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BFS7130th Aug, 2013

Weekly

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BFS Roundup @ FLIP

NSEL sacks MD, six others after payment

default The board of NSEL sacked 7 top officials including

the CEO and CFO, after it failed to repay the

nvestors on the first day of payout. The exchange

was able to raise only INR 92.73 crore of the INR

174. 72 crore committed.

FLIP’s View: This is a serious offence affecting

nvestor confidence. The sanctity of the exchange is

at stake, and the severest punishment must be

provided. Checks and balances must also be put in

place for these things not to recur.----------------------------------------------------  

Earning Rs 10 cr ? Get ready for 35% income

tax 

The government is considering imposing a tax rate

of 35% on the super-rich citizens i.e. those earning

more than INR 10 crores a year. This is expected to

help government in covering the fiscal deficit to

some extent.

FLIP’s View: An Optically pro-poor move, but will

do very little to fill the coffers.--------------------------------------------------------RBI increases rate of interest subvention on

export credit 

RBI has decided to increase the rate of interest

subvention on pre- and post-shipment rupee export

credit for certain employment-oriented export

sectors from 2% to 3%, effective August 1. This

move is aimed at boosting exports and increasing

forex inflows. 

FLIP’s View: Should give a higher fillip to exports,

and with the current exchange rate, if exports don’t

pick up, I don’t know if they ever will. 

----------------------------------------------------------Rupee sinks as FIIs extend selling 

The rupee tumbled to a near-69 level against the

dollar on Wednesday. The Indian currency slid 3.99

per cent — its biggest single-day fall in more than

21 years.

FLIP’s View: India is getting rammed from all

sides frankly. USD is strengthening against all

emerging market currencies, thanks to QE. The

domestic economics – CAD, fiscal deficit are adding

to the rupee woes, and finally, the nail in the coffin,

the Govt. doesn’t know what to do to fix it. 

he week that was…. he week that was…. 

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Updates @ FLIP

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Did you know?

The RBI has allowed Cheraman Financial Services, a firm based in

Kochi to operate as a NBFC that follows Islamic Principles.Cheraman Financial Services plans to offer leasing and equity finance

products.

This is being seen as opening up of opportunities for NBFCs to offer

various sharia-compliant products.

Despite being home to about 177 million Muslims, Islamic Banking is

not permitted in India.

Under Islamic banking principles paying or receiving interest is

forbidden .Thus it uses innovative structures like asset buyback etc.,

to provide a return to investors. .

RBI governor Duvvuri Subbarao, who will step down in September,

has said Islamic banking on a broader scale is not possible in the

country, but sharia-compliant products could be delivered through

alternative means.. 

Term of the Week

Interest Subvention Scheme

You would have read a lot about subvention schemes offered by the government.

We will try to explain what they are, and how they help the economy?

What is a subvention scheme?

In case of an interest subvention scheme, the government provides an interest subsidy.

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For example: Recently, the government approved a scheme for providing short-term crop loans

to farmers at a concessional rate of 7% p.a.

What it means is that, farmers can borrow at a concessional rate of 7% (instead of the prevailing

market rate – 12 to 15%), and the bank can charge the government for the difference.

Government also provides a further interest subvention of 3% p.a., to farmers repaying their

loans promptly, thus making available the crop loans to them at 4% p.a.

How do these help the economy?

Government offers these schemes to provide impetus to sectors deemed critical for the

economy. These include agriculture, textiles, low-cost housing etc.

These structures attract investment into these sectors which helps in generating employment

and pushing economic development.