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Moodys: Asian Liquidity Stress Index weakens to 25.6% in June from 25.2% in May
Jul 11,2017

Moodys Investors Service says that its Asian Liquidity Stress Index (Asian LSI) weakened in June, rising to 25.6% from 25.2% in May 2017.

The Asian LSI measures the percentage of high-yield companies with SGL-4 scores as a proportion of high-yield corporate family ratings (CFRs) and decreases when speculative-grade liquidity improves.

The June figure ends six months of continuous improvement, and the reading now remains just above the long-term average of 22.9%, highlighting that weak liquidity is still a concern for many companies in Asia, says Brian Grieser, a Moodys Vice President and Senior Credit Officer.

The Moodys report points out that the liquidity stress sub-index for North Asian high-yield companies increased to 26.2% in June from 24.7% in May, and within this portfolio, the Chinese sub-index rose to 27% from 25.4%.

Meanwhile, the Chinese high-yield property sub-index remained at 7.5% in June, an all-time low. The Chinese high-yield industrials sub-index also increased to 50% from 48.4%.

The South and Southeast Asian liquidity stress sub-index also improved to 24.4% in June from 26.1% in May, and the Indonesian sub-index decreased to 19% from 22.7%, the lowest level since November 2015.

Moodys further notes that the strong momentum seen in high-yield issuance this year continued in June. Rated high-yield issuance totaled $5.4 billion in the month, driven by China Evergrande Groups (B2 stable) issuance of $3.8 billion of new notes.

Junes total also raised year-to-date issuance to $21.6 billion, which is near the $23.3 billion issued in 2013, the strongest level in the past five years.

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Dismantling check posts, post- GST save 24-36 hrs trucking time on trunk routes: ASSOCHAM
Jul 11,2017

Notwithstanding some teething troubles, the GST is saving trucking time on trunk routes, connecting top cities, between 24-36 hours besides saving the fleet owners Rs 5,000 -7,500 per trip by way of corruption at the octroi and sales tax/VAT check posts which have since been dismantled by most of the states, an ASSOCHAM quick check has noted.

n++Our quick check has shown that on an average a lorry/truck runs for 10-12 hours a day and should cover a distance of about 2200 KMs between, say Delhi - Chennai in 3 days. However, traversing through different states and braving the stoppages at several check posts of VAT, octroi, other local taxes was resulting in additional two-3 days , including those taken for no entry traffic restrictions for big cities during the day time . So, the consignment between Delhi-Chennai, for instance was taking 5-6 days. At least 24-36 hours would easily be saved for these trunk routes after dismantling of the check posts, by a conservative estimate, said the ASSOCHAM QC after interacting with the fleet owners and transport intermediaries.

Besides, the bigger nuisance of corruption at each of the check posts and through various states would have meant an additional expenditure of Rs 5,000-7500 per trip. Thankfully, that has also been done away and one hopes a new avatar is not found for the same. For now, it has come as a big relief for the transporters who say, the ultimate advantage is accruing to the customers and to the trade and manufacturing value supply chain.

The interaction with the fleet owners revealed that before start of a trip, the crew, comprising driver(s) and helpers was given out of pocket or petty cash of at least Rs 10,000 for the trunk routes of Delhi-Mumbai, Delhi-Kolkata, Mumbai-Jaipur, Ahmedabad-Delhi, Bengaluru- Delhi and so on.

On completion of the trip, the driver would give his account hissab that would include the expenses at each of the forced halt points.

What a relief, it is.... We hope, further improvement is done in this direction in terms of improving other infrastructure. For instance, the no entry traffic restrictions can be done away if high class dedicated bye-passes are constructed around the major cities so that the truckers can play seamlessly. , said ASSOCHAM Secretary General Mr D S Rawat.

Improvement in freight movement through road and rail would not only result in a huge cost saving for the trade and industry but would take India quite high on the global index of Ease of Doing Business.

One hopes that the GST is implemented in earnest by all the states in coordination with the Centre and comes out as a success story for the country, the chamber said.

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Ministry of Civil Aviation seeks to upgrade its AirSewa web portal; consults stakeholders for designing AirSewa 2.0
Jul 11,2017

The Ministry of Civil Aviation held a meeting of all stakeholders last week to invite suggestions for designing AirSewa 2.0, the upgraded version of the AirSewa web portal and mobile app that was launched in November last year to make air travel convenient and hassle-free. Nodal Officers of all stakeholders like Airlines, Airports, Immigration, Customs, DGCA, etc attended the meeting. Valuable suggestions for service improvement, enhancing user comfort and quick redressal of complaints were received and will be considered for incorporation in the design of AirSewa 2.0.

This follows the success of AirSewa1.0 which has been received well, with around 19,000 app downloads so far and over 65,000 web portal hits since its launch. More than 92% of grievances have been resolved and most of them within the stipulated time limits.

The Ministry is committed to providing a safe, and comfortable air travel experience to users. Flight delays, problem in refunds, long queues, inadequate facilities at airports and complaints of lost baggage are the most common problems that air travelers face. n++There was a need to respond to these problems in a systematic manner rather than on ad-hoc basis. n++The Ministry had launched AirSewa web portal and mobile app on 26.11.2016 to address this need.

AirSewa is operated through an interactive web portal and a mobile app for both Android and iOS platforms. n++e-portal includes a mechanism for grievance redressal, back office operations for grievance handling, flight status/schedule information, airport Information and FAQs.

Users can now check live flight status for all inbound and outbound flights in a single click. Information regarding weather conditions and services for some selected airports is also available on this portal. Flights can be searched by flight number or for all flights to or from a particular airport. Information such as airport services like wheel chair, transport/parking, rest and relax, Wifi services etc. can also be easily accessed.

Timely and satisfactory grievance redressal was an important priority as users had to approach several stakeholders to get their grievances redressed. AirSewa is a one-stop solution for grievance redressal as passengers can now register any grievance on the mobile app or web portal. Thn++ey can also upload voice or video along with an elaborate description of their issues.

Thn++e portal has helped make the grievance redressal system responsive, transparent, accountable and efficient by using technology. Users can now track the status and response through reference number provided. n++There are stipulated timelines in place to address the issue. n++The portal is closely monitored by control room to ensure timely and effective redressal. A message is sent to the concerned nodal officer if any grievance remains unattended or unresolved. To improve the user experience an option to provide feedback and rate the overall experience and satisfaction has been provided.

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Residential real estate prices increase in half of the cities and declined in other half of cities surveyed
Jul 11,2017

The revamped and expanded official online user friendly NHB RESIDEX that captures movements in the prices of residential real estate prices released today revealed that prices during January-March, 2017 have increased over that of October-December, 2016, in about half of the cities covered under the survey while the other half have either registered a decline or remained the same.

Minister of Housing & Urban Affairs Shri M.Venkaiah Naidu today released the new version of NHB RESIDEX on the occasion of the National Housing Bank entering its 30th year.

Speaking on the RESIDEX, Shri Naidu said the price indices for the last quarter of last financial year i.e 2016-17 proved wrong the critics of demonetization who said that economy will take a hit. He also said that the National Housing Bank also collected data on land prices which showed that a correction in land prices is taking place which again reflects the declining trend in transactions of unaccounted money.

NHB RESIDEX for January-March,2017 revealed that price indices for residential properties based on actual market prices for ongoing construction prices have increased over the previous quarter in 24 of the 47 cities covered in the Index including in Jaipur, Chennai, Lucknow, Guwahati, Howrah, Hyderabad, Bidhannagar etc. In Delhi, Faridabad, Chandigarh, Patna and Nashik etc, prices have come down. This component of RESIDEX, called Housing Price Index@Market Prices is based on actual market information.

The other component of RESIDEX called as HPI@Assessment Prices based on the information furnished by banks and other lending agencies showed that prices have increased in 27 of the 50 cities surveyed. These include; Gurgaon, Mumbai, Vadodara, Raipur, Kanpur, Chandigarh, Bhubaneswar, Visakhapatnam and Coimbattore. Prices, however, have declined in Ranchi, Gandhinagar, Surat, Ludhiana, Kolkata etc.

The RESIDEX has been computed for three categories of houses with carpet of below 60 sq.mtre, 61-110 sq.mtres and 111 sq.mtres and above.

RESIDEX, the countrys first official housing price index (HPI) was launched in 2007 covering 26 cities and was published till March, 2015 on a quarterly basis. The revamped RESIDEX has been expanded to 50 cities spread over 18 States and UTs. These include 38 smart cities, of which 18 are state capitals.

Base year for the new RESIDEX has been moved from 2007 to 2012-13 to capture the changing structure of the economy besides capturing the latest information to accurately reflect the current economic situation, as per the internationally accepted practices.

Shri Shriram Kalyanaraman, CMD of National Housing Bank informed that RESIDEX will soon cover 100 cities and also will be further widened to include Land Price Indices, Building Materials Price Indices and Housing Rental Index.

NHB RESIDEX helps buyers and sellers to check and compare prices before entering a transaction. They can also analyse the price trends across different cities both at composite level and product category level. It helps lenders in credit evaluation. It provides promoters with a standardized tool to assess the housing demand. Government agencies can monitor trends in macro and micro markets and predict future behavior of the housing market.

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Extension of NPS Fortnight from 11th July, 2017 to 21st July, 2017
Jul 11,2017

With a view to promote and create awareness about the National Pension System (NPS) and improve the quality of services provided to the subscribers, PFRDA is observing NPS fortnight from 27th June, 2017 to 11th July, 2017 successfully. Keeping in view the demand raised by Government Nodal Offices and also benefits to the NPS subscribers, PFRDA has decided to extend the NPS Service Fortnight from 11th July, 2017 to 21st July 2017. During this extended period also all the nodal offices, Pay and Account Offices and DDOs under the Central and State Governments, Points of Presence/ banks/ aggregators/ banking correspondents etc. will be involved with the acquisition, servicing of NPS subscribers and creating awareness about the National Pension System, in a proactive manner.

NSDL has also developed an exclusive web link i.e. https://npscra.nsdl.co.in/nps.php ,which encapsulates all the information and functionalities related to NPS subscriber, including NPS Mobile App, which may be instrumental for effective & efficient use of NPS Service Fortnight.

Benefits of downloading mobile app:

The NPS Mobile APP gives details of Subscribers account online without approaching their respective nodal offices. The Subscriber can access latest account details as is available on the CRA web site using user ID (PRAN) and password. The APP gives better user experience and provides additional functionalities such as

(i) View of current Holdings viz Percentage of Asset allocation among PFMs (Unit , NAV & Amount) & total value of holdings etc.

(ii) Request for Transaction Statement for the year on your email ID.

(iii) Change of contact details like Telephone, Mobile no. and email ID.

(iv) Change of Password / Secret Question

(v) View of Accounts detail viz name, address, associated nodal office and registration no. etc.

(vi) Regeneration of password using secret question.

(vii) View of last 5 contribution transactions carried out

(viii) Processing of voluntary contributions for Tier I as well as Tier II

(ix) Modification of address using Aadhaar authentication

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JICA ODA loan assistance proposal for Dairying through Cooperatives-National Dairy Infrastructure Plan Project
Jul 11,2017

India ranks first among the worlds milk producing Nations since 1998 and has the largest bovine population in the World. Milk production in India during the period 1950-51 to 2014-15, has increased from 17 million tonnes to 146.31 million tonnes. The milk production during 2015-16 is 155.49 million tonnes. About 54% of the milk produced in the country is surplus for marketing in the domestic market, of which only 20.5% is procured/processed by the organised sector being equally, shared by Cooperatives and Private dairy organizations.

To meet the growing demand which is estimated to be in the range of 200 - 210 million MT by 2021-22, the country needs to upgrade its infrastructure at the village level particularly for milk procurement and production of high valued milk products. Government is mandated to double milk producers income at farm level by providing rural milk producers with greater access to the organised milk processing sector. Department of Animal Husbandry, Dairying & Fisheries has formulated a Draft National Action Plan for Dairy Development which includes creation of milk chilling facilities including bulk milk cooling, processing infrastructure, Value added products (VAP), organisation of milk collection centres/dairy cooperative societies, milk transportation facility and marketing infrastructure to meet the requirement of increased milk handling.

Government has therefore submitted a proposal for availing loan from Japan International Cooperation Agency for Dairying through Cooperatives-National Dairy Infrastructure Plan in line with the mandate of Government to double farmers income in next five years. The total outlay of the proposal is Rs 20,057 crores. The proposal primarily aims to cover additional 1.28 lakh villages, 121.83 lakh additional milk producers, setting up of 1.05 Lakh bulk milk coolers at village level creating 524.20 lakh Kg milk per day capacity of milk chilling and creation of milk & milk product processing infrastructure of 76.5 lakh Kg per day capacity. Besides, the programme will modify/expand old milk and milk product plants created 20-30 years ago under Operation Flood and also create milk & milk products plants for value added products which will benefit 160 lakh existing farmers. The fund will be routed through National Dairy Development Board for the development of dairy sector. The proposal has been forwarded by Department of Economic Affairs to Japan International Cooperation Agency (JICA).

JICA mission visited India during 27th February to 3rd March, 2017. A meeting with the delegation lead by Mr. Tatumi Kunitake was held on 26th May, 2017 to deliberate on the observations of JICA mission. As per the observations of the mission; NDDB is working on modifying the proposal with a focus on poverty alleviation. The schedule of procedures involved in the programme was discussed with JICA delegation and activity-time chart has been finalized for JICA is to initiate the appraisal process at the earliest.

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Declaration of Historic City of Ahmadabad as a UNESCOs World Heritage Property
Jul 11,2017

It is under the dynamic and visionary leadership of the Prime Minister of India that India has been successful in securing the nomination of the n++Historic City of Ahmadabadn++ on UNESCOs World Heritage list on 8th July, 2017 during the 41st Session of World Heritage Committee. This makes the walled city of Ahmedabad the first city in India and the third in Asia to be inscribed to the World Heritage List. In the past 3 years alone, India has managed to put five built heritage sites on the world heritage list of UNESCO.

India now has overall 36 World Heritage Inscriptions with 28 Cultural, 07 Natural and 01 Mixed site. While India stands second largest in number after China in terms of number of world heritage properties in ASPAC (Asia and Pacific) region, it is overall seventh in the world.

Founded in 15th century, the walled city of Ahmadabad, on the eastern bank of the Sabarmati river, presents a rich architectural heritage. Within this complex are 28 ASI Centrally Protected Monuments. The urban structures of the historic city of Ahmedabad are distinctive due to their puras (neighbourhoods), pols (residential streets), and khadki (inner entrances to pols) largely made of timber. The historic architecture reflects symbols and myths connected with its inhabitants. The urban fabric is made up of densely-packed traditional houses (pols) in gated traditional streets (puras) with characteristic features such as bird feeders, public wells and religious institutions. It is a unique example of multi-religious and multicultural coexistence.

The inscription has been done under Criteria (ii) and (v) as defined in the UNESCOs Operational Guidelines, 2016. Criterion (ii) refers to the important interchange of human values, over a span of time on development of architecture, monumental arts, town planning and landscape while Criterion (v) refers to being an outstanding example of human settlement and land use. Thus, the acceptance of the proposal highlights historic city of Ahmedabads exemplary settlement architecture and town planning. This achievement is especially remarkable in the view of the fact that the proposal had earlier been deferred. The Culture Minister Dr. Mahesh Sharma has congratulated the residents of Ahmedabad and indeed the entire country on this landmark achievement.

The international recognition to the city is a matter of pride. It will boost the local economy in a number of ways. It is expected to give a tremendous fillip to domestic and international tourism leading to increased employment generation, creation of world-class infrastructure and augmentation of sale of local handicrafts, handlooms and heritage memorabilia.

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Gifts up to a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST
Jul 10,2017

It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift. Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

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Ministry of Health signs MoU with Government of West Bengal to set up Centre of Excellence in Transfusion Medicine
Jul 10,2017

Ministry of Health and Family Welfare signed a memorandum of understanding (MoU) with Government of West Bengal to formalize its support to set up a state-of-the-art Centre of Excellence in Transfusion Medicine at Kolkata, here today. Government of India has approved this important initiative with an outlay of approximately Rs.200 Crores towards equipment, manpower and running costs. The land for this initiative will be provided free of cost by the State government. The move intends to strengthen the blood transfusion services in the State and the surrounding region. Shri R K Vats, Additional Secretary (Health) and Shri Anil Verma, Principal Secretary Health, Government of West Bengal signed the MoU on behalf of their respective Ministries.

Metro Blood Bank Project is conceived to be a Central Sector Scheme of the Ministry of Health and Family Welfare to set up state-of-the-art Centres of Excellence in transfusion medicine in the four metro cities of Delhi, Mumbai, Chennai and Kolkata. These centres are high volume blood collection centres where there is state-of-the-art technology in transfusion medicine for component separation, processing of blood and quality systems. Facilities for screening of collected blood by NAT would be made available at these centres and also extended to the other blood banks of the State.

Approval of Union Minister of Health and Family Welfare has been accorded for the first phase, wherein these facilities are to come up in Chennai and Kolkata. National Blood Transfusion Council under National AIDS Control Organization will be the implementing division of the Ministry for this project. The MoU for setting up the Metro Blood Bank in Chennai has already been signed on 14th June 2016.

India collects near about 11 million blood units every year. Nearly 71% of these blood donations are collected through voluntary non-remunerated donors. A recently concluded assessment of licensed Blood Banks of India revealed that the average blood donation rate in India is 0.8, which is lower than many high income countries leading to a shortfall in quantum and access to safe blood in select hard-to-reach areas of the country. Rational use of blood also needs to be ensured to enhance utilization, as one unit of blood can benefit more than one beneficiary through separation into red cells, plasma, platelets.

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FM launches a new tax payer service module Aaykar Setu
Jul 10,2017

A new tax payer service module Aaykar Setu, was launched here today by the Union Finance Minister, Shri Arun Jaitley. To enhance mobile access experience, a mobile responsive android version was also released along with the desktop version. Shri Jaitley stressed on the Governments commitment towards continuously upgrading tax payer services. He said that this e-initiative would help in reducing physical interface between assesses and tax assessing authorities and thereby minimizing the chances of any tax harassment.

The new step is an effort by the Income Tax Department (ITD) to directly communicate with the taxpayers, on a range of multiple informative and useful tax services aimed at providing tax information at their fingertips. The module compiles various tax tools, live chat facility, dynamic updates, and important links to various processes within the Income Tax Department in a single module. The tax payers will also be able to receive regular updates regarding important tax dates, forms and notifications on mobile numbers registered with the ITD.

All taxpayers who wish to receive such SMS alerts are advised to register their mobile numbers in the Aaykar Setu module.

The Central Board of Direct Taxes (CBDT) constantly endeavours to provide better taxpayer services and reduce taxpayer grievances. New schemes and e-initiatives to educate the taxpayers and deliver tax payer services in an effective manner are key to this effort.

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Digital Payments increase by a whopping 55 per cent in 2016-17
Jul 10,2017

The RBI data shows that the volume of digital payments has recorded a CAGR of 28 per cent during the five year period ending 2015-16. In contrast, the increase has been a whopping 55 per cent in 2016-17, according to an analysis and evaluation of the current digital payments landscape in the country as captured by NITI Aayog. Further, the value of overall payments was around 13 to 14 times of GDP during the five-year period. In contrast, the outstanding stock of currency in circulation, which hovered around 12% of GDP during 2011-12 to 2015-16, declined to 8.8% during 2016-17, reflecting the impact of demonetisation partially offset by the ongoing re-monetisation process. This trend was shared by Mr. Ratan P Watal, Principal Advisor, NITI Aayog and Former Finance Secretary.

Mr. Watal said that the retail payments segment accounted for as much as 98 to 99% of total volumes. Of this, the share of paper clearing which formed over half the total volume in 2011-12, steadily dropped to 16% in 2015 -16 and further to 11% in 2016-17 with a corresponding increase in the combined share of electronic clearing and cards.

He said that these figures are truly reflective of the fact that India today stands at the cusp of a digital payments revolution through rapid penetration of digital payments infrastructure across the length and breadth of the country. Due to innovations in digital payment technologies and increasing consumer satisfaction, the growth trends in digital payments are positive and will continue to dominate the payments landscape in India. This dispels the doubts raised by some commentators regarding the growth of Digital Payments, subsequent to demonetization.

Mr. Watal said that for instance, in an article published in the Indian Express it was claimed that the surge in digital payments, post demonetization was temporary as cash was not readily available. Once cash was available, the surge in Digital Payments tapered off. RBI data was used to substantiate this hypothesis.

He said that it is to be noted that that this data was based on RBI figures capturing just a few select payment system indicators only and includes Card transactions of only 4 major banks and PPI transaction of only 8 major non-bank entities for goods and services only. The data therefore referred to a subset of the entire spectrum of Digital Payments. Hence the conclusion that was drawn may not have given the true picture.

Mr. Watal said that NITI Aayogs analysis based on a more comprehensive analysis of digital payments growth drivers, the growth in Digital payments in 2016-17 was 55% in volume terms and 24.2% in value terms. In April 2017, there has been again a significant growth in digital payments as compared to April 2016. These findings run counter to what was projected in the article that I referred to. The content of the handbook is about this viewpoint.

He said that NITI Aayogs analysis dispels all doubts in the mind of keen observers of Digital Payments that the growth trajectory of Digital payments in the country continues unabated. Demonetization helped to push the graph of Digital mode of transactions upwards. The substance of this initiative of the Government is that technology will ultimately drive consumer behavior in switching from n++cash to card.n++ And now the new GST code will add to this momentum too.

The handbook recommends that the digital payments data should be disseminated at a disaggregated level. Currently data on digital payments is available only at an aggregate level, thus making it difficult to analyze the growth and effectiveness of individual digital payment technologies. We have proposed a classification for disaggregation - according to service provider, payment instruments, payment destination, user, value, area, etc. The NITI Aayog is working with the RBI towards data dissemination is such a metric format. Going forward, this is indeed a challenge but this will be extremely useful in policy making and analysis, Mr. Watal added.

Speaking about the governments plan to reach 25 billion digital transactions by March 2018, Mr. A.P. Hota, Managing Director & CEO, National Payments Corporation of India, said that it was necessary that banks issue debit cards to their un-carded customers; enhancement of acceptance infrastructure i.e. deployment of POS, mPOS, Aadhaar Pay, QR code, Micro ATM; all customers to be enabled for internet banking; all customers to be enabled for mobile banking; Aadhaar seeding should be mandatory; dis-incentivize cash base transactions and incentivize electronic transactions and creating awareness about digital payments.

Mr. Virat Bhatia, Chairman, FICCI Committee on ICT & Digital Economy and President-IEA, South Asia, AT&T Communication Services India Pvt Ltd., said that Indias digital payment system has been evolving robustly, spurred by developments in information and communication technology. There are three trends that are shaping the future of the digital payment space in India. First, is the rapid growth of the more nimble Fintech players that are working to deliver services in a manner never seen before. Second, the experience of customers in other industries be it e-commerce, healthcare, education or transportation is improving at such a fast pace that they are now expecting similar delivery and interface even in the payment industry. Third, is the push government is giving to digital economy in the country and which itself is inducing a change in consumer behaviour and making customers ask for more convenience for their payments.

Mr. Sudhakar Ramasubramanian, Co-Chairman, FICCI Committee on Fintech & MD and CEO, Aditya Birla Idea Payments Bank Ltd., said that though people had bank accounts, they still engaged in cash transactions but demonetization accelerated the pace of digital payments. The government, industry and stakeholders for the first time had come together for the same cause. With some standardization in the systems, he added that technology and available solutions could help in creating the last mile connectivity and bringing customers on board digital payments.

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Moodys: Global investment banks exposure to legacy litigation has fallen; shock absorbers stronger
Jul 10,2017

Global investment banks (GIBs) have significantly reduced their exposure to the risk of legacy litigation over the last two years, Moodys Investors Service said in a report.

At the same time, the majority of these banks have increased their share of stable earnings from strong retail, corporate and wealth-management franchises, improving their capacity to absorb earnings shocks from any large, unexpected charges. Both of these developments are positive for the GIBs bondholders.

Most US and European GIBs have settled the bulk of their legacy issues, said Alessandro Roccati, a Moodys Senior Vice President and co-author of the report. The GIBs have significantly improved their shock-absorbing capacity and increased their capital bases, mitigating the financial risk of pending litigations.

Litigation costs for the rated GIBs have been on a two-year decline from their post crisis high. In 2016, the GIBs litigation provisions in aggregate were $19 billion, nearly half of the $33 billion recorded in 2015, bringing their total litigation provisions from 2008-16 to about $273 billion. Provisions related to residential mortgage-backed securities (RMBS) accounted for around half of the total, followed by mis-selling and misrepresentation, representing around one third.

Although US banks have settled most of their large-scale cases, several European GIBs remain exposed to a variety of legacy litigation that presents tail risk. The Royal Bank of Scotland Group plc, Barclays Plc, UBS AG and HSBC Holdings plc have not yet settled their large US RMBS litigations, although they have already made related provisions or accounted for them in their capital plans.

Settlements of US RMBS litigations in line with our estimated median costs for peers would be positive for those GIBs that have not yet settled because they would reduce uncertainty and tail risk, and would allow management to focus on executing restructuring plans, which if successful, would benefit bondholders.

Other large legacy risks are company-specific: Deutsche Bank AG remains under investigation for its Russian mirror trading, and Barclays Plc is under investigation on disclosures related to its 2008 rights issue.

Most GIBs have significantly improved their shock-absorbing capacity and increased their capital bases, mitigating the financial risk of pending litigations.

Capital has increased for most GIBs in the last five years. Moodys calculates that their average Basel III fully applied CET1 ratio stood at 12.5% at the end of 2016, up from 12.0% in 2015 and 10.6% in 2014.

Increasing levels of stable shock absorbers and the GIBs improved capital bases will help mitigate any negative impact from potential further litigation settlements and support these banks credit profiles.

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Moodys: Global shipping industry to see moderation in excess supply; EBITDA to fall slightly
Jul 10,2017

Moodys Japan K.K. says that the outlook for the global shipping industry is stable, underpinned by a moderation in the excess supply in vessels for the dry bulk and containership sectors, while EBITDA for the rated shipping companies generally will fall modestly this year on an organic basis excluding M&A.

Signs of recovery, although slow and choppy, in the dry bulk and containership segments drive the overall stable outlook, and although market conditions are still weak, they are unlikely to worsen from 2016 levels, says Mariko Semetko, a Moodys Vice President and Senior Credit Officer.

For these two segments, we expect supply growth will exceed demand growth by less than 2%, within our parameters for a stable view, but conditions in the tanker segment are negative due to high levels of deliveries of new ships that will keep freight rates low over the next 12 months, adds Semetko.

This outlook reflects our expectations for the fundamental business conditions in the industry over the next 12 months. We had changed our outlook to stable from negative in May 2017.

For all rated shipping companies, aggregate EBITDA will be flat at best over the outlook period, and will more likely decline 0%-3% in 2017 from last year, on an organic basis, after excluding M&As. The industry continues to undergo restructuring, and M&As will skew gross EBITDA.

Nonetheless, cost cutting by companies and industry restructuring have arrested the double-digit decline in aggregate EBITDA seen last year. A fall in EBITDA of up to 3% would be within the parameters for a stable outlook. We would consider changing the outlook to negative if we come to expect a decline of more than 5%.

Moodys further concludes that the overall operating environment is stable at a low level, and while market conditions are still weak, they will not appreciably worsen from 2016 levels.

The industry came off of a very weak 2016 when freight rates bottomed for containerships and dry bulk. Recent restructurings, on-going cost cuts, and industry consolidation and alliances in the containership segment will stabilize the earnings of our rated universe as a whole.

The sectors average fuel price was higher in the first half of this year than in the first half of last year. Still, prices are relatively low and we do not expect a significant and rapid increase from current levels such that fuel will become a material negative credit driver.

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Moodys: Decentralized servicing means greater operational risks for Indian securitization deals
Jul 10,2017

Moodys Investors Service says that Indian securitization transactions that rely on decentralized servicing -- whereby repayments for the underlying loans are collected or paid in person -- are subject to greater levels of operational risk than where repayments are collected via centralized servicing through the countrys financial and payment system.

When servicing is decentralized, operation risks are higher because any failure on the part of the servicers to perform their duties would significantly disrupt the collection of loan payments.

The proportion of securitized portfolios requiring decentralized or centralized servicing generally varies between different asset classes in India. In the case of auto loan ABS, 40% to 70% of specific securitized portfolios may require decentralized servicing with repayments collected by servicers in person or paid in person by borrowers at local branch offices.

Furthermore, Moodys notes that the transfer of servicing duties from one provider to another would generally be more complex for securitization deals that rely on decentralized servicing, given the need to perform collections in person.

If a service provider is unable to perform its duties, the quick transfer of those duties to a new party is important to limit operational risk.

The presence of back-up servicer arrangements at the outset of Indian securitization transactions can reduce the operational risks faced by deals. If such arrangements are not in place from the outset and the servicer fails, it would be challenging to identify and to subsequently engage an effective replacement.

Nonetheless, although a back-up arrangement can reduce operational risks, it may not necessarily prevent losses from occurring if the replacement servicer fails to achieve the same level of loan collections as the original servicer.

At the same time, the current availability of effective third party servicers in India is limited, particularly in the case of decentralized servicing. For the alternate servicer to be effective, it should have a similar geographic reach and ability to service the portfolio requiring decentralized servicing.

In securitization transactions that rely on decentralized servicing, delinquencies can also increase significantly if there is a disruption in servicing, because borrowers may change their repayment behavior.

In such cases, very high levels of credit enhancement in securitization transactions that rely on decentralized servicing can provide significant coverage against the expected increase in losses upon servicing disruption.

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GST to boost MSMEs competitiveness, says study
Jul 10,2017

The Goods and Services Tax (GST) would boost the competitiveness of micro, small and medium enterprises (MSMEs), noted a recent joint study by ASSOCHAM- Ashvin Parekh Advisory Services (APAS).

n++From an MSME perspective, GST will bring in many positives compared to the current systems such as easy process of availing input credit, single point tax, elimination of cascading tax system, and simpler taxation,n++ said the study titled Emerging Mantras for Bankers-Borrowers, jointly conducted by ASSOCHAM and APAS.

The report also said that though there is no doubt that GST is aimed to increase the taxpayer base, and bring majorly MSMEs into its scope and that would put some burden of compliance and associated costs to them. But eventually, it will turn these MSMEs more competitive with a level playing field between large enterprises and them.

It also highlighted certain pros of GST on MSME sector viz., improved MSME market expansion, lower logistical overheads, boon for MSMEs dealing in sales and services, unified market and purchase of capital goods.

As part of cons of GST on MSME sector, the study highlighted - burden of lower threshold, no tax differentiation for luxury items and services, increase in cost of product, selective tax levying, burden of higher tax rate for service provider, excess working capital requirement, realignment of purchase and supply chain, dual control, high compliance burden and tax on advances, taxation under reverse charge for un-registered purchases, taxation on stock transfers and deemed supplies, time limit for return of goods sent on sale or return basis, condition of payment and filing of return for availing input tax credit and power to arrest and prosecution.

The study said that these pros offset the cons, as such the way forward while hopes rests with GST to boost the GDP growth and reduce the fiscal deficit.

Considering that all compliance procedures under GST n++ registration, payments, refunds and returns will now be carried out through online portals only and thus MSMEs need not worry about interacting with department officers for carrying out these compliances, which was earlier a cumbersome task.

Furthermore, Indian MSMEs would be able to compete with foreign competition coming from cheap cost centers such as China, Philippines, and Bangladesh.

The GST regime will usher in lower taxes, seamless input tax credit, logistics savings and market share swings from unorganized to organized players.

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