Fino-Graphic #3 – L.O.U.

– Prasun Banerjee,   Editor TJEF

The banking system functions on the very foundation of trust between the lender and the creditor. Businessmen borrow money to build assets which supposedly churn more money when put to use. These businesses should have the competitive advantage to repay not only the principle but also the timely interests attached with the borrowed sum from the banks. Yet, history has numerous examples, when people tried to dupe the system and exploit loopholes to embezzle.

One such facility (/loophole) being employed on Indian banks have recently heated up the socio-political environment. The dent that has been caused on the coffer of Punjab National Bank (PNB) is in the tune of one-third of the re-capitalization amount that the bank is allocated. The LOUs which have led to such a massive loss, is being explained in a pictorial format.

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#Fincabulary 37 – Letter of Undertaking

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Source: https://depositphotos.com/

The term LoU or Letter of Undertaking has recently been in news in wake of the banking fraud concerning Punjab National Bank and Nirav Modi. A LoU is a provision of bank guarantees under which a bank can allow its customer to raise money from another Indian bank’s foreign branch in the form of a short-term credit. The LOU serves the purpose of a bank guarantee for a bank’s customer for making payment to its offshore suppliers in the foreign currency.

For raising the LOU, the customer is supposed to pay margin money to the bank that issues the LOU and accordingly, they are granted a credit limit. Once the letter of credit is acknowledged and accepted, the lender (the foreign branch of Indian bank) transfers money to the nostro account of the bank that has issued the LoU.

#Fincabulary 36 – Correction

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Source: https://www.newstalk1160.com

Meaning – A correction is a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. The latest stock market correction occurred on February 8, 2018 as the DJIA and the S&P 500 fell more than 10% from their recent highs hit in late January, 2018.

Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either. A correction is very different from a crash since it measures the percentage decline from the most recent high. A crash is generally considered to be a 10% or more decline, irrespective of the most recent high. For investors, corrections provide a chance to see how truly comfortable they are with market risk, and to make changes to their portfolio if warranted. They also provide investors with an opportunity to potentially add companies at discounted prices, or to dollar cost average down on existing positions.

Budget Series 2018-19 : #5 Impact on Telecom Sector

By TJEF Editor Junitha Johnson

The Telecom Sector is deeply disappointed that Budget 2018 has not addressed any of the key issues of the financially stressed telecom industry that is already plagued by brutal price wars and high debt, upwards of Rs 7 lakh-crore. Quoting Rajan Matthews, director general of Cellular Operators Association of India (COAI) –

 

“The telecom industry is disappointed that none of its key asks have found mention in finance minister Arun Jaitley’s budget. We had sought a reduction in the high levies and taxes, and an urgent intervention for resuscitating the sector, which is currently experiencing its worst financial health and hyper competition,” 

In the past few years, the Telecom Sector has seen considerable reduction in the profitability primarily due to reduced tariffs, increased competition and increase in costs due to spectrum purchases. Further, unprecedented increase in adoption of digital services such as payments, e-governance and entertainment has made further investments in the telecom infrastructure sector a necessity.

In the above backdrop, this sector has been pushed into a wave of consolidation as also increased investments in networks, to keep pace with changes. This has increased the pressure on the already debt laden companies in the sector.

The Telecom Industry’s expectation from the Budget 2018 were high, following are the certain expectations –

  • Clarity on tax treatment of spectrum payment
  • Characterization of telecom services as royalty
  • Amendment to the definition of ‘industrial undertaking’ to include telecom infrastructure service providers
  • Benefit of Investment Allowance should be provided to telecom infrastructure service providers

The salient points of the Budget 2018 with regards to the Telecom industry are as follows: –

  • Custom duty on mobile phones up from 15% to 20%
  • Corporate tax rate cut to 25% for companies with up to Rs 250 crore turnover
  • 1 lakh Gram Panchayats are connected to optic fibre; 5 lakh Wi-Fi spots to be created in rural areas
  • Rs 10,000 crore announced for creation and augmentation of telecom infrastructure
  • Broadband access to over 20 crore rural Indians in 2.5 lakh villages

In our opinion the Budget has not been in line with expectations of the industry. The Government, as per Mathews said the finance minister “had completely ignored” the sector’s four key demands, including the immediate reduction of high and unsustainable levies & taxes, cut in basic customs duty on 4G network gear, clarity on right of way (RoW) related taxation at the state level and the industry’s call for a lower tax rate to 1% on discounts extended to small dealers.

 

Budget Series 2018-19 : #4 Impact on Healthcare Sector

By TJEF Editor Gandhali Inamdar

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The Union Budget 2018-19 has provided a big opportunity to the entire Healthcare industry and allied services to address the healthcare needs of a large population of the country. As envisioned under the National Health Policy 2017, the Union Budget 2018–19 has taken a long stride towards Universal Health Coverage, with focus on increasing the health coverage for the underprivileged and the bottom-of-pyramid section of the society. This budget is in line with industry expectations of an increase in insurance coverage, especially for those below the poverty line.

Under the cover of ‘Ayushmaan Bharat’, the government has announced measures to holistically cover primary, secondary and tertiary care services. The National Health Protection Scheme is at the forefront of this programme. This scheme will cover 10 crore families with an annual coverage of 5 lakh per family. This is a significant increase from the coverage under the ‘Rashtriya Swastha Bima Yojana’, which benefits 45-50 crore families by providing access to secondary and tertiary care services. The proposal of setting up 1.5 lakh health and wellness centres will bring primary health care to every household by providing essential drugs and diagnostics free of cost. By increasing government support and coverage, this will boost demand for medical services in the country, giving an opportunity to healthcare providers and insurance companies to partner with the government. It will also reduce the financial and mental burden of healthcare costs on the less privileged. Reduction in household Out-of-Pocket (OOP) expenditure on healthcare will lead to increased disposable income which with time will give an impetus to the economy. Support for Tuberculosis (TB) patients during the period of treatment will further lead to increase in demand for nutritional supplements and is a welcome step to ensure a TB-free India.

The budget also proposes steps to address the shortage of qualified medical personnel. It propagates setting up of at least one medical college for three parliamentary constituencies and one Government college per state. Further, 24 new government medical colleges and hospitals will be established by upgrading existing district hospitals. This will further enhance quality and accessibility of medical education and healthcare. Amidst all the initiatives, more clarity is required regarding the breakdown of allocated Budget and a roadmap to implement these plans. Convergence with existing government schemes needs to be considered to reduce hurdles during implementation. Barring the announced efforts to increase medical colleges, more efforts are required to reduce the existing manpower and skill gap. There was also no mention of measures to support investment and collaboration with technology to upgrade the quality of care. The government needs to incentivise healthcare providers to imbibe technology and digitise the healthcare sector.

India has been long lagging in its expenditure on health at a global level, the Union Budget 2018 does help in increasing it from 1.5% to 2.5% of GDP, the first positive step on a long path for healthy India. Implementing these measures on the envisioned scale will require close coordination of the centre, state, and districts with healthcare and insurance providers. Even with good intentions, there is need to ensure adequate quality measures are adopted and adhered to.

Budget Series 2018-19: Fino-Graphic #2 – LTCG tax

– Prasun Banerjee, Editor TJEF

This Budget Season, we witnessed huge drama on the stock market, with Finance Minister announcing the revival of the LTCG-tax of 10%, the market nose-dived and continued to do so until the magical word of “grandfathering” announced by Mr. Arun Jaitley. Here we try to pictorially depict what LTCG-tax means in Indian context and its implications. Feel free to comment, how you feel about it.

LTCG TJEF