Gold loan business in transition!

The gold loan business had been performing steadily and grown with a very fast pace in last few years. The current situation has changed a lot, and now it is a dying business for NBFC whereas banks have taken advantage of this situation. Suddenly, a break has been put on by the RBI on NBFC’s gold loan business by setting in place a set of rules to curb the risk and gain control over the market. Recently, RBI has shown deep concern on the operational model of NBFC’s gold loan business.

What’s happening in gold financing market?

The cap of 60% loan by an NBFC against the total value of gold has hampered the volume significantly. Most of the gold financing companies (GFC) have already revised the growth target to be flat for this year. The RBI’s notice to arrange extra capital requirement for the NBFC from 10% (current) to 12% by 2014 would also bring strain on the working with these companies. Companies like Muthoot finance, Mannapuram gold and Shriram city union finance Ltd have decided either to halt the expansion plan or to cut the growth target drastically. NBFC is also closing down non-viable branches in many cities to overcome the setback. A loan on primary gold and gold coins has been also restricted by RBI.

GFCs in Bad Phase

The loss of NBFC would definitely provide an edge to the banks to grow gold loan business. Recently, RBI denied the request by NBFCs to frame similar regulation for the bank’s gold loan activity. It only shows RBI’s concern over NBFC ‘s capacity to handle the business and competence to fight an adverse situation. Gold is one of the most powerful investment assets in India, and its huge import volume has strained INR value over other foreign currencies in recent times. To bring out the gold deposited in home and lockers to market, RBI needs a stronger and reliable channel like banks, which are well regulated and controlled under its aegis. To confirm its stand and denying NBFC like regulation for the banks RBI had said that “They can’t be compared with the banks, even those that extend jewelry loans, as this may be a minuscule portion of the balance sheet, and all banks are diversified entities.” With RBI constituting a separate committee to study GFC’s role in rising gold imports, lending practices, borrowing profile, further regulatory tightening cannot be overlooked.

Can GFC Fight Back?

The restrictions and change in rule can have severe effect on the NBFC’s business in short term, but at the same time it has given time to come up with an even better product offering in the future. NBFC has a niche market segment, and its reach would provide an advantage over the banks for some years but to sustain longer in this market the gold financing companies have to play a bigger role by coming out with more products to diversify the risk and better competence against banks. The chances of joining hands to fight the situation are quite probable in this situation and such step would give an advantage to the GFCs in terms of size, power and presence. If no strategic decision is taken during this stage, then GFC’s market share will further drop in coming days. In this situation if any new regulation is introduced by the RBI, then it will snatch their business model and promote banks to get an invincible leading position.

Bangalorean, Think before pestify your sweet home

Mumbai: Days after Versova siblings Rameez and Rehab Chougle died in mysterious circumstances, their father Gayasuddin broke his silence and admitted to TOI that pest control was carried out in the house on July 3. TOI was the first to report on July 7 that the duo had been killed by alleged pesticide poisoning.
    Twenty-six-year-old
homoeopathic doctor Rameez died in his fifth floor apartment in Panch Dhara building, Yari Road, on July 4, while his sister, 27-year-old writer Rehab, passed away in hospital two days later. Both had suffered bouts of vomiting and diarrhoea before their condition worsened. “We have never denied that pest control was undertaken in our flat,” Gayasuddin said on Tuesday, outside the neighbourhood police chowky.
    Well into the investigation, deputy commissioner of police (zone IX) Pratap Dighavkar as well as Versova inspector Sharad Borse continue to deny this. “The police have never asked us this question. If they had, what cause would we have to shield the contractor who is a third person?” says the bereaved father. “At the time the deaths occurred, my wife Farzana was too distressed to give the officers much details.”
    Gayasuddin is a marketing professional with an insurance company in Oman. He arrived in India on July 4, after receiving word from his wife that his son was seriously ill. Rameez had passed away by then.
    Piecing together the sequence of events, Gayasuddin says a local contractor, Rukhsar Almelkar, had treated the two bedrooms of the flat for bedbugs on July 3. Rehab and Rameez used one room, while Gayasuddin and his wife Farzana have the other.
    Pest treatment started at 10am, by which time the siblings had left home. “Rameez returned around 5.30pm, while Rehab came back at 8.30pm. Maybe by negligence, they did enter their room. My wife’s room had been treated as well but she was busy cooking in the kitchen so she escaped the ill-effects,” he says.

Courtesy : TOI, Bangalore, 12/July/2012

Meaning of Repo, Reverse Repo, CRR, SLR and Bank Rates

How many of you read the news last week “RBI increases Repo and Reverse Repo rate by 25 bps” ? For most of us these words do not make sense, and we move on to next news item. Little do we realize that we are affected by these rates and a basic knowledge about it is a must.

So let’s first understand what these banking terms means, and then we’ll see how these rates affect a layman.

The present rates (as of 10th April 2010) are:

Bank Rate   

9.00% (w.e.f. close of business of  17/04/2012)

Decreased from 9.50% to 9.00% which was continuing since 13/02/2012

Cash Reserve Ratio (CRR)      

4.75% (wef 10/03/2012) -announced on 24/01/2012

Decreased from 5.50% which was continuing since 24/01/2012

Statutory Liquidity Ratio (SLR) 

24%(w.e.f. 18/12/2010)

Decreased from 25% which was continuing since 07/11/2009

Repo Rate under LAF     

8.00% (w.e.f. 17/04/2012)

Decreased  from 8.50% which was continuing since 25/10/2011

Reverse Repo Rate under LAF *        

7.00%(w.e.f.17/04/2012)

Decreased from 7.50% which was continuing since 25/10/2011

bps

It is an acronym for basis point and is used to indicate changes in rate of interest and other financial instruments. 1 basis point is equal to 0.01%. So when we say that repo rate has been increased by 25 bps, it means that the rate has been increased by 0.25%.

Repo Rate and Bank Rate

People often get confused between these two terms. Though they appear similar there is a basic difference between them.

Repo rate or repurchase rate is the rate at which banks borrow money from the central bank (read RBI for India) for short period by selling their securities (financial assets) to the central bank with an agreement to repurchase it at a future date at predetermined price. It is similar to borrowing money from a money-lender by selling him something, and later buying it back at a pre-fixed price.

Bank rate is the rate at which banks borrow money from the central bank without any sale of securities. It is generally for a longer period of time. This is similar to borrowing money from someone and paying interest on that amount.

Both these rates are determined by the central bank of the country based on the demand and supply of money in the economy.

Reverse Repo Rate

Reverse repo rate is the rate of interest at which the central bank borrows funds from other banks for a short duration. The banks deposit their short term excess funds with the central bank and earn interest on it.

Reverse Repo Rate is used by the central bank to absorb liquidity from the economy. When it feels that there is too much money floating in the market, it increases the reverse repo rate, meaning that the central bank will pay a higher rate of interest to the banks for depositing money with it.

CRR (Cash Reserve Ratio)

Banks are required to maintain a percentage of their deposits as cash, meaning that if you deposit Rs. 100/- in your bank, then bank can’t use the entire Rs. 100/- for lending or investment purpose. They have to maintain a portion of the deposit as cash and can use only the remaining amount for lending/investment. This minimum percentage which is determined by the central bank is known as Cash Reserve Ratio.

So if CRR is 6% then it means for every Rs. 100/- deposited in bank, it has to maintain a minimum of Rs. 6/- as cash. However banks do not keep this cash with them, but are required to deposit it with the central bank, so that it can help them with cash at the time of need.

SLR (Statutory Liquidity Ratio)

Apart from keeping a portion of deposits with the RBI as cash, banks are also required to maintain a minimum percentage of deposits with them at the end of every business day, in the form of gold, cash, government bonds or other approved securities. This minimum percentage is called Statutory Liquidity Ratio.

Example

If you deposit Rs. 100/- in bank, CRR being 6% and SLR being 8%, then bank can use 100-6-8= Rs. 86/- for giving loan or for investment purpose.

How it effects us

Having understood the meaning of these banking terms, let us now see how we are affected by increase/decrease of these rates.

The central bank uses these rates to control inflation.

Banks earn profit by borrowing at a lower rate of interest from the central bank, and lending the same amount at a higher rate to the customers. If the repo rate or the bank rate is increased, bank has to pay more interest to the central bank. So in order to make profit, banks in turn increase their interest rate at which they take deposit from the customer and lend money to the customer. So the demand for loan decreases, and people start putting more and more money in bank accounts to earn higher rate of interest. This helps in controlling inflation.

An increase in Reverse repo rate causes the banks to transfer more funds to the central bank, because banks earn attractive interest rates and also their money is in safe hands. This results in the money being drawn out of the banking system, thus banks are left with lesser funds.

Thus, by lowering repo rate, central bank injects liquidity in the banking system and by increasing reverse repo rate it absorbs liquidity from the banking system.

Increase in SLR and CRR rate means that banks will have less power to give loans (see our example above), which again controls amount of money floating in the market; thereby controlling inflation. It also makes banks safer to keep money because banks will have a higher liquidity to meet the demand of customers. As we learnt from the recession, giving loans expose banks to great risks. So if banks have lesser funds to give as loan, they become relatively safer.

Conclusion

Thus we conclude that the central bank of a country uses these rates to fight inflation and to keep a check on economy.

Please post your comments to improve.

10 things to know while filing income tax returns

1. Collect the documents required for filing Income tax return

Every taxpayer should collate all income tax related documents for filing returns. So, here is a gist of the documents required:

• Abstract of bank statements
• Proof of investments and Form 16 (Salary certificate issued by the employer)
• Form 16A / TDS certificate
• Challan of tax payment made like advance tax or self assessment tax
• Proof of investments in propertyD
• Documents on purchase and sale of investments/assets
• Collect the TDS certificate and
• Collect home loan certificate

2. Select the IT return form

As per the source of income select the right type of income tax return form as it is the most important part in filing yoiur returns. Income tax department has prescribed different ITR forms to file the returns like ITR-1 (Sahaj), ITR-2, ITR-3, ITR-4, ITR-4S (Sugam). Assessees should choose the right form as required by them to file returns correctly.

3. Fill all the basic details

After selecting the income tax return form, fill the form with all the correct details as it is seen that most of the people ignore the correctness of basic details. Following details should be rechecked in your ITR Form:

• Personal details like name, date of birth, father's name
• Address
• Contact No. and e-mail address
• Jurisdiction of AO
• Tax Status and
• Details of bank account

4. Verify Form 26AS (Tax credit statement)

Income tax department has clearly specified to verify Form 26AS before filing ITR. So, one should check the tax paid on the income tax web site by verifying Form 26AS, which provides details of the income tax paid and the taxes deducted and deposited by the payer of income. If there is any mistake one needs to verify the same.

5. Claim deductions and loss return

Claim all deductions and fill all relevant information as required at the time of filing return in income tax return form as missing out on any one can result in a higher tax liability.

The most common deductions in such respect fall under the section 80C, 80D, 80G and other housing loans.

If there is a loss return, it should be claimed and the return filing should be done within the due date as prescribed u/s 139(1), or else the loss under the specified head will not be carried forward.

6. Disclose exempt incomes

Exempt income should be disclosed in income tax return even though no tax is required to be paid on the same like dividends, PPF interest etc.

7. Provide details of foreign assets

Assessee should provide details of all foreign assets held. Details in respect of following should be provided:

• Details of foreign bank accounts with the peak balance during the year
• Details of immovable property with total investment at cost
• Details of any other asset with total investment at cost
• Details of account(s) in which the person has signing authority and which has not been included above. Name of the institution in which the account is held, address of the institution, name mentioned in the account and peak balance/ investment during the year.

8. Timely filing and prefer online filing

Income tax returns filing should be done within the prescribed due date to avoid interest & penalty. Timely filing of returnss ensures faster processing of ITR and quick refunds if any.

Moreover, one should prefer online filing returns instead of manual filing to avail benefits of all the online facilities provided by the IT department.

In addition to this, following assessees are compulsorily required to file ITR online:

• Individuals and HUFs having total income exceeding Rs 10 lakh
• Individual/HUF who have foreign assets to report

9. Signing of ITR acknowledgement

One may file ITR with or without digital signature and in case of filing returns without digital signature an ITR-Verification (ITR V) is generated after filing of ITR which should be signed and posted to the CPC.

10. Maintenance of documents as proof

As a proof of filing income tax returns in the income tax department, an ITR-V/ITR Acknowledgement and ITR-V receipt should be collected and retained for future use.

Courtesy : Rediff

offbeat tax saving avenues!

Enough cannot be said about the importance of planning your savings and understanding tax components that you can utilise to maximize your income. One of the best ways to take the time to research and plan well in advance, is to start on this exercise right in the beginning of the financial year and not at the end of the it, when there are bound to be different constraints on the cash flow and also confusion over what to choose in the last minute frenzy.

It is critical to know all the possible ways one can save tax, to help plan your budget properly. The IT Act 1961 is loaded with big dollops of taxpaying/tax saving information. Ways to save tax have always been an interesting consideration for tax payers all across the world and the Indian tax payer is no exception. And since tax saved is money saved, we hold that to be completely justified. While some of the tax-saving avenues are well-treated by the tax payers in the nation, there are some roads to tax saving which are lesser known. Two of them are explained below.

Save tax for your contributions to political parties/charitable organizations

In India, you can enjoy a tax deduction if you have contributions to make to a political party. The IT Act says that any amount of money that is donated to an acknowledged political party can be lawfully claimed for deduction, under Section 80GGC (For corporate it is 80 GGB). This deduction was launched very recently, April 2010, and the same applies to any contributions made to electoral trusts as well.

There is no set upper limit for the deduction amount, but it can exclusively be claimed only if the contribution goes into the party funds.

It is interesting to note here that deduction on donations does not come into play if you are donating money to an individual. It is only applicable if you are donating it to specific organizations.

For example, Section 80G of the IT Act says that if you are donating funds to a charitable organization, you are entitled to get a deduction of 50%-100% for that.  However, note that there exists a ceiling here – the percentage of deduction is restricted to 10% of the donor’s (gross) total income. Also, only donations in cash are taken into consideration for the purpose and not donations in kind.

Needless to say that the amount of tax you can save is dependent on the amount that you contribute.

You would require a proof to claim this deduction and that’s a stamped receipt of the amount donated, from the party or the organization to which you have made the contribution.

Save tax for disabilities

The Indian taxman has a heart of gold and it is seen nowhere better than this. Section 80 U of the IT Act says that if a taxpayer happens to suffer from any of the listed disabilities (see below), he is entitled to a tax deduction of INR 75,000.

If the tax payer has a disabled dependent (spouse/parents/children/siblings) to support, Sec 80DD allows him to claim the same.

Disability list includes low vision, blindness, hearing disability, leprosy, loco-motor impediment, mental illness and mental retardation.

Things to note

§ This deduction is obtainable only if the disability is 40% at least.

§ For severe impairments, 80% or above, the deductible amount becomes more – 1 Lakh.

§ The dependent must be fully dependent for upkeep on the taxpayer and must not be claiming deduction for it independently under Sec 80 U.

Proof required to claim this deduction will be a disability certificate from a CMO of a government aided hospital or a civil surgeon.

More of such special deduction news for income tax is available in IT Act, 1961. Check further to know more.

RBI removes penalty on prepayment of home loans

Mumbai, June 5 (IANS) The Reserve Bank of India (RBI) Tuesday announced removal of foreclosure charges/prepayment penalty on home loans with floating interest rates.


In a notification, the central bank said that it had been observed that home loan borrowers across the board resented foreclosure charges levied by banks on prepayment of home loans.


"This is especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario," the RBI said.


"As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source," the notification said.


The removal of foreclosure charges/prepayment penalty on home loans would lead to reduction in the discrimination between existing and new borrowers and competition among banks would result in finer pricing of the floating rate home loans, the bank said.


Though many banks had in the recent past voluntarily abolished prepayment penalties on floating rate home loans, there was a need to ensure uniformity across the banking system, the statement said.


"It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/prepayment penalties on home loans on floating interest rate basis, with immediate effect," it said.

National Telecom Policy -2012 Approved: Minimum Broadband Speed To Be 2 Mbps, Roaming Charges Cancelled

The Union Cabinet today has approved the National Telecom Policy -2012 (NTP – 2012), including introduction of Unified License.

Key highlights of NTP 2012 are:

• Increase rural teledensity from the current level of around 39 to 70 by the year 2017 and 100 by the year 2020
• Broadband –“’Broadband For All” at a minimum download speed of 2 Mbps
• Domestic Manufacturing- Making India a global hub
• Convergence of Network, Services and Devices
• Simplification of Licensing regime- Unified Licensing, delinking of Spectrum from License, Online real time submission and processing
• Achieve One Nation – Full Mobile Number Portability and work towards One Nation – Free Roaming
• Resale of Services
• Voice over Internet Protocol
• Cloud Computing, Next Generation Network including IPV6

The policy seeks to provide a predictable and stable policy regime for a period of about ten years.A brilliant move?