7th Pay Commission: Cabinet to take the final decision on allowances today.
Business & Finance   Wednesday, June 14, 2017 IST
7th Pay Commission: Cabinet to take the final decision on allowances today.

7th Pay Commission: Cabinet to take the final decision on allowances today.

New Delhi: The focal government employees are probably going to get updated remittances from July onwards.

According to sources, the Cabinet will take a final decision on E-CoS proposition on Wednesday (June 14). The Empowered Committee of Secretaries (E-CoS) set up to screen the Lavasa panel suggestions on recompenses, a week ago presented its proposition to the Cabinet for endorsement.

A high-level committee headed by the Finance Secretary, Ashok Lavasa had on April 27 presented its answer to Finance Minister Arun Jaitley.

The Empowered Committee of Secretaries has allegedly given its view for AK Mathur-drove seventh Pay Commission suggestion, regarding decrease house rent allowance (HRA) by 2-6 percent relying upon sort of urban communities.

The seventh Pay Commission headed by AK Mathur had before proposed the rate of House Rent Allowance (HRA) at 24 percent, 16 percent and 8 percent of the Basic Pay for Class X, Y, and Z urban communities separately.

Obscure Object

The Commission had likewise prescribed that the rate of HRA will be overhauled to 27%, 18 percent and 9% when DA crosses 50%, and further reconsidered to 30%, 20% and 10% when DA crosses 100%.

The current rates of HRA for Class X, Y and Z urban communities and towns are 30 percent, 20% and 10% of Basic (pay in the compensation band in addition to reviewing pay).

Option 1

On the off chance that the administration acknowledges the uncovered suggestions of A K Mathur-drove seventh Pay Commission then the HRA part of focal government workers will increment running between 106% and 122%.

Take, for example, a focal government representative at the extremely base of the compensation scale under sixth Pay Commission was till now qualified for an HRA of Rs 2,100 on the basic pay of Rs 7,000 (essential pay that incorporates pay of pay band + review pay) in a Class X city. It is to be noticed that administration while executing the seventh Pay Commission in June a year ago had made it clear that till the ultimate result of stipends board is being put, the workers would be getting the remittances according to sixth Pay Commission.

Presently, according to 7th Pay Commission, the new section level pay at this level is Rs 18,000 every month against which the new HRA for a Class X city would be Rs 4,320 every month, that is 106 percent more than the current level.

Additionally, at the most abnormal amount of the compensation scale, the Cabinet Secretary and officers of a similar rank have an essential pay of Rs 90,000, which implies they are qualified for current HRA of Rs 27,000 in Class X towns. After the updated pay scale, the new fundamental pay is Rs 2.5 lakh, for which the HRA would be Rs 60,000, which means a climb of 122 percent.

Option 2

On the off chance that the legislature holds the leaving HRA rates (according to sixth Pay Commission) at that point the HRA segment of focal government representatives will increment going between 157 percent and 178 percent.

Take, for example, a focal government worker at the extremely base of the compensation scale under sixth Pay Commission was till now qualified for a HRA of Rs 2,100 on essential pay of Rs 7,000 (fundamental pay that incorporates pay of pay band + review pay) in a Class X city. It is to be noticed that administration, while executing the seventh Pay Commission in June a year ago had made it clear that till the ultimate result of stipends panel is being set, the workers would be getting the remittances according to sixth Pay Commission.

Presently, according to 7th Pay Commission, the new passage level pay at this level is Rs 18,000 every month against which the new HRA for a Class X city would be Rs 5,400 every month, that is around 157 percent more than the current level.

Additionally, at the most abnormal amount of the compensation scale, the Cabinet Secretary and officers of a similar rank have an essential pay of Rs 90,000, which implies they are qualified for current HRA of Rs 27,000 in Class X towns. After the modified pay scale, the new fundamental pay is Rs 2.5 lakh, for which the HRA would be Rs 75,000, which means a climb of around 178 percent.

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Why India's terrible loan issue is truly bad
Business & Finance   Monday, June 12, 2017 IST
 
Why India

Why India's terrible loan issue is truly bad

Last week, Spain’s largest lender Banco Santander SA announced taking over struggling Banco Popular Espanol SA for a symbolic value of €1. Santander also plans a €7 billion ($7.88 billion) rights issue to infuse capital and provide for the bad loans of Popular, the country’s sixth biggest bank.

The European authorities, led by the European Central Bank, were behind the rescue act. Popular had been struggling under the burden of €37 billion of bad loans in the real estate sector but Santander feels that this deal will accelerate its growth and profit from 2019. Analysts also see an opportunity for Santander in Popular’s small and medium-sized corporate loan portfolio; besides, Santander can also sell off Popular’s property assets.

The sale, which was stitched at the speed of light, did not impact stock markets. In fact, bank stocks rose in Europe last Wednesday after it was announced at 0430 GMT in Brussels by the Single Resolution Board, an agency formed by the European Union to wind down sick banks.

Indeed, there are differences between the state of affairs in Popular and some of the state-owned Indian banks (Popular was facing a run on its deposits), but is the Santander-Popular deal something which can be emulated in India? Corporate assets have soured for many government-owned banks but they have their pockets of strength—retail loans, relatively low-cost savings and current accounts, non-core assets, a vast branch network.

How do we solve the bad loan problems? There are two distinct trends before us: Spain believes in swift action, while Italy allows the problem to fester for years. Should we go the Spain way or continue with our band-aid approach? It will be interesting to hear what India’s finance minister Arun Jaitley says when he meets the heads of public sector banks and financial institutions later on Monday to review their performance.

The new ordinance gives the Reserve Bank of India (RBI) powers to force banks to sort out issues in a time-bound manner by forming multiple oversight committees and encourages banks to take haircuts. Besides, RBI can now move the insolvency court against the bank defaulter on its own. However, it does not say how the holes in banks’ balance sheets will be filled in the aftermath of the cleanup drive.

Meanwhile, it may not be a bad idea to ask two key questions and seek the answers.

How did the Indian banking system get into the mess?

There have been multiple reasons behind this. The popular way of looking at this is the state-owned banks are inefficient—they do not have the expertise in loan appraisal and monitoring of loans. This could be an over-simplification of the real causes behind the pile of bad loans. Indeed, in relative terms, private banks are better off but in those sectors where both private and public banks have taken exposures, both have almost equally suffered. The private banks have much less bad assets because they have not given loans to certain sectors/corporate groups.

Why did the public sector banks take exposures to those sectors where private banks fear to tread? In some cases such as infrastructure, there was subtle and not-so-subtle nudge by the government, the majority owner of these banks. Besides, most of these banks also have a herd mentality. Once one bank gives a loan to one particular sector, others follow it almost blindly in search of balance sheet growth.

In the aftermath of the collapse of iconic US investment bank Lehman Brothers Holdings Inc. in September 2008, growth collapsed in the world, but India was almost insulated from that with the government unveiling massive economic stimulus programmes. RBI cut its policy rates to a historic low and flooded the market with liquidity and banks gave loans indiscriminately. The “boom” lasted for a few quarters but the “bust” that followed has been continuing for years. Most banks misread the economic scenario.

Also, post-Lehman collapse, the deposit growth for private banks slowed while the government-owned banks were flooded with money and that, in many cases, led to misallocation of capital.

How bad is the bad loan scene?

Well, it depends on through which prism do we want to look at it. Going by rating agency Icra Ltd’s latest analysis, gross bad loans of Indian banks in March 2007 has been 9.5% of their loan portfolio. After setting aside money, or making provisions, the net bad loans are 5.5%.

This is one way of looking at the problem but it does not tell us the real story. One needs to add to this the loans that have been restructured under different schemes and the many large accounts which are extremely vulnerable as the borrowers are over-leveraged and not in a position to service the loans regularly. If we add all these, then the total stressed assets could be close to 16% of bank loans.

Again, this does not reveal the full picture. We also need to add to these the loans that have been written off. Unlike in other parts of the world, in India, written off loans are taken out from banks’ balance sheets but they are parked in the branches of banks and as and when part of those loans are recovered, they add to banks’ profits. By taking them off from the banks’ balance sheets, an optical illusion of lower bad loans (in percentage terms) is created. If we add the written off loans to the pile, the overall stressed assets could be as much as 20% of banks’ loan assets.

Banks’ exposure to large corporations and infrastructure sector has been most affected. In this segment, bad loans could be as much as 35-40% while the retail loans are in fine health.

It’s needless to say that the private banks are much better off than the state-owned banks. For instance, in March 2017, public sector banks’ gross bad loans have been 11.4% versus private banks’ 4.2%; their net bad loans at 6.7% are more than three times the net bad loans of private banks.

Finally, bad loans as a percentage of overall loan portfolios of banks do not explain the enormity of the problem. We need to look at the bad loans against the backdrop of the net worth or capital and reserves of the banks. In March 2017, for the industry, it’s close to 50% and for private banks, around 13%. However, the average bad loans of the government-owned banks are 75.53% of their net worth; for many, they have exceeded their net worth. This is why both RBI and the government are worried. We need to address the problem now; there is no time to lose.

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