Several years ago, someone in the banking industry told me that 3-D secure would end online card fraud. But clearly the fraudsters weren’t listening. Today, banking fraud is estimated to gross more than $120 billion per annum worldwide – more than the GDP of New Zealand. Just as water finds a way around obstacles, so does fraud. And, just as a trickle of water can become a raging torrent, so fraud can quickly spiral out of control. It is a harsh fact of life that we are never going to stop fraudsters plying their trade. But we can make it as difficult as possible for them. The trends are not easy to spot, but over the years there has been a significant shift from crimes committed by individuals to crimes instigated by international criminal rings. The typical 1980s fraudster was an individual, preying on consumers’ credit cards to fund their lifestyle. Today’s criminals are more likely to be international syndicates working across borders, using insider knowledge and immense technical skill to attack banks at every point possible. New Technology, New Fraud Opportunities Because bank fraud systems are not as mature as card fraud prevention, we are inevitably seeing a rise in attacks in this area. Sophisticated crime syndicates will look at the whole customer rather than specific products. Criminals watch activity across all services, for example: how a card is used, how the current and savings accounts are being used, and how the three interact. The combination of Internet and smartphones offer fraudsters more scope. To highlight the problem, researcher Jon Oberheide at Scio Security published an Android™ application masquerading as a preview of the Twilight Eclipse film, attracting 200 teenagers to download it in just 24 hours. The application could be modified using remote server malicious code, turning devices into zombie-like ‘botnets’ relaying precious financial information to the criminals. Ten Smart Ideas To Attack Fraud While we cannot make fraudsters go away, there is a lot we can do to make it harder for them to turn a profit and mitigate the impact.Great DataThe more you know, the easier it is to prevent fraud. If your data is not reliable, your hands are tied. External data sources make a big difference too, so do not neglect regulatory input. And include positive data, so your customers are not incorrectly flagged as criminals when they make an unexpected purchase.Effective Actions You mayhave a massive amount of data andreams of management reports, but if they are not being used properly they are useless. Actions must be accurate and swift. Take the use of a fraudulent card to carry out a transaction.The fraud will increase 10 fold in the 10 minutes immediately after its first fraudulent use if you do not take action to stop it.Detailed Processes One size does not fit all. You have to keep reviewing your systems to make sure they arefit for purpose. For example, you cannot just rely on ‘scores’because, by definition, they are historical. To see where fraud is being perpetrated, you need bespoke analytics. Do Your Research Look for data that criminals are selling online: cards numbers, email accounts and so on. You need to be looking at the same material that fraudstersuse. Keep up to date you’re your technology research too. There are many fraud management systems around and you need experience to pick the right ones. Set Clear Goals Make sure your fraud team has a clear goal. Aiming to keep fraud low is not a good enough target. You need to be clear about the amount of fraud your organisation is prepared tobear. Integrate the fraud team with other departments in your organisation so everyone knows what to look for, and assess how many customers you might inconvenience by implementing tighter security measures. In the end, it will always be a balance between security and customer service.Employ World-class Expertise Employ the best systems and get the right people to run them. Often, businesses invest in great systems and buy expensive score cards, but if they are not using them correctly, this investment is wasted and fraud will inevitably run out of control. Encourage Flexible Thinking No two fraud attacks are ever the same. We often find it is most effective to put a manual solution in place before technical ones. People can spot trends and problems faster. Make the system work manually – and then automate it. Stay One Step Ahead Of The Fraudster Remain vigilant. Fraud does not keep office hours. Some businesses use only technology to cover the night-time, forgetting that fraud is a round-the-clock operation. Ask more people to look at data so that it is widely understood. We believe data will be shared much more widely in the future and we are currently looking at a fraud utility that breaks down the organisational silo mentality and allows more sharing.Implement Leading Edge Fraud Prevention Technologies You want the best, but financial organisations need to use fraud prevention technology wisely. The number of leading edge fraud prevention technologies that are emerging into the market is enormous and becoming more and more capable, flexible and effective. But with these developments come huge risks in both the selection of such technologies and the associated implementation strategies. As in Tip 6,it takes experienced fraud prevention teams to be able to make the right product selection. The team also needs to be strong enough to challenge implementation schedules that do not allow sufficient preparation time.Use An Experienced Provider It’s hard to keep track of changes in fraud activity, in legislation and in technology. By using an experienced provider to advise on key decisions you can get on with what you’re best at – running your business. The fight against the fraudster is a constant battle. The gains for the organised criminal fraternity are so substantial that we know they will never give up. Organised crime is a highly sophisticated, well-funded and technologically advanced business. We can only hope to stay one step ahead by matching them and using our collective experience to plug the gaps when they become exposed. (Raja Gopalakrishnan is Group Managing Director, Asia, FIS)
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India has buried the "ghost" of GAAR, Finance Minister P Chidambaram said on 22 January asserting that there is no threat of a rating downgrade in view of key economic decisions like allowing FDI in multi-brand retail and hiking fuel prices.India's economy will grow "no better than" 5.7 per cent in the current fiscal year but will regain traction in 2013-2014, the finance minister said on 22 January, as he sought to reassure international investors that the government remained committed to pro-growth policies and reforms. The finance minister predicted that growth would pick up momentum in the following year beginning in April, expanding by 6-7 per cent.Kicking off his campaign to woo investment, Chidambaram met over 200 top investors at the "India for Investment Conference" organised by the Citibank and BNP Paribas in Hong Kong. This was part of a four-city tour to try and boost capital flows into Asia's third-largest economy.India will raise by $5 billion each the caps on foreign institutional investors holding government and corporate bonds, Citi said in a note quoting the finance minister. Foreign investors will be allowed to hold up to $15 billion of government bonds and $25 billion in corporate bonds, the minister was reported to have said during a meeting with investors in Hong Kong.Read Also: No Need To Compare India & ChinaRead Also: Diesel Price Changes Up To Govt: FMRead Also: FM Seeks To Reassure Foreign InvestorsA one-year lock in period on holding infrastructure bonds will be eliminated, he said."There is universal acknowledgement that we have handled the GAAR situation fairly effectively and buried the ghost that GAAR will be some kind of a monster," he told news agency PTI in an interview.He said there is revival of investor interest in India as a result of a number of measures taken by the government since September.Chidambaram was also hopeful that fiscal deficit will be contained within the targeted 5.3 per cent of the GDP this fiscal and trimmed to 4.8 per cent in the next. Growth is likely to climb to 6-7 per cent from 5.7 per cent expected in the current year, he said.GAAR Handled FairlyThe General Anti-Avoidance Rules (GAAR) gave unbridled powers to taxmen to check evasion of taxes by foreign investors that created huge apprehensions among investors.Last week, Chidambaram announced that GAAR implementation has been postponed by two years to 2016."On specific questions on GAAR and I took some time in explaining all the measures we have made to GAAR and told them how market has received it very well here. There is universal acknowledgement that we have handled the GAAR situation fairly effectively and buried the ghost that GAAR will be some kind of a monster," he said. Chidambaram sought to allay fears that India was in danger of losing its investment-grade credit rating and being downgraded to "junk" status, as policymakers struggle to revive economic growth, rein in subsidies and hold down the fiscal deficit without triggering a backlash ahead of 2014 elections."I was not worried when I took over (as finance minister) in August 2012, and after so many steps that we have taken, I think I should be less worried. In fact, all of us should be less worried. There should no case whatsoever for anybody to downgrade India," he said."The silver lining is we are able to finance the current account deficit without reserves. Thankfully there are enough inflows of FDIs and FIIs (foreign institutional investment) and companies are able to raise money abroad under external commercial borrowing," he said.Fitch and Standard and Poor's last year cut their ratings outlooks for India to "negative", citing its slowing growth and bloated deficit and putting it in danger of being the first of the BRICs grouping of fast-growing economies to be downgraded to sub-investment-grade status.India's economy extended its long slump in the July-September quarter and looked on track for its worst full-year performance in a decade, highlighting the urgency of politically difficult reforms to revive activity.Since Chidambaram was appointed the government has opened up the retail sector and pushed reforms to allow more foreign investment in its insurance and pension sectors and simplify its tax laws.Last week it allowed state fuel retailers to raise prices to gradually align them with market rates and help cut its fuel subsidy bill.The finance minister said there was also room to sell off more state assets to ease fiscal strains. He forecast the government would raise $5 billion from such divestments in the current fiscal year and said he had approval for further sales in the next few years.Chidambaram will also meet investors in Singapore, London and Frankfurt over the next week.Clear & Confident"The finance minister was both clear and confident of what needs to be done, how and when it will be done, and timelines," said a research note released by Citi, which hosted Chidambaram's meeting earlier in the day with more than 200 equity and fixed-income investors."The market has been cautious leading into what is seen as an 'election/populist' budget in February 2013. The finance minister was decidedly more positive. He suggests the fiscal deficit target will be met, taxes will not be raised and while policy will and should be biased towards the poor, the budget will offer a lot."The minister assured investors that the government's top priority is curtailing spending in the short term, while in the medium-term it aims to cut the fiscal deficit by 60 basis points per year, reducing it to 3 per cent in four years from an expected 5.3 percent this fiscal year, the note from Citi said.(Agencies)
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India's economy will grow "no better than" 5.7 per cent in the current fiscal year but will regain traction in 2013-2014, the finance minister said on 22 January, as he sought to reassure international investors that the government remained committed to pro-growth policies and reforms. The finance minister predicted that growth would pick up momentum in the following year beginning in April, expanding by 6-7 per cent.P. Chidambaram made the comments at a media briefing after meeting investors in Hong Kong as part of a four-city tour to try and boost capital flows into Asia's third-largest economy.India will raise by $5 billion each the caps on foreign institutional investors holding government and corporate bonds, Citi said in a note quoting the finance minister. Foreign investors will be allowed to hold up to $15 billion of government bonds and $25 billion in corporate bonds, the minister was reported to have said during a meeting with investors in Hong Kong.A one-year lock in period on holding infrastructure bonds will be eliminated, he said.The meeting was held in the lead up to India's 2013-14 budget on February 28 where new investment and tax guidelines are likely to be announced.Chidambaram sought to allay fears that India was in danger of losing its investment-grade credit rating and being downgraded to "junk" status, as policymakers struggle to revive economic growth, rein in subsidies and hold down the fiscal deficit without triggering a backlash ahead of 2014 elections."I was not worried when I took over (as finance minister) in August 2012, and after so many steps that we have taken, I think I should be less worried. In fact, all of us should be less worried. There should no case whatsoever for anybody to downgrade India," he said."The silver lining is we are able to finance the current account deficit without reserves. Thankfully there are enough inflows of FDIs and FIIs (foreign institutional investment) and companies are able to raise money abroad under external commercial borrowing," he said.Fitch and Standard and Poor's last year cut their ratings outlooks for India to "negative", citing its slowing growth and bloated deficit and putting it in danger of being the first of the BRICs grouping of fast-growing economies to be downgraded to sub-investment-grade status.India's economy extended its long slump in the July-September quarter and looked on track for its worst full-year performance in a decade, highlighting the urgency of politically difficult reforms to revive activity.Since Chidambaram was appointed the government has opened up the retail sector and pushed reforms to allow more foreign investment in its insurance and pension sectors and simplify its tax laws.Last week it allowed state fuel retailers to raise prices to gradually align them with market rates and help cut its fuel subsidy bill.The finance minister said there was also room to sell off more state assets to ease fiscal strains. He forecast the government would raise $5 billion from such divestments in the current fiscal year and said he had approval for further sales in the next few years.Chidambaram will also meet investors in Singapore, London and Frankfurt over the next week."The finance minister was both clear and confident of what needs to be done, how and when it will be done, and timelines," said a research note released by Citi, which hosted Chidambaram's meeting earlier in the day with more than 200 equity and fixed-income investors."The market has been cautious leading into what is seen as an 'election/populist' budget in February 2013. The finance minister was decidedly more positive. He suggests the fiscal deficit target will be met, taxes will not be raised and while policy will and should be biased towards the poor, the budget will offer a lot."The minister assured investors that the government's top priority is curtailing spending in the short term, while in the medium-term it aims to cut the fiscal deficit by 60 basis points per year, reducing it to 3 per cent in four years from an expected 5.3 percent this fiscal year, the note from Citi said.(Reuters)
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Working out of a tiny rented room furnished with a wooden table, small biometric authentication machine and shelf stacked with passbooks, Ganesh Dangi is a one-man bank for a village of 650 people in northwestern Rajasthan. A business correspondent, or local representative, for State Bank of Bikaner and Jaipur (SBBJ) in Ranchhodpura village, 40 km (25 miles) east of Udaipur, Dangi is racing to sign up villagers to new "no frills" plans to meet a government target that every family in the district should have a bank account. New Delhi plans to directly transfer cash payments for subsidies into these accounts, a move aimed at tackling graft in India's creaky, corruption-ridden public distribution system. If successful, the initiative could also bring modern banking to the doorstep of rural India, a goal towards which progress has so far been fitful despite mandatory targets set by the government and Reserve Bank of India. "Nearly 80 farmers in the village have taken crop loans. They have more confidence in banks now," says Dangi, who earns Rs 1,500 a month plus commissions. "They now know banks are not cheats to swallow up their money." The target is a tough one in a country where only 35 per cent of people had formal bank accounts, versus the global average of 50 per cent, according to a financial inclusion survey by World Bank in 2011. Nearly two-thirds of India's 1.2 billion population still live in rural areas. Currently being piloted in 20 districts, including three in Rajasthan, the programme is expected to go nationwide in phases over the next year. The government plans to transfer 3.2 trillion rupees to beneficiaries of its subsidy schemes and welfare programmes, according to newspaper reports. It will pay the wages for more than 50 million workers in a rural job scheme, pensions for 20 million senior citizens and about 5 million education scholarships directly to bank accounts linked to a unique identification number. It is also likely to free farmers from the clutches of money-lenders who charge annual interest of 24-50 per cent, giving them access to institutional finance. Shiva Kumar, managing director of SBBJ, a subsidiary of government-owned State Bank of India, says the initiative will bring "financial freedom" to India's vast rural hinterland, home to about 800 million people. "Lot more money will come into the banking system. It can boost prosperity in the villages and that will get more business to banks," he said. Banks fear early pain - the move could burden them with Rs 250-500 of additional costs per account annually, while profits may remain elusive for at least 2 years. Still, they see a huge opportunity even if only a quarter of these new accounts were to turn into regular customers, demanding loans, mutual funds and other products. The programme could help banks and business correspondents earn about 40 billion rupees as fee income, Mumbai-based brokerage Anand Rathi, said in a note this month. Game Of PatienceBanks are currently losing money in most of their rural operations, hit by highs costs, poor connectivity and low savings in areas where average per capita income is around 16,000 rupees, compared with 44,000 rupees in urban areas. "It's a long, patient game," said Anil Jaggia, chief information officer at HDFC Bank, India's No.2 private sector lender, adding it will not boost revenues immediately. "Over time if people get into serious banking habits then this whole initiative may get to breakeven and make some tangible money." In the meantime, the new accounts are likely to put pressure on banks' existing infrastructure and add to costs, officials said. Industry experts say banks need to look at low-cost and innovative models of doing business in India's villages. "Banks have not done much in this segment so far," said Manish Khera, CEO of FINO Paytech, a micro-banking technology and business correspondent services provider. FINO provides business correspondents such as Dangi to banks, trains them and also equips them with biometric devices. "The investment is done by the business correspondent firms. As far as the villages are concerned, the most economical way for banks to continue is to do it through a BC," Khera said. According to rough estimates from banks, every transaction done at a branch costs around 50 rupees while those done at ATMs cost 15 rupees. But banks are not keen on installing ATMs in villages given the costs involved in having 24-hours electricity, surveillance and communication facilities. Concern that loans to rural customers could go bad is also making lenders jittery. For SBI, 9 per cent of its farm loans had turned bad in the year to March 2012. In one rural branch in Udaipur, SBBJ had bad loans of around 13 per cent. This compares with an average 3 per cent for the banking system across India. Prami Devi Meghval, 24, who is five months pregnant, opened an account with ICICI Bank, India's No. 2 lender, this month through FINO in Udaipur, to benefit from the subsidies earmarked for expectant mothers by state and central government. "Everyone says government will give us money. I don't know how much the government will pay," said Meghval, who did not get the money when she was pregnant the last time. "I never tried to open an account earlier. We don't have money to keep in bank accounts." TC Songara, manager of the SBI branch in Udaipur, a popular tourist destination famous for its lakes, says his branch has opened 2,000 new accounts in the two months to December compared to a monthly average of 100 new customers and is now facing a shortage of passbooks. But he is worried that many new customers like Meghval might use the bank only to take out their cash payments. "The challenge is to ensure they start using banking products," he said. "If they only come to the branch to withdraw subsidies it is not going to help us."(Reuters)
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The Reserve Bank of India (RBI) said on Monday it has relaxed overseas borrowing limits for infrastructure finance companies, a move that will enable companies in the investment-hungry sector to raise funds more easily.The RBI said infrastructure finance companies will no longer need to seek approval for raising funds overseas equivalent to up to 75 per cent of their owned funds. The limit had been 50 per cent.India's infrastructure companies raise a large chunk of their borrowings from overseas because of attractive rates.The RBI also relaxed the hedging requirement for currency risk for these companies to 75 percent of the exposure, from an earlier limit of 100 per cent.(Reuters)
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Service tax evasion of a staggering Rs 9,800 crore has been detected during the first nine months of the current fiscal, forcing Tax Department to warn that properties of evaders will be attached. "In many cases, the service providers collect service tax from their clients but do not deposit it with the government," said CBEC member (service tax) Lipika Majumdar Roy Choudhury. Giving details of some prominent cases, she said the oil and gas sector has admitted liability of Rs 150 crore, a construction services company Rs 18 crore, a security services firm Rs 86 crore and the pharmaceutical sector Rs 28 crore. "CBEC would appeal to all service providers to comply with the law and pay service tax that is due. Failure to pay service tax will attract appropriate action under law including recovery of tax, interest and penalty. Prosecution and attachment of property are also envisaged in appropriate cases," she said. Roy Choudhury said the department has realised Rs 2,000 crore during the current fiscal bringing down the service evasion amount to Rs 7,800 crore. The Central Board of Excise and Customs (CBEC) had detected service tax evasion of Rs 5,000-6,000 crore in April-December period last fiscal. Asked whether the department would be able to meet service tax collection target of Rs 1.24 lakh crore for the current fiscal, she said, "I am hopeful that we will achieve the target." During the first 9 months of the current fiscal, the service tax collections has witnessed a growth of 34 per cent, she added. (PTI)
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Every few years there is a rumpus in India about funds parked abroad. If a rich man keeps his money in a tax haven, it is not in his interest to go about telling others about it. Nor is it in the interest of the tax haven. So there is no authentic information about money so parked. That makes it possible for a wishful person to believe that billions are secretly kept in deposits abroad. How many billions is anybody’s guess; everyone is free to choose a number one likes. A gentleman of Indian origin who resides in foreign climes massages international trade statistics and produces his own billions; putting out numbers supposed to come out of mysterious calculations is a sure way of making headlines. They find ready customers amongst opposition parties in India; they find the figures useful to beat the government with. The identity of the rich men is quite unknown, which is convenient for those who want to identify them with politicians of the ruling party. Since there is no way of ascertaining their identity, the government can never prove that Sonia Gandhi, Rahul and a thousand others have not parked money abroad. So it thought it best to climb on the bandwagon itself, and join a campaign with its fellow members of the Group of 20 to hunt tax evaders. Nothing came out of the hunt; but it was useful to fend off the opposition’s attacks until it went on to other things such as 2G, 3G and coal blocks. Other governments have been more successful. Germany, for example, managed to get details from Switzerland of its citizens who had crossed the open border in their Porsches and parked suitcases of cash in Swiss banks. The US government also forced UBS Bank to divulge details of its citizens who had deposited funds in the bank. The US and Germany are powerful countries. India does not possess their fire power, so it can only keep guessing and fretting. Now, however, comes an instance of perfectly legal tax evasion. France is in dire straits; the economy is doing poorly, and tax revenue has suffered as a result. It has the example of its southern neighbours, Spain and Italy, before it: that if tax proceeds fall persistently short of expenditure, the government can get so indebted that it becomes impracticable to ever repay the debt. This may be all right for Greece, at least for a while, but France is too big an economy to find rescuers. So the only way it has of keeping the boat afloat is to raise taxes or reduce public expenditure. The choice is easy for Francois Hollande, who succeeded Nicolas Sarkozy as president; he is a socialist, and following his ideological preferences, he raised the maximum income tax rate to 75 per cent. That has led French actor Gerard Depardieu to depart from France and take up residence in Nechin, a Belgian village just across the border. He is not so well known in India as in Europe, but those in their forties may still remember his performance as Cyrano de Bergerac; 20 years ago, he was quick, athletic and a good swordsman. Today, he looks a normal middle-aged man; now he makes news as a tax evader. As long as he conforms with the rules of tax residence and spends sufficient days in his new home, Depardieu will not have to pay income tax in France. The inconvenience involved is minimal; he can run in and out of France as often as he likes, since there are no border controls. In case Belgium succumbs to Hollande’s pressure, Vladimir Putin has offered Depardieu Russian citizenship. That is going to be embarrassing, for apart from being one of France’s most distinguished actors, he is a Chevalier of the Legion d’honneur. Just imagine an English lord moving to St Helena to evade British taxes. Such things may be done by ordinary mortals, but amongst the hommes d’honneur, they are simply not done — or at least, were not done till Depardieu showed the way. Depardieu’s tax avoidance may seem highly improper to properly behaved Europeans; but France takes away 45 cents out of every euro earned by a Frenchman. It ran a fiscal deficit of 8 cents in 2009. These 53 cents are spent on whatever the French president decides and the national assembly approves. Depardieu must be asking himself what gives the government the right to take away almost half his income, and whether it is his fault that he was not born an Arab in Dubai, where the share of taxes in GDP is a mere 1.8 per cent. A global ideology has developed which makes everything a government does holy and confiscatory taxes just. It is not all that unreasonable for someone to question these religious beliefs and claim a right to his own earnings.(This story was published in Businessworld Issue Dated 14-01-2013)
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Oil India share sale got over-subscribed on 1 February even before the closure of market hours and the government is estimated to get a minimum of Rs 3,100 crore from the third divestment this fiscal.The OIL offer for sale (OFS) got bids for 9.4 crore shares against 6 crore shares on offer.The auction, which started on 1 February morning, got bids for over 7.50 crore shares as on 1459 hours against an offer of over 6.01 crore, as per data on National Stock Exchange.The indicative price, which is the weighted average price of all valid bids, was Rs 518.04 a share. At this price, the government would garner at least Rs 3,100 crore.The government had fixed the floor price for the 10 per cent share auction of OIL at Rs 510 apiece.Shares of OIL were quoting at Rs 527.8, down 2.26 per cent from its previous close on NSE.Bids for over 4.94 crore shares were with 100 per cent margin, meaning if the bidder decides to withdraw later they can do so. Bids that came in with zero per cent margin were over 2.56 crore shares, according to the NSE data.The final bid figures would come after close of market at 1530 hours.The government is selling 6.01 crore shares or 10 per cent of its stake in OIL through the offer for sale route.To make the offer for sale process more transparent, market regulator Sebi last month had allowed disclosing the indicative price throughout the trading session.The government holds 78.43 per cent stake in the company which would come down to 68.43 per cent after disinvestment.OIL's paid-up capital as on March 2012 was Rs 601 crore."We expect a good response (to OIL issue)," Disinvestment Secretary Ravi Mathur had said yesterday, adding that the floor price of Rs 510 a share was at a good discount.FIIs such as T Row Price, Geosphere, Prudential, Mirae and Amundy and domestic participants included LIC, GIC and Kotak have subscribed to the issue. OIL got listed on stock exchanges in 2009.As on March 31, 2012, the company had employee strength of 8,096.The government has fixed a disinvestment target of Rs 30,000 crore for the current financial year. With the OIL issue going through successfully, the receipts from PSU stake sale are set to cross Rs 10,000 crore while two more months are remaining in the current financial year.(Agencies)
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Auto, home and corporate loans will become cheaper with banks, led by market leader State Bank of India (SBI), lowering the lending rates by up to 0.50 per cent in response to the easy money policy of the Reserve Bank. While the SBI has reduced the lending rate by a marginal 0.05 per cent, private sector HDFC Bank and Federal Bank announced reduction in a few segments like auto loans to the tune of 0.25-0.50 per cent. Public sector IDBI Bank and Royal Bank of Scotland (RBS) had reduced lending rates by 0.25 per cent and 0.75 per cent respectively on Tuesday. The lowering of the interest rates follows the decision of the RBI to cut key benchmark lending (repo) rate by 0.25 per cent and deciding to inject additional liquidity of Rs 18,000 crore by a similar cut in Cash Reserve Ratio (CRR). With the reduction, SBI's base rate or the minimum lending rate will now go down to 9.70 per cent from 9.75 per cent effective 4 February. "Through this reduction, we are passing on a little more than what we gain through the rate cut by the RBI," a senior SBI official said after a meeting of the asset liability committee of the bank. HDFC Bank has lowered interest rate on car and two-wheeler loans by 0.25 per cent and 0.5 per cent respectively. On commercial vehicles, the interest rates would be reduced by 0.25 per cent, a official said adding that the new rates would be effective from 1 February. Mumbai-based HDFC Bank currently offers car loans between 10.75 per cent and 11.75 per cent. Post rate cut, the range would be 10.5-11.5 per cent for repayment period between 36 and 60 months. Accordingly, interest rate on two-wheeler loans would be adjusted to between 19.25 per cent to 22.25 per cent. With regard to commercial vehicles, the rate on heavy commercial vehicle will be down by 0.25 per cent to 11 per cent while rate for light commercial vehicle will get reduced to 13.75 per cent from existing 14 per cent. The auto loan portfolio of the bank currently stands at about Rs 33,000 crore. The auto loan advances of the bank has been witnessing a growth of 12 per cent. IDBI Bank has already lowered its base rate by 0.25 per cent to 10.25 per cent effective February 1. SBI, which has the most aggressive offering among the domestic banks, had last cut its base rate by 0.25 per cent last September following the two CRR cuts by RBI earlier. The largest bank, has however, not cut its deposits rates as the banks asset liability committee felt its offering is among the lowest in the market at present, the official said. "We are gaining around Rs 275 crore and passing around Rs 350 crore...this will have a very negligible impact on our margins," the SBI official said, adding the outstanding loans under the old benchmark prime lending rate will also go down by a similar 0.05 per cent. A majority of bankers said they would transmit the benefits of the RBI rate cut. Last month, HDFC Bank had reduced its base rate by 0.1 per cent to 9.7 per cent, the lowest in the market. At the same time, the benchmark prime lending rate (BPLR) of the bank was also slashed by a similar margin to 18.20 per cent. (PTI)
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Companies, foreign institutional investors (FII) and individuals need no longer lose sleep over uncertainties created by the General Anti Avoidance Rules (GAAR). By accepting the Parthasarathi Shome committee’s recommendations almost in their entirety, finance minister P. Chidambaram has allayed most of their concerns. Not only has GAAR been postponed to 2016, there is also a lot of clarity in the rules now. Further, it has been decided that GAAR will not be applicable to FIIs and non-resident investors in FIIs. This should help retain the flow of funds into FIIs, something that had been adversely affected following the announcement of GAAR by former finance minister Pranab Mukherjee in his 2012 budget. Says Rahul Garg, leader of PwC’s indirect tax practice: “Many crucial suggestions of the expert committee have been accepted, such as replacing ‘one of the main purpose’ with ‘main purpose’ test for invoking GAAR; providing for corresponding adjustment; raising GAAR threshold to Rs 30 million; rationalising the test of ‘commercial substance’, etc.” 2016 The year until when GAAR will not be applied. However, there is still a lack of clarity as to how the new rules apply to tax treaties with Singapore and Mauritius. “Also, the rationale for adopting the date of 30 August 2010 for grandfathering and making the panel’s decision non-appealable is difficult to understand,” says Garg. According to sources, the Singapore treaty explicitly spells out that a person will be considered a Singapore resident and qualify for the treaty’s benefits if he can prove “substance” — expenditure and capital in the country above a certain limit. This is why most legitimate investors prefer the more secure Singapore route. In Mauritius, to qualify for the benefits, all a person needs is a certificate of residence. “If you want to stop misuse of the Mauritius route, you can simply amend the treaty; you don’t need to introduce complicated GAAR rules for this,” says a senior revenue department official. According to sources, strong lobbying by those who use (or misuse) the route — mostly unlisted companies — has so far prevented the Mauritius treaty from being amended. The original GAAR would have forced many FIIs and investors to litigate if they were denied the benefits of the Mauritius treaty. Almost 70-80 per cent of FDI comes through Mauritius. Until 2006, most FII investment into India also came through Mauritius. Tax officials, however, say that GAAR is necessary as there are several instances of companies or individuals trying to avoid paying tax by finding a structure that is legal but not acceptable. “The trigger for GAAR has to be what it is in most other countries and not what we had initially proposed,” says a revenue department source. Instead of applying Gaar “indiscriminately”, tax officials should isolate those who are clearly trying to launder money and avoid paying taxes. While consultants and companies agree that avoidance rules are needed, they argue that these need to be carefully framed and specific. Satya Poddar, tax partner, E&Y, says, “GAAR is not meant to broaden the scope of the law; it is only meant to properly interpret and enforce the scope of the law. In most advanced countries, it is applied only as a last resort. Governments start with very explicit rules to ensure there is no tax avoidance — these are called SAAR (specific anti avoidance rules).” He says that the Indian tax laws do not clearly identify what is permissible and what is not, and, therefore, the gaps are misused.(This story was published in Businessworld Issue Dated 28-01-2013)
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