Looking for smooth transfer of your assets to your legal heirs. Our guest columnist CA (Dr.) Suresh Surana helps you with the easy way out The subject of Estate Planning has always engaged the kings and the common men alike. Estate planning requires a thoughtful plan weighing various alternatives and deciding "whom" to give, "how much” to give, "when" to give and in "what form" to give one’s estate. Your estate may comprise of immovable properties, shares and securities, financial assets, jewellery and other assets acquired by you by years of hard work and by way of ancestral property. Estate Planning helps an individual to ensure smooth succession and avoiding disputes, protection and enhancement of estate and providing financial security to your near and dear ones. The two most common ways of succession are: • Direct transfer (by way of gift or bequest in the Will) • Creation of a Private Trust where beneficiaries’ are ascertained or ascertainable individuals. A private Trust in India is governed by the Indian Trust Act, 1882. Generally speaking, Direct transfer is simpler and does not require administration and is more appropriate where the Estate is not very significant. Further, in case of immovable property, direct transfer is more tax efficient. The gifts between specified close relatives are tax exempt and transmission of assets on inheritance is also tax exempt. Further, for the successor, the income from one self-occupied house property is not liable to notional tax and until last year, was exempted from wealth tax as well (now abolished). The direct transfer can further be eased by “Nomination” in case of shares, securities, bank accounts and premises in co-operative societies so that one does not have to wait for the Will to be probated for transmission to the nominee. In cases where the Estate is significant, the Trust structure may present an interesting option. The following persons/ entities are necessary for creation of a trust a) Settlor or author of the trust who creates the trustb) Trustee is the person who holds and administers the property for the benefit of another/others c) A beneficiary/ies who is/are benefited by the trust. The beneficiaries can have specified shares (called “specific trust”) or undefined shares at the discretion of the trustees (called “discretionary trust”). Certain benefits which result due to a Trust structure, include (i) Retention of Control over property with Trustee (ii) Enjoyment of benefits from property during lifetime of Settlor, (iii) Protecting assets in case of heavy liabilities or bankruptcy, (iv) Possibility of contesting of Will and litigation substantially reduced (v) Helps avoiding probate procedure resulting into saving in time & costs (vi) Provides greater flexibility in distribution of estate and contingent distribution. As a result, where a large family is involved or some of the beneficiaries are minor or where the underlying asset is incapable of division, the trust may be more appropriate. Certain aspects which need to be considered before going for the trust model for asset protection include (i) critical to identify competent Trustees with integrity (ii) Title transfer costs – registration fees, stamp duty, etc. (In Maharashtra, stamp duty is 3% in case of movable property and 3% to 5% depending upon the location of immovable property in case of private trust). From a tax perspective, the tax treatment of the trusts is not very friendly. In India, there is no estate duty or inheritance tax and as a result, one of the greatest reasons for use of trusts globally is not applicable in India. Generally, the transfer of assets under a Will would not be liable to tax in India but transfer made during the lifetime of the person may need to be examined from tax perspective. In case of an irrevocable trust, where shares of beneficiaries are known, income is taxed as per the rates applicable to beneficiaries in the hands of beneficiaries, but where shares of beneficiaries are unknown or where any of the beneficiaries is having taxable income, income is taxed at maximum marginal rate (i.e. 30% plus surcharge and cess) in the hands of Trustee as representative of Trust. To conclude, Direct transfer is simpler and does not require administration and is more appropriate where the Estate is not very significant. In cases where the Estate is significant, the Trust structure presents enormous flexibility and succession possibilities with estate protection but the same needs to be carefully examined from tax perspective.
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Axis Bank Ltd, India's third-biggest private sector lender by assets, reported a better-than-expected 19 per cent increase in quarterly profit even as bad loans rose. Net profit rose to Rs 1,978 crore ($310 million) for its fiscal first quarter to June 30 from Rs 1,667 crore a year earlier, the bank said in a filing. Analysts on average had expected a net profit of Rs 1,939 crore, according to data compiled by Thomson Reuters. Gross bad loans as a percentage of total loans rose to 1.38 percent in the June quarter from 1.34 per cent in the previous three months.(Reuters)
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Newest bank in UK, Atom, comes with global tech giant FIS to offer digital banking, reports Haider Ali Khan To serve banking customers on the go, Atom, the UK banking market partnered with FIS, a global banking and payments technology, consulting and outsourcing solutions. The Atom business model has been designed entirely for digital use with customers conducting their banking through an app that is supported by FIS core systems. The Bank of England’s Prudential Regulation Authority has recently authorized Atom to be the newest entrant in the UK banking. FIS is located in the United States. They provide banking technology worldwide that are already supporting 8 of the world’s 10 largest banks and 14,000 clients across the world. Their data centres in the UK they will provide and manage a fully integrated banking and payments platform for Atom through a totally outsourced delivery model. Stewart Bromley, Atom director of customer experience said, “Designed entirely for the digital age, with an app the likes of which have not been seen in the UK banking market, Atom is perfectly positioned to provide outstanding service and value for personal and for business customers. As a fully-fledged bank Atom offers complete control and protection to our customers as well as holding true to our principles and values all the way through the business. Partnering with FIS allows us to plug our products and systems into a proven back-end solution with global credentials that streamlines our efforts so we can focus on growth without worrying about underlying technology. Atom Bank’s model, built on its partnership with FIS, is the next step forward from thin skim fintech apps that have been filling the void before the arrival of the truly digital banks.” Explaining the importance of the partnership, Edward Twiddy, Atom chief operating and innovation officer said, “We have always been determined to offer customers control and assurance over service quality. We are not interested in designing a great front end simply to bolt this onto all the cost and reputational issues of an existing High Street bank’s operating model. To do this we need an unparalleled quality of service and depth of partnership with our core technology partner; we have found that in FIS.” Peter Schurau, EVP, global financial solutions at FIS said, “Atom needed a partner with proven capabilities in delivering banking-on-demand solutions. Outsourcing its banking infrastructure to FIS allows the bank to get to market faster and better compete with traditional high street banks, while building its business and delivering the best possible service to customers. We are thrilled to be confirmed as Atom’s core technology partner and to be so closely involved in bringing this exciting new digital-only bank to market.”
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As per the draft document, the RBI loses control on monetary policy committee while Unified Financial Agency subsumes other regulators like IRDA, Sebi, PFRDA and FMC. Sunil Dhawan reads between the lines The contours of the Indian financial system is set to change. The draft document of the Indian Financial Code 2015 (IFC) is out in public domain and is here to create a stir in the financial space of the country. The IFC is intended to create a single unified and internally consistent law replacing a large part of the existing Indian legal framework for governance of the financial sector. If the draft document of the Indian Financial Code 2015 (IFC) takes shape, the first big casualty will be none other than the central bank of the country, the Reserve Bank of India. But then, there are more upsets in store too with many other regulators of the financial products losing their ground. Where RBI Loses Ground: The monetary policy committee (MPC) which has been the domain of RBI may soon bring government’s role into the picture. The revised draft suggests four government nominated members in the seven member MPC of the RBI. A big task of the MPC is to determine by majority vote the Policy Rate required to achieve the inflation target. As per the draft - The Monetary Policy Committee will comprise of(a) The Reserve Bank Chairperson as its chairperson. No more usage of the word Governor. (b) One executive member of the Reserve Bank Board nominated by the Reserve Bank Board(c) One employee of the Reserve Bank nominated by the Reserve Bank Chairperson(d) Four persons appointed by the Central Government The other big impact: It was a common knowledge by now that different regulators for different financial instruments is creating an uneven ground towards regulating and developing of the sector. The demand for a common regulator increased especially after the face-off between IRDA and SEBI a few years back with regards to the pension plans. The draft Code seeks to move away from the current sector-wise regulation to a system where the RBI regulates the banking and payments system and a Unified Financial Agency subsumes existing regulators like SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets. What’s the Code all about: The Financial Sector Legislative Reforms Commission (FSLRC), constituted by the Ministry of Finance in March 2011, was asked to comprehensively review and redraw the legislations governing India’s financial system. According to the FSLRC, the current regulatory architecture is fragmented and is fraught with regulatory gaps, overlaps, inconsistencies and arbitrage. To address this, the FSLRC submitted its report to the Ministry of Finance on March 22, 2013, containing an analysis of the current regulatory architecture and a draft Indian Financial Code to replace the bulk of the existing financial laws. End Note: The IFC 2015 will be an Act to regulate the financial sector and to introduce principles for financial regulation and the constitution, objectives, powers and interaction of Financial Agencies and to bring coherence and efficacy in the financial regulatory framework. The Act would for sure be well thought out programme for developing India’s financial lifeline but the decision to take away the RBI’s right in determining the monetary policy of the country may have its own long term impact. sunil@businessworld.in
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As mobile phones become more functional, mobile money will clearly emerge as the banking solution for the unbanked, writes Srinivas NidugondiMobile money, a digital money paid for a wide range of products or services through a mobile device is revolutionising financial access, especially for the unbanked.As per World Bank estimates, 2.5 billion people across the world, lack access to formal financial services. The primary reasons for this include:Insufficient banking servicesIn the absence of banking services, people have to rely on cash transactions, which are both inconvenient and unsafe. These are the exact reasons why mobile money finds favour. With its growing penetration, the mobile phone provides a low cost and highly accessible platform that formal banking systems are unable to provide.Change of PowerFrom offering person-to-person transfers, bill payments and point –of-sale purchase options, mobile money clearly shifts the balance of power in favor of customers. Some of the areas where mobile money can particularly benefit unbanked people include:Quicker recovery from economic shocks Efficient receipts of money transfers post any disasters Access to savings, credit and insurance opportunitiesLittle surprise then that the number of registered mobile money accounts worldwide, reached 299 million in 2014. However, in terms of percentage, they still represent a low 8 per cent of the mobile connections in markets where mobile money services are available.To achieve scale, mobile money providers will need to circumvent the following challenges, especially in rural areas:Logistics and delivery: Lack of infrastructure in rural areas can create logistical challenges. Local partnerships along with flexible agent financing are some of the aspects that providers are leveraging to address these challenges.Clearly communicating benefits: A compelling value proposition that will be different for rural and urban consumers, aided by a thorough understanding of their saving and buying patterns, can go a long way in optimising usage.User-friendly service: A user-friendly interface is one of the primary factors that will help in customer on-boarding. This is especially significant for customers with low literacy levels.Substitution of formal identification documents: The lack of formal identification documents is a major stumbling block as far as traditional banking is concerned. Substitution of these documents with acceptable KYC documentation within the regulatory framework can go a long way in customer adaptation.Other than mobile money, providers are now expanding the mobile financial services, to include:Mobile insuranceMobile savingsMobile credit to customersClearly, mobile financial services are set to impact a customer’s social and economic lives, especially the base of pyramid community where literacy levels are low and income is often sporadic. As mobile phones become more functional and less expensive, mobile money will clearly continue to emerge as the banking solution for the unbanked.(The author, Srinivas Nidugondi, is Senior Vice President & Head of Mobile Financial Solutions, Mahindra Comviva)
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IDFC Ltd said on Friday the Reserve Bank of India had granted banking licence to the financial company, making it the second lender to enter the banking sector after more than a decade. Indian microfinance company Bandhan Financial Services and Mumbai-based IDFC were the only two companies to be granted preliminary bank permits last year. Yes Bank was the last bank to be set up, in 2004. Bandhan said in June it would launch banking operations in August. Millions of people in India do not have access to formal banking services. The move to grant new permits marked the start of a cautious experiment to create more competition in a sector dominated by state lenders, many of which are reluctant to expand into rural areas or towns where banking penetration is low. (Reuters)
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Twenty-two financial companies that have served as primary dealers of U.S. Treasury securities were sued in federal court on Thursday, in what was described as the first nationwide class action alleging a conspiracy to manipulate Treasury auctions that harmed both investors and borrowers. The State-Boston Retirement System, the pension fund for Boston public employees, accused Bank of America Corp's Merrill Lynch unit, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank, Goldman Sachs Group Inc, HSBC Holdings Plc, JPMorgan Chase & Co, UBS Group AG and 14 other defendants of illegally trying to profit on the sale of Treasury bills, notes and bonds at investors' expense. According to the pension fund's complaint, filed in U.S. District Court in New York, the banks used chat rooms, instant messages and other means to swap confidential customer information and coordinate trading strategies in the roughly $12.5 trillion Treasury market. This enabled the banks to inflate prices on Treasuries they sold to investors in the pre-auction "when issued" market, and deflate prices when they bought Treasuries to cover their pre-auction sales, violating antitrust laws, according to the complaint. Primary dealers are the banks authorized to transact directly with the Federal Reserve. They are big players in Treasury bond auctions and act as market makers in the secondary market. The pension fund said its "expert economists" observed wide gaps between when-issued and auction prices around December 2012, but that these gaps narrowed significantly as the U.S. Department of Justice and other regulators began probing alleged manipulation of the London interbank offered rate, a benchmark used to set interest rates for trillions of dollars worth of loans around the world. "The only plausible explanation for the sharp break," the fund said, "is that defendants felt the heat of the DOJ's ongoing investigation into Libor, and ceased their efforts to manipulate the Treasury securities market because defendants' Treasury traders feared that they too would be prosecuted." Media reports last month said the Justice Department was also investigating possible collusion in Treasury auctions. "The scheme harmed private investors who paid too much for Treasuries, and it harmed municipalities and corporations because the rates they paid on their own debt were also inflated by the manipulation," Michael Stocker, a partner at Labaton Sucharow, which represents State-Boston, said in an interview. "Even a small manipulation in Treasury rates can result in enormous consequences." The lawsuit seeks class-action status on behalf of investors in Treasury securities, including futures and options, from 2007 to 2012, and unspecified triple damages. Spokespeople for Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman, HSBC and UBS declined to comment. Other banks had no immediate comment or were not reached. The case is State-Boston Retirement System v Bank of Nova Scotia et al, U.S. District Court, Southern District of New York, No. 15-05794. (Reuters)
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In a move that may dilute powers of RBI chief, the government on Thursday (23 July) proposed taking away his authority to veto the interest rate decision of the central bank's monetary policy committee. The revised draft of Indian Financial Code (IFC), released today by the Finance Ministry, has also proposed that the all-powerful committee would have four representatives of the government and only three from the central bank, including the 'RBI Chairperson'. The draft talks of 'RBI Chairperson' and not 'RBI Governor'. RBI is headed by a Governor, at present. The IFC, which is conceived as an overarching legislation for the financial sector, proposes a monetary policy committee which will be entrusted with the task of deciding the key policy rate and chasing the annual retail inflation target to be decided by the government in consultation with RBI. "Inflation target for each financial year will be determined in terms of the Consumer Price Index (CPI) by the Central Government in consultation with the Reserve Bank every three years," said the draft on which the Finance Ministry has invited comments till August 8. Further, it said the RBI "must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target". At present, the RBI Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance. The first draft, submitted in March 2013, too had talked about the committee and majority vote, but gave powers to RBI chairperson to supersede the decision of the panel. "In exceptional and unusual circumstances, if the RBI Chairperson disagrees with a decision taken at a meeting of the Monetary Policy Committee, the RBI Chairperson will have the right to supersede such decision," it had said. The provision was dropped in the revised draft. As per revised draft there will be three members from the RBI side and four from the central government, thus giving full control to the government on policy rate.
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