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Ask an Expert - Financial Sector

Bharti Gupta Ramola

Leader (Financial services), PwC India

Topic: Financial Sector

Two of the biggest issues facing the banking sector are capital raising by public-sector banks (PSBs) and stressed assets. Government support will remain crucial for PSBs through measures like consolidation and divestments. Revamping of debt recovery tribunals (DRTs) by increasing their numbers and digitisation, incentivising timely repayments, a strong bankruptcy law, and punitive measures for defaulters, will help in recovery of bad debts. From a tax point of view, the goods & services tax (GST) implementation will remain crucial. Other measures required are movement towards an internationally competitive tax regime to make financial savings and investments attractive.

It is time the banking ombudsman facility was modified. Only the officers with application of mind should be posted as ombudsmen. It is a critical functional posting and NOT a clerical job. Many ombudsmen have been functioning merely as a tool in the hands of interested parties. Will the govt do something in this regard?


Do you expect the I-T exemption limit to be raised in the Budget this time?


What could be the major changes in corporate taxes, especially those related to MAT-covered companies?


PSBs have been under-reporting their NPAs for several past years. Now, RBI Governor Rajan has asked for the books to be cleaned in FY17. This may amount to giving high dose of anaesthia to PSBs at one go. Why is the government not asking Banks to identify NPAs and clean their balance sheets in a three-year period instead of one. The way Rajan is behaving is like giving high dose of chemotherapy to a cancer patient, instead of a low dose every week. Will PSBs' poor image not dent India's image globally?


What in your opinion is ailing the banking sector, especially public-sector banks? What are its probable solutions?


A "bonus" share is not different from a stock split. The net book value of each share gets halved. Why then is the cost of acquisition of such shares treated as NIL and the entire sale proceeds before one year treated as ST capital gain?


A lot of NBFCs have been offering personal loans and consumer durables loans. But the rate of interest they charge is very high — 16% to 21%. They are also charging flat rate of interest. This is because banks do not have sufficient budgetary allocation to fund personal loans. Can't there be a regulatory check on the rate of interest charged by NBFCs?


Can India afford to reduce bank interest rate?


Media reports highlight the failure of company management, company auditors and bank regulators for an increase in banks' NPAs, besides a lack of owners' equity to propel growth. How can this be mitigated?


Increase in NPAs is due to a number of reasons, including the global downturn, stalled projects, volatility in commodity prices, banks acting as arms of the government, as well as poor governance and management of corporations. We should also recognise the no-recourse or limited-recourse nature of lending in project finance for infra and core sector projects of long gestation. In such situations, if bankruptcy and foreclosure provisions could be enforced, banks could move relatively swiftly to resolve poor-quality assets. This lack of enforcement also fuels extreme risk-taking by some promote-managed companies, supported by poor governance. We believe solutions to reduce NPAs should include the following: * Enabling bank boards to make independent credit decisions through reduction in government holding and independence in selection of bank senior management. * Judicial reforms to enable timely enforcement, resolution and bankruptcy. * Better governance at the level of the regulator, banks and companies.

Banks have posted significant drop in their profits or even large losses in their latest quarterly results. For example, IDBI Bank posted the highest-ever quarterly loss by an Indian bank (Rs 2,183.68 crore). The quantum of non-performing assets has also risen. What can Finance Minister Jaitley provide for the sector in Budget 2016 to ease the burden on banks?


Jaitley is already talking about giving more powers to banks and introducing a bankruptcy law to keep a check on NPAs. The following measures will also help: * Steps to push credit demand, i.e., investment flows. * Policy measures and administrative actions to further unlock stalled infra projects * Judicial reforms so that contracts can be enforced. * Structural reforms in some of the key sectors.