Budget Series 2018-19 : #2 Impact on Banking, Financial Services and Insurance Industry

By TJEF Editor Kriti Kanchan Sinha

Finance Minister, Mr. Arun Jaitley presented the much-awaited Union Budget on 1st February, 2018. The budget was focused on rural India with agriculture, insurance, housing and MSMEs being the biggest gainers. There were no big announcements regarding the banking sector apart from a reiteration of the bank recapitalization plan. Some of the key aspects of the Union Budget that will impact the banking, insurance and financial services industry are listed as below:

  • Long-Term Capital Gains Tax – Long-term capital gains exceeding 1 lakh will be taxed at the rate of 10%. However, all gains up to 31st January, 2018 will be grandfathered which means all gains made up till 31st January, 2018 will not be taxed. Distributed income by equity oriented mutual fund will also be taxed at the rate of 10%. This may introduce some investor churn in the short-term however as major capital gains are accrued to corporates and LLPs, a long-term impact on equity markets is unlikely.
  • Bank recapitalization – This recapitalization will help the public-sector banks in lending additional credit of 5 lakh crore.
  • Uncollateralized Deposit Facility – The RBI Act will be amended to institutionalize Uncollateralized Deposit Facility which will act as an instrument to manage excess liquidity without offering any securities as collateral. The funds parked with the RBI through this facility by the banks could earn interest.
  • Better Financing for MSMEs – Online loan sanctioning facility for MSMEs will help in prompt and larger financing of MSMEs and also considerably ease cash flow challenges faced by them. Tax rate reduced to 25% for companies who have reported turnover up to 250 crore in the financial year 2016-17. This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns.
  • Rural Regional Banks – Strong Regional Rural Banks will be allowed to raise capital from the market to enable them to increase their credit to the rural economy.
  • Tax Exemptions – The government has put forward a proposal to exempt transfer of derivatives and certain securities by non-residents from capital gains tax in order to promote trade in stock exchanges in IFSC. Further, non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.
  • Agriculture Credit – A 10% increase in the volume of institutional credit for the agriculture sector to 11 lakh crore for the year 2018-19 along with 1.5 times hike in Minimum Support Price of all crops will improve rural income and improve the banks’ credit offtake and asset quality for this segment.
  • Affordable Housing – The government will establish a dedicated Affordable Housing Fund (AHF) in National Housing Bank, funded from priority sector lending shortfall and fully serviced bonds authorized by the Government of India. Affordable housing will have a positive retail loan growth of banks and NBFCs.
  • National Health Protection Scheme – The National Health Protection Scheme will provide free medical care of up to Rs five lakh each to 10 crore poor families – about 50 crore beneficiaries (assuming five members per family). This will improve penetration of the Insurance industry in the rural markets.
  • Financing of NBFCs – Refinancing policy and eligibility criteria set by MUDRA will be reviewed for better refinancing of NBFCs. Public sector banks will be onboard the Trade Electronic Receivable Discounting System (TReDS) platform and linked with GSTN.
  • Bond Market – Reserve Bank of India has issued guidelines to nudge Corporates access bond market. SEBI will also consider mandating, beginning with large Corporates, to meet about one-fourth of their financing needs from the bond market.
  • Cryptocurrencies & Blockchain – It has been clearly mentioned that Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system. However, it is open to exploring block chain technology for ushering in a digital economy.
  • No announcement of any change in foreign holding limit in private sector banks from the present 74%.

References

The Future of Cryptocurrencies as Legal Tender

By TJEF Editor Kriti Kanchan Sinha

Cryptocurrency

Source: http://www.earnlite.com

Citizens of Venezuela, both the rich and the poor alike, are increasingly turning to the world of cryptocurrency, specifically bitcoins, to salvage the value of their savings with the Bolivar, their national currency, becoming worthless as a result of massive currency inflation. Similar is the case with Zimbabwe where citizens are exchanging money in form of bitcoins as trust in their own institutions fall and hyperinflation has wiped out the Zimbabwean dollar completely. Reading these, you would probably not be wrong in feeling that cryptocurrency seems to be the go-to currency for countries in political or economic distress.

An Introduction to Cryptocurrency

So, what exactly is a cryptocurrency? Investopedia defines it as a digital or virtual currency that uses cryptography for security. This feature of cryptography makes it extremely difficult to counterfeit as it is pure mathematics and logic and the human factor is negligible. The most important aspect of cryptocurrency that makes it so alluring to many is the fact it is independent of central banks and governments. Cryptocurrency in itself has no intrinsic value which is why it has been denounced by some including Axel Weber, Chairman of the Swiss bank UBS AG, as nothing but a speculative bubble. Further, its supply is not determined by any central bank and is limited in quantity – it is one of the reasons for the price volatility of cryptocurrencies. Bitcoin is the most famous of all but there are multiple others including Ethereum, Litecoin, Tron etc. The below figure provides us with the list of top five cryptocurrencies in terms of their market capitalization.

Cryptocurrency 1

Source: http://www.coinranking.com

In this article, let us take a look at the usage of cryptocurrency and its legality in different countries around the world.

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#Fincabulary 30 – Moneyness

Meaning – A description of a derivative relating its strike price to the price of its underlying asset. Moneyness describes the intrinsic value of an option in its current state.

Moneyness tells option holders whether exercising will lead to a profit. There are many forms of moneyness, including in, out or at the money. Moneyness looks at the value of an option if you were to exercise it right away. A loss would signify the option is out of the money, while a gain would mean it’s in the money. At the money means that you will break even upon exercising the option.

Volume 2, Issue 2

December 2017 Issue, Volume II, Issue No. 2

As the year 2017 comes to an end, we look back and realize that this year has witnessed some very important events which had the potential to transform many economies around the world.

This issue of TAPMI Journal of Economics and Finance (TJEF) focuses on some of the prominent topics in the field of Finance and Economics. The journal contains papers on below topics:

  • SHOULD YOU RIDE THE BITCOIN WAVE? – By Vidhi Jain & Vignesh V
  • BASEL III NORMS: JOURNEY SO FAR & THE ROAD AHEAD – By Mohit Jain & Barnava Chatterjee
  • BANK RECAPITALISATION:  NECESSITY AND IMPACT – By Anandhan P.T. & Lakshmi Ramakrishnan Nair

We hope that the readers of the journal benefit from the insights of the papers published.

Managing Editor,

Isha Varma

Please read the PDF version of the Journal on – TJEF Volume 2 Issue 2

#Fincabulary 29 – Guerrilla Trading

Meaning –  A very short-term trading technique that aims to generate small profits while taking on very little risk per trade and repeating this multiple times in a trading session. Guerrilla trades typically have a shorter duration than scalping or day trades and seldom last for more than a few minutes, at the most. Because of its high trading volume and limited return nature, low commissions and tight trading spreads are prerequisites for successful guerrilla trading.

While guerrilla trading can be applied to any financial market, it is particularly well suited for trading foreign exchange. This is because the major currency pairs typically have very tight trading spreads because of their plentiful liquidity that is virtually available around the clock.

But these elevated levels of leverage – which may be as much as 50 times the trader’s capital – represent a high-risk, high-reward scenario that can wipe out an inexperienced guerrilla trader in a few trading sessions.

 

Recently, Apple reported third consecutive quarterly decline. What do you think could be the reason for the same?