Ramanisblog

Tag: Reserve Bank of India

  • Wal-Mart Breaks Indian Law Even before Entering The Story.

    On the joyous occasion of The Indian Government winning the vote in Parliament on FDI in Retail Trade, I have great pleasure in informing my readers how Wal-Mart broke the Law even before entering Indian Market.

    The exclusive story by Reuters explains how Wal-Mart surreptitiously entered India and how it lobbied.

    Story by Reuters:

    Wal-mart Wal-Mart

    Wal-Mart Stores Inc (WMT.N) prepared its entry into India’s supermarket sector in 2010 with a $100 million investment into a consultancy with no employees, no profits and a scant $14,000 in revenue.

    The company, called Cedar Support Services, might have been a more obvious selection four months earlier: it began its corporate life as Bharti Retail Holdings Ltd, according to documents filed with India’s Registrar of Companies.

    The Cedar investment is now the focus of an investigation by India’s financial crimes watchdog into whether Wal-Mart broke foreign direct investment rules by putting money into a retailer before the government threw open the sector to global players.

    Wal-Mart said it was in compliance with India’s FDI guidelines, and had followed all procedures. It said the central government had sought “information and clarification”, which Wal-Mart has provided.

    However, several lawyers said the transaction appeared to violate at least the spirit of India’s long-standing ban on foreign investment in supermarkets, which it only lifted in September 2012. When Wal-Mart made the investment in 2010, it was legal for foreigners to own consultants but not retailers, so the shift in Cedar’s business description raised eyebrows.

    “This is a complete camouflage,” said Hitesh Jain, a senior partner at ALMT Legal in Mumbai who advises retailers but is not involved with Wal-Mart. “It can be looked at as a violation of FDI rules because Cedar also operates supermarkets, which was a restricted sector back then.”

    Graphic on Wal-Mart’s investment link.reuters.com/myp44t

    Graphic on India’s retail market r.reuters.com/cuh79s

    The law, however, is murky.

    Others stressed that the way Wal-Mart structured the transaction might make it legal. According to the documents filed with India’s registrar, the investment was in the form of debt that was convertible into equity. That clouds the issue of whether Wal-Mart took a stake in Cedar or provided financing.

    Bharti and Wal-Mart both declined to provide additional details on how the transaction was structured.

    Senior government officials told Reuters that the RBI had asked the Enforcement Directorate, which investigates financial crimes, to look into whether Wal-Mart violated the law by investing in a supermarket retailer before foreign investment rules were relaxed.

    If Wal-Mart did break the law, it could face a penalty of up to three times its initial $100 million investment, they said.

    That would not only be a setback for Wal-Mart, it would also weaken consensus-building efforts by India’s minority government, led by the Congress party. The party is desperate for more support from across the political spectrum after its decision to let foreign players into India’s retail market came under fire from the opposition and even some of its own allies.

    Wal-Mart and other retailers lobbied for years to gain access to India’s market, lured by the promise of a middle class that will one day rival China’s. But local opposition has been fierce because of concern that Wal-Mart and its peers will knock millions of mom-and-pop stores out of business.

    COMPLEX WEB

    Reuters pieced together details of Wal-Mart’s investment in Cedar by examining records from India’s Registrar of Companies and through interviews with government officials involved with the matter, as well as several lawyers who work with retailers.

    The documents reveal a web of companies set up under the Bharti umbrella, which runs India’s largest telecom operator, Bharti Airtel (BRTI.NS). The group, which also has retail interests, signed a joint venture with Wal-Mart to run wholesale stores in 2007, shortly after India allowed full foreign ownership of wholesale retail operations.

    That same year, the Bharti group formed Bharti Retail Holdings Ltd, which in turn owned a subsidiary called Bharti Retail Ltd which operated supermarkets and hypermarkets.

    In December 2009, Bharti Retail Holdings changed its business description to consulting services from retail, the documents filed with India’s Registrar show. A month later, the company changed its name to Cedar.

    The timing of the change in name and business is significant because when Wal-Mart invested in Cedar in March 2010, foreign companies could legally own 100 percent of an Indian consulting firm but not a supermarket retailer.

    Cedar issued “compulsorily convertible debentures” to Wal-Mart Mauritius Holdings Co Ltd, which would be exchanged for 49 percent equity 18 months after the issue date. The conversion date has since been pushed back twice, to September 2013, which would be after India’s relaxation of rules on retail investment.

    Cedar’s cash flow statement for 2010 shows that the funds raised from the debentures were used to finance activities and an attached schedule to the balance sheet shows a transfer of 1.75 billion rupees to its retail unit, raising questions over whether Wal-Mart’s money went into the retail business.

    M.P. Achuthan, a communist member of India’s parliament, has accused Wal-Mart of breaking the foreign direct investment law and said he wanted the company to be penalised. Achuthan also wants India to scrap its foreign retail investment policy.

    “I am surprised and shocked that the government didn’t see this. This kind of an investment could not have happened without the government’s knowledge,” Achuthan said. “It is impossible.”

    Wal-Mart’s Indian partner, Bharti Enterprises, said it had followed the rules but did not address specific questions emailed by Reuters.

    “We are in complete compliance of all regulations. All details have been shared with the relevant authorities,” a Bharti Enterprises spokesman said.

    Two senior government officials said there had been an initial round of communication between the Reserve Bank of India and the Enforcement Directorate. The RBI asked the law enforcement agency to conduct the investigation.

    “RBI believes there is a need to investigate,” said a senior government official, who spoke on condition of anonymity because of the sensitivity of the matter. He said both Wal-Mart and Bharti were being investigated because “Wal-Mart allegedly made the investment and Bharti allegedly received it”.

    Separately, Wal-Mart said last month it was looking into bribery allegations in several countries including India, Brazil and China. It conducted an earlier probe in Mexico.

    DEBT OR EQUITY?

    Prime Minister Manmohan Singh is under intense pressure to roll back the decision to permit foreign retailers. Parliament ground to a halt on November 22 over opposition to the reforms until the government agreed to a vote, set for Wednesday.

    A year ago, political pressure forced the government to make a U-turn after it first approved foreign investment into supermarkets, an abrupt shift that brought into question India’s ability to build consensus behind long-awaited reforms.

    When Wal-Mart made the investment in Cedar in 2010, Indian law permitted foreigners to own “cash-and-carry” wholesale stores, but they were barred from owning what India calls multi-brand retailers, or stores like Wal-Mart’s namesake supermarkets that sell a wide array of products and brands.

    Whether the investment in Cedar violated India’s law depends on two issues, according to the lawyers: if Cedar was in fact a retailer rather than a consultancy, and how the investment was structured.

    Cedar’s articles of association filed with the Registrar show it called itself a consultancy, but a few pages later it describes a “competing business” as one involved in retail and operates supermarkets, hypermarkets and discount stores.

    Even if investigators determine Cedar was a retailer, lawyers said Wal-Mart’s investment may still be legal if the transaction is deemed to be debt. Wal-Mart could then argue that it did not acquire a stake but instead extended a loan.

    But according to RBI guidelines set in 2007, compulsorily convertible debentures are considered equity. That would mean Wal-Mart jumped the gun, said Alok Dhir, managing partner Dhir & Dhir Associates.

    Dhir said there may be one way around that problem. If Wal-Mart and Bharti included a “put” option on the debentures, it could be considered debt because Wal-Mart would no longer be required to convert the debt to equity.

    It is not clear whether this transaction included such a clause, and Wal-Mart and Bharti declined to comment.

    http://in.reuters.com/article/2012/12/05/india-walmart-bharti-cedar-idINDEE8B400S20121205

    Does the name Bharti ring abell?

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  • DD Cheques Validity.Old Cheques Not Valid From Jan 2013

    New Cheque Format in India from I January 2013
    bank+cheque+after+31.12.2012+sbi+noti

    ‘State Bank of India (SBI), the country’s largest lender, came out with an advertisement in all major national dailies on 5 November, stating that it will issue a new set of cheque book to its customers and that the existing cheque leaves will not be valid after 31 December 2012.

    The Reserve Bank of India (RBI) has advised all banks to issue only CTS-2010 (cheque truncation system-2010) standard cheque. The initiative has been taken to standardize and enhance security features in cheque forms.
    ‘It is now mandatory for banks to strictly issue standardised and enhanced new format of cheques called CTS-2010. Which will be available from 30th Sept 2012. Also already circulated cheques will be replaced within 31st December 2012. So it is necessary for all to understand how your new cheque format looks like.
    1) Paper-Same specification will continue related to paper specification as it exist now. In addition to that, paper should be image friendly and have protection against any alteration by having new features as chemical sensitivity to acids, alkalis, bleaches and solvents giving  clear visibility of alteration. New cheque will not glow under Ultra-Violet light. This will make all cheques feel like same across all banks.
    New Cheque format from January 2013.
    New Cheque.

    “Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of India – RBI, for faster clearing of cheques.[1] CTS is basically an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.

    Truncation means, stopping the flow of the physical cheques issued by a drawer to the drawee branch. The physical instrument is truncated at some point en-route to the drawee branch and an electronic image of the cheque is sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc.

    Cheque truncation, would eliminate the need to move the physical instruments across branches, except in exceptional circumstances. This would result in effective reduction in the time required for payment of cheques, the associated cost of transit and delays in processing, etc., thus speeding up the process of collection or realization of cheques.

    http://en.wikipedia.org/wiki/Cheque_truncation_system

    As per RBI guidelines, with effect from April 1, 2012, the validity period of Cheques, Demand Drafts, Pay Orders and Banker‘s Cheques will be reduced from 6 months to 3 months, from the date of issue of the instrument.(Stanchart)

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  • Double of Game of Baba Ramdev-Document Exposes Him.

    What exactly does Ramdev want?

    On Friday, the government released a six-page document of compromises it has reached with Baba Ramdev on the issue of illegal money. It answers accusations that the government went out of the way to placate him. The document also shows that the government does not have contempt for the issues Ramdev has raised.

    The document shows that the government has readily accepted Ramdev’s demand to bring a Public Services Delivery Bill in Parliament at the earliest. It is also .We are ready to declare black money stashed abroad as national wealth, says HRD Minister Kapil Sibal.

    Watch Video.

    http://zeenews.india.com/video/showvideo11806.html

    RAMDEV ANNOUNCES VICTORY 
    Govt to declare black money as national wealth.

    http://zeenews.india.com/video/showvideo11805.html

    The Document.

    Action Taken by Government on Demands Raised by Baba Ramdev Recovery of Black Money
There is a legal framework regulated by the Reserve Bank of India for the opening of bank accounts
overseas by Indian residents and for outward or inward remission of funds through authorized
channels.
The existing legal framework for dealing with illicitly generated funds transferred overseas and
measures for the attachment and repatriation of such illegal assets to India and provision for
penalties for offenders are:
A. Under the Prevention of Money Laundering Act, 2002 (PMLA), money laundered out of
predicate scheduled offences can be attached and seized and individuals and other legal entities
found to have indulged in money laundering can be prosecuted. PMLA provides for imprisonment
of minimum of 3 years (which can be extended up to 7 years) and a fine of up to Rs.5 lakh and the
tainted proceeds parked overseas can be recovered through Mutual Legal Assistance Treaties. India
has such treaties with 26 countries.
B. Under the Foreign Exchange Management Act, 1999 (FEMA), cases relating to contravention in
foreign exchange transactions by Indian residents can be adjudicated with penalty up to a maximum
of 3 times the amount involved. Further, FEMA empowers the confiscation of the amounts lying
abroad and directing their repatriation.
C. Under both statutes (FEMA and PMLA), investigation is taken up against specific persons, both
natural and legal, and on the basis of specific information.
D. Section 105A of the Cr. PC provides for reciprocal arrangement and procedure for attachment
and forfeiture of properties generated from the commission of an offence. Where such properties are
situated overseas and treaty arrangements exist between Government of India and the other country,
Letter Rogatories can be issued to a court / authority of the other country for execution of such an
order.
E. Under the Income Tax Act also, income earned and not disclosed is taxable and also subject to
penalty and interest, as well as prosecution. The amount recovered may even exceed the entire
undisclosed income. This is in effect confiscation of such income / property.
Actions at hand
I. India has negotiated / renegotiated Double Tax Avoidance Agreements and finalized Tax Information Exchange Agreements with 44 countries so as to strengthen the exchange of
information relating to tax evasion, money laundering and other criminal / illicit activities.
II. Agencies enforcing these laws have been strengthened and action is being taken in all cases
where credible information is available. In the last two years, over Rs 33,000 crore of mispricing
has been detected in international trade and over Rs 30,000 crore of tax evasion detected
domestically.
III. Government has commissioned a study, to be completed within 18 months, by three nationallevel
institutes to assess the extent of black money inside and outside the country and its impact on
national security. The study will also indicate the sectors and mode of generation of black money
and recommend measures for its prevention and control.
IV. The Direct Taxes Code Bill, as introduced in Parliament, contains provisions for mandatory
declaration of assets held abroad by taxpayers in India. It also contains provisions such as General
Anti Avoidance and Thin Capitalization Rules to combat illicit transfer of money and assets abroad
through complex financial arrangements and instruments.
V. A Directorate of Criminal Investigation has been created in the Central Board of Direct Taxes as
a dedicated unit to track financial transactions relating to illegal / criminal activities and bring such
activities to justice.
VI. A High Level Committee has been constituted under the Revenue Secretary for effective sharing
of information among Law Enforcement Agencies for coordinated investigation / prosecution of
economic offences.
Mauritius Treaty
1. A Joint Working Group (JWG) was constituted in 2006 for the purpose of renegotiating the Direct
Taxation Avoidance Convention with Mauritius and its last meeting was held in 2008. Thereafter,
India has successfully used the mechanism of the Peer Review Group (PRG) of the Global Forum
for Transparency and Exchange of Information for Tax Purposes – of which India is Vice Chair – to
leverage arguments with the Mauritian side to be more open in furnishing tax related information to
India.
2. Recently, during the visit of President of Mauritius in end-April, an indication was received that
Mauritius would resume the Joint Working Group dialogue on the DTAC. Further, Foreign Minister
of Mauritius has conveyed that his government will give a fresh mandate for the resumed
negotiations to their experts. This position has been further confirmed by the Prime Minister of
Mauritius to the Indian Minister of State for External Affairs on 16th May 2011 during her visit to
Mauritius.
3. Hon’ble Supreme Court in the case of Azadi Bachao Andolan Vs Union of India (2003) endorsed
the Mauritius route for investments into India for availing of the capital gains tax exemption.
Hence, any change in the law relating to Mauritius can only have prospective application and can be
in respect of future holdings/accounts/entities in Mauritius.
Proposed Action
In order to strengthen existing laws relating to black money, the government has constituted a
Committee to consult all stakeholders and submit its report within a period of six months. The
Committee will examine the measures to strengthen the existing legal and administrative
framework to deal with the menace of generation of black money through illegal means
including, inter alia,
a) Declaring wealth generated illegally as national asset;
b) Enacting / amending laws to confiscate and recover such assets; and
c) Providing for exemplary punishment against its perpetrators.
Any further suggestions in this regard will be duly considered.
http://www.tehelka.com/channels/Web_Specials/2011/June/04/images/Gov_Response_to_Baba_Ramdev.pdf

  • Banks and Home Loans Frauds.

    Banks in India too have their bits of Frauds.

    Top PSU’s ,including LIC Housing were involved in Home loans scams and many senior executives were arrested.

    Of course nothing has been heard ever since their arrest quite some time ago.

    Banks use many tactics to defraud he home loan customers.( see related)

    After the Loan is fully paid,consumers are asked to pay extra amount(it varies from Bank to Bank), before they issue ‘Release Letters’.

    Documentation charges–why?(again varies from Bank to Bank)

    Story:

    WASHINGTON — A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans, four officials briefed on the findings told The Huffington Post.

    The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the sources said.

    The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges.

    http://www.huffingtonpost.com/2011/05/16/foreclosure-fraud-audit-false-claims-act_n_862686.html?utm_campaign=051611&utm_medium=email&utm_source=Alert-business&utm_content=FullStory

    The State Bank of India, the country’s largest commercial bank, has been forced to withdraw “teaser” mortgage loans amid fears of repeating the lending follies of the US subprime crisis.

    Under pressure from the Reserve Bank of India to curb what the regulator considered potentially reckless lending, the SBI said last week that it would scrap the home loans from May.

    http://seekingalpha.com/instablog/522286-silentplanet/169284-indian-banks-scraps-teaser-home-loans

    Related:

    (CONFIDENTIAL AND WITHOUT PREJUDICE)
    Attn : Existing HDFC Home Loan Customers – Join Yahoo Group The existing customers of HDFC home loan have formed a group at Yahoo Groups by the name of ‘hdfchomeloancustomers’ to address the concerns of existing customers who are paying high interest rates. The group unites Hdfc customers and intends to take the issues like high interest rates, conversion fee, increase in loan transfer fee and treatment of old customer’s with HDFC. The group is very active, vibrant with people from diverse vocations and regions. Please join the group. Please forward to all you know are HDFC customers”