Page 47 - Banking Finance April 2018

FEATURE

“Reverse charge on other categories like import of services revenues get a boost since reverse charge paid will be
is fine because it is a global concept to pay tax on imports treated as an input credit? But it should be noted that with
under reverse charge. Yes, GST tax collections have been more number of smaller entities registering, the turnover
lower than anticipated, but in a knee-jerk reaction, if the of these small firms, which might otherwise be under-
government rushes with reverse charge just like it is doing reported, can come under the government’s radar and that
with e-way bills, it will only cause more damage,” cautioned could boost GST as well as income-tax collections.”
Rastogi.
The fact remains, though, that tools like e-way bills and
There are, of course, contrary views over the decision. reverse charge will tighten the government’s ability to track
transactions, making survival for some small businesses
For instance, Abhishek Jain, partner at EY, pointed out, “One difficult, while increasing the cost of doing business for
may argue that with just registrations going up, how can others. (Source : Mint)

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5 more banks to face Prompt corrective action

Five public sector banks, including Canara and Union Bank of India, are in the process of being put under the Reserve
Bank of India's prompt corrective action (PCA) plan. According to rating agency ICRA, their net non-performing assets
rose above 6 % in December 2017. If the banking regulator places them under PCA, the action may drive these banks
to recall additional tier-1 (AT-1) bonds, which is included in Tier-1 capital, of Rs 157 billion from investors. Besides
Canara and Union Bank, three other PSBs that may come under PCA are Andhra Bank, Punjab National Bank, and
Punjab & Sind Bank.

While taking the decision on putting a bank under PCA, the RBI assesses its standing on three counts, namely capital
adequacy ratio (CAR), net NPAs, and return on assets (RoA). Banks become PCA candidates when they feel the mini-
mum requirements of CAR or net NPAs rise above 6 per cent or the RoA is negative for two years. Breach of any one
condition is seen as sufficient to trigger PCA. Those banks under PCA regime face restrictions on expanding loan book,
as the aim is to turn the bank around and improve financial and credit profiles. With losses during the last three years,
11 out of 21 PSBs have been placed under the PCA framework by the RBI. Prominent amongst them are Bank of India,
IDBI Bank, Central Bank of India, Dena Bank, and Corporation Bank. The inclusion in PCA, coupled with recapitalisation
of PSBs, by the government has triggered a 'regulatory event' and an early recall of AT-1 bonds by banks under PCA.

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