Monthly Archives: October 2018

Explained: Recent Spat Between RBI and The Government of India

The Reserve Bank of India, known for its restraint, has now tuned combative, showcasing its resentment against the government.

At least two speeches recently made by the top RBI officials underscore the extent of the friction between the Central Bank and the Central Government.

In a speech delivered on Friday, Reserve Bank of India Deputy Governor Viral Acharya warned about the risk of undermining the central bank’s independence and called it catastrophic. He also forewarned that the rash move could trigger a crisis of confidence in capital markets that are tapped by governments (and others in the economy) to run their finances. Showing his resentment, he said that the Government that does not respect central bank independence will sooner or later incur the wrath of financial markets, ignite an economic fire, and come to rue the day they undermined an important regulatory institution.

What is the provocation for the RBI’s public expression of discomfort with the government?
In the wake of the Nirav Modi’s Rs. 13,000-crore fraud at state-owned Punjab national bank, Finance Minister Arun Jaitley questioned the RBI’S role. On Tuesday, the Finance Minister went further saying the central bank looked the other way when banks gave loans indiscriminately between 2008 and 2014. It is this indiscriminate lending Jaitley has maintained that led to the huge pile-up Non-performing Assets (NPAs).
RBI Governor Urjit Patel had earlier responded strongly asserting that the RBI did not have the same regulatory powers over public sector bank, as it does over private banks. The Reserve Bank of  India cannot replace the management and board of a public sector bank or revoke its license.

According to the RBI governor,
“In the case of private sector banks, the real deterrence to fraud arises from the market and regulatory discipline. A private bank failing to meet banks solvency standards and under RBI’s Prompt and Corrective Action would find it hard to raise capital, whereby, it would need to put the house in or order so that it can raise funds from the market and get back to the growth path.  There are incentives to invest in governance, so as to limit frauds and regulators violations. In contrast, this market discipline mechanism for public sector banks is weaker. The government or the sovereign owns these banks, so there is implicitly a stronger perceived sovereign guarantee for all creditors. Perhaps, since the original idea behind bank nationalization was complete government control over credit allocation, in India, the RBI’s regulatory powers over public sector banks are weaker than those over private sector banks.”

The RBI’s Prompt and Corrective Action (PCA), which is a regulatory intensive care for banks with deep holes in their balance sheets, is another flashpoint. There are twenty Public Sector Banks, out of which eleven are operating under emergency measures. However, the government has asked for relaxation of these norms, saying it is impacting the lending ability and therefore, growth.

Viral Acharya, in his speech, says
“Sweeping bank loan losses under the rug by compromising supervisory and regulatory standards can create a facade of financial stability in the short run, but inevitably cause the fragile deck of cards to fall in a heap at some point in future, likely with a greater taxpayer bill and loss of potential output.”

Another point of contention has been – Who will regulate India’s payment ecosystem?
An inter-ministerial committee set up for the finalization of amendments to the Payment & Settlement Systems Act, 2007 was formed by the Government under the chairmanship of Secretary, Department of Economic Affairs, which will have oversight on payments done through e-payments.

The Reserve Bank of India sent a strong dissent note to the government questioning the need for the separate payment regulator. The Payments Regulatory Board must remain with the Reserve Bank and headed by the RBI governor, it said. It also notified that having the regulation and supervision over Payment and Settlement systems with the central bank will ensure holistic benefits.

Another issue has been the government choice of directors on the RBI board. The government recently appointed charted accountant S. Gurumurthy associated with RSS affiliate swadeshi Jagran Manch on the Reserve Bank of India Board.

There is also the tussle over resources. The government is of the view that the Reserve Bank of India is sitting on excess capital and must transfer some of it to meet the government’s fiscal targets. This debate, though, is not new and has been going on for at least two years.

The RBI has said having adequate resources is a part of the central bank’s independence. The RBI believes the use of such a transfer would erode whatever confidence that exists in the government’s intentions to practice fiscal prudence.

The government on Wednesday said the autonomy of the Reserve Bank of India is “essential”, but acknowledged that it holds consultations with the central bank on several matters of public interest.

The statement came hours after reports said that the Centre had initiated talks with the RBI to consider invoking a provision under the RBI Act which has never been used before, which could empower it to issue directions to the central bank on certain matters. This provision was not used even when the country was close to default in the dark days of 1991, nor in the aftermath of the 2008 global financial crisis.

What is section 7 under the RBI Act?
Section 7 of RBI Act states:

1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.

(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.

(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.

To soften the blow, Government has come out with a clarification on the purported spat with the Reserve Bank of India. The government has said that the central bank enjoys autonomy within the RBI Act and that both the government and the RBI engage in consultations guided by public interest and the requirements of the Indian economy.

While disagreements between the RBI and government are not new, many experts feel that the particular episode has blown out of proportion, suggesting that it will have a negative effect on financial market sentiments.


Explained: Infrastructure Leasing And Financial Services (IL&FS) Crisis

India’s financial market is reeling under high selling pressure, triggering concerns about risks in the country’s shadow banking sector. IL&FS Financial Services, a group company, defaulted in payment and failed to meet the commercial paper redemption obligations which were due on September 14. The company, on September 15, reported that it had received notices for delays and defaults in servicing some of the intercorporate deposits accepted by it. ICRA, an independent and professional investment information, and credit rating agency, downgraded the ratings of IL&FS from A1+ TO D-. IL&FS crisis has jeopardized hundreds of investors, banks and mutual funds and has sparked panic among equity investors.

What is IL&FS?
IL&FS (infrastructure leasing and financial services) is over 30 years old. It is a shadow bank, a financial institution which doesn’t receive deposits like a traditional bank. Since it doesn’t take deposits, it largely escapes regulatory oversight. Its website mentions that it has financed projects worth $25 billion.

Who owns IL&FS?

A brainchild of the late MJ Pherwani, IL&FS was founded in 1987 with equity from Central Bank of India, Unit Trust of India and Housing Development Finance Co to fund infrastructure projects. IL&FS has institutional shareholders including SBI, LIC, ORIX Corporation of Japan and Abu Dhabi Investment Authority (ADIA). As on March 31, 2018, LIC and ORIX Corporation is the largest shareholders in IL&FS with their stakeholding at 25.34 percent and 23.54 percent, respectively. Other prominent shareholders include ADIA (12.56 percent), HDFC (9.02 percent), CBI (7.67 percent) and SBI (6.42 percent).

Crisis looming over IL&FS:
IL&FS has since August 27th been defaulting on payments. In order words, it is unable to meet its repayment obligations.
The group with at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures, and four associate companies is sitting on a debt of about Rs 91,000 crore. Of this, nearly Rs 60,000 crore of debt is at the project level, including road, power and water projects. A major reason behind troubles of IL&FS is complications in land acquisition. The 2013 land acquisition law made many of its projects unviable. Cost escalation also led to many incomplete projects. Lack of timely action exacerbated the problems.

Picture credits: Hindustan times

As per The Indian Express report,  disputes over contracts have locked about 90 billion rupees of payments due from the government. The company is also impacted by the increased in the interest rates in short-term borrowing.
IL&FS’ investors include banks, insurance companies, and mutual funds. Now, a leading infrastructure finance company like IL&FS defaulting results in loss of confidence and will, experts say, mean that investors will stay away from debt instruments of other Non-Banking Financial Companies and Housing Finance Companies. IL&FS has defaulted on commercial papers or CP, which are considered low-risk investments and so mutual funds are invested in it.

Hemindra Hazari, an independent market analyst, writing in The Wire, says, “With so many luminaries of the corporate world on the board, management oversight and accountability should have been all-pervasive and senior management emoluments should have tracked performance. But a look at the firm’s annual reports depicts a disturbing picture.”

Raghav Bahl argues in BloomberQuint

Finance Minister Arun Jaitley has said the government will take all measures to ensure that adequate liquidity is provided to non-banking financial companies or NBFCs, mutual fund houses, and small and medium enterprises or SMEs, after the stock and bond markets were rattled by the IL&FS crisis.

Last month, The National Law Company Tribunal (NCLT) allowed the Government to take control of IL&FS.  The last time the Government had moved to take control of a company was in the wake of the Satyam Scandal in 2009.

The government superseded the existing board of debt-laden Infrastructure Leasing & Financial Services (IL&FS) with six new board member, appointing Kotak Mahindra Bank MD Uday Kotak as Chairman of the board. The government also nominated technocrats who have had varied experience in their careers.

All eyes are on the newly constituted board of Infrastructure Leasing and Financial Services (IL&FS), which has been tasked to come up with a rescue plan for the company by tomorrow.


DoT Directs Telecom Companies To stop Using Aadhaar-Based e-KYC

NEW DELHI: The Department of Telecommunication (DoT) has barred telcos from using Aadhaar-based digital authentication in line with a Supreme Court order of September 26 that struck down the use of Aadhaar by private entities for digital authentication. 

It came as big blow to the likes of Reliance Jio, Bharti Airtel and Vodafone Idea, who now have to revert to the more time-taking and costly means of physically verifying subscriber details, till an alternate method is implemented.

The DoT, in its notification issued on Friday, has also said that telecom companies should prepare to adopt an alternate digital process, a customer acquisition form (CAF), which would be embedded with photographs of subscribers and scanned images of a proof of address and identity.

This will make the whole process digital and paperless.

“..all licensees are to discontinue the use of Aadhaar eKYC (electronic know your customer) service of Unique Identity Authority of India (UIDAI) both for verification as well as for issuing new mobile connections,” said the Department of Telecommunications (DoT) on Friday.

The DoT also directed all the operators to stop using the Aadhaar-based e-KYC for verification with immediate effect.

The operators have been given time till November 5 to comply with the order. They also need to prepare and showcase the proof of the concept by November 5th.

The DoT letter also states that the telcos need to remove the Aadhaar-based column in their customer acquisition forms and can use the 12-digit unique identity code as an identity proof like other identification proof, without the authentication feature, on a voluntary basis.



SC Grants Two Weeks’ Time To CVC To Conclude The CBI Matter

The Supreme Court on Friday gave the CVC two weeks’ time to conclude its inquiry into the current CBI mess.

The court was hearing CBI chief Alok Verma’s plea against the Centre’s order to divest him of powers and send him on leave.

A bench of Chief Justice Ranjan Gogoi and Justices SK Kaul and KM Joseph heard the plea.

Senior advocate FS Nariman opened arguments on behalf of the CBI chief.

Nariman told the court that the CBI director was appointed with the approval of the selection panel comprising the PM, Leader of Opposition and the CJI.

Nariman refers to the CVC and Centre’s orders divesting Verma of his duties. He also cites the Vineet Narain judgment to support Verma’s plea.

The SC said the CVC inquiry on allegations and counter-allegations in the agency should be completed in 10 days under the court supervision.

The Centre and CBI will provide the CVC report to the court in a sealed cover within 10 days, the court said.

The CVC said 10 days for the CBI inquiry were not sufficient as it had to look into several documents.

The apex court issued notice on pleas by Verma and NGO Common Cause to CBI and the Centre.

The Supreme Court granted two weeks’ time to CVC to conclude the probe.

SC ex-judge A K Patnaik would oversee the CVC inquiry said the apex court.

Interim CBI chief M Nageswar Rao would not take any major policy decisions, the court said.

Decisions taken by Rao from October 23 to date would not be implemented, the SC said.

The court posted the next date of hearing as November 12.

The court said the decisions taken by Rao till date had to be placed before it in a sealed cover.

CM Kejriwal, Deputy And Nine MLAs Get Bail In CS Assault Case

New Delhi: Delhi Chief Minister Arvind Kejriwal, his deputy Manish Sisodia and nine other AAP MLAs were today granted bail by a court here in the Chief Secretary Anshu Prakash assault case.

The relief was granted after they appeared before the court in pursuance to the summons issued to them and moved the bail applications, which were not opposed by the Delhi police.

Prakash was allegedly assaulted during a meeting at Kejriwal’s official residence on February 19.

Additional Chief Metropolitan Magistrate Samar Vishal granted bail to all the 11 accused on a personal bond of Rs 50,000 and one surety of like amount, with a direction not to tamper with the evidence or intimidate or approach any witness in this case or try to influence the trial in any manner.

“All these accused persons have not been arrested during the investigation, have cooperated in the investigation and appeared today,” the court said.

The court also noted the submission by the public prosecutor on behalf of Delhi police there the need for the arrest of the accused persons had not arisen during the investigation.

“Further all accused are highly placed persons and have deep roots in the society and elected members of Legislative Assembly of Delhi,” the court said.

The other two MLAs — Amanatullah Khan and Prakash Jarwal — who are also accused and were earlier arrested in the case were granted bail by the Delhi High Court.

The court put up the matter for further hearing on December 7 for the scrutiny of documents after the police supplied copies of charge sheet and all documents annexed with it, along with the CDs, to the accused persons.

The alleged assault had triggered a bitter tussle between the Delhi government and its bureaucrats.


In a move dubbed by the Government critics as a ‘midnight coup’, the Modi Government divested of his charge and also sent on leave the close ally of CBI Director Alok Verma, against who he had initiated corruption proceedings. Rakesh Asthana against whom proceedings are being carried out is an Indian Police Service officer (IPS) of the 1984 batch of Gujarat cadre.

In a pre-dawn order, the Government appointed Joint Director M. Nageswara Rao as interim CBI chief.

Last week, CBI filed an FIR against its Special Director Rakesh Asthana, an officer believed to have been hand-picked by the Prime Minister Narendra Modi. What has Rakesh Asthana been accused of?

The CBI says its Special Director Rakesh Asthana and his juniors were running an extortion racket in the garb of the investigation. As per the FIR filed by CBI, Asthana demanded and accepted a bribe from a business associate of meat exporter Moin Qureshi for dropping proceedings against him. The Central Bureau of Investigation had placed in the public domain a copy of its first information report detailing the charge of bribery against its special director Rakesh Asthana for bribery.

Moni Qureshi, who was arrested by the Enforcement Directorate (ED) last year is accused, among other things, of helping government officials launder money. Here is a report by Live Mint from last year.  

Last year, the appointment of Rakesh Asthana as the Special Director was challenged in the Supreme Court on the grounds of lack of integrity. The petitioner had then cited a corruption investigation into Gujarat-based Sterling Biotech, a company that maintained diaries of bribes in which Asthana’s name had reportedly appeared. In response, Asthana alleged that director Alok Verma had sought to impede his functioning, interfere in the investigation and malign his reputation based on unverified facts. 

With Alok Verma now sent on leave., what happens to the probe against Asthana?

It is a pertinent question given the fact that Alok Verma’s aide, Deputy SP Ajay Bassi and the other investigating officers of Asthana’s bribery case have all been transferred to Port Blair, in what the government called as ‘Public Interest’. Joint Director Arun Kumar Sharma overlooking the probe, too, has been transferred. In fact, the entire team formed by Alok Verma has been removed.

Verma has moved the Supreme Court against the Centre’s decision and his plea will be heard on Friday.

CBI Deputy Inspector General Tarun Gauba, Superintendent of Police Satish Dagar and Joint Director V Murugesan will investigate charges against Asthana, ANI reported.

In 1997, Supreme Court judgment in Vineet Narain laid down fixed tenure. It said that the director shall have a tenure of a minimum of two years, regardless of the date of his superannuation. It also mentioned that the transfer of an incumbent Director in an extraordinary situation should have the approval of the selection committee.

Section 4B of the Delhi Special Police Establishment Act, says:

(1) The director shall, notwithstanding anything to the contrary contained in the rules relating to his conditions of service, continue to hold office for a period of not less than two years from the date on which he assumes office.

(2) The director shall not be transferred except with the previous consent of the (selection) committee referred to in sub-section (1) of Section 4A.”

The selection of a CBI Director is governed by the Lokpal Act under which the director is appointed by a committee, including the Prime Minister, the Chief Justice of India and the leader of the opposition. Finance Minister Arun Jaitley said that the removal of CBI Director was done based on the recommendations of the Central Vigilance Commission. But, as per the CVC act, the CVC supervisory powers over the CBI are only limited to probe under the Prevention of Corruption Act.

There are immediate and arguably more serious dimensions to this crisis. And it revolves around how to repair the image of a CBI riven by a nasty feud, how to protect its independence, and how to address the mess contributed by a government that should have acted much earlier to resolve the controversy rather than let it attain the ugly dimensions it did.


IBBI Notifies Procedure For Issuing Regulation Under Insolvency Law

The Insolvency and Bankruptcy Board of India has notified the procedure that needs to be devised for issuing regulations under the insolvency law.

An official release issued today notified that for making or amending regulations under the Insolvency and Bankruptcy Code, a set of procedures would be followed.

Section 196 (1) (s) of the Code requires the IBBI to specify mechanisms for issuing regulations, including the conduct of public consultation processes, before notification of regulations.

Under the mechanism, as stated by the notice, a draft of regulations would be put out for public consultations as well as a statement of the problem that the proposed regulation seeks to address. Among others, there would be an economic analysis of the proposed regulations and a statement carrying relevant norms advocated by international standard-setting agencies and the international best practices.

“The IBBI shall allow at least twenty-one days for the public to submit their comments. If the governing board (of the IBBI) decides to approve regulations in a form substantially different from the proposed regulations, it shall repeat the process under the issuing regulations,” the release said.

The release also mentioned that “…the IBBI is of the opinion that certain regulations are required to be made
or existing regulations are required to be amended urgently.”

In case, there is an urgent need for issuing or amending regulations, then the consultation process could be done away with.

Read the notification here:

Press release mechanism regulations


Only Bharat Stage VI Vehicle To Be Sold From 2020: SC

New Delhi: The Supreme Court Wednesday said that no Bharat Stage IV vehicle shall be sold across the country with effect from April 1, 2020.

The Bharat stage emission standards are standards instituted by the government to regulate the output of air pollutants from motor vehicles.

A three-judge bench headed by Justice Madan B Lokur made it clear that only BS VI compliant vehicle shall be sold in the country from April 1st, 2020.

The Bharat Stage VI (or BS-VI) emission norm would come into force from April 1, 2020, across the country.

The bench said the need of the hour was to move to a cleaner fuel.

The BS IV norms have been enforced across the country since April 2017.

In 2016, the Centre had announced that the country would skip the BS-V norms altogether and adopt BS-VI norms by 2020.

The apex court was deciding whether grace period should be given to automobile manufacturers for the sale of BS-VI non-compliant vehicles after April 1, 2020.

At a previous hearing, advocate Aparajita Singh, assisting the top court as an amicus curiae in the air pollution matter, had opposed the government’s move to give time till June 30, 2020, to automobile manufacturers to sell their BS-VI non-compliant four-wheelers manufactured till March 31, 2020.

The amicus had also opposed the government’s proposal to give grace period till September 30, 2020, for the sale of BS-VI non-compliant heavy transport vehicles.

The automobile manufacturers had justified the grace period to sell their vehicles contending that India was leapfrogging from BS-IV emission norms to BS-VI within a short span of time.

The manufacturers had argued that they were allowed to manufacture BS-IV vehicles till March 31, 2020, and they should be granted reasonable time to sell their stock.

SC Allows Sale, Use Of Firecrackers This Diwali But With Conditions

NEW DELHI: There will be no blanket ban on the sale of firecrackers this Diwali. The Supreme Court on Tuesday issued a slew of directions to limit the impact on worsening air pollution. Only less polluting, green firecrackers sale will be allowed.

Green crackers are “reduced emission crackers”. According to the Council of Scientific and Industrial Research, firecrackers that cause 30-35% lower emission of particulate matter (PM10 and PM2.5) and 35-40% lower emission of sulfur dioxide (SO2) and nitrogen oxide are categorized as “green crackers”.

A ban on firecracker sale online will come into effect restraining e-commerce website from selling firecrackers through e-portals. The court has fixed time and duration for the bursting of firecrackers. For Diwali and other religious festivals, the bursting of firecrackers will be allowed between 8 pm and 10 pm. On Christmas and New Years, though,  it will be allowed only between 11:55 pm to 12:45 am.

Only designated community areas in the Delhi NCR region identified by the Central Pollution Control Board will be allowed for the bursting of crackers.

Supreme Court verdict came on a petition filed in 2015 by three toddlers through their advocate fathers seeking to exercise their right to clean air as a part of their right to life.  The petition has cited, “Our lungs have not yet fully developed and we cannot take further pollution by bursting crackers. Dr. Arvind Kumar, Chairman of Centre for chest surgery and lung transplantation at Sri Ganga Ram hospital who had endorsed the petitioner’s case in Court, had said, “After Diwali celebrations, pollution level was such that it was equivalent to smoking 50 cigarettes a day.”

Firecracker manufacturers had opposed the ban, as it would lead to economic hardship to many casual workers employed in the sector. A sizeable loss of revenue is also likely.

SC Asks Centre To Equip JJB With Video-Conferencing Facility

The Supreme Court on Monday asked the Centre to notify it on whether the Observation Homes and Juvenile Justice Boards are equipped with the video-conferencing facility.

Observation Home is an institution, where neglected and delinquent juveniles are kept for a few weeks during an inquiry or trial.

A bench of Justices Madan B Lokur and Deepak Gupta referring to the provisions of the Juvenile Justice (Care and Protection of Children) Act said: “The Act mandates that observation home should be there in every district. It is better to have a home which is properly maintained and have video conferencing facility.”

The bench also added that in the long run, it will be cheaper for the states and also comfortable for children and there will no need to take a child 200 kilometer just to attend the Juvenile Justice Board.

Justices Madan B Lokur and Deepak Gupta also directed all the trial courts across the country to consider the possibility of cutting a list of witnesses, in consultation with public prosecutor and defense counsel.

It said trial courts should also consider releasing poor under-trials on personal or bail bonds of a limited amount.

Directing to consider the application of section 309 of the Code of Criminal Procedure (CrPC), the bench told center to ensure that when a witness appears before the court, he or she should be examined.

The bench said that video-conferencing facility in JJBs and observation homes should be there. It contended that it would be cheaper for the states and also comfortable for the minors in a situation where a juvenile has to travel for five to six hours to be produced before the JJB.

The court passed these directions while hearing a matter related to deficiencies in jails as highlighted by two apex court judges (one of them has retired) during their visit to Faridabad jail and an observation home in June this year.