This Statement sets out various developmental and regulatory policies that directly address the stress in financial conditions caused by COVID-19. They consist of:
(i) Expanding liquidity in the system sizeably to ensure that financial markets and institutions are able to function normally in the face of COVID-related dislocations;
(ii) Reinforcing monetary transmission so that bank credit flows on easier terms are sustained to those who have been affected by the pandemic;
(iii) Easing financial stress caused by COVID-19 disruptions by relaxing repayment pressures and improving access to working capital; and
(iv) Improving the functioning of markets in view of the high volatility experienced with the onset and spread of the pandemic. The policy initiatives in this section should be read in conjunction with the MPC’s decision on monetary policy actions and stance in its resolution.
I. Liquidity Management
1. Targeted Long Term Repos Operations (TLTROs)
The onset and rapid propagation of COVID-19 in India has ignited large sell-offs in the domestic equity, bond and forex markets. With the intensification of redemption pressures, liquidity premia on instruments such as corporate bonds, commercial paper and debentures have surged. Combined with the thinning of trading activity with the COVID outbreak, financial conditions for these instruments, which are used, inter alia, to access working capital in the face of the slowdown in bank credit, have also tightened. In order to mitigate their adverse effects on economic activity leading to pressures on cash flows, it has been decided that the Reserve Bank will conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to ₹ 1,00,000 crore at a floating rate linked to the policy repo rate.
Liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, 2020. Banks shall be required to acquire up to fifty per cent of their incremental holdings of eligible instruments from primary market issuances and the remaining fifty per cent from the secondary market, including from mutual funds and non-banking finance companies. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will also not be reckoned under the large exposure framework.
2. Cash Reserve Ratio
a. Liquidity in the banking system remains ample, as reflected in absorption of surpluses from the banking system under reverse repo operations of the LAF of the order of ₹ 2.86 lakh crore on a daily average basis during March 1-25, 2020. It is observed, however, that the distribution of this liquidity is highly asymmetrical across the financial system, and starkly so within the banking system.
As a one-time measure to help banks tide over the disruption caused by COVID-19, it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis points to 3.0 per cent of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March 28, 2020. This reduction in the CRR would release primary liquidity of about ₹ 1,37,000 crore uniformly across the banking system in proportion to liabilities of constituents rather than in relation to holdings of excess SLR. This dispensation will be available for a period of one year ending on March 26, 2021.
b. Furthermore, taking cognisance of hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, it has been decided to reduce the requirement of minimum daily CRR balance maintenance from 90 per cent to 80 per cent effective from the first day of the reporting fortnight beginning March 28, 2020. This is a one-time dispensation available up to June 26, 2020.
3. Marginal Standing Facility
Under the marginal standing facility (MSF), banks can borrow overnight at their discretion by dipping up to 2 per cent into the Statutory Liquidity Ratio (SLR). In view of the exceptionally high volatility in domestic financial markets which bring in phases of liquidity stress and to provide comfort to the banking system, it has been decided to increase the limit of 2 per cent to 3 per cent with immediate effect. This measure will be applicable up to June 30, 2020. This is intended to provide comfort to the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in times of stress at the reduced MSF rate announced in the MPC’s resolution.
These three measures relating to TLTRO, CRR and MSF will inject a total liquidity of ₹ 3.74 lakh crore to the system.
4. Widening of the Monetary Policy Rate Corridor
In view of persistent excess liquidity, it has been decided to widen the existing policy rate corridor from 50 bps to 65 bps. Under the new corridor, the reverse repo rate under the liquidity adjustment facility (LAF) would be 40 bps lower than the policy repo rate. The marginal standing facility (MSF) rate would continue to be 25 bps above the policy repo rate.
II. Regulation and Supervision
Alongside liquidity measures, it is important that efforts are undertaken to mitigate the burden of debt servicing brought about by disruptions on account of the fall-out of the COVID-19 pandemic. Such efforts, in turn, will prevent the transmission of financial stress to the real economy, and will ensure the continuity of viable businesses and provide relief to borrowers in these extraordinarily troubled times.
1. Moratorium on Term Loans
All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months.
2. Deferment of Interest on Working Capital Facilities
In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.
In respect of paragraphs 5 and 6 above, the moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. The lending institutions may accordingly put in place a Board approved policy in this regard.
3. Easing of Working Capital Financing
In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions may recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers. Such changes in credit terms permitted to the borrowers to specifically tide over the economic fallout from COVID-19 will not be treated as concessions granted due to financial difficulties of the borrower, and consequently, will not result in asset classification downgrade.
In respect of paragraphs 5, 6 and 7, the rescheduling of payments will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.
4. Deferment of Implementation of Net Stable Funding Ratio (NSFR)
As part of reforms undertaken in the years following the global financial crisis, the Basel Committee on Banking Supervision (BCBS) had introduced the Net Stable Funding Ratio (NSFR) which reduces funding risk by requiring banks to fund their activities with sufficiently stable sources of funding over a time horizon of a year in order to mitigate the risk of future funding stress. As per the prescribed timeline, banks in India were required to maintain NSFR of 100 per cent from April 1, 2020. It has now been decided to defer the implementation of NSFR by six months from April 1, 2020 to October 1, 2020.
5. Deferment of Last Tranche of Capital Conservation Buffer
The capital conservation buffer (CCB) is designed to ensure that banks build up capital buffers during normal times (i.e., outside periods of stress) which can be drawn down as losses are incurred during a stressed period. As per Basel standards, the CCB was to be implemented in tranches of 0.625 per cent and the transition to full CCB of 2.5 per cent was set to be completed by March 31, 2019. It was subsequently decided to defer the implementation of the last tranche of 0.625 per cent of the CCB from March 31, 2019 to March 31, 2020. Considering the potential stress on account of COVID-19, it has been decided to further defer the implementation of the last tranche of 0.625 per cent of the CCB from March 31, 2020 to September 30, 2020. Consequently, the pre-specified trigger for loss absorption through conversion/write-down of Additional Tier 1 instruments (PNCPS and PDI) shall remain at 5.5 per cent of risk-weighted assets (RWAs) and will rise to 6.125 per cent of RWAs on September 30, 2020.
III. Financial Markets
The decision in respect of financial markets is essentially of a developmental nature, intended to improve depth and price discovery in the forex market segments by reducing arbitrage between onshore and offshore markets. This measure assumes greater importance in the context of the increased volatility of the rupee caused by the impact of COVID-19 on currency markets.
1. Permitting Banks to Deal in Offshore Non-Deliverable Rupee Derivative Markets (Offshore NDF Rupee Market)
The offshore Indian Rupee (INR) derivative market - the Non-Deliverable Forward (NDF) market - has been growing rapidly in recent times. At present, Indian banks are not permitted to participate in this market, although the benefits of their participation in the NDF market have been widely recognised. All aspects of the issue have been examined in detail and a consensus has emerged in RBI that the time is apposite to remove segmentation between the onshore and offshore markets and improve efficiency of price discovery. Accordingly, it has been decided, in consultation with the Government, to permit banks in India which operate International Financial Services Centre (IFSC) Banking Units (IBUs) to participate in the NDF market with effect from June 1, 2020. Banks may participate through their branches in India, their foreign branches or through their IBUs. Final directions are being issued today.
CA Avinash Sharma
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- Insurance cover of Rs 50 Lakh per health worker fighting COVID-19 to be provided under Insurance Scheme
- 80 crore poor people will to get 5 kg wheat or rice and 1 kg of preferred pulses for free every month for the next three months
- 20 crore women Jan Dhan account holders to get Rs 500 per month for next three months
- Increase in MNREGA wage to Rs 202 a day from Rs 182 to benefit 13.62 crore families
- An ex-gratia of Rs 1,000 to 3 crore poor senior citizen, poor widows and poor disabled
- Government to front-load Rs 2,000 paid to farmers in first week of April under existing PM Kisan Yojana to benefit 8.7 crore farmers
- Central Government has given orders to State Governments to use Building and Construction Workers Welfare Fund to provide relief to Construction Workers
The Union Finance & Corporate Affairs Minister Smt. Niramla Sitharaman today announced Rs 1.70 Lakh Crore relief package under Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against Corona Virus. While addressing the press conference here today, Smt. Sitharaman said “Today’s measures are intended at reaching out to the poorest of the poor, with food and money in hands, so that they do not face difficulties in buying essential supplies and meeting essential needs.”
The Minister of State for Finance & Corporate Affairs Shri Anurag Singh Thakur was also present besides Shri Atanu Chakraborty, Secretary, Department of Economic Affairs and Shri Debashish Panda, Secretary, Department of Financial Services. Following are the components of the Pradhan Mantri Garib Kalyan Package: —
PRADHAN MANTRI GARIB KALYAN PACKAGE
I. Insurance scheme for health workers fighting COVID-19 in Government Hospitals and Health Care Centres
- Safai karamcharis, ward-boys, nurses, ASHA workers, paramedics, technicians, doctors and specialists and other health workers would be covered by a Special insurance Scheme.
- Any health professional, who while treating Covid-19 patients, meet with some accident, then he/she would be compensated with an amount of Rs 50 lakh under the scheme.
- All government health centres, wellness centres and hospitals of Centre as well as States would be covered under this scheme approximately 22 lakh health workers would be provided insurance cover to fight this pandemic.
II. PM Garib Kalyan Ann (अन्न) Yojana
- Government of India would not allow anybody, especially any poor family, to suffer on account of non-availability of foodgrains due to disruption in the next three months.
- 80 crore individuals, i.e, roughly two-thirds of India’s population would be covered under this scheme.
- Each one of them would be provided double of their current entitlement over next three months.
- This additionality would be free of cost.
Pulses:
- To ensure adequate availability of protein to all the above mentioned individuals, 1 kg per family, would be provided pulses according to regional preferences for next three months.
- These pulses would be provided free of cost by the Government of India.
III. Under Pradhan Mantri Garib Kalyan Yojana,
Benefit to farmers:
- The first instalment of Rs 2,000 due in 2020-21 will be front-loaded and paid in April 2020 itself under the PM KISAN Yojana.
- It would cover 8.7 crore farmers
IV. Cash transfers Under PM Garib Kalyan Yojana:
Help to Poor:
- A total of 20.40 crores PMJDY women account-holders would be given an ex-gratia of Rs 500 per month for next three months.
Gas cylinders:
- Under PM Garib Kalyan Yojana, gas cylinders, free of cost, would be provided to 8 crore poor families for the next three months.
Help to low wage earners in organised sectors:
- Wage-earners below Rs 15,000 per month in businesses having less than 100 workers are at risk of losing their employment.
- Under this package, government proposes to pay 24 percent of their monthly wages into their PF accounts for next three months.
- This would prevent disruption in their employment.
Support for senior citizens (above 60 years), widows and Divyang:
- There are around 3 crore aged widows and people in Divyang category who are vulnerable due to economic disruption caused by COVID-19.
- Government will give them Rs 1,000 to tide over difficulties during next three months.
MNREGA
- Under PM Garib Kalyan Yojana, MNREGA wages would be increased by Rs 20 with effect from 1 April, 2020. Wage increase under MNREGA will provide an additional Rs 2,000 benefit annually to a worker.
- This will benefit approximately 13.62 crore families.
V. Self-Help groups:
- Women organised through 63 lakhs Self Help Groups (SHGs) support 6.85 crore households.
- Limit of collateral free lending would be increased from Rs 10 to Rs 20 lakhs.
VI. Other components of PM Garib Kalyan package
Organised sector:
- Employees’ Provident Fund Regulations will be amended to include Pandemic as the reason to allow non-refundable advance of 75 percent of the amount or three months of the wages, whichever is 911er, from their accounts.
- Families of four crore workers registered under EPF can take benefit of this window.
Building and Other Construction Workers Welfare Fund:
- Welfare Fund for Building and Other Constructions Workers has been created under a Central Government Act.
- There are around 3.5 Crore registered workers in the Fund.
- State Governments will be given directions to utilise this fund to provide assistance and support to these workers to protect them against economic disruptions.
District Mineral Fund
- The State Government will be asked to utilise the funds available under District Mineral Fund (DMF) for supplementing and augmenting facilities of medical testing, screening and other requirements in connection with preventing the spread of CVID-19 pandemic as well as treating the patients affected with this pandemic.
CA AVINASH SHARMA
+91 9999773880
CAAVINASHSHARMA@HOTMAIL.COM
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Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.
It can be done by internal or External staff.
Internal Audit is an activity carried by internal/External staff to achieve the management objectives.
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.
It can be done by internal or External staff.
Internal Audit is an activity carried by internal/External staff to achieve the management objectives.
Citizens:
(i) Simpler tax system
(ii) Reduction in prices of goods and services due to elimination of cascading
(iii) Uniform prices throughout the country
(iv) Transparency in taxation system
(v) Increase in employment opportunities
Trade/Industry:
(i) Reduction in multiplicity of taxes
(ii) Mitigation of cascading/double taxation
(iii) More efficient neutralization of taxes especially for exports
(iv) Development of common national market
(v) Simpler tax regime-fewer rates and exemptions
Central/State Governments:
(i) A unified common national market to boost Foreign Investment and “Make in India” campaign
(ii) Boost to export/manufacturing activity, generation of more employment, leading to reduced poverty and increased GDP growth
(iii) Improving the overall investment climate in the country which will benefit the development of states
(iv) Uniform SGST and IGST rates to reduce the incentive for tax evasion
(v) Reduction in compliance costs as no requirement of multiple record keeping
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Simple chart for Getting ITC in GST regime
ITC 1st 2nd 3rd
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SGST SGST IGST N.A.
ITC 1st 2nd 3rd
IGST IGST CGST SGST
CGST CGST IGST N.A
SGST SGST IGST N.A.
What is GST?
- GST stands for Goods and Service Tax.
- It is an Indirect tax replace taxes levied by Central goverment and State Goverment.
- Following taxes bouded together by GST
- Central Exercise Duty
- Service Tax
- Value Added Tax (VAT)
- Food Tax
- Central Sales Tax (CST)
- Octroi
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries
- GST is levied on all transactions such as sale, transfer, barter, lease, or import of goods and/or services.
- India Adopt Dual GST model i.e GST is administered by the Central and State Goverment both.
- GST has three Part CGST, SGST, IGST.
