We can create GSTN identity for 90% of taxpayers anytime: Navin Kumar

Navin Kumar
Chairman, Goods and Services Tax Network

Take us through the GSTN journey so far.

We started from scratch in May 2013. At that time our target date was not clear.

We were told for the first time in October 2014 that April 1, 2016, was our target date. It was then we started the recruitment process, as we had already built the organisation structure.

Our first challenge was to prepare for the RFP ( request for proposals) in the absence of a GST framework. It was unclear what we should put in the RFP and what work we were supposed to do.

We took the permission from the stateempowered committee of finance ministers to work on the draft and had appointed PwC as our consultant. We floated the tender in April 2015 and selected the vendor, Infosys, in September 2015.

In November 2015, we gave the work order. According to the RFP, the vendor (Infosys) will provide us the support for five years from the date GST is rolled out. In between, we had interacted with the industry and went to Nasscom asking its members for suggestions and feedback about their needs and what could be the likely interface.

What was the industry feedback?

We were stunned by their feedback. We had told them we wanted to work on a built- own- operate- transfer ( BOOT) model. They said, thank you very much. The companies said they had burnt their fingers, and the BOOT model was dead and buried.

They cited instances where they had built the system, operated it but were still not getting the revenues because of various reasons. They said if you want to build the system, you have to pay the pre- operative cost, which is the capital cost.

There were instances when the central and the state governments had floated tenders and no one came to bid for them. The industry gave around 1,500 inputs and suggestions. We took most of them into account.

Did such meetings help?

We held a pre- bid meeting and incorporated their suggestions in the RFP through corrigendum. Finally, the big five — Microsoft, Tech Mahindra, Infosys, TCS and Wipro — sent their proposals. It was achallenge for us to select one because all the proposals were really good.

Where do we stand today on software development?

Prototyping of the user interface is almost over. Code writing is also half done. The software will be first tested by Infosys and then by us. The process will begin in October and last till January. We gave Infosys a go- ahead to purchase hardware a day after the Rajya Sabha cleared the GST Bill. Once the software is loaded and tested, we will take a final approval from the Standardised Testing Quality Certification ( STQC).

The approvals are expected by midFebruary. And then, we will have dry runs till March.

When will the migration of existing taxpayers take place?

Those who already pay VAT, service tax and central excise tax will be subsumed in the GSTN. Later other, small taxes, such as entertainment tax and luxury tax, will be migrated to GSTN. The current taxpayers will not be asked to register again. They will be asked to provide their PAN and be given a unique identification number under the GST. Currently, 6.5 million people pay value added tax, 2.5 million people pay service tax and another 300,000400,000 people central excise tax. We have already validated PAN of 90 per cent of these taxpayers and we can generate their

GSTN number any day.

With the Rajya Sabha passing the goods and services tax ( GST) Constitution amendment Bill, the focus has shifted to the Goods and Services Tax Network ( GSTN), the non- profit organisation that is building the information technology architecture. It will be the backbone of the reform, slated to be rolled out next year. NAVIN KUMAR, chairman, GSTN, tells Sahil Makkar and N Sundaresha Subramanian that his organisation was not caught by surprise by the quick turn of events. It is confident of putting in place hardware and software requirements.

NBFC, housing finance to be among major contributors to group: Ajay Srinivasan, Chief Executive at ABFS

    Interview with chief executive, ABFS

Aditya Birla Nuvo's merger with Grasim Industries and the subsequent demerger of Aditya Birla Financial Services (ABFS) into a listed entity is expected to consolidate all financial services businesses of the group under one roof. Ajay Srinivasan, chief executive, ABFS, details the deal contours of the financial services business. Business Standard: Q&A

Business Standard: Once Aditya Birla Financial Services is listed after the demerger, what segments would be the biggest contributor to growth?

Ajay Srinivasan: I have said consistently that all businesses will grow under Aditya Birla Financial Services. Growth will be there across the platform. But the non-banking financial company (NBFC) business will obviously be a large contributor. Housing finance will be a large contributor, as also asset management and insurance. Life insurance growth is coming back. These four will be the largest contributors.

Business Standard: How will this transaction benefit market participants? By when is it expected to be completed?

Ajay Srinivasan: For us, this was a good time to unlock value. It is a big opportunity which does not exist in the market. It will give the market an access to a wide array of diversified financial services which gives both breadth and scale. This transaction is expected to be completed by the fourth quarter of FY17 or the first quarter of FY18.

Business Standard: Now that ABFS will be listed, could this be taken as a precursor of an initial public offering (IPO) for the life insurance business?

Ajay Srinivasan: As ABFS will be listed, there is no plan to list the companies under it, including Birla Sun Life Insurance. There is no immediate move towards that.

Business Standard: With two large life insurers, HDFC Life and Max Life, set to merge, do you see any impact on your ranking?

Ajay Srinivasan: Birla Sun Life Insurance ranks fourth among private life insurers and we expect it to hold that ranking. We do not have a large bank partners like the other insurers, though we would distribute our insurance products through our payments bank.

Business Standard: Are you looking to enter the general insurance space as well?

Ajay Srinivasan: We already have Birla Sun Life Insurance and have recently received approval to roll out our standalone health insurance business under Aditya Birla Health Insurance, which through its differentiated products and solutions will be relevant to our target consumers. However, we are not planning to set up any separate general insurance company.

Market cheers UltraTech bold move

UltraTech Cement will issue two separate sets of secured redeemable NCDs amounting to Rs 175 crore and Rs 250 crore respectively, each on private placement basis. NCDs with issue size of Rs 250 crore has tenure of 5 years and NCDs with issue size of Rs 175 crore has tenure of 3 years. Both the sets of NCDs offer coupon rate of 7.57% per annum. Its consolidated net profit rose 29.2% to Rs 780.11 crore on 4.1% growth in net sales to Rs 6537.83 crore in Q1 June 2016 over Q1 June 2015. Market rewarded the move with the scrip gaining 4.5%

China Moves Toward Launching Credit-Default-Swap Market

China’s interbank-market regulator is likely to seek approval from China’s central bank to launch a CDS market soon

The National Association of Financial Market Institutional Investors is likely to ask the People’s Bank of China for formal approval to launch a CDS market soon

China is edging closer to launching its own version of a popular hedging tool that protects investors in case of defaults, as the world’s No. 2 economy struggles to cope with slowing growth and record numbers of companies not paying back debt.

The National Association of Financial Market Institutional Investors, an industry body backed by China’s central bank, has consulted major banks and brokerage firms in recent weeks about the planned rollout of credit-default swaps, three people familiar with the situation said. The swaps would pay out if the issuer of a bond or a loan defaults, said the people, who were briefed by the regulator on the matter.

ENLARGE

The regulator, which oversees China’s $8.5 trillion interbank bond market, has drafted guidelines and standardized contracts for the product, one that has in the past two decades become a key tool in global markets to hedge government and corporate debt, the people said.

NAFMII has hired a group of lawyers to help align its CDS rules with internationally accepted practices and is expected to ask the People’s Bank of China for formal approval to launch the market soon, one of the people said.

Officials at NAFMII weren’t reachable for comment.

The planned rollout of rules for CDS reflects the pressures China faces as it tries to attract more investors, including global players, to a swelling bond market, even as debt defaults soar. China’s domestic bond market has had 39 defaults totaling around 25 billion yuan ($3.8 billion) this year, already exceeding the total of 20 defaults worth 12 billion yuan for all of last year. In 2014, there were five such defaults, following one in 2013.

 “If the [CDS plan] is carried out well in China, it will certainly be a big help to investors,” saidWang Ming, a partner at Shanghai Yaozhi Asset Management Co., a bond fund that manages two billion yuan in assets.

China experimented with a less sophisticated version of a CDS called a credit-risk-mitigation agreement, or CRMA, in 2010, in the wake of a credit binge. But the CRMA market never took off, because the state kept bailing out insolvent companies instead of letting them default, in the interests of financial and social stability.

Now, there are signs that Beijing and the country’s local governments are becoming more tolerant of debt defaults as the economy weakens further and governments feel increased fiscal strains.

“The timing is indeed better now for CDS to be introduced to China. Given that all kinds of defaults are on the rise, I think demand will be quite robust,” Mr. Wang said.

The guidelines and standardized contracts for the credit derivative drafted by NAFMII look to be in line with those published by the International Swaps and Derivatives Association, a global body based in New York that sets standard terms for derivatives transactions, said one of the people briefed on the instruments.

So great is the enthusiasm for CDS in China that some officials seem to view them as a way to help ailing companies get credit. The government of the northern province of Shanxi, China’s biggest coal-producing region, said it hopes to encourage credit-default swaps as a means to raise investor confidence in debt issued by the area’s struggling coal-mining firms. Typically big coal miners are backed by the state.

According to a front-page article published Thursday in the Shanxi Daily, the Communist Party’s local mouthpiece, companies from the region are facing greater difficulties in issuing new debt because of a weakening economy and rising debt defaults among state-run enterprises.

One of the coal-mining firms from the province that is struggling to meet its debt repayment, state-backed ChinaCoal Group Shanxi Huayu Energy Co., defaulted on a 600 million yuan one-year bond in April.

“We’ve already come up with a plan, and Shanxi would like to become the first local government to roll out a CDS contract in China,” said Liu Hongbo, an official at the financial affairs office of the Shanxi provincial government.

CDS are normally created by investment banks, which calculate the default risks involved and charge sometimes steep fees for the guarantees, and it is unclear how Shanxi province proposes to handle them.

Bill to amend Sarfaesi, debt recovery tribunal Acts cleared by Lok Sabha

The amendments to the Sarfaesi Act and debt recovery tribunal Act are aimed at faster recovery and resolution of bad debts by banks and financial institutions

Arun Jaitley (Finance Minister)

In an important step aimed to resolve bad loans, the Lok Sabha on Monday passed a bill to amend the existing Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, and the debt recovery tribunal (DRT) Act.

The amendments are aimed at faster recovery and resolution of bad debts by banks and financial institutions and making it easier for asset reconstruction companies (ARCs) to function. Along with the new bankruptcy law which came into effect earlier this year, the amendments will put in place an enabling infrastructure to effectively deal with non-performing assets in the Indian banking system.

The government had introduced the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in May. The bill was referred to a joint Parliament committee which submitted its report last month. The bill will amend four acts—Sarfaesi Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996.

The bill will now go to the Rajya Sabha for its approval. Introducing the bill, finance minister Arun Jaitley said the government has accepted all the recommendations of the joint committee.

“The bankruptcy law is now becoming operational. One of the big challenges we face is the enforcement of interest and recovery of bad debts. Securitization law and DRT law need to be amended for quick disposal of disputes,” he said. “DRTs were envisaged as an alternative to civil courts and for ensuring quick disposal. But things need to move faster. Procedures in front of DRTs cannot be similar to civil courts,” he said.

Indian banks have been under stress with many of them reporting losses and surge in non-performing assets (NPAs) after the Reserve Bank of India (RBI) pushed lenders to classify visibly stressed assets as NPAs after an asset quality review in 2015-16. Total stressed assets of state-run banks as of 31 March were at 14.5% of total advances, and according to recent report released by RBI, this may increase further. The gross non-performing asset (NPA) ratio of state-run banks may rise to 10.1% by March 2017 from 9.6% as of March 2016, RBI’s financial stability report said, warning that under a severe stress scenario, it may rise to 11% by March 2017.

Flaws in the existing recovery process have added to the problem of bad loans. For instance, more than 70,000 cases are pending before DRTs.

The bill gives RBI powers to audit and inspect ARCs and the freedom to remove the chairman or any director and appoint central bank officials to its board. The central bank will be empowered to impose penalties for non-compliance with its directives, and regulate the fees charged by these companies to banks at the time of acquiring such assets.

The bill will also pave the way for the sponsor of an ARC to hold up to 100% stake. It will also enable non-institutional investors to invest in security receipts issued by ARCs and mandate a timeline for possession of secured assets.

To be sure, RBI already regulates these entities, but the bill expands the regulator’s powers. It also increases the penalty amount that can be levied by RBI to Rs.1 crore from Rs.5 lakh.

The bill proposes to widen the scope of the registry that will house the central database of all loans against properties given by all lenders.

It also proposes to bring hire purchase and financial lease under the ambit of the Sarfaesi Act, and enable secured creditors to take over a company and restore its business on acquisition of controlling interest in the borrower company.

As part of the overhaul of DRTs, the bill proposes to speed up the process of recovery and move towards online DRTs. To this effect, it proposes electronic filing of recovery applications, documents and written statements. DRTs will be the backbone of the bankruptcy code and deal with all insolvency proceedings involving individuals. The debtor will have to deposit 50% of the amount of debt due before filing an appeal at a DRT. It also seeks to make the process time-bound. A district magistrate has to clear an application by the creditor to take over possession of the collateral within 60 days.

However, many members of Parliament said the government should have the political will to check NPAs rather than enacting one law after another.

Saugata Roy, MP from All India Trinamool Congress representing West Bengal, said, “Political will is necessary and that seems to be missing. Bankruptcy and insolvency code has been passed. In spite of passage of laws, we have not seen much progress on either curbing black money or on NPAs of banks. Total stressed assets have crossed Rs.8 trillion,” he said.

The bill also proposes to amend the Indian Stamp Act to exempt deeds of assignment signed at the time of an ARC buying a loan from a bank from the levy of stamp duty.

“The amendments carry the work forward done in the insolvency and bankruptcy code. Automation will help in increasing the pace of recovery, but this requires an investment. Currently, the problem is that many DRTs from time to time do not have presiding officers,” Sandeep Singh, senior director at India Ratings said.

ICICI Bank, Apollo to set up asset reconstruction firm

ICICI Bank to hold 30% stake, rest to be picked up by Apollo subject to passage of amendment in Sarfaesi Act proposed in the budget

ICICI Bank, the country’s largest private sector lender, has tied up with private equity firm Apollo Global Managementand Aion Capital Management to set up an asset reconstruction company (ARC) in India.

In a statement, the lender said they have entered into a memorandum of understanding (MoU) to work together for debt resolution in the country, in an effort to revitalise and turn around over-leveraged borrowers.

“The objective of the collaboration will be to streamline the operations of borrowers, facilitate deleveraging and arrange additional funding on a case-by-case basis. The collaboration will bring together ICICI Bank’s experience and understanding with respect to the Indian corporate sector, and Apollo’s experience of more than two decades in private equity and alternative investments, including special situations,” the statement said.

People familiar with the development said ICICI Bank will have 30 per cent stake, while the remaining will be picked up by Apollo subject to the fact that the amendment suggested in the Union Budget is passed. In case, if the Bill isn’t cleared, then they will look for a third partner to pick up a 20 per cent stake.

In the Budget, Finance Minister Arun Jaitley had proposed to amend the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, to allow sponsors to hold 100 per cent equity stake in ARCs and that non-institutional investors would be allowed to invest 100 per cent in security receipts.

The Aion fund was earlier established through a strategic partnership between ICICI Venture Funds Management Company and an affiliate of Apollo Global Management.

ICICI Bank already has a 13.26 per cent in another ARC, Arcil. Sources familiar with the development said the lender is not immediately looking at selling out this stake and will take a call on it in due course. Despite having an investment in Arcil, ICICI Bank is believed to have had gone ahead with the plan of setting up another ARC because as a result of multiple partners and a small stake, it wasn’t possible for the lender to make any significant decisions on its own.

“The bank will use this to resolve some stress on our own books but we will like it to be an open architecture where other banks can also sell their bad loans. But the main focus will be on resolution of some large assets first so that it makes a meaningful difference on the balance sheet,” said a person privy to the deal.

The lender has been facing asset quality pressure for the past few quarters. In the quarter ended June, its gross non-performing assets (NPA) as a percentage of total advances jumped to 5.87 per cent from 3.68 per cent a year ago. In absolute terms, the gross NPA rose to Rs 27,194 crore against Rs 15,138 crore in the first quarter of the previous financial year.

The increased interest by players in ARCs has increased after the Department of Industrial Policy and Promotion said in a notification that 100 per cent foreign direct investment (FDI) in reconstruction companies will be allowed under the automatic route.

According to an Assocham report, the average recovery rate for ARCs in India has been around 30 per cent of the principal and the average time taken has been anything between four and five years.

These ARCs in the country has been facing a problem due to capital constraints and disagreeing on valuation with the banks. However, considering that the total gross NPA in the banking sector at the end of FY16 was Rs 5,41,763 crore (7.43 per cent of total advances), these ARCs do see a big opportunity in India. Several other players like KKR and Brookfield, among others, are also investing in the ARC space.

Our immediate focus is to increase deposit base: Bandhan Bank’s Ghosh

‘In next two to three years, we intend to reach out to people across urban and unbanked areas’

CHANDRA SHEKHAR GHOSH, MD and CEO, Bandhan Bank

Bandhan Bank became a reality in August 2015. Chandra Shekhar Ghosh, Founder, Managing Director and CEO of the bank, maintains that the bank’s focus will be to grow its deposit base. In a little over the first three months of the current fiscal, its deposits increased by 3,000 crore. On the sidelines of a CII event, Ghosh spoke to BusinessLine on the journey (as a new bank), focus areas in the coming days and the bank’s corporate and retail lending operations. Excerpts:

How has the journey been for Bandhan Bank during these 11 months?

In one word fantastic. People have reposed faith in us. And we have been able to build trust. Our deposit base, which stands at 15,000 crore as on date (12,000 crore till March 2016) is proof of that. Loan disbursals stand at 16,000 crore of which 200-250 crore is non-microfinance related disbursals. We have around 89 lakh customers, majority of whom are micro-credit related. Around seven lakh will be non-micro-credit customers.

What are your immediate plans?

Our immediate focus is increasing our deposit base. For the next two to three years, we intend to reach out to people across urban and unbanked areas.

Any plans for increasing the branch network?

Yes. We currently have 689 branches in 29 States. We would look to take that up to 850 by March (2017).

As a new bank, you need to compete with established players in urban areas. What strategy are you following?

Urban growth is faster than rural and semi-urban areas. People here look for variety of products and fast services. We now have that bouquet of offerings.

For example, our current account offering competes with any other private sector bank. Similarly, in the savings account we are offering 6 per cent rate of interest for deposits over 1 lakh.

In terms of services, we are also looking to add a personal touch — meeting people, reaching out to customers.

For us, it is more about giving a personal touch, making people comfortable, rather than just a mechanical form of banking.

In any service industry, personal interactions matter. It may be old-school or a traditional approach. But for a new bank like us, it is very important.

Bandhan is still hesitant on corporate lending…

As a bank I cannot say that we will not lend to corporates. But, there are specific areas of focus. We are open to lending to MSMEs (micro, small and medium enterprises), and small and medium-sized corporates. We have already lent to Wow Momo (a Kolkata-based start-up). When it comes to large corporates or those in the stressed sectors, we would like to maintain caution for now. Six months or one year from now, we might have a different strategy.

What about retail lending?

Microfinance loans apart, in retail lending we are exploring the housing loan segment in the range of 35-50 lakh. We would also like to tap/ target people who generally go to housing finance companies for loans. There is a big market out there, and as a bank we are well positioned to tap it.

Let me explain. I have been working in a village with the unbanked for a decade now. But, there were other people too with different needs. As an MFI we did not focus on them. But as a bank we can target these people.