POLICY POINTERS
Revamp SFCs says Plan panel
 

The Planning Commission has asked state governments to restructrue state finance corporations (SFCs), including tapping international funds to meet an estimated Rs.2,000 crore required for reviving these ailing corporations. 

"SFCs are in urgent need of financial restructuring to clean up their balance sheet and, if necessary, international channels could be tapped for mobilising funds with sovereign guarantee", a sub-group headed by banking secretary Shri Devi Dayal said in its draft report. 

The respective state governments and IDBI would have to play a major role in revamping the SFCs in their states, it said adding "as per an estimate about Rs.2,000 crore is required for restructuring of weak SFCs" 

Stating that expedient action must be taken for recapitalisation and restructuring of these corporations, it said funds for SFCs could also be raised by state governments from the Centre and adjusted out of the state's share in the central pool of revenues. 

"SFCs would have to ensure significant structural and organisational changes in a holistic manner, which among other things, calls for broad-basing of share holding pattern and strengthening of management set-up", it said. Banks could also be requested to take the lead by setting up specialised branches in those districts which had been earmarked for SFCs. 

Stating that SFCs had played an important role in the development of small scale industries, the report said due to various reasons most of the corporations had become financially weak and "were not in a position to perform their tasks properly". 

Bank officials responsible for NPAs to be debarred from promotions

The Ministry of Finance will debar senior Managers in public sector banks and financial institutions responsible for non-performing accounts from promotions and lateral movement to other institutions in the banking industry. 

A circular to this effect is being finalised by MoF which will lay down guidelines for selection of top personnel and will make it difficult for Managers who have been even remotely connected with bad accounts to get elevated. The guidelines will require managers to fulfil several micro requirements which are expected to act as a sieve to separate the good from the bad. 

The new guidelines will expand the board to include more experts from outside the government whose concurrence on a selection will be critical. 

Power sharing to depend on states reforms

The government on March 23 anounced new guidelines for the states to share power from Central utilities, linking it with reforms in the power sector. 

Union Minister of information technology, Shri Pramod Mahajan said the guidelines would apply to new projects. Under the new formula, states will have to sign power purchase pacts with Central utilities and make payments upfront. The states which undertake reforms will get the unallocated power. 

Foreign buyout limit hiked

The government on March 23 increased the ceiling under the automaic route for overseas investments from $ 15 million to $ 50 million for Indian companies. 

Bill on recovery tribunal passed

As part of the efforts to recover debts due to banks and financial institutions, the Lok Sabha on 13.03.2000 passed a Bill strengthening the recovery tribunals so that they are able to expeditiously adjudicate cases of debt recovery and remove legal anomalies. 

Replying to a discussion on the Bill, Finance Minister, Shri Yashwant Sinha said the government will come down heavily on "wilful defaulters" and those who have "colluded to cheat or defraud banks". 

"Our norms for NPAs conform favourably with the best in world," Shri Sinha said adding that 50 per cent of the total NPAs were covered by provisioning made by banks, "so, there is no cause for alarm". 

Stating that NPAs of banks and non-banking financial institutions have come down 24.8 per cent in 1993 to 15.89 on March 31, last year, he said the net NPAs had come down to 8.7 per cent. 82 per cent of total advances were standard advances and not of the defaulters. 

The main thrust of the Bill was to strengthen the recovery tribunals which include transfer of recovery certificates from one tribunal to another to facilitate recovery. It also empowers the tribunals to issue certificate for recovery of enhanced or reduced amount on the basis of the final order of the appellate tribunal. 

The government also proposes to professionalise management of banks so that their operations are streamlined and for this purpose, the employees would be imparted training. 

No part divestment in PSUs

The government has decided against selling minority shareholding in public sector undertakings (PSUs), and will focus on strategic sale and handing over of management control to prospective buyers. 

Now the government will not chalk out a new sell-off policy. "We will continue with the present policy. The 1998-99 budget speech of the finance minister will guide government action in disinvestment". 

Shri Yashwant Sinha had said in his speech that the government would bring down its shareholding in PSUs to 26 per cent "in the generality of cases". He had added that only "in cases of public sector enterprises involving strategic considerations" that the government would retain majority holding. 

Rs.8,454 crore bail out package for SAIL

The Union Cabinet on February 15 approved a Rs. 8,454 crore bailout package for Steel Authority of India Ltd. including writing off loans worth Rs.540 crore, waiving Rs.381 crore of advances and Government guarantees, and interest subsidy for further loans. 

The union government also decided to set up a committee, headed by the cabinet secretary and comprising the Steel and Finance secretaries to oversee the busines reorganisation of SAIL. 

DCA - SEBI co-ordination

To ensure closer co-ordination between Department of Company Affairs and Securities and Exchange Board of India on issues such as tracking down vanishing companies, companies defaulting in payment to deposit holders as well as improving investor protection, the Finance Ministry has appointed DCA Secretary Dr. P.L. Sanjeeva Reddy as a Director on the board of SEBI. 

The government is also reported to be considering to make wide ranging modifications to the second Companies Amendment Bill to be introduced in the Lok Sabha in the winter session. These would include amendment to the Monopolies and Restrictive Trade Practices Act and inclusion of co-operatives within the purview of the Companies Act. 

NBFC equity norms eased

The union finance ministry on 27.03.2000 further liberalised the guidelines for foreign investment in non-bank finance companies. 

The minimum equity investment in a fully owned unit has been reduced to $ 5 million from the previous $ 50 million. The minimum equity investment in the holding company has, however, been retained at $ 50 million. 

The new guidelines also specify that the 100 per cent subsidiary will have to divest a minimum of 25 per cent equity to the public within three years. 

All fee based foreign ventures are now required to have a minimum capitalisation of $ 0.5 million irrespective of the foreign equity level. 

Insurers may pay up to 15% commission in non-life : IRDA

The Insurance Regulatory and Development Authority (IRDA) will permit insurance companies to pay a higher agency commission of upto 15 per cent in the non-life sector. The authority is also proposing to permit `combined agency' licences to agents, whereby an agent can sell products of one non-life and one life insurance company. 

This was disclosed by IRDA Chairman, Shri N.I. Rangachary while speaking at a seminar on distribution of life insurance in new environment organised by the Jeevan Vidya Trust in Mumbai on January 25, 2000. 

At present, commissions on non-life insurance business on traditional business is at 5 per cent, while on some select business, it is 10 per cent. Commission on non traditional business is 15 per cent. 

To obtain a combined agency licence, an agent would however, have to undergo a slightly longer duration of training. "The idea behind having agents stick to one company is that companies will be investing in training new agents. 

Insurance premium paid on policies issued by private companies will have the same tax benefits as those enjoyed by the LIC. "Section 88 of the Income-Tax Act refers to life premium and the only condition is that the policy is kept in force, Mr. Rangachary said.