Information gap may force VAT to miss target date
Foreign banks tighten norms for sticky assets
Y2K bug fails to sting banks, bourses
Fresh hurdles to Great Eastern sale

 
 
INFORMATION GAP MAY FORCE VAT TO MISS TARGET DATE 
 
 
FROM R.SASANKAN
 
New Delhi, Jan 1 
The introduction of value-added tax is likely to be delayed by at least a year. It was scheduled to be in place by April 1, 2001.

According to finance ministry sources, states do not have the preliminary information base to go in for VAT. If introduced in a hurry, this could lead to large-scale misuse of the system like in the case of modified value added tax (Modvat) introduced by the Centre a few years ago.

Sources say a lot of additional book-keeping by traders and industry will be required before VAT is introduced. There should be precise input cost records to ensure that there is no revenue leakage.

The Centre is now reconciled to the inevitability of the delay in the introduction of VAT.

It is, however, happy that harmonisation of sales tax is coming into force on January 1, as scheduled. This is the first step towards VAT.

Official circles maintain that the harmonisation of sales tax should put an end to competitive populism and save states Rs 15,000 crore per annum.

The existing sales tax system with different rates in different states helped only trade and industry.

The harmonisation of sales tax does not mean that all products will have only one rate. Different products will have different rates, but the rate applicable will be the same throughout the country for the same product.

For instance, different states have different rates for petrol, ranging from 8 per cent to 25 per cent. With the proposed harmonisation, petrol will have only one rate throughout the country.

The new system will not lead to any revenue loss except for Delhi which at present has one of the lowest sales tax rates. This is why Delhi acts as a transit point for products in the neighbouring states like UP, Rajashan, Haryana and Punjab. On a rough estimate, 5,000 trucks carrying goods come to Delhi every day. Farmers and middlemen realise a better price for their products in Delhi because of the low sales tax. Harmonisation of sales tax should reduce pollution in Delhi as the number of trucks coming to Delhi will go down drastically.

Introduction of VAT was recommended by the Chelliah Committee on tax reforms. As in the case of Modvat, the committee failed to recommend computerisation of the database as a pre-requisite for its success. Without considering this aspect, the chief ministers’ conference convened by finance minister Yashwant Sinha decided that VAT should be introduced with effect from April 1, 2002.

The Centre had offered to compensate states in the case of revenue loss as a result of VAT. In fact, Gujarat had asked for such an assurance. On present reckoning, no state will suffer any revenue loss. The Planning Commission had estimated a revenue loss of Rs 15,000 crore per annum to states as a result of competitive populism. The biggest losers are Maharashtra and Gujarat. They should be able to save this with harmonisation of sales tax rates.    


 
 
FOREIGN BANKS TIGHTEN NORMS FOR STICKY ASSETS 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Jan 1 
Foreign banks operating in India are opting for tighter provisioning of their non-performing assets as part of their stringent prudential norms.

Some of the banks have started making provisions towards non-performing assets (NPAs) on a monthly basis, even though the Reserve Bank of India (RBI) guidelines stipulate annual provisioning for the same.

The banks which have adopted this measure include Hong Kong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank (Stanchart) and ANZ Grindlays Bank.

Banking sources stated that other foreign banks are also expected to follow suit to increase transparency in their books of accounts.

“Our bank reviews provisioning on loans and advances on a monthly basis. In addition, we have capped our exposure to various sectors at a certain percentage, which is again monitored every month,” a senior HSBC official said.

RBI guidelines require banks to classify assets as sticky when the loan repayments are delayed beyond 180 days.

“We have reduced this period to 90 days. We treat a loan asset as a non-performing asset in case it is not repaid within the stipulated period as per our internal prudential norms,” a senior Stanchart executive said.

According to RBI guidelines, the banks should make a provisioning of 10 per cent for sub-standard assets, 20 per cent for doubtful assets and 100 per cent for loss assets.

Assets which cannot be recovered within two years are classified as sub-standard assets.

However, unlike most public sector banks, a majority of the foreign banks make a 100 per cent provisioning for non-performing asset if it is not recovered fully, or for a portion of it, banking sources said.

In fact, most foreign banks have a lower NPA level compared to the public sector banks. “Strict recovery drives help the foreign banks to keep their NPA level low,” sources said.

A senior official of ANZ Grindlays said that with the entry of new private sector banks, foreign banks need to constantly monitor their performance. The norm of monthly provisioning for NPAs helps the bank management keep tabs on the bank’s financial performance and enables them to make it more competitive, he added.    


 
 
Y2K BUG FAILS TO STING BANKS, BOURSES 
 
 
OUR BUREAU
 
Jan 1 
The anxiety and agony is over—the dreaded Y2K bug has failed to intrude into the country’s computer systems as India, along with the rest of the world, entered the new millennium without reporting any hitches in the 11 key sectors of the economy.

The sectors under watch were civil aviation, railways, telecom, power, atomic energy, space, petroleum, ports, defence, banking and insurance.

“Nine of the 11 critical sectors have sent multiple confirmations from midnight of December 31, 1999, to nine o’clock on January 1, 2000, confirming a smooth and successful rollover into the new millennium,’’ said P.V. Jayakrishnan, secretary, information technology.

In the country’s financial hub, Mumbai, stock markets, banks and financial institutions reported a smooth transition to the year 2000 with computers failing to get even a whiff of the Y2K bug.

All the FIs and banks, under the eagle eye of the Reserve Bank of India (RBI), were on red-alert last night to ward off the Y2K bug.

A RBI release said the magnetic ink character recognition (MICR) cheque processing at its four national clearing centres (NCCs) —in Mumbai, New Delhi, Calcutta and Chennai — moved over to 2000 without any difficulty. Total transactions handled during the roll-over stood at Rs 4,700 crore.

RBI said all banking operations will operate normally on January 3, when banks reopen for public transactions, in view of the systems continuing to function without any hitch.

The central bank added that all its central and regional offices have successfully rolled over to year 2000; banks and financial institutions have also given their first report of their systems’ smooth roll over to the last year of the millennium.

Meanwhile, both the State Bank of India (SBI) and the Unit Trust of India (UTI) have said its systems functioned properly during transition.

Among the bourses, the Bombay, National and Calcutta stock exchanges conducted mock trading today which went off smoothly.

Railways also reported a trouble free transition; systems including passenger reservation, traction and signaling were found to be Y2K compliant.

However, the government will continue to monitor the banking and insurance sectors till January 3. The complete banking picture would be available when public transactions start on January 3, 2000, Jaykrishnan said.

Similarly, the insurance sector would also report its Y2K status on January 3.    


 
 
FRESH HURDLES TO GREAT EASTERN SALE 
 
 
BY A STAFF REPORTER
 
Calcutta, Jan 1 
The West Bengal government’s plan to sell Great Eastern Hotel has again run into rough weather, with Congress MLA Saugata Roy threatening to oppose the move. Roy is determined to oppose the sale unless the government comes out with a clear compensation package for the employees. “We have urged the government to prepare the compensation package first. We will not support the state tourism department’s bid to sign the deal first and finalise the compensation issue later,” he said. Roy also criticised the “lack of transparency” in the tenders.

However, deputy chief minister Buddhadeb Bhattacharya is optimistic about securing the support of both Roy and his union, the Intuc-affiliated Great Eastern Hotel Staff & Workers Association.

The government is considering a proposal to sell a majority stake in the state-owned hotel to one of the two contenders—French hotel giant Accor Asia Pacific and Tulip, an Indian firm.

“We are told that the government has shortlisted these two to acquire a majority control in the ailing hotel. However, we do not mind handing over the ownership of the hotel to a foreign company if its employees’ interests are protected,” Roy said.

The state tourism department’s attempt to clinch a similar deal last year was also frustrated by trade unions. In fact, then tourism minister Subhas Chakraborty drew considerable flak from his own colleagues for his attempts to transfer majority control of the hotel to Accor Asia.    

 

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