India vows tough punishments to bring home ‘black money’

Tuesday, 3 March 2015 00:25 -     - {{hitsCtrl.values.hits}}

Reuters: India said it plans tougher punishments including jail terms of up to 10 years for those who hide undeclared cash outside the country and for the banks and advisers who help them, as it tries to bring back illicit billions stashed abroad. In his budget address on Saturday, Finance Minister Arun Jaitley said the government would introduce the changes in a new law during the current session of parliament, which will also allow enforcement agencies to seize assets held abroad. The hidden cash “eats into the vitals of our economy and society,” Jaitley said. “The problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt with effectively and forcefully.” Illegal deposits abroad cost India billions of dollars in lost revenue and Prime Minister Narendra Modi’s government has promised to change laws and enact new measures to bring back such funds, known in India as ‘black money’. Evading tax on foreign assets will carry a jail sentence of up to 10 years, under the government’s proposed changes, while failing to disclose assets adequately will be punishable by up to seven years. When assets abroad cannot be forfeited, the new rules could allow the government to confiscate equivalent assets in India. India has also struck a deal with Swiss authorities, which will provide information for cases being investigated at home. The two sides have begun talks on an automatic exchange of information, Jaitley said. Earlier this month, Indian tax officials searched the Mumbai headquarters of HSBC Holdings as part of a broader probe related to allegations the bank’s Swiss business helped clients dodge taxes. India has been the only Asian country to aggressively investigate HSBC over the matter. The black money changes come in a full-year budget that seeks to encourage investment in India with lower corporate tax eventually and simpler process, but also to increase fiscal revenue.

 India to inject $ 1.3 b to shore up state banks

Reuters: India will inject Rs. 79.4 billion ($ 1.3 billion) into state-owned banks in the next fiscal year to bolster their capital reserves, a smaller-than-expected sum which means the sector’s heavyweights may have to turn to the market or curb lending. Successive governments have poured billions into India’s bad-debt burdened state banks, even while warning the support was unsustainable. The Reserve Bank of India estimates lenders need more than $ 40 billion to meet global Basel III norms by 2019. The government this year injected Rs. 69.9 billion into selected state lenders, picking those that outperformed their peers in terms of profitability. It also allowed banks to raise funds by selling shares, provided the government retained a stake of at least 52%. In his budget speech on Saturday, Finance Minister Arun Jaitley outlined the more modest spending plans and said the government would also set up a bureau to improve governance and help state lenders develop capital-raising plans with ‘innovative financial methods and instruments’. This, he said, was a move towards establishing a holding company for the state’s banking investments, a long-awaited step that should end state-directed lending and allow state banks to be run at arm’s length. Ananda Bhoumik, a senior director at Fitch’s Indian unit India Ratings and Research, said the capital infusion was far lower than expected. The agency’s forecast was Rs. 200 billion. “We expect credit growth to be in the region of 14 to 15% for the next fiscal year. So, based on the banks’ current profitability and the expected credit growth, they would need a certain level of capital,” Bhoumik said. Bhoumik warned there would be an impact on credit growth, particularly for mid-sized banks less able to tap the market. India’s nearly two dozen state-run lenders, with state ownership of between 56 and 84%, dominate the country’s banking landscape. Jaitley separately announced plans to set up a bank to help fund the small businesses which make up the backbone of India’s economy. The Micro Units Development Refinance Agency (MUDRA) Bank will refinance microfinance institutions, he said, allocating 200 billion rupees to the plan. “These bottom-of-the-pyramid, hard-working entrepreneurs find it difficult, if not impossible, to access formal systems of credit,” Jaitley said. “Just as we are banking the unbanked, we are also funding the unfunded.”