of protest from trade unions, which fear a decline in their influence. A source familiar with the proposals said the government has suggested that the structure of the EPF Organization's Central Board of Trustees be reworked with five representatives each of employers and employees and two external experts. It also wants to restrict the tenure of board members to two consecutive terms.
Bhushan Steel gets a life as banks fear hit to books-Indian Express-13.03.2015
By: Pallavi Ail and Pranav Nambiar
Bankers to the highly-leveraged and loss-making Bhushan Steel have opted to lend a little over Rs 7,000 crore more to the firm rather than recast the company’s debt via the corporate debt restructuring (CDR) cell.
A joint lenders’ forum (JLF) — a platform where lenders decide on the course of action on exposure that is likely to become non-performing — has decided that it will allow Bhushan Steel to draw a line of credit of R7,000 that it had sanctioned earlier.
The steelmaker already owes banks approximately R35,000 crore and has reported losses for the last five quarters. In the three months to December 2014, it posted a loss of R454 crore on revenues of R2,345 crore.
One public sector banker explained to FE that the move had been prompted by worries of higher provisioning expenses that banks would need to make if the exposure is classified as ‘restructured’. “We estimate that upwards of 10% of the loan value will have to be provided for if we decide to restructure the loan,” the banker added.
The bigger worry is that banks would have had to take an NPV (net present value) hit. When a loan is restructured,
banks must provide for 100% of the sacrifice amount — the difference between the NPV of future interest income based on the current base prime lending rate (BPLR) and the lower interest charged (as part of the restructuring scheme) discounted by the current BPLR.
Post April 2015, Reserve Bank of India (RBI) rules require a restructured asset to be classified as non-performing. While restructured loans require to be provisioned for at 5% of the loan amount, non-performing assets have to provided for at 15%.
According to a hypothecation deed reviewed by FE dated March 2, 2015, Bhushan Steel had requested for additional working capital from a 23-bank consortium led by Punjab National Bank. Of these, nine have approved a loan amount of R7,000 crore while the remaining have approved the loan but are yet to sanction it. “We are in discussion with banks for realignment of the debt profile as per present RBI guidelines and there has not been any proposal for restructuring of debt pending with banks,” Nitin Johari, CFO, Bhushan Steel, said.
The consortium of lenders will soon meet to consider whether the exposure to Bhushan Steel can be refinanced under the 5:25 scheme. Under this term, loans provided to long-term infrastructure projects will be evaluated for refinancing every five years, ensuring viability of the projects and with the need for restructuring minimised.
The Delhi-based company has been in the spotlight since August 2014 when its vice-chairman and managing director was arrested in an alleged case of bribery involving Syndicate Bank. The company had later sought shareholder approval to raise $1 billion through securities..
State to write off some farmers’ loans-Hindustan Times 13.03.2015
In a move to curb farmer suicides across Maharashtra, the state cabinet announced on Thursday that it will write off loans of up to Rs5 lakh per farmer, borrowed from registered money-lenders.
The decision will help more than four lakh farmers, but will cost the state around Rs300 crore.
In December last year, the state government announced waiving the loans after it found most farmer suicides were because of outstanding loans and harassment by private money lenders. But it hit a roadblock after the administration pointed out certain technical glitches – such as loans taken for weddings. The state then undertook a survey to identify farmers who had taken such loans.
The results of the survey notwithstanding, the cabinet on Thursday decided to set aside the norms and pay off the loans of most farmers.
A cabinet minister said the government was also considering lodging cases against unregistered lenders to free the farmers from their harassment.
The opposition had targeted the state government earlier in the day for not following up on the assurance, even three months after the announcement.
In another development at the budget session on Thursday, the state government said it is looking at starting a new fund that could provide relief to distressed farmers.
The announcement was made by agriculture and revenue minister Eknath Khadse in the Councli, a day after he told the Assembly the Centre and state will not be able to give funds for farmers hit by unseasonal rain.
Khadse said the government was planning a body similar to the National Disaster Response Fund (NDRF) for the state. “Currently, Maharashtra is in a poor financial state and has not been able to provide financial aid to farmers. However, we are considering setting up a Maharashtra Disaster Response Fund (MDRF), on the lines of the NDRF,” Khadse said. During his announcement however, Khadse did a U-turn about the Centre’s refusal to provide aid: “The Centre had told us to submit a joint proposal. We are awaiting a response, but we are hopeful that we will get more aid than the Centre has ever given in the past 25 years,” he said.
Wilful defaulters need not appear before bank committees-DNA
Vijaya Mallya and other wilful defaulters are no longer required to make a personal appearance before banks after Reserve Bank of India (RBI) disbanded the erstwhile Grievance Redressal Committee (GRC).
This means the wilful defaulter, who earlier had an option to appear with his team and explain his stand, does not have that option in the new structure.
The move follows the court row between Kingfisher and Kolkata-based United Bank of India, where the court had ruled in favour of the company quashing the decision of the lender.
RBI has now asked banks to set up two committees -- declaration committee headed by an executive director or deputy managing director, and a review committee headed by the chairman. Between these two committees, the wilful defaulter tag needs to be finalised.
A senior banker told dna, "We have approached the RBI for further fine tuning the legal binding of these committees so that companies do not approach courts for stay and delay the banks' decisions."
The issue all along had been about Mallya appearing before the GRC along with an external legal counsel which the bank opposed, saying the regulation permits only the borrower and internal members and no external members. Kingfisher then opposed the bank's GRC saying that the number of its members exceeded the regulatory requirement of three members.
The new declaration committee will be headed by an executive director or a deputy managing director and the review committee will be headed by chairman or CMD. According to the new structure, banks are now putting in place two committees.
The declaration committee checks the merits of the case, gives a showcase notice to defaulter giving him 15 days to explain his stand. Once his explanation is received, they can declare the borrower a wilful defaulter. The review committee, the highest decision making body in these cases, can review the case after examining all the legal angles and confirm the ruling of the declaration committee.
In December 2014, Calcutta High Court quashed the decisions of the identification committee of United Bank of India and the grievance redressal committee. The ruling was in favour of Kingfisher on technical grounds. The high court said the grievance redressal committee (which decides on whether or not a borrower is declared a wilful defaulter) was not constituted according to the regulatory guidelines. Therefore, the committee's decision to declare Kingfisher a wilful defaulter was defeated.
The technical flaw of the bank's grievance redressal committee was that it had four members instead of three -- chairman, a chief general manager and two general managers being a part of it. This is in excess of the number of three personnel prescribed in regulation 3(i) of the master circular on wilful defaulters, issued by the central bank.
The court ruled that the decision taken by the grievance redressal committee is null and void. Consequently, all steps taken by the bank subsequent to such so-called identification are also null and void. Significantly, the grievance redressal committee also comprised four members. "This is also in violation of regulation 3(iii) of the master circular issued by RBI," the court order said.
According to the master circular, a decision on whether or not to classify a borrower a wilful defaulter should be entrusted to an identification committee (a panel of higher functionaries, headed by the executive director and comprising two general managers or deputy general managers, as decided by the bank's board). It added if a borrower was identified as a wilful defaulter, she/he should be provided reasonable time (say, 15 days) for making a representation against the decision to the grievance redressal committee, headed by the chairman and comprising two other senior officials.
Editorial: Banking on forensics-Financial Express
Going by the large number of loan recasts over the last few years—R2.8 lakh crore since FY11—it is clear that there is more to the problem than merely a downturn in the economy. There is little doubt this would have hit companies, especially the smaller ones, since customers, including government agencies, tend to hold back payments in a slowdown. Many of the mid-sized and larger firms, similarly, would have been hit not just by slowing sales locally, but also the sharp deterioration in the exports market—more so in the case of projects specifically set up to cater to the booming market in countries like China.
Also, in the case of several power plants, the maths clearly went wrong due to either non-availability of coal or, equally important, the refusal of electricity regulators to raise tariffs to take into account rising electricity purchase costs. With the benefit of hindsight, however, the targets also come across as very ambitious, a factor that banks should have taken closer note of while appraising the loan proposals.
While it is, no doubt, hard to predict turns in commodity cycles, and forecasting the extent of the turn is even harder, banks needed to have ensured they had enough of a cushion in the collateral that they asked for. As the economy gets back on its feet and banks look ahead to a pick up in the credit cycle, after a couple of dull years, they must approach the business far more cautiously; it is probably better not to lend than to create an exposure to a promoter without the right credentials and a robust business model.
Indeed, bankers know best how painfully difficult it is to recover money from those who have no intention of paying back; they are also aware of how intractable the country’s legal system is and how skilfully errant promoters are able to dodge it. At least two large banks have special units that spearhead the recovery of bad debts. In a recent instance, after trying to recover around R4,200 crore from a company and conducting a forensic audit, banks have decided to file a complaint with the CBI alleging cheating and misappropriation of funds.
While it would be wholly inappropriate to paint all borrowers with the same brush, it makes sense for banks to conduct forensic audits for companies where it believes everything may not be kosher. While the Corporate Debt Restructuring (CDR) cell may want to have such audits done for all cases that are brought before it, banks for their part should perhaps initiate them for companies where they have even the smallest reason to believe everything may not be above board. Ushering in a culture of scrutiny and investigation cannot hurt and can act as a deterrent. To make the process more effective though, the courts need to act quickly.