2017

Volume 7

THIS MONTH

In this issue, Mr. N. S. Kannan, Executive Director of ICICI Bank Limited, has presented his views

on future of Indian Banking. We thank Mr. Kannan for his contribution to the APAS Monthly

publication.

This month, the APAS column presents its views on Goods and Services Tax Act (GST Act).

The economic indicators showed mixed performance. Manufacturing PMI fell from 51.6 in May

to 50.9 in June 2017. The growth of core sectors slowed to 0.4% in June. India's Index of Industrial

Production (IIP) increased at slower pace of 1.7% in May 2017 over May 2016. PMI services and

composite PMI expanded from 52.2 and 52.5 in May to 53.1 and 52.7 in June, respectively.

Inflation slipped to 1.54% in June from 2.18% in May. Wholesale Price Index (WPI), slowed to

0.9% in June from 2.17% in May.

The Reserve Bank of India (RBI) issued guidelines on financial inclusion and development in the

form of a Compendium for Small Finance Banks. RBI issued master directions on non-banking

financial company.

The Insurance Regulatory and Development Authority of India (IRDAI) issued a roadmap for

creating a database to be housed in Insurance Information Bureau (IIB). Also, IRDAI has notified

new rules to protect the interest of policy holder.

APAS

MONTHLY

The Cabinet approved Memorandum of Cooperation (MOC) in respect of tax matters between

India and BRICS countries. Also, the Cabinet gave its approval on alternative mechanism for

creation and launch of a New Exchange Traded Fund and the revival of the government's Inland

Waterways Authority (IWAI) in 2017-18 for granting additional budgetary resources (EBR).

Securities and Exchange Board of India (SEBI) issued guidelines for issuance of Offshore

Derivative Instruments (ODIs), with derivative as underlying, by the ODI issuing FPIs. SEBI

issued amendments in guidelines released in 2015 on International Financial Services Centres

(IFSC).

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts, and

encourage you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Mr. N.S.Kannan

Executive Director, ICICI Bank

Indian Banking – What the future holds

APAS COLUMN

Goods and Services Tax Act (GST Act)

ECONOMY

➢ Index of Industrial Production – May

➢ Inflation update – June

➢ PMI update – June

➢ Core Sector update – June

BANKING

➢ RBIs Third Bi-monthly Monetary Policy Statement, 2017-18

➢ Small Finance Banks – Compendium of Guidelines on

Financial inclusion and Development

➢ Point of Presence services under Pension Fund Regulatory

and development authority for national pension scheme

INSURANCE

➢ Roadmap for creating a database to be housed in Insurance

Information Bureau (IIB)

➢ Insurance Regulatory and Development Authority of India

(Protection of Policyholders’ Interests) Regulations, 2017

INFRASTRUCTURE

➢ Cabinet approved Memorandum of Cooperation (MOC) in

respect of tax matters between India and BRICS countries -

Brazil, Russia, China and South Africa

➢ Cabinet approved alternative mechanism for creation and

launch of a New Exchange Traded Fund

➢ The Cabinet has approved the revival of the government's

Inland Waterways Authority (IWAI) in 2017-18 for granting

additional budgetary resources (EBR)

CAPITAL MARKETS

➢ Guidelines for issuance of Offshore Derivative Instruments

(ODIs), with derivative as underlying, by the ODI issuing FPIs

➢ Securities and Exchange Board of India (International

Financial Services Centres) Guidelines, 2015–Amendments

CAPITAL MARKET SNAPSHOT

ECONOMIC DATA SNAPSHOT

The financial sector in India is undergoing a major transformation across many dimensions, fuelled by

changing macroeconomic trends, developments in technology, evolving markets and changes in

regulations.

• Growth in financial savings: in addition to the growth in financial savings due to rising household

incomes, specific developments over the last three years have given a boost to financial savings. These

include the decline in inflation and positive real interest rates; the curbs on investment of

unaccounted money in gold and real estate; and the demonetization of high denomination currency

notes. These have led to significant increase in inflows into the formal financial sector, not just to the

banks, but also to other parts of the sector including mutual funds and insurance.

• Formalization of the economy: The formalization of the economy has gathered pace through various

measures including the opening of Jan Dhan bank accounts and measures taken by the government

to discourage unaccounted money and increase digitization of payments across various parts of the

economy and specifically the government services. The introduction of the Goods & Services Tax will

give a further major structural impetus to this process.

• Geographical diversification: Consumers are no longer concentrated only in metropolitan centers.

There is a strong growth in demand for goods and services in the smaller towns, semi-urban and rural

areas. Greater connectivity of both infrastructure and information has given rise to the similar levels

of aspirations of people across the spread of the country. Various skilling initiatives taken by the

Government and the private sector have also helped these aspirants find income generating/income

enhancing opportunities both in urban and rural areas.

• Technology: The last decade has seen ubiquitous mobile connectivity, higher internet penetration and

a dramatic surge in mobile broadband. New business models are capitalizing on the increased

Indian Banking – What

the future holds

Mr. N. S. Kannan, Executive Director, ICICI Bank LImited

connectivity and other disruptive technology trends including big data, artificial intelligence and more

recently, block-chain.

• Development of capital markets: Equity capital markets are seeing companies from new sectors

getting listed, new structures like investment trusts and the increasing importance of domestic

institutional investors. Conditions are falling into place for the growth of liquid bond markets, with a

reducing fiscal deficit.

• Regulation: The financial crisis of 2008 led to the strengthening of capital regulations. Banks are well

on the way to transitioning to higher capital requirements under Basel III. From fiscal 2019, the Indian

banking sector is scheduled to see a major transition in accounting norms with the adoption of the

new Indian Accounting standards (IndAS) based on International Financial Reporting Standards (IFRS).

Banks will also eventually transition to the advanced approaches under Basel II. These new regulations

and accounting norms are more risk sensitive.

All these trends create a big opportunity for financial services players, as well as a need to recalibrate

businesses to the emerging landscape. Faster growth in smaller towns implies a greater growth

opportunity for small businesses and greater demand for financial services. Banks need to invest in

building the distribution reach and capability to cater to the large geographical spread while maintaining

cost efficiency and build capabilities to serve new customer segments that were not part of the formal

banking system. Banks also have to prepare to meet the financial needs of new business models, new

entrepreneurs and small businesses that need access to formal banking across the spread of the country.

The disruptive trends driven by technology are an opportunity for existing financial services players. ICICI

Bank has always believed in technology-led solutions and the Bank was the first bank in India to launch

internet banking and mobile banking. Banks are also partnering with Fintech companies to build models

that leverage their platforms to build complementary services that expand the bouquet of services to new

customer segments.

The bold steps taken by the government to empower the Reserve Bank of India through legislation and

the subsequent actions by the regulator aim to increase the pace of resolution and strengthen the banking

sector. While in the near-term the banking system has to focus on asset resolution and work in a

coordinated manner to implement and closely monitor the resolution process, enhancement of business

models by banks to take advantage of the above trends is critical for medium term prospects.

Finally, the transition to IndAS and the advanced approaches to capital will require banks to focus closely

on capital allocation to maximize the through-the-cycle returns after factoring in expected losses. Hence,

banks will have to carefully balance capitalizing on business opportunities while managing the balance

sheet for the most efficient use of capital and delivering returns to shareholders.

On the midnight of July 1, 2017, India ushered in the Goods and Services Tax (GST), which has been termed

as a potential game changer and the single biggest tax reform undertaken by India since independence.

This single indirect tax regime is founded on the concept of ‘one nation, one market, one tax’ and will

dismantle inter-state barriers to trade in goods and services.

GST is going to be a critical reform for the Indian economy as it would simplify taxation norms by

consolidating a range of taxes under one umbrella. Previously, different states had different tax laws.

There were nearly 17 taxes that businesses had to pay authorities, which made it a cumbersome and

expensive affair. GST will result in a simplified tax structure and a unified tax base, with common rules

and administrative procedures coming into effect across the country. It is expected to widen the tax base

and bring in greater transparency.

There are expectations that the tax reform will boost the Indian economy and a huge shift will be seen

from the unorganized to the organized sector.

GST has five rate slabs under which various goods and services will be taxed – 0%, 5%, 12%, 18% and 28%.

Sectoral impact

GST is expected to have different impact on different sectors.

• GST rate for products like hair oil, soaps, toothpaste, etc. has been lowered from the previous

rates, which will benefit the FMCG sector.

• Consumer durables, which were previously taxed at 27%, will now be taxed at 28%, which will not

have any significant impact.

• For airlines, tax on business class will now increase from 9% to 12%, whereas tax on economy

class will now reduce from 6% to 5%.

• Cement will be taxed at 28%, which is nearly the same as charged previously.

Goods and

Services Tax Act

(GST Act)

• Services like banking, financial services, insurance, brokerage, telecom, eating out, online

shopping, etc. will become more expensive as the tax has increased from 15% to 18%.

• GST on gold jewellery is 3%, which is close to the previous 2%, but the tax rate on jewellery making

charges has been cut to 5% from 18% earlier, which will reduce the prices and drive demand.

• For the auto industry, GST is expected to be neutral as small and mid-segment cars are expected

to be cheaper, whereas luxury cars are expected to become more expensive.

• Multiplexes are expected to benefit due to input tax credit on fixed costs.

• GST classifies hotels into four buckets based on room tariffs and the high-end luxury hotels will

pay more compared with previous rates.

• 5% GST rate on apparel priced below INR 1000 is expected to give a boost to the value fashion

business, whereas for apparel priced above INR 1000, GST rate of 12% may force companies to

raise prices.

• For real estate, all under-construction properties will be charged at 12% on property value,

excluding stamp duty and registration charges and it will not apply to completed and ready-to-

move-in projects. Lower transportation and logistics costs under GST may reduce overall cost for

property developers. They will also get the benefit of claiming input tax credit, which can improve

their profit margins.

Under the anti-profiteering provision, all companies shall pass on the benefits of reduced taxes to the

consumers, which shall be beneficial for the consumers in terms of lower prices.

Overall impact on economy

• Revenues

Reviewing the revenue earnings as result of implementation of GST, the revenue growth is expected to

fall to 8 percent as compared to 22 percent from indirect taxes in 2016-17, due to implementation issues.

In the earlier system of tax collection, Value-added tax (VAT), each person in the value-chain used to get

an input credit on the tax paid by the previous persons, which would act as an incentive to make sure the

previous person in line had paid tax. Implementation of GST shall enable the combining of excise, sales

and service tax and allow the combined input credit for these taxes, thus laying the structural foundation

for receiving tax credits.

As per estimates, 46% of states’ own tax revenue is expected to be subsumed by GST. States shall be

compensated for any shortfall in revenue from GST for first five years by the center. The growth rate has

been assumed as 14% compounded from 2015-16 on an average, below which the states shall receive a

compensation.

An important factor to consider in this scenario, is the impact of implementing GST on the income

divergence between different states in India. In contrast to earlier situation, where every state had

different tax rates, GST brings all the states under one similar tax structure. When earlier, the states could

raise their bargaining power to win international projects on the basis of taxation structure, there is little

scope for poorer states to do that now. As the investments shall be driven by deeper prospects such as

better private sector productivity and better quality of governance, states will have no negotiation

grounds for taxation structure, increasing the income disparity among states.

• Inflation

Another important aspect to consider, while evaluating effects of GST is impact on inflation. According to

estimates, GST is not expected to impact inflation greatly since a huge proportion of the CPI basket

constitutes of food and fuel. Food and fuel compose around half of the CPI basket and are exempted from

GST. However, GST is expected to greatly impact the service sector. National accounts data show that a

sizeable proportion of private final consumption expenditure in the domestic markets is of services. And

under GST the tax on services has gone up by 3 percent. This shall mostly impact the major consumer of

services, the upper and middle class.

• Imports and exports

In case of imports and exports within the country, imports of goods and services shall be treated as inter-

state supplies and IGST shall also be levied on such goods and services. The taxation procedure shall follow

the destination principle and the tax revenue in case of SGST, will be accrued to the state where the

imported goods and services are consumed.

On the international imports, there would be no change in the levy of basic customs duty, education cess,

anti-dumping duty, safeguard duty, etc. However, additional duties of customs which are in common

parlance referred to as counter veiling duty, and special additional duty of customs (SAD) would be

replaced with the levy of integrated GST (barring a few exceptions).

The transition rules approved by the GST Council allow full credit for central excise duties paid on goods

over INR 25,000. However, this facility is available only for manufactured goods. As a result, such

provisioning may create a sudden spike in the prices of imported consumer electronics, durable goods

and cellphones.

Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services;

however, credit of input tax will be available to the exporters.

• National growth rate

According to an estimate by IMF, the adoption of GST could help raise India’s medium-term GDP growth

to over 8%. This growth shall be a combined result of structural reforms, along with a sustained period of

lower global energy prices.

Investors and rating companies across the world expect GST to contribute to the higher GDP growth due

to increase in ease of doing business, unifying the national market and enhance India’s lucrativeness as

an investment destination among the emerging markets.

GST, thus, represents a long-pending economic overhaul reform, which has finally been implemented. In

a diverse economy like India, it may take a long time for such kind of a massive reform to normalize.

However, the task now lies ahead for the regulators and other authorities to see that the process is

adopted smoothly in the economy.

-APAS

IIP (Index of Industrial Production) – May

India's industrial production increased at slower pace of 1.7% in May 2017 over May 2016. The

manufacturing sector's production rose 1.2% in May 2017. Meanwhile, the electricity generation galloped

8.7%, but mining output declined 0.9% in May 2017. The growth for April 2017 has been revised downwards

to 2.8% from 3.1% reported earlier.

As per the use-based classification, primary goods output improved 3.4% in May 2017 over a year ago, but

the output of capital goods continued to decline for second straight month at (-) 3.9%. Intermediate goods

output rose mere 0.7%, while the output of Infrastructure/ construction goods also moved up at subdued

pace of 0.1%. The output of consumer non-durable durables increased 7.9%, but that of consumer durable

goods declined for sixth straight month at 4.5% in May 2017 over May 2016.

The industry group 'pharmaceuticals, medicinal chemical and botanical products' has shown the highest

positive growth of 24.5% followed by 24.4% in 'other manufacturing' and 11.8% in 'other transport

equipment'. On the other hand, the industry group 'beverages' has shown the highest negative growth of

(-) 16.5% followed by (-) 15.1% in 'motor vehicles, trailers and semi-trailers' and (-) 15.0% in 'electrical

equipment'.

Some important items showing high positive growth during the current month over the same month in

previous year include 'digestive enzymes and antacids' 90.5%, 'textile machinery' 51.8%, 'meters electric

and non-electric' 48.7%, 'jewellery of gold studded with stones or not' 36.7%, 'industrial valves of different

types- safety, relief and control valvesnon-electronic, non-electrical' 32.8%, 'telephones and mobile

instruments' 29.2%, 'aluminium billets/ingots' 23.6% and 'tea' 21.8%.

Some important items that have registered high negative growth include 'api & formulations of hypo-

lipidemic agents incl. Anti-hyper-triglyceridemics; anti-hypertensive' (-) 72.8%, 'air filters' (-) 63.7%, 'shelled

cashew kernel, whether or not processed/ roasted/ salted' (-) 63.3%, 'axle' (-) 47.0%, 'plastic jars, bottles

and containers' (-) 41.1%, 'kerosene' (-) 40.6%, 'rice (excluding basmati)' (-) 36.1%, 'tooth paste' (-) 33.8%,

'api & formulations of vitamins' (-) 32.0%, 'electrical apparatus for switching or protecting electrical circuits'

ECONOMY

(-) 29.5%, 'commercial vehicles' (-) 26.5% and 'beer & other undistilled and fermented alcoholic liqueurs

other than wines' (-) 24.9%.

Industrial production rose 2.2% in April-May FY2018, compared with 7.3% growth in the corresponding

period last year. The manufactured product sector output improved 1.8%, while the mining and electricity

generation moved up 1.1% and 7.1% in April-May FY2018.

Source: APAS BRT, www.eaindustry.nic.in

1.9

2.7

3.1

1.7

Jan-17 Feb-17 Mar-17 Apr-17 May-17

IIP (% YoY)

Base rate 2004-05 Base rate 2011-12

CPI (Consumer Price Index) – June

India’s consumer price inflation hit another record low of 1.54% in June. CPI remained low in May touching

2.18% and 5.77% in June last year, owing to a sustained dip in food prices.

The sharp fall in food inflation was brought about by a disinflation in the prices of pulses and vegetables.

Vegetables prices fell further and witnessed a negative growth of (-) 16.53% in June as compared with

(-) 13.44% in May. Similarly, prices of pulses continued to fall at (-) 21.92%, as compared with (-) 19.45% in

May.

Housing inflation remained nearly flat, growing 4.70% in June from 4.84% in May. Fuel inflation was 4.84%

in June, as compared with 5.46% in May.

Source: APAS BRT, www.mospi.gov.in

3.653.81 3.89

2.99

2.18

1.54

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Feb-17 Mar-17 Apr-17 May-17 Jun-17

CPI

Base rate 2004-05 Base rate 2011-12

WPI (Wholesale Price Index) – June

Inflation, as measured by the Wholesale Price Index (WPI), slowed to 0.9% in June from 2.17% in May.

The composite food index within the WPI, combining the values of food items in the primary articles

category and manufactured food items, contracted 1.25% in June compared with a growth of 0.15% in the

previous month.

Wholesale food prices fell 3.47% in June, compared with a 2.27% drop in May. Inflation in pulses, vegetables

and potatoes declined the most, but that in eggs, meat and fish accelerated to 1.92% from 1.02% in May.

Inflation in the manufactured products category came in at 2.27% in June, the slowest it has been since

November 2016. The fuel and power saw a drastic easing of inflation to 5.28% in June from 11.7% in the

previous month.

Source: APAS BRT, www.mospi.gov.in

6.55

5.75.51 5.29

3.85

2.17

0.9

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Feb-17 Mar-17 Apr-17 May-17 Jun-17

WPI

Base rate 2004-05 Base rate 2011-12

Manufacturing PMI – June

Manufacturing sector growth in India slowed down. The Nikkei India Manufacturing Purchasing Managers'

Index, or PMI, an indicator of manufacturing activity stood at four-month low of 50.9 in June 2017 down

from 51.6 in May 2017.

Weaker growth of production was the result of softer rise in new orders. Growth of total order books

eased to a four-month low, with the immediate goods category the key source of weakness. New orders

received by consumer goods firms continued to rise strongly, while capital goods producers recovered

from May’s contraction. At the same time, payroll numbers and purchasing activity increased only marginal.

Foreign demand for Indian-manufactured goods improved in June, with new export orders up at the

quickest pace since October 2016. This followed a reduction in new work from abroad in May. Reduction in

inventories of finished goods contrasted with an overall accumulation in holdings of raw materials and semi-

finished items.

Input costs continued to increase on account of higher prices of chemicals, food, plastics and rubber.

However, the rate of inflation was modest and the weakest since August 2016. Likewise, output charges

rose only slightly and at a below-trend pace.

Overall, the level of confidence fell to a three-month low, with some firms expecting implementation of GST

bill would have negative impact on their businesses although it would be supported by new developments

and higher demands due to lower tax rates.

Source: www.tradingeconomics.com

Service PMI – June

Indian service sector activity continued to expand during June, supported by quicker growth of new work,

and job creation was maintained at May’s 47 month record pace. The seasonally adjusted Nikkei Services

PMI Business Activity Index was up from 52.2 in May to eight-month high of 53.1 in June.

Input costs facing service providers continued to rise during May, which analysts associated with higher

prices paid for fuel and food. The rate of charge inflation was the joint-quickest in one year, on par with that

seen in February, though marginal overall. Companies linked the upturn in activity to rise in new business

inflows. The stronger upturn in services new work counterbalanced the slowdown in growth of

manufacturing orders and new work across the private sector economy expanded at a faster pace than in

May. The seasonally adjusted Nikkei India Composite PMI Output Index reached eight-month high of 52.7

in June up from 52.5 in May.

Boosting growth of services activity in June was a solid and stronger upswing in inflows of new business

supported by improved demand conditions and marketing efforts. Factory orders also rose, but to the least

extent in four months. Greater workplace activity encouraged some services companies to recruit more

staff. Employment across the sector as whole rose modestly, but at a rate that equalled May’s near four-

year peak.

In spite of difficulties in obtaining payments from clients, outstanding business at service providers

continued to rise. Nevertheless, the rate of backlog accumulation softened to the slowest in the current 13-

month sequence of expansion. A weaker increase in work-in-progress was similarly noted at goods

producers.

Output is expected by service firms to remain on upward trajectory due to better market conditions and the

introduction of GST, however, the level of positive sentiment fell to a four-month low.

Source: www.tradingeconomics.com

Core Sector Data – June

The index of eight core industries grew at its slowest pace since February at a meagre 0.4% in June this year

as against a robust 7% expansion in June 2016. It grew by 3.6% in May.

As per data released by commerce and industry ministry, coal and cement production contracted by 6.7% and 5.8% respectively in the month. Fertilizer production also declined by 3.6% in June. Production of natural gas registered a growth of 6.4% in June as against a year ago, while steel production grew by 5.8%.

Refinery production declined 0.2%. Crude oil output rose a meagre 0.6% in June and electricity production was up 0.7%.

Source: APAS BRT, www.eaindustry.nic.in

5.2

3.0 3.2

5.0

6.6

4.95.6

3.4

1.0

5.0

2.5

3.6

0.4Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

RBI’s Third Bi-monthly Monetary Policy Statement, 2017-18

RBIs Third Bi-monthly Monetary Policy Statement, 2017-18 was released on 2nd August, 2017.

On having assessed the current and evolving macro-economic situation, Monetary Policy Committee

(MPC) reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from

6.25% to 6.0% with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted

to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.

Highlights of the RBIs monetary policy review are as follows –

• Since June 2017, growth impulses had spread across global economy, US expanded at faster pace

in Q2 after a weak Q1

• Farm loan waivers by states may lead to fiscal slippages, undermine quality of public spending

and entailing inflationary spillovers

• Inflation has fallen to historic low, a conclusive segregation of transitory and the structural factors

driving disinflation are still elusive

• Inflation, excluding food & fuel, has fallen significantly in last 3 months

• Currency in circulation has been showing early signs of normalization

• Surplus liquidity conditions persisted in the system, exacerbated by front-loading of budgetary

spending by the Government

• International financial markets have been resilient to political uncertainties and volatility has

declined, except for sporadic reactions to hints of balance sheet adjustments by systemic central

banks

• On the state of the economy, there has been a need to reinvigorate private investment, remove

infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana for

housing needs of all.

BANKING

• RBI has been working in close coordination with government to resolve large stressed corporate

borrowings, and to re-capitalize PSU banks

• These efforts should help restart credit flows to the productive sectors as demand revives

The next monetary policy is expected to be released on 4th October 2017.

Small Finance Banks – Compendium of Guidelines on Financial Inclusion and Development

In view of the announcement made in the budget 2014-15 regarding creation of a framework for licensing

small banks, and to give a thrust to the supply of credit to micro and small enterprises, agriculture and

banking services in unbanked and under-banked regions in the country, Reserve Bank decided to license

new “Small Finance Banks (SFBs)” in the private sector. Following a due process, in-principle approvals

were given to ten applicants to set up SFBs vide press release dated September 16, 2015.

Subsequently, Operating Guidelines for Small Finance Banks were issued vide Circular

DBR.NBD.No.26/16.13.218/2016-17 dated October 6, 2016, which prescribed, inter alia, broad indicative

guidelines in areas related to Financial Inclusion and Development. In continuation with the same,

comprehensive set of guidelines in the form of a compendium describing the details of priority sector

lending and other inclusion aspects is provided. The guidelines are operational with effect from the date

of this compendium.

Point of Presence (PoP) Services under Pension Fund Regulatory and Development Authority

(PFRDA) for National Pension System (NPS) to be undertaken by systemically important NBFCs

Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit

taking Company (Reserve Bank) Directions, 2016 had prohibited NBFCs from undertaking PoP Services

under the PFRDA for NPS.

However, RBI has permitted, NBFCs with asset size of ₹ 500 crores and above which comply with the

prescribed CRAR and made net profit in the preceding financial year, to undertake PoP services under

PFRDA for NPS after registration with PFRDA. Eligible NBFCs extending such services shall ensure that the

NPS subscription collected by them from the public is deposited on the day of collection itself (T+0 basis;

T is the date of receipt of clear funds, either by cash or any other mode) with the Trustee Bank. The

deposits shall be made in the Trustee Bank account opened for this purpose under the regulations framed

by PFRDA for NPS. NBFCs conducting PoP services shall strictly adhere to the guidelines framed by PFRDA.

Any violation of the instructions above would invite supervisory action, including but not limited to

cancellation of permission to undertake PoP services.

Roadmap for creating a database to be housed in Insurance Information Bureau (IIB)

Insurance Regulatory & Development Authority of India (IRDAI) vide circular dated July 12, 2017 has issued

Roadmap for creating a database of all insurance agents, broker qualified persons, specified persons of

corporate agents, authorized verifiers for web aggregator, point of salesperson (PoS) , etc. to be housed

in IIB wherein the insurers are advised to collect the Aadhaar number and other details of insurance agents

on the lines of PoS and be ready to upload the necessary information on the date to be communicated by

the Authority in due course.

The same portal will also be available to insurance intermediaries. The insurance intermediaries have been

advised to collect the Aadhaar number and other details of trained and qualified persons of insurance

intermediaries so as to be ready to upload the necessary information on the date to be communicated by

the Authority in due course.

Insurance Regulatory and Development Authority of India (Protection of Policyholders’

Interests) Regulations, 2017

The Insurance Regulatory and Development Authority of India (IRDAI) has notified new rules to protect

policyholder’s interest.

The notification clarified that if a claim is ready for payment but the payment cannot be made due to

reasons of proper identification of the payee, the insurer will have to pay a penalty. For settlement for

maturity proceeds and annuities, insurers must notify the policyholder in advance or send post-dated

cheques or transfer money to the bank account so as to pay the claim on or before the due date. For

surrenders, free-look cancellations and withdrawal request, the insurers would need to pay within 15 days

of receiving the request, or the last necessary document. A delay in this case would also invite penalty.

The notification mandates insurers to categorize exclusions that are standard, specific to policy, those that

can’t be waived and those that can be waived on payment of extra premium.

INSURANCE

The notification outlined features and other terms and conditions to be stated explicitly in a policy. For

instance, in life insurance an insurer needs to state things like the type of policy, features, information on

premium payment, riders, exclusions, policy conditions for surrender or discontinuance, revival of the

policy and the grievance redressal mechanism. Insurance Regulatory and Development Authority (IRDAI)

has given the insurers time till 31st December to make changes in their policy documents.

The notification stated that distributors will provide all the material information regarding the policy, and

that the insurers will have to obtain a certificate from the policyholder certifying that the proposal form

and policy documents have been fully explained and that the policyholder understood the policy.

Cabinet approved Memorandum of Cooperation (MOC) in respect of tax matters between India

and BRICS countries - Brazil, Russia, China and South Africa

The Union Cabinet led by the Prime Minister Narendra Modi has given the approval for the signing of

MoC in respect of tax matters between India and the revenue administrations of BRICS countries namely,

Brazil, Russian Federation, China and South Africa.

The MoC aimed to further promote cooperation amongst the BRICS revenue administrations in

international forum on common areas of interest in tax matters and in the area of capacity building and

knowledge sharing.

It envisaged regular interaction amongst the heads of revenue administration of BRICS countries. In

addition, the MoC accorded confidentiality and protection to information exchanged under this MoC.

The MoC will also stimulate effective cooperation in the tax matters. The collective stand of BRICS

countries is expected to be beneficial not only to these countries but also to other developing countries

in the long run in tax matters being steered by the G20.

Cabinet approved alternative mechanism for creation and launch of a New Exchange Traded

Fund

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has

authorized the Alternative Mechanism on the following decisions -

Divestment through Exchange Traded Fund (ETF) out of all the listed Central Public-Sector Enterprise

(CPSEs) including CPSEs listed subsequently subject to GoI retaining 51% in these CPSEs,

Divestment in respect of Public Sector Banks, other listed Public Sector Financial Institutions and Public-

Sector Insurance Companies (when listed) through ETF or other methods subject to GoI retaining 52%,

INFRASTRUCTURE

Divestment through ETF like constitution of ETF portfolio; the price/net asset value at which share of listed

companies forming the ETF basket will be placed by the Govt. for divestment at the disposal of the ETF

provider (AMC); the incentive structure for investors - upfront discount, loyalty bonus etc.; and any other

aspect of pricing and the mode of disinvestment as required to be taken by the Government.

The Cabinet has approved the revival of the government's Inland Waterways Authority (IWAI)

in 2017-18 for granting additional budgetary resources (EBR)

The Union Cabinet allowed Inland Waterways Authority of India (IWAI) to issue bonds again in 2017-18 to

raise Extra Budgetary Resource of INR 660 crore for development and maintenance of National

Waterways.

An official release said that the proceeds will be utilized by IWAI exclusively for capital expenditure to

improve infrastructure funding. The release said that investment to be undertaken for development of

identified projects in 2017-18 is estimated to be about INR 2,412.5 crore, and the government will finance

principal and interest in respect of the EBRs worth INR 660 crore. Interest will be paid semi-annually and

the principal on maturity.

The whole exercise would be undertaken by IWAI through appointment of lead managers and

coordination with market regulator SEBI. The release said funds will be released in two tranches to get

attractive yield from the borrowers.

In his budget speech for 2016-17, Finance Minister Arun Jaitley had said that to augment infrastructure

funding further, government will permit mobilization of additional finances to the extent of INR 31,300

crore by NHAI, RFC, REG, IREDA, NABARD and IWAI through raising bonds during 2016-17.

In accordance with this announcement, IWAI was allowed to issue infrastructure bonds worth INR 1,000

crore for the first time during 2016-17.

Guidelines for issuance of ODIs, with derivative as underlying, by the ODI issuing FPIs

Foreign Portfolio Investors (FPIs) issuing Offshore Derivative Instruments (ODIs) are required to comply

with certain conditions relating to issuance of ODIs.

These conditions are as follows –

• The ODI issuing FPIs shall not be allowed to issue ODIs with derivative as underlying, with the

exception of those derivative positions that are taken by the ODI issuing FPI for hedging the equity

shares held by it, on a one to one basis.

• In the case of the existing ODIs which have been issued by the ODI issuing FPIs with derivatives

as underlying, where the said underlying derivatives position are not for purpose of hedging the

equity shares held by it, the ODI issuing FPI has to liquidate such ODIs latest by the date of

maturity of the ODI instrument or by December 31, 2020, whichever is earlier. However, ODI

issuing FPIs should endeavor to liquidate such ODI instruments prior to said timeline

• In case of issuance of fresh ODIs, a certificate has to be issued by the compliance officer of the

ODI issuing FPI. This certificate would certify that, the derivatives position on which the ODI is

being issued, is only for the hedging the equity shares held by it, on one-to-one basis. This

certificate shall be submitted along with the monthly ODI reports.

*hedging the equity shares - taking a one-to-one position in only those derivatives which have the

same underlying as the equity share.

CAPITAL MARKETS

Securities and Exchange Board of India (International Financial Services Centres) Guidelines,

2015–Amendments

SEBI issued guidelines on March 27th, 2015 on International Financial Services Centres (IFSC).

In order to further streamline the operations at IFSC, it has been decided to amend the provisions of

aforesaid guidelines by the under mentioned circular as follows –

Eligibility and Shareholding in Stock Exchanges, Clearing Corporations and Depositories

Clauses 4 (1), (2) and (3) of SEBI IFSC guidelines 2015, which specified the eligibility and the shareholding

limit for stock exchanges, clearing corporations and depositories desirous of operating in IFSC are being

replaced as follows –

• Any Indian recognized stock exchange or any recognized stock exchange of a foreign jurisdiction

shall form a subsidiary to provide the services of a stock exchange in IFSC wherein at least 50% of

the paid-up equity share capital shall be held by such stock exchange and the remaining shall be

held by any other stock exchange, depository, banking company, insurance company,

commodities derivatives exchange (whether Indian or foreign jurisdiction, a public financial

institution of Indian jurisdiction, provided that any one of the above entities may acquire or hold,

either directly or indirectly, either individually or together with persons acting in concert, up to

15% of the paid up equity share capital of such stock exchange.

• Any Indian recognized stock exchange or clearing corporation, or, any recognized stock

exchange or clearing corporation of a foreign jurisdiction shall form a subsidiary to provide the

services of clearing corporation in IFSC wherein at least 51% of paid up equity share capital shall

be held by such stock exchange or clearing corporation, and the remaining share capital shall be

held by any other stock exchange, clearing corporation, depository, banking company, insurance

company (whether Indian or foreign jurisdiction, a public financial institution of Indian jurisdiction

provided that any one of the above entities may acquire or hold, either directly or indirectly, either

individually or together with persons acting in concert, up to 15% of the paid up equity share

capital of such clearing corporation.

• Any regulated depository of a foreign jurisdiction shall form a subsidiary to provide the depository

services in IFSC where at least 51% of paid up equity share capital is held by such depository and

remaining shares may be offered to any other registered depository or recognized stock exchange

or clearing corporation, whether Indian or of foreign jurisdiction

• Any Indian registered depository may set up a branch – IFSC Depository Services (IDS) at IFSC. The

interested depositories shall be required to obtain a prior approval of the board for setting up an

IDS.

Governance of Stock Exchanges

• Also, clause 6 (4) of SEBI IFSC guidelines which stipulates governance structure of depositories,

stock exchanges and clearing corporations has been amended. It stated that depositories, stock

exchanges and clearing corporations operating in IFSC shall adopt broader principles of

governance prescribed by International organizations of securities commission (IOSCO) and

Principles of Financial Market Infrastructure (PFMIs) and such other governance norms. Further

the parent depository, clearing corporation and stock exchange would be responsible for the

governance of such a depository, clearing corporation and stock exchange respectively.

Intermediaries in IFSC

• Also, clause (8) of SEBI IFSC guidelines which specifies that any recognized entity or entities

desirous of operating in IFSC as an intermediary, needed to form a company, to provide such

financial services, has been amended. It stated that to these SEBI registered intermediary (except

trading member or a clearing member) or its international associates in collaboration with such

SEBI registered intermediary may provide services without forming a separate company, subject

to the prior approval of the board.

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange Source: Bombay Stock Exchange

Sources: APAS Business Research Team Sources: APAS Business Research Team

Sources: APAS Business Research Team

The RBI's decision to lower key lending rates

and healthy inflows of foreign funds in capital

markets pushed the Indian rupee to close at a

new two-year high level of INR 63.70, since

August 2015.

Also, a smooth GST roll-out, expectations of

subdued inflation and stable political

environment buoyed the demand for the

Indian currency. Overseas investors have

pumped a staggering $4 billion into the

domestic capital market in July.

63.60

63.80

64.00

64.20

64.40

64.60

64.80

65.00

3-J

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17

5-J

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17

7-J

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9-J

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11

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13

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7

15

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17

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7

19

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7

21

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7

23

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7

25

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l-1

7

27

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l-1

7

29

-Ju

l-1

7

31

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l-1

7

$/₹ (July-2017)

6.30

6.35

6.40

6.45

6.50

6.55

6.60

1-Jul-17 8-Jul-17 15-Jul-17 22-Jul-17 29-Jul-17

GIND10Y (July2017)

3-J

ul-

17

5-J

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17

7-J

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17

9-J

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17

11

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l-1

7

13

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7

15

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7

17

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7

19

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l-1

7

21

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l-1

7

23

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l-1

7

25

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l-1

7

27

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l-1

7

CNX Nifty (July-2017) BSE Sensex (July-2017)

10.00

10.50

11.00

11.50

12.00

Indian VIX (July-2017)

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year beginning 1st April

Countries GDP CPI

Current

Account

Balance

Budget

Balance

Interest

Rates

Latest 2017* 2018* Latest 2017*

% of GDP,

2017*

% of GDP,

2017*

(10YGov),

Latest

Brazil -0.4 Q1 +0.6 +1.9 3.0 June 3.8 -1.0 -7.8 9.39

Russia 0.5 Q1 1.4 1.7 4.4 June 4.2 2.2 -2.2 8.13

India 6.1 Q1 7.1 7.6 1.5 June 4.2 -1.2 -3.2 6.45

China 6.9 Q2 6.7 6.3 1.5 June 2.0 1.6 -4.1 3.57*

S Africa 1.0 Q1 0.7 1.4 5.1 June 5.5 -3.2 -3.2 8.64

USA 2.1 Q1 2.2 2.3 1.6 June 2.0 -2.6 -3.5 2.26

Canada 2.3 Q1 2.3 2.0 1.3 May 1.8 -2.6 -2.4 1.90

Mexico 2.8 Q1 2.0 2.1 6.3 June 5.4 -2.2 -1.9 6.82

Euro Area 1.9 Q1 1.9 1.7 1.3 June 1.8 3.1 -1.4 0.55

Germany 1.7 Q1 1.8 1.7 1.6 June 1.7 8.0 0.5 0.55

Britain 2.0 Q1 1.6 1.2 2.6 June 2.7 -3.1 -3.6 1.30

Australia 1.7 Q1 2.4 2.9 2.1 Q1 2.2 -1.6 -1.8 2.67

Indonesia 5.0 Q1 5.2 5.4 4.4 June 4.3 -1.7 -2.2 6.93

Malaysia 5.6 Q1 5.2 4.8 3.6 June 4.0 3.6 -3.0 3.96

Singapore 2.5 Q2 2.9 2.0 1.4 May 1.3 19.1 -1.0 2.08

S Korea 3.0 Q1 2.6 2.5 1.9 June 1.9 6.0 0.9 2.26

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