Biggest U.S. banks clear first hurdle in Fed’s annual stress tests

Biggest U.S. banks clear first hurdle in Fed's annual stress tests

The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday. Although the banks, including household names like JPMorgan Chase & Co and Bank of America Corp, would suffer $383 billion in loan losses in the Fed’s most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year’s level. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell, who leads banking regulation for the central bank. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.” The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy. Since the first test was conducted in 2009, big banks have seen losses abate, loan portfolios improve and profits grow. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said.

PM Narendra Modi set to visit US, Donald Trump administration clears Guardian drone deal

PM Narendra Modi set to visit US, Donald Trump administration clears Guardian drone deal

Days ahead of Prime Minister Narendra Modi’s visit, the US has cleared the sale of the state-of-the-art Guardian UAV technology to India, to further mutual security interests to protect the Indian Ocean. This is the first significant progress after India gained membership of the exclusive Missile Technology Control Regime and the US named India as a major defence partner. The Indian Navy has been awaiting the transfer of this technology since last year. New Delhi reckons that clinching a deal on the purchase of 22 unarmed drones would be a litmus test on the Trump Administration’s approach to the India-US defence ties that flourished under Barack Obama. It is another matter the Guardian UAV proposal was kept in abeyance by Obama during the last leg of his tenure. Sources said the deal would pave the way for other key technology sales to India. The White House gave strong positive leadership for the US administration to approve the sale of Guardian UAV technology to India, they added. The “Gaurdian” are Category 1 aircraft with state-of-the-art technologies. The US-based General Atomics built ‘EMALS’ as well as Guardian unmanned aircraft are cutting edge technologies that can help both countries with their common maritime security objectives.

GST: Will recommend review of trade and industry grievances, says Nirmala Sitharaman

GST: Will recommend review of trade and industry grievances, says Nirmala Sitharaman

Union Minister Nirmala Sitharaman assured trade and industry that their grievances on GST would be taken up with the government and she would personally recommend having a review three months after its implementation. Responding to queries about fixing the slab for different trades and industries during an interactive session organised by BJP’s Coimbatore district unit here, Sitharaman, who is Minister of State for Commerce and Industry, said there should not be any confusion about GST rates on various products. Industry should come forward to raise their doubts and objections, she added. The Minister said there would be some teething problems during implementation of the system, which was conceptualised by taking the people into confidence and trust and was also passed by various State Assemblies. “However, in case if the industries are not 100 per cent satisfied, definitely I will recommend to have a review after three months, as suggested by some organisations,” she said. Assuring that no penalty would be imposed for three months if small and medium entrepreneurs failed to submit GST returns, she said the government was ready to make accessible the system, through chartered accountants and cost accountants Associations of various chambers of commerce at district headquarters.

GST rollout: Here is why it is crucial for India to get the reform right

GST rollout: Here is why it is crucial for India to get the reform right

Finance minister Arun Jaitley was being optimistic when he said that buoyant indirect tax collections in April and May were a sign that previously undeclared goods and services were coming into the tax net. Manufacturers and service providers, the argument goes, know that once GST stabilises, it will not be possible for them to hide their output from the taxman—so, Jaitley said, they had already started coming into the tax net. That seems a bit hasty since, for one, GST has not been introduced as yet and, more important, if the experience of the post-demonetisation amnesty scheme is anything to go by, the tax thief is made of sterner stuff.Unlike demonetisation, though, GST is more sophisticated because of its invoice-matching. So, if Firm A declares sales of X to Firm B, then B cannot be declaring X/2 of inputs—and B’s output, in turn, is C’s input. This invoice-matching is crucial because, right now, India’s tax collection effort is very poor. While central tax-to-GDP has fallen from 11.9% in FY08 to 11.2% in FY17, excise-to-manufacturing GDP fell from 18.5% in FY07 to 17.2% in FY17. Indeed, as the GST report prepared by chief economic advisor Arvind Subramanian points out, India’s tax-collection efficiency is a mere 43%—this is the tax collection efficiency for excise, service tax and VAT which, together, comprise GST. That is, if the real tax base is Rs100, the tax-man is able to tax only Rs43 for a variety of reasons including corruption. This collection efficiency, in the case of emerging market economies, averages around 57% and rises to 60% in the case of rich nations. How unclear what the size of the tax base is can be seen from the numbers in the report. While the macro estimate gives you a tax base of Rs59.9 lakh crore for FY14, this is a much lower Rs39.4 lakh crore based on data on indirect tax collections and a more robust Rs58.2 lakh crore based on direct tax data.While the Subramanian committee worked on a tax base of Rs46.2 lakh crore for purposes of its calculations, one of the first things that GST will provide, once it stabilises, is an idea of just how big India’s tax-base is. Thanks to the invoice-matching across millions of shops and establishments and manufacturing outlets, done by a computer 24×7, chances are the size of the taxable base will be much larger than most imagined. In which case, the dividend that the government failed to realise from its demonetisation drive may well be made available through the implementation of GST. Given its potential to transform India, though it seems a bit over the top at first, the government’s plan to usher GST in through a midnight session of Parliament does make sense.

After demonetisation, against all expectations, deposits with banks stay put

After demonetisation, against all expectations, deposits with banks stay put

Contrary to lenders’ expectations, most of the money that moved into banks after demonetisation has stayed put. In addition, the accumulation to their deposit base continues at a steady base, data from Reserve Bank of India (RBI) show. On December 23, total deposits — time and demand — stood at Rs104.69 lakh crore; on June 9, the total value of demand and time deposits with the banking system stood at Rs105.78 lakh crore, up more than 1%. State Bank of India (SBI) chairman Arundhati Bhattacharya had observed in May that around 65% of the inflows during demonetisation were in the system. The government announced the withdrawal of high-value notes on November 8 and the window for banks to accept the demonetised Rs500 and Rs1,000 notes was between November 10 and December 31. Bankers had anticipated that up to 40% of the deposits that flowed in post November 10 would remain with them.However, it would now appear, the deposits have been far more sticky. Over the past year or so, deposits have grown at a healthy pace, and the fortnightly growth (year-on-year) has rarely fallen below 10%. The post-demonetisation rate of growth has been above 10%. HDFC Bank deputy managing director Paresh Sukthankar had recently said that his bank had believed initially that about 30% or so of the one-time jump would remain. “Our sense is — and this is just a guesstimate — that it would be a little higher than that,” Sukthankar had said after the lender announced its results for Q4FY17. However, he added, there was no scientific way to try and arrive at what might have remained from the one-time flows linked to demonetisation.At the end of March, SBI’s total deposits stood at Rs20.45 lakh crore, marginally higher than the Rs20.41 lakh crore at the end of December. HDFC Bank held deposits worth Rs6.44 lakh crore at the end of March, up from Rs6.35 lakh crore at the end of December. The country’s third-largest bank by assets, ICICI Bank, however, seemed to buck he growth trend. Its deposit base dropped to Rs 4.21 lakh crore by March 31 from Rs 4.65 lakh crore at the end of December. Much of the incremental growth in current account and savings account (CASA) deposits is being seen in private banks. According to an analysis by Nomura, the increase in CASA in 2016-17 for the top six private banks has been more than 30%. The analysts noted that PSU banks reported an increase of 400 basis points in their CASA ratio 2016-17, which would help protect their margins. However they were adding just a third of the incremental CA.

India seeks Russian firms’ support in defence manufacturing: Arun Jaitley

India seeks Russian firms’ support in defence manufacturing: Arun Jaitley

Showcasing policy initiatives for defence production in India, Defence Minister Arun Jaitley today invited Russian firms to join hands with Indian companies in developing high-end military platforms and weapons systems. In an address at a leading forum for technological development, Jaitley said Russian defence majors which already have a long experience of working in India are well placed to take advantage of the policy changes effected to encourage tie-ups between Indian and foreign companies. Jaitley, here on a three-day visit beginning today, asked Russian companies to come forward with proposals for technology transfer to Indian companies and facilitate manufacturing of advanced military platforms.
“We have initiated a series of policy and procedural changes to facilitate tie-ups, including joint ventures and technology partnerships between Indian and foreign companies. “Russian companies, which already have a long experience of working in India and working with India are well placed to take a leading role in this process,” he said. In a major step towards defence indigenisation, the Indian government last month unveiled a “strategic partnership” model under which select private firms will be engaged along with foreign entities to build military platforms like fighter jets, submarines and battle tanks. “In the days to come, we hope to fully harness the energies, entrepreneurial spirit and enterprise of the private sector in the area of defence manufacturing.“Here again, Russia as India’s largest, oldest and most trusted partner in defence hardware and equipment, would have a comparative advantage in partnering with Indian companies for realising ‘Make in India’ potential in defence production,” Jaitley said in his address at the plenary of TECHNOPROM 2017. The defence minister said Indian companies are already gearing up by developing capabilities for design and development of military systems. “I invite Russian companies to come forward with proposals for technology transfer to Indian companies and facilitate manufacturing of more advanced components/parts and sub-systems. This can start with platforms of Russian origin where the requirement is in large numbers and is recurring in nature,” he said. On June 23, Jaitley will co-chair the 17th meeting of the India-Russia Inter Governmental Commission on Military- Technical Cooperation with his Russian counterpart General Sergei Shoigu.
Russia has been one of India’s key major suppliers of arms and ammunition. However, it has been a long-standing grievance of armed forces that supply of critical spares and equipment from Russia takes a long time affecting maintenance of military systems procured from that country.

Government notifies 18 sections, 2 rules for GST

Government notifies 18 sections, 2 rules for GST

Days ahead of the rollout of Goods and Service Tax), the government today notified sections in the GST Act dealing with mandatory registration of current indirect tax payers in the new regime. As many as 18 sections relating to registration of current central excise, service tax and VAT payers with the GST-Network (GSTN) as well as transitional provisions were notified today. As a precursor to GST, the Central Board of Excise and Customs (CBEC) has also notified two rules — registration and composition levy. All the notifications would be effective from June 22. GST, which is to be rolled out from July 1, will unify over a dozen central and state levies into one and all those currently paying such taxes need to migrate to the new system. Every business carrying out a taxable supply of goods or services with turnover exceeding the threshold limit of Rs 20 lakh will be required to register. GST registration would allow for seamless input tax credit.The CBEC has also notified ‘www.gst.gov.in’ as the common ‘Goods and Services Tax Electronic Portal’. As many as 65 lakh out of the 80 lakh taxpayers have already migrated from various platforms to GST. All of these businesses will be assigned a unique Goods and Services Tax Identification Number. The Sections in the Central GST (CGST) Act notified provide for all suppliers, anyone making any inter-sate taxable supply and every existing licence holder and business entity, to register for GST. Input service distributor, e-commerce operator and person supplying online information and data base access or retrieval service are also required to register. The provision exempts agriculturist from registration to “the extent of supply of produce out of cultivation of land”.It also exempts “any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax”. The notified sections provide that a person who occasionally supplies goods and/or services in a territory where GST is applicable but he does not have a fixed place of business, would be treated as a casual taxable person. A person with multiple business verticals in a state may obtain a separate registration for each business vertical. PAN is mandatory for GST registration except for a non- resident person who can get GST registration on the basis of certain other documents.

GST will have a positive impact on economy, industry and consumers; here is why

GST will have a positive impact on economy, industry and consumers; here is why

From July 1, GST will be in force, redefining India’s indirect tax system and reshaping the way business is done in the country. Almost two decades in the making, the new tax system represents a historic success story in our economic reforms journey. While the benefits of GST to the economy, industry and consumers are well-known, it notably represents a structural reform. The process of drafting the new system was unprecedented as it took place through a committee of finance ministers from all states, taking off from the original empowered committee created in 1999 for the introduction of state-level VAT. State governments from different political parties with different ideologies came together with the ministry of finance on a single platform for the larger national good. With free discussions and consensus-building, this created requisite buy-in from all states. Such a model could be replicated for future policy development on issues such as labour reforms, land acquisition, agricultural policies, etc.
The empowered committee has given way to the GST Council, a permanent body chaired by the finance minister and mandated under the Constitution to deal with all indirect taxation (except customs duties), adding huge efficiency to the process. So far, in over 15 meetings, all decisions have been taken through consensus, without the need for voting, a commendable example of all members being on the same page.
The legislative process for GST introduction too was undertaken through consultations among central and state governments in a spirit of give and take. The GST involved a Constitutional Amendment Act, Central GST Act, Integrated GST Act and Union Territory GST Act, wherein UT GST Act and State GST Acts were to be passed by each state and UTs with legislative assemblies. With a few states yet to make the enabling legislation, the laws and rules are mostly agreed upon.Another notable point is the GST is based on a vast overarching IT network—the GST Network (GSTN). All enterprises over a certain turnover size would need to be registered on this network, and each transaction by these enterprises would go through it. It is estimated that over 3 billion transactions would be processed every month in the system, automatically matching each invoice from sellers to buyers and updating returns on taxes paid at each stage. This robust online system covers the entire country and partners with private sector players, including Infosys at the apex and 34 general service providers. The consolidated data generated from this system could feed into real-time economic policy-making.The filing of returns and payment of taxes is expected to be much simpler under GST than in the current system. However, it would serve the purpose of creating a single market, if a single registration process as a centralised registration is introduced, which will lead to simplified and better tax compliance.A related issue is that enterprises transferring goods from their storage depot in one state to their own depot in another would be considered as interstate supply and be subject to tax. Inter-branch transfers of inputs or services to other states should not be treated as a taxable supply. In addition, we have suggested that in the valuation rules, stringent valuation principles are not required and invoice value should be accepted. Also, existing tax incentives for the Northeast and Special Category States should be continued in order to encourage investments in these regions.
We hope that many rates of tax currently being introduced will converge to fewer rates several years down the line to impart more stability and certainty to the tax regime. However, the current progressive slab structure is a good beginning.
As the day of the introduction of GST draws closer, industry warmly felicitates the central and state governments for bringing out a transformative reform that will have a huge beneficial impact on the economy, industry and consumers. Industry is ready for implementing this landmark new regime.

Demonetisation: Cash crunch led to ‘material impact on spending’, says Fitch

Demonetisation: Cash crunch led to ‘material impact on spending’, says Fitch

Demonetisation of old Rs 500 and 1,000 notes had a “material impact on spending” as reflected in significant slowing of GDP growth in January-March, Fitch Ratings said today, warning that the ongoing steep decline in investment could spell risks to growth potential. In its latest Global Economic Outlook (GEO), Fitch said Indian GDP growth slowed “significantly” to 6.1 per cent in first quarter of 2017 from 7 per cent in October-December. This was the slowest pace since fourth quarter of 2013-14. “Domestic demand accounted for the bulk of the slowdown. It appears that the cash squeeze of November 2016 – whereby the government pulled 86 per cent of cash in circulation out of the economy virtually overnight – finally did have a material impact on spending,” it said. Stating that the lagged effect of demonetisation on the economy is “quite puzzling”, Fitch said this partly reflects the challenges of measuring spending in an economy with a large informal sector. Consumption growth fell substantially to 7.3 per cent, from 11.3 per cent in the fourth quarter of 2015-16. “More worryingly, investment dipped into negative territory (-2.1 per cent). This partly reflected poor construction activity, which fell by 3.7 per cent, an unprecedentedly low level in recent years,” it said, adding that this may have been affected by the demonetisation shock.Stating that investment has been persistently weak in recent years, Fitch said investment as a share of GDP has been trending down for several years and “ongoing steep declines could spell risks for medium-to-long term growth potential.” “We do, however, expect investment to gradually pick up from current lows on the back of the transmission of supportive monetary policy of the past two years and stepped- up structural reforms,” the rating agency said. Fitch expected that the goods and services tax (GST), which is to kick in from July, will facilitate trade within India and reduce transaction costs.Also, public spending on infrastructure is set to rise, boosting investment. “This should help drive a pick-up in GDP growth, which we forecast at 7.4-7.6 per cent in the next two fiscal years,” it said. CPI inflation, it felt, should also tick up as the current low food price effect will fade, but would remain firmly within the central bank’s target range.Fitch said the recovery in global growth is strengthening and is expected to pick up to 2.9 per cent this year and peak to 3.1 per cent in 2018, the highest such rate since 2010. “Faster growth this year reflects a synchronised improvement across both advanced and emerging market economies. Macro policies and tightening labour markets are supporting demand growth in advanced countries, while the turnaround in China’s housing market since 2015 and the recovery in commodity prices from early 2016 have fuelled a rebound in emerging market demand,” said Brian Coulton, Fitch’s Chief Economist.

Japan’s May exports rise fastest in over two years, set to sustain growth

Japan's May exports rise fastest in over two years, set to sustain growth

Japan’s exports surged in May by the fastest in more than two years on higher shipments of cars and steel, an encouraging sign that robust global demand will help keep the country’s modest economic recovery on track. The 14.9 percent annual increase in exports in May was the biggest rise since January 2015 and nearly twice the pace seen in April, though it was below analysts’ expectations of 16.1 percent. Japan’s imports rose more than expected in May, partly due to increasing demand for intermediate goods companies need to manufacture their products. Exports are likely to continue rising at a steady clip as overseas economies show increasing signs of strength, which should help Japan’s economy extend its recent run of expansion. “The main scenario is Japan’s exports will continue to recover,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “However, the pace of growth could slow somewhat as inventories of certain goods, like electronics, start to build up overseas.” Exports of cars and car parts rose partly because an earthquake in Kumamoto last year in May temporarily shut down production of these goods, Tonouchi noted.