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CURRENT BULLETIN - FEBRAURY 2020

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ECONOMYDeposit insurance hiked to Five lakhs

Context: In Union Budget 2020, finance minister

Nirmala Sitharaman has permitted toincrease the limit of insurance cover in caseof bank failure on deposits to ?5 lakhs fromcurrent ?1 lakh.

What is Deposit insurance? Deposit insurance is providing insurance

protection to the depositor's money byreceiving a premium.

The government has set up DepositInsurance and Credit Guarantee Corporation(DICGC) under RBI to protect depositors if abank fails to repay their customers.

The agency does not directly charge anypremium from bank depositors, but, everyinsured bank pays premium amounting to0.001% of its deposits to DICGC every year.

What happens when a Bank is liquidated? When a bank goes into liquidation then in

such a case the DICGC was liable to pay toeach depositor through a liquidatorappointed by RBI, the amount of his depositup to Rs 1 lakh within two months from thedate of claim list from the liquidator.

If a bank is reconstructed or amalgamatedor merged with another bank, then in sucha case the DICGC pays to the bank concerned.

In case of multiple bank accounts with thesame bank, an account will get maximum ofup to Rs.1 lakh only.

This insured amount of 1 lakh earlier hasbeen increased to Five lakhs now.

This deposit guarantee can be released onlyif the bank gets closed. It cannot be releasedif the bank is a going concern.

About Deposit Insurance and CreditGuarantee Corporation (DICGC): DICGC is a wholly owned subsidiary of

Reserve Bank of India. It was established in 1978 under the Deposit

Insurance and Credit Guarantee CorporationAct, 1961 for the purpose of providinginsurance of deposits and guaranteeing ofcredit facilities.

The deposit insurance scheme is mandatoryfor all banks and no bank can voluntarilywithdraw from it. However, DICGC has thepower to cancel the registration of aninsured bank if it fails to pay the premiumfor three consecutive half-year periods.

Institutions covered under deposit insurance: This scheme insures all types of bank

deposits including savings, fixed, currentand recurring with an insured bank.

DICGC covers all commercial banks,including Local Area Banks (LABs) andRegional Rural Banks (RRBs) in all the Statesand Union Territories (UTs).

All Co-operative Banks across the countryexcept three UTs of Lakshadweep,Chandigarh, and Dadra and Nagar Haveli arealso covered by deposit insurance.

Primary cooperative societies are notinsured by the DICGC.


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Deposits are not insured by the DICGC? Deposits of Foreign governments Deposits of Central/state governments Inter-bank deposits Deposits made in Non-Banking Financial

Corporations (NBFCs) Deposits of the state land development

banks with the state co-operative bank Any amount due on account of any deposit

received outside India Any amount specifically exempted by the

DICGC with previous approval of RBI.

Dividend Distribution Tax on companieswaved off

Context: Finance Minister NirmalaSitharaman under

Union Budget 2020-21 has proposed toremove dividend distribution tax oncompanies, and henceforth the tax will beshifted to recipients at the applicable rate.

What is Dividend Distribution Tax? The Dividend Distribution Tax (DDT) is a tax

levied on dividends that a company pays toits shareholders out of its profits.

Till now, DDT was taxable at source, and isdeducted at the time of the companydistributing dividends.

The dividend is the part of profits that thecompany shares with its shareholders.

Present laws for DDT: The present law provides for the Dividend

Distribution Tax to be levied at the hands ofthe company, and not at the hands of thereceiving shareholder.

The companies are required to pay dividenddistribution tax (DDT) on the dividend paidto its shareholders at the rate of 15% plusapplicable surcharge and cess, in addition

to the tax payable by the company on itsprofits.

However, an additional tax was imposed onthe shareholder, who received over Rs. 10lakhs in dividend income in a financial year.

When is the Dividend Distribution Tax paid? The tax has to be paid to the government

within 14 days of the dividend declaration,distribution or payment whichever isearliest.

If DDT is not paid within the given timeperiod, interest at a rate of 1 % per month orpart thereof starts getting accumulated tillthe amount is paid. The tax is paidseparately, over and above the company'sincome tax liability.

What changed now? DDT has been removed and the classical

system of dividend taxation is adoptedunder which the companies would not berequired to pay DDT.

The dividend shall be taxed only in thehands of the recipients at their applicablerate.

The ministry has also proposed deductionfor the dividend received by holdingcompany from its subsidiary, to remove thecascading effects.

Problems with earlier provisions: The system of levying DDT, results in

increased tax burden for investors andespecially those who are liable to pay taxless than the rate of DDT, if the dividend isincluded in their income.

Further, non-availability of credit of DDT to


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most of the foreign investors in their homecountry results in reduction of rate of returnon equity capital for them.

Market participants, especially brokers,have been calling for long to scrap the DDT.The tax makes markets unattractive as itleads to significant taxation of corporateearnings.

Significance: It is expected to make India more attractive

market for investment and to provide reliefto a large class of investors.

However, it would result in a revenue lossof Rs 25,000 crore per annum to the Centralgovernment.

Co-operative banks under RBI's ambitContext: The Union Cabinet has recently approved an

amendment to the Banking Regulation Act,1949 to bring multi-state co-operative banksunder the watch of the central bank andprevent a repeat of Punjab and MaharashtraCooperative Bank (PMC) like crisis.

Co-operative banks: Co-operative banks are financial entities

established on a co-operative basis andbelonging to theirmembers. This means thatthe customers of a co-operative bank arealso its owners.

They are regulated by the Reserve Bank ofIndia under the Banking Regulation Act, 1949and Banking Laws (Application toCooperative Societies) Act, 1965 or theyareunder dual control of Registrar ofCooperative Societies and RBI.

While the role of registrar of cooperativesocieties includes incorporation,registration, management, audit, superse-ssion of board and liquidation, RBI isresponsible for regulatory functions suchmaintaining cash reserve and capitaladequacy, among others.

Concern: There are 1,540 cooperative banks in India

with a depositor base of 8.60 crore havingtotal savings of about Rs 5 lakh crore.

Urban cooperative banks reported nearly1,000 cases of fraud worth more than ?220crores in past five fiscal years. Hence, theresponsibility of the government increasesto safeguard the rights of the depositors.

Proposed recommendation: The proposed law seeks to enforce banking

regulation guidelines of the RBI incooperative banks, while administrativeissues will still be guided by Registrar ofCooperatives.

The cooperative banks would be auditedaccording to RBI rules.

The appointment of CEOs would requireprior approval from the central bank.

RBI can supersede management in case ofliquidation or failure of any cooperativebank.

These measures would be implemented ina phased manner.

The amendments will apply to all urban co-operative banks and multi-statecooperative banks.

The rationale is to increase professionalismand improve corporate governance, keepingin mind the recent PMC crisis and need forstructural reforms in banks.

India betters score in GIPC's IP IndexContext: India stands at 40th place out of 53

economies in global IP (intellectualproperty) Index 2020, as against 36th placeout of 50 economies in the 2019 Index.

International IP Index 2020: It is released by Global Innovation Policy

Center (GIPC) of the US Chamber ofCommerce.

The index ranked 53 global economies,representing over 90% of global GDP.

The US tops the scorecard followed by theUK, France, Germany, Sweden and Japanrespectively.


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The 2020 index includes three newcountries: Dominican Republic, Greece, andKuwait.

Key highlights of index: India's overall score has increased to 38.46%

in the International IP Index 2020.

It has found that India has embraced a seriesof reforms and issued court rules thatstrengthen IP enforcement, addressadministrative inefficiencies and increasepenalties for IP infringement.

Implementation of the policy has resultedin improving rates of patent and trademarkpendency, greater awareness of IP rightsamong Indian innovators.

However, index points out serious hurdlesparticularly in terms of patent eligibility andenforcement. Compulsory licensing inpharma companies, patent opposition andregulatory data protection are the mainchallenges faced by the India.

The index has reported that India's key areasof strength in IP domain include continuedstrong efforts to combat copyright piracythrough 2019 by:

Issuing of dynamic injunction orders, Precedent-setting case law on online

trademark infringement and damages, New pilot patent prosecution highway

(PPH) programme, Generous R&D along with IP-based

incentives.

Indicators: The indicators span 8 categories of IP

protection:1. Patents2. Copyrights3. Trademarks4. Trade Secrets5. Commercialization of IP Assets6. Enforcement7. Systemic Efficiency8. Membership and Ratification of

International Treaties

What is Intellectual Property? Intellectual property (IP) refers to creations

of the mind, such as inventions; literary andartistic works; designs; and symbols, namesand images used in commerce.

IP is protected in law by, for example,patents, copyright and trademarks, whichenable people to earn recognition orfinancial benefit from what they invent orcreate.

By striking the right balance between theinterests of innovators and the wider publicinterest, the IPsystem aims to foster anenvironment in which creativity andinnovation can flourish.

Reserve Bank of India offers CRRexemption to Banks

Context: In a bid to spur credit growth and boost

demand, the Reserve Bank of India (RBI) hasoffered banks Cash Reserve Ratio (CRR) forfive years for incremental credit disbursedto automobiles, residential housing, andmicro, small and medium enterprises(MSMEs) between 31 Jan-31 July, 2020.

According to RBI statement: The banks are allowed to deduct the

equivalent amount of incremental creditdisbursed by them as retail loans toautomobiles, residential housing, and loansto micro, small and medium enterprises


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(MSMEs), over and above the outstandinglevel of credit to these segments as at theend of the fortnight ended January 31, 2020from their net demand and time liabilities(NDTL) for maintenance of CRR.

The central bank said banks can claim firstsuch deduction from NDTL of 14 February,2020 for CRR exemption.

As per RBI, an amount equivalent to theincremental credit outstanding from thefortnight beginning January 31, 2020 and upto the fortnight ending July 31, 2020 will beeligible for deduction from NDTL for thepurpose of computing the CRR for a periodof five years from the date of origination ofthe loan or the tenure of the loan,whichever is earlier.

RBI said the bank must maintain properfortnightly records of net incremental creditextended to the select sectors/NDTLexemption claimed, duly certified by theChief Financial Officer (CFO) or anequivalent level officer, for supervisoryreview.

What is CRR or cash reserve ratio? Cash Reserve Ratio is a certain minimum

amount of deposit that the commercialbanks have to hold as reserves with thecentral bank.

CRR is set according to the guidelines of thecentral bank of a country.

Cash reserve ratio is: It is also referred to as the amount of funds

which the banks have to keep with theReserve Bank of India (RBI)

It's a vice-versa process If a central bank increases CRR then the

available amount with the banks decreasesor comes down

The CRR is used by RBI to wipe out excessivemoney from the system

Commercial banks are required to maintainan average cash balance with the RBI, theamount of which shall not be less than 3 percent of the total Net Demand and TimeLiability (NDTL).

Example: When someone deposits Rs 100 with a bank,

it increases the deposits of the bank by Rs100. If the CRR is 9 per cent, then the bankwill have to hold additional Rs 9 with thecentral bank. This means that thecommercial bank will be able to use only Rs91 for investments and/or lending or creditpurpose.

How does Cash Reserve Ratio help in timesof high inflation? At the time of high inflation, the

government needs to ensure that excessmoney is not available in the economy.

To that extent, RBI increases the CashReserve Ratio, and the amount of moneythat is available with the banks reduces. Thiscurbs excess flow of money in the economy.

When the government needs to pump fundsinto the system, it lowers the CRR rate, whichin turn, helps the banks provide loans to alarge number of businesses and industriesfor investment purposes. Lower CRR alsoboosts the growth rate of the economy.

DRT under Vivaad se Vishwas schemeContext: The Direct Tax Vivaad se Vishwas Bill, 2020

will now cover pending litigation in debtrecovery tribunals (DRTs) as well besidesthose in various courts and tribunals.

Vivaad se Vishwas Bill 2020 The Direct Tax Vivaad se Vishwas Bill, 2020

was introduced in LokSabha by the Ministerof Finance, Ms. NirmalaSitharaman.

What is the scheme? Under this scheme, taxpayers whose tax

demands are locked in dispute in multipleforums, can pay due to taxes by March 31,2020, and get a complete waiver of interestand penalty.

If a taxpayer is not able to pay within thedeadline, he gets a further time till June 30,


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but in that case, he would have to pay 10%more on the tax.

The Vivaad se Vishwas scheme is similar tothe 'Indirect Tax, SabkaV ishwas' scheme,which was introduced by Finance Ministerduring her maiden budget presentation inJuly 2019.

The "SabkaV ishwas" legacy disputeresolution scheme was aimed at reducingdisputes related to excise and service taxpayments.

Aim of the scheme: The V ivaad se V ishwas Scheme aims to

resolve 483,000 direct tax-related disputespending in various appellate forums.

Currently, there are 4.83 lakh direct tax casespending in various appellate forums -Commissioner (Appeals), Income TaxAppellate Tribunal (ITAT), High Court andSupreme Court.

Key Points: The Bill provides a mechanism for resolution

of pending tax disputes related to incometax and corporation tax.

The bill aimed at reducing litigations relatedto direct taxes.

It covers disputes pending at the level ofcommissioner (appeals), Income TaxAppellate Tribunals (ITAT), high courts, theSupreme Court and those in internationalarbitration.

Now, the ambit of the scheme will includedisputes pending in Debt recovery tribunals(DRTs) also.

Disputes of search and seizure where therecovery is below Rs 5 crore can be taken inthis scheme.

It is hoped that people will take advantageof the scheme to settle the tax disputesbefore March 31, 2020 as 10 % more will becharged for settlement of disputes after theend of the current financial year.

Debt recovery tribunals (DRTs): DRTs were established to facilitate the debt

recovery involving banks and other financialinstitutionswith their customers.

DRTs were set up after the passing ofRecovery of Debts due to Banks and FinancialInstitutions Act (RDBBFI), 1993.

The DRTs enforces the provisions of theRDDBFI Act, 1993 and also Securitization andReconstruction of Financial Assets andEnforcement of Security Interests(SARFAESI) Act, 2002.

DRTs can take cases from banks for disputedloans above Rs 10 Lakhs.

Appeals against orders passed by DRTs liebefore Debts Recovery Appellate Tribunal(DRAT).

Aim: The fundamental purpose of the 1993 Act

was to remove claims of banks and financialinstitutions from the ordinary form tospecialised tribunals.

The avowed purpose of the statute was toensure the speedy disposal of claims ofbanks and financial institutions intended tobe governed by it.


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Arth-Ganga projectContext: Arth-Ganga project is a sustainable

development model with a focus oneconomic activities related to River Ganga.

When was the project envisaged? During the first meeting of the National

Ganga Council in Uttar Pradesh, in December2019, Prime Minister urged for a holisticthinking process where 'NamamiGange'evolves to 'Arth Ganga' or a sustainabledevelopment model with a focus oneconomic activities related to Ganga.

Vision: With implementing the mantra of PM

NarendraModi, 'Reform, Perform andTransform' Cargo volume on Ganga will beincreased by 4 times with special focus ondeveloping inland waterways Arth-Gangaproject will boost economic developmentand inclusive growth for farmers, smalltraders and villagers.

As part of this process, farmers should beencouraged to engage in sustainableagriculture practices, including zero budgetfarming, planting of fruit trees and buildingplant nurseries on the banks of Ganga.

Priority could be given to women Self HelpGroups and ex-servicemen organizations forthese programs.

Such practices, along with creation ofinfrastructure for water sports anddevelopment of camp sites, cycling andwalking tracks etc., which would help to tapthe 'hybrid' tourism potential of the riverbasin area- for purposes of religious as wellas adventure tourism.

The income generated from encouragingeco-tourism and Ganga wildlifeconservation and cruise tourism etc. wouldhelp to generate sustainable incomestreams for cleaning of Ganga.

Initiatives taken till date: Ministry of Shipping has taken several

initiatives in last few years which has

resulted into substantial growth in-terms ofincreasing Inland Cruises from 3 to 9, Cargofrom 30,00,000 MT to 70,00,000 MT, andVessels in-flow from 300 to 700.

A lot of activities like developing of smalljetties have been carried out for thebeneficial for small community especiallyfor farmers, traders and general public in the1400 km stretch of National Waterway-1from Banaras to Haldia.

The Ministry is developing Varanasi (UP)Freight Village and Sahibganj (Jharkhand)Industrial Cluster-cum-Logistics Park with anobjective of creating synergy with InlandWaterways at the cost of Rs. 200 crores andcreate enormous direct and indirectemployment, giving an economical boost inthis particular area.

Treaty for Transit of Cargo between India andNepal: National Waterway-1 will act as a main

conduit of connection with Nepal in atri lateral manner, i.e. from Varanasi toNautanwa (280km), KaughattoRaxaul (204km)and Sahibganj to Biratnagar (233km).

Earlier Nepal was connected by Kolkata andVisakhapatnam Ports for transporting cargo.Now, Inland Waterways, particularly NW-1will be allowed under Treaty for Transit ofCargo between Government of India andGovernment of Nepal.

It will save logistic cost and decongestKolkata Port as well.


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Significance: Almost half of the Indian population lives

around Ganges River belt in which about 1/5th of all India's freight originates and 1/3rdterminates in the states around Ganges Belt.

Inland Waterways is one of the mostimportant pillars of "Arth-Ganga" project,which will result into inclusive growth andplay a key role in generation of enormousemployment opportunities in the NationalWaterways stretch.

The Farmers will get a better return for theirproduce as the transportation of goodswould become easier and cost effective bythis. It will improve 'Ease of Living' and 'Easeof Doing Business.'

ADB lists masala bonds on India INXContext: Asian Development Bank (ADB) has listed

its 10-year masala bonds worth Rs 850 croreon the global debt listing platform of IndiaINX. The proceeds would be used to supportlocal currency lending and investment inIndia.

Details: India INX is the country's first international

stock exchange, located at InternationalFinancial Services Centre in Gift city, Gujarat.

ADB's masala bonds are listed on bothLuxembourg exchange and India INX.

Masala Bonds: The term "Masala Bonds" is used to refer to

rupee-denominated borrowings by Indianentities in overseas markets.

Through masala bonds, Indian entities canraise money from overseas markets in therupee, not foreign currency.

It helps the Indian companies to diversifytheir bond portfolio as previously they oneissued corporate bonds. Masala bonds arean addition to their bond portfolio.

Objective: To fund infrastructure projects in India, fuel

internal growth via borrowings andinternationalize the Indian currency.

Why Masala Bond? IFC named them 'masala' bonds to reflect

the Indian flavour. The term masala bondshave been used ever since.

Before masala bonds, corporates raisedfinance from international market throughexternal commercial borrowings called ECBs.

Eligibility: Investors from outside of India who would

like to invest in Indian assets can invest inMasala bonds. It can also be subscribed bymultilateral and regional financialinstitutions where India is a membercountry.

Features: The bonds are directly pegged to the Indian


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currency. So, investors will directly take thecurrency risk or exchange rate risks. If thevalue of Indian currency falls, the foreigninvestor will have to bear the losses, not theissuer which is an Indian entity or acorporate.

Currently, these bonds are listed on theLondon Stock Exchange.

For bonds up to USD 50 million per financialyear, the maturity period is 3 years and forbonds raising over USD 50 million perfinancial year, it is 5 years.

It will give a higher interest rate comparedto the standard interest rate prevailing inthe markets.

On average these bonds have an interestrate of 2-3% higher compared to the standardLIBOR (London Interbank Offer Rate).

Masala bonds cannot be used for real estateactivities other than for the developmentof integrated township affordable housingprojects.

It also can't be used for investing in capitalmarkets, purchase of land and on-lendingto other entities for such activities as statedabove.

Background: In 2014, International Finance Corporation

(IFC), the investment arm of the World Bank,issued the first masala bond of Rs. 1,000crores to fund infrastructure projects inIndia. IFC then named them Masala bondsto give a local flavour by calling to Indianculture and cuisine.

CENTRAL CONSUMER PROTECTIONAUTHORITY

Context: Union Minister of Consumer Affairs, Food

and Public Distribution announced that aCentral Consumer Protection Authority(CCPA) will be established by the first weekof April.

Details: The authority is being constituted under

Section 10(1) of The Consumer ProtectionAct, 2019.

The Act replaced The Consumer ProtectionAct, 1986, and seeks to widen its scope inaddressing consumer concerns.

The new Act recognises offences such asproviding false information regarding thequality or quantity of a good or service, andmisleading advertisement.

It also specifies action to be taken if goodsand services are found "dangerous,hazardous or unsafe".

CCPA: The CCPA, introduced in the new Act, aims

to protect the rights of the consumer bycracking down on unfair trade practices, andfalse and misleading advertisements thatare detrimental to the interests of the publicand consumers.

The CCPA will have the powers to inquire orinvestigate into matters relating toviolations of consumer rights or unfair tradepractices suomotu, or on a complaintreceived, or on a direction from the centralgovernment.

Ministry of Consumer Affairs, Food andPublic Distribution is in the process offinalising the rules relating to thecomposition and functioning of the CCPA,and these are expected to be notified byApril.

An investigative wing will be formed underthe aegis of the authority and it will carryout inquiries in matters related to unfairtrade practices and misleadingadvertisements.


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Provisions: Under Section 20 of The Consumer

Protection Act, the proposed authority willhave powers to recall goods or withdrawalof services that are "dangerous, hazardousor unsafe; pass an order for refund the pricesof goods or services so recalled topurchasers of such goods or services; anddiscontinuation of practices which are unfairand prejudicial to consumer's interest".

For manufacture, selling, storage,distribution, or import of adulteratedproducts, the penalties are: If injury is not caused to a consumer,

fine up to Rs 1 lakh with imprisonmentup to six months;

If injury is caused, fine up to Rs 3 lakhwith imprisonment up to one year;

If grievous hurt is caused, fine up to Rs5 lakh with imprisonment up to 7 years;

In case of death, fine of Rs 10 lakh ormore with a minimum imprisonment of7 years, extendable to imprisonmentfor life.

Section 21 of the new Act defines the powersgiven to the CCPA to crack down on false ormisleading advertisements.

According to these provisions, if the CCPA issatisfied after investigation that anyadvertisement is false or misleading and isharmful to the interest of any consumer, oris in contravention of consumer rights, theCCPA may issue directions to the trader,manufacturer, endorser, advertiser, orpublisher to discontinue such anadvertisement, or modify it in a mannerspecified by the authority, within a giventime.

The authority may also impose a penalty upto Rs 10 lakh, with imprisonment up to twoyears, on the manufacturer or endorser offalse and misleading advertisements.

The penalty may go up to Rs 50 lakh, withimprisonment up to five years, for everysubsequent offence committed by the samemanufacturer or endorser.

CCPA may ban the endorser of a false ormisleading advertisement from makingendorsement of any products or services inthe future, for a period that may extend toone year. The ban may extend up to threeyears in every subsequent violation of theAct.

What other powers will the CCPA have? While conducting an investigation after

preliminary inquiry, officers of the CCPA'sInvestigation Wing will have the powers toenter any premise and search for anydocument or article, and to seize these. Forsearch and seizure, the CCPA will havesimilar powers given under the provisionsof The Code of Criminal Procedure, 1973.

The CCPA can file complaints of violation ofconsumer rights or unfair trade practicesbefore the District Consumer DisputesRedressal Commission, State ConsumerDisputes Redressal Commission, and theNational Consumer Disputes RedressalCommission. It will issue safety notices toalert consumers against dangerous orhazardous or unsafe goods or services.

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