Daily Financial News Analysis – 31st August’20

Table of Contents

UPI Fees

Central Board of Direct Taxes asked banks to return to customers and merchants any fees levied for making Unified Payment Interface (UPI) transactions in 2020.
CBDT: such charges violate the law. Section 10A of Payments and Settlements Systems Act
The lenders were asked to stop all such impositions or face “penal actions” in a circular issued on Sunday.
Experts: the directions were welcome as contactless payment was increasing due to Covid concerns.
July 2020: UPI transactions had overtaken those via debit card and cash withdrawals.
In a circular issued on December 30, 2019, the CBDT clarified that any charge including the merchant discount rate (MDR), shall not be applicable on or after January 1, 2020, on payments made through electronic modes.

GST Compensation Fund

Attorney General: The GST compensation fund can continue beyond the five-year transition period if there is a steep fall in revenue from the levy.
KK Venugopal: “I may mention that under such a provision is made in Section 8, permitting an extension in the duration of the levy and collection of the cess”.
The compensation cess is levied on sin goods such as cigarettes and luxury goods such as automobiles.
Any decision to extend the cess beyond the five-year period would require endorsement by a three-fourths majority of the weighted votes of the GST Council.
The opinion provides clarity that any borrowing, by the Centre or the states, to meet the shortfall in the compensation fund can be serviced by extending the GST compensation cess beyond five years, currently ending in 2022.

Meeting Deficit

Opposition ruled states are set to reject the two borrowing options proposed by the Centre to meet the deficit in the goods and services tax (GST) compensation fund.
State finance ministers from opposition states will meet on Monday to finalise a joint strategy to approach the Centre again as they feel both options will lead to states taking on the borrowing burden.

India-Themed Toys

Children could soon have access to toy labs, a national toy fair and innovative Indian-themed toys as the government chalks out a plan to promote traditional toys produced in the country.
India will begin enforcing quality control for imported toys from September 1 to ensure that only products conforming to standards enter the country.
Toy traders had sought an extension of the deadline.
Imports from China and Taiwan account for around 90% of the domestic toy market.
Besides, the Department for Promotion of Industry and Internal Trade has reached out to large manufacturers and is proposing to hold a round table with them as it seeks investment in the country’s $1.75 billion toy industry.

PMGSY

Covid-19 outbreak and floods in several states have cast a shadow on Pradhan Mantri Gram Sadak Yojana (PMGSY) – the Centre’s flagship programme of rural roads construction to connect habitations.
A high-level review conducted by the rural development ministry, the nodal agency for the flagship programme, has revealed nine states have constructed zero or less than 10 kilometres of roads in the current financial year.
Other states that have constructed 10 kilometres or less till July 31 include Punjab (1 kilometre), Gujarat (2 km), Ladakh (4 km), Tripura (6 km), Sikkim (7 km) and Nagaland (9 km).
The Centre has red-flagged the performance of states and directed the governments to double the speed of sanction and implementation of projects in the coming months.
The ministry has also asked north eastern states of Arunachal Pradesh, Manipur, Nagaland, Mizoram and Sikkim to put in more efforts.
The rural development ministry has set a target of constructing 66,784 km under the scheme.
So far, 3,860 km have been constructed – only about 5.78% of the target has been achieved from April-July.
States that have completed more than the national average include Himachal Pradesh (644 km), J&K (634 km), Bihar (307) and West Bengal (291 km).
In terms of connecting habitations, the ministry has set a target of connecting 5108 habitations. About 387 have been connected with rural roads this year.

Indian & Bangladeshi Cos Sign Deal

Bangladesh’s pharma major Beximco Pharmaceuticals Ltd (BPL) has agreed to invest in the Serum Institute of India (SII) in the effort to bring out an approved vaccine for Covid-19.
The announcement came within days of Harsh Shringla’s Dhaka visit where the issue of cooperation to fight the pandemic figured high on the agenda.
The move will help the Sheikh Hasina-led government secure for the country doses of any of the vaccine candidates SII is conducting trails on.
SII is the world’s largest producer of vaccines by number of doses produced.

Stress in bank loans

Finance minister Nirmala Sitharaman will meet top executives of banks and non-banking financial companies (NBFCs) on September 3.
FM will review the implementation of the resolution framework for stress in bank loans, caused by the unprecedented Covid-19 pandemic.
The meeting comes ahead of the expected announcement of the KV Kamath-led panel’s recommendations on eligibility parameters for the restructuring of loans to soften the blow to both borrowers and the lenders in the wake of the pandemic.
Earlier this month, the Reserve Bank of India extended a special window for lenders to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances.
RBI governor Shaktikanta Das has said a resolution framework for covid-19-related stressed accounts will be finalised by September 6.
Already, banks have started internal processes to gauge the extent of the likely loan restructuring exercise.
For instance, Punjab National Bank (PNB) saw about 5-6% of its loan book, or between Rs 36,000 crore and Rs 43,000 crore, getting recast in FY21, its managing director S S Mallikarjuna Rao said last week.
Of course, a clearer picture will emerge after the Kamath panel prescribes the contours of the recast scheme, Rao added.
The current repayment moratorium will expire on Monday after six months.
In its Financial Stability Report, the RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021.
However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.