Monday, January 18, 2016

Why Banking is a Growing Sector when Banks’ are having higher NPA?

The Indian Banking Industry is governed by the Banking Regulation Act of India, (1949) and is closely monitored by the Reserve Bank of India (RBI). According to Govt, and various Credit rating agencies the domestic banking industry is set for an exponential growth in coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025.

ICRA the credit rating agency analyzed 26 public sector and 15 private sector banks which make up 90% of the credit and deposit portfolio of banks in India, lowered its estimated gross NPA for March 2016 to 5%-5.5% from 5.3%-5.9% despite the fact that stressed assets remained largely unchanged at 10.7% as of September 2015 vs. 10.6% as of March 2015. The so called 5/25 scheme, allows banks to extend long-term loans of 20-25 years, while refinancing them every five or seven years
Public sector banks continue to bear the brunt of bad loans as gross NPAs of these banks increased to 5.6% as on September 2015 (vs. 5.0% as on March 2015). In comparison private banks' gross NPAs were 2.2% (vs. 2.0% as on March 2015).

Under ‘Uday Scheme’ the Central Government allowed the State Govts. which owned DISCOMs to take 75 % of the debts from the lenders by issuing State Govt Bonds. ICRA has mentioned that if all the states participated in the scheme the operating profitability of the Banks would decline and NIM’s would shrink by 7-12 basis points.( One basis point is 0.01 percentage )

"Impact (will be) higher for banks with higher exposure to DISCOMs (Central Bank of India, Punjab & Sindh Bank, Vijaya, Oriental Bank of Commerce and UCO Bank), lower for banks with less exposure to State DISCOMs (State Bank of India, Bank of Baroda)," ICRA said adding that the scheme will impact credit growth of public sector banks.

Thus it is quite clear that higher the NPA level it would impact profitability and restrict credit growth. But this being the feature for the existing credit portfolio there is ample scope for credit growth in the Banking sector. Apart from the credit growth the Banks are now poised for various Para Banking Activities including latest Technological Products viz. Internet Banking, Mobile Banking, IMP’s, APP’s etc.

Retail banking will be the key growth area for banks, other areas like Corporate Credit, SME Banking, cross selling of other financial products and services like Insurance, Mutual Funds, fee-based sources of income and technological up gradation will also be key growth drivers. The Govt. has emphasised on developing various payment and settlement systems in the form of various APP’s. More and more emphasis is laid on better and optimum usage of this products.The stress is on expansion of branches and financial inclusion.

Banking, one of the fastest growing segments of the economy, faces challenges of scarcity of resources and skilled manpower. Such skilled manpower is not easily available in adequate numbers to meet the growing requirements of the Banking Industry.

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.

Indian banking industry is expected to witness better growth prospects in 2015 as a sense of optimism stems from the Government’s measures towards revitalizing the industrial growth in the country. In addition, RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

Standard & Poor’s estimates that credit growth in India’s banking sector would improve to 12-13 per cent in FY16 from less than 10 per cent in the second half of CY14.

Investments/developments

In the past few months, there have been many investments and developments in the Indian banking sector

Global rating agency Moody's has upgraded its outlook for the Indian banking system to stable from negative based on its assessment of five drivers including improvement in operating environment and stable asset risk and capital scenario.
Lok Capital, a private equity investor backed by US-based non-profit organisation Rockefeller Foundation, plans to invest up to US$ 15 million in two proposed small finance banks in India over the next one year.
The Reserve Bank of India (RBI) has granted in-principle licences to 10 applicants to open small finance banks, which will help expanding access to financial services in rural and semi-urban areas.
IDFC Bank has become the latest new bank to start operations with 23 branches, including 15 branches in rural areas of Madhya Pradesh.
The RBI has given in-principle approval to 11 applicants to establish payment banks. These banks can accept deposits and remittances, but are not allowed to extend any loans.
The Bank of Tokyo-Mitsubishi (BTMU), a Japanese financial services group, aims to double its branch count in India to 10 over the next three years and also target a 10 per cent credit growth during FY16.
State Bank of India has tied up with e-commerce portal Snapdeal and payment gateway Paypal to finance MSME businesses.
The United Economic Forum (UEF), an organisation that works to improve socio-economic status of the minority community in India, has signed a memorandum of understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from backward communities to set up businesses in Tamil Nadu
The RBI has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and said white label ATMs can now tie up with any commercial bank for cash supply.
The RBI has allowed Indian alternative investment funds (AIFs), to invest abroad, in order to increase the investment opportunities for these funds.
In order to boost the infrastructure sector and the banks financing long gestation projects, the RBI has extended its flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs 500 crore (US$ 75.1 million).
RBI governor Mr Raghuram Rajan and European Central Bank President Mr Mario Draghi have signed an MoU on cooperation in central banking. “The memorandum of understanding provides a framework for regular exchange of information, policy dialogue and technical cooperation between the two institutions. Technical cooperation may take the form of joint seminars and workshops in areas of mutual interest in the field of central banking,” RBI said on its website.
RBL Bank informed that it would be the anchor investor in Trifecta Capital’s Venture Debt Fund, the first alternative investment fund (AIF) in India with a commitment of Rs 50 crore (US$ 7.51 million). This move provides RBL Bank the opportunity to support the emerging venture debt market in India.
Bandhan Financial Services raised Rs 1,600 crore (US$ 240.2 million) from two international institutional investors to help convert its microfinance business into a full service bank. Bandhan, one of the two entities to get a banking licence along with IDFC, launched its banking operations in August 2015.

Government Initiatives

The government and the regulator have undertaken several measures to strengthen the Indian banking sector.

The Government of India is looking to set up a special fund, as a part of National Investment and Infrastructure Fund (NIIF), to deal with stressed assets of banks. The special fund will potentially take over assets which are viable but don’t have additional fresh equity from promoters coming in to complete the project.
The Reserve Bank of India (RBI) plans to soon come out with guidelines, such as common risk-based know-your-customer (KYC) norms, to reinforce protection for consumers, especially since a large number of Indians have now been financially included post the government’s massive drive to open a bank account for each household.
To provide relief to the state electricity distribution companies, Government of India has proposed to their lenders that 75 per cent of their loans be converted to state government bonds in two phases by March 2017. This will help several banks, especially public sector banks, to offload credit to state electricity distribution companies from their loan book, thereby improving their asset quality.
The Reserve Bank of India (RBI), the Department of Industrial Policy & Promotion (DIPP) and the Finance Ministry are planning to raise the Foreign Direct Investment (FDI) limit in private banks sector to 100 per cent from 74 per cent.
Government of India aims to extend insurance, pension and credit facilities to those excluded from these benefits under the Pradhan Mantri Jan Dhan Yojana (PMJDY).<
The Government of India announced a capital infusion of Rs 6,990 crore (US$ 1.05 billion) in nine state run banks, including State Bank of India (SBI) and Punjab National Bank (PNB). However, the new efficiency parameters would include return on assets and return on equity. According to the finance ministry, “This year, the Government of India has adopted new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position."
To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities extended to MSEs upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was also established to refinance all Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities engaged in manufacturing, trading and services activities upto Rs 10 lakh (US$ 0.015 million).
The central government has come out with draft proposals to encourage electronic transactions, including income tax benefits for payments made through debit or credit cards.
The Union cabinet has approved the establishment of the US$ 100 billion New Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS “contingent reserve arrangement” (CRA).
The government has plans to set up a fund that will provide surety to banks against loans given to students for higher education.
On 7^th Jan 2016 Cabinet approved ‘Stand Up India’ Scheme and Credit Guarantee Fund to back Mudra Yojana.
On 13^th Jan 2016 Govt. announced Rs. 17600 cr.Crop Insurance Scheme to cover loss of crops due to natural Calamities.
The NDA Govt. has on 16^th Jan 2016 launched PM’s ambitious plan ‘Stand Up India’ for the Start ups, thereby giving several reliefs to the start ups.

Road Ahead

The Indian economy is on the brink of a major transformation, with several policy initiatives set to be implemented shortly. Positive business sentiments, improved consumer confidence and more controlled inflation are likely to prop-up the country’s economic growth. Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth. All these factors suggest that India’s banking sector is also poised for robust growth as the rapidly growing business would turn to banks for their credit needs.

Also, the advancements in technology have brought the mobile and internet banking services to the fore. The banking sector is laying greater emphasis on providing improved services to their clients and also upgrading their technology infrastructure, in order to enhance the customer’s overall experience as well as give banks a competitive edge.

Many banks, including SBI’s SBI-INTOUCH, ICICI and AXIS too, have launched contact-less credit and debit cards and other Banks are exploring to launched in the market shortly. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Thus it is quite evident that despite the Banks having large NPA’s Banking Sector will see growth and will provide large current as well as the future demand for trained manpower in banking. The banks will require a large number of people trained not only for specific skills in the banking domain, but more importantly in customer service skills, selling skill, banking application software skills and with an infectious positive attitude.

More Readings:

Indian banks are too stressed out | Business Line

‘India’s growth story stands at an inflection point’ | Business Line

Cabinet approves ‘Stand Up India’ scheme, credit guarantee fund for Mudra Yojana to be created - The Economic Times

Government's nod to new crop insurance plan for farmers - Times of India

Thursday, January 14, 2016

Non-Fund Based Facility to Non-constituent Borrowers of Bank

RBI vide circular DBOD.Dir.BC.62/13.07.09/2002-03 dated January 24, 2003 on ‘Discounting/Rediscounting of Bills by banks’ advised Banks not to extend any non-fund based facilities to non-constituents borrowers of the banks. The restriction was imposed to prevent frauds, diversion of funds etc. in case bank sanctions “one-off” transaction facilities without assessment of credit needs of the borrowers on well established credit norms. Customers, who require Non-Fund based facilities like Letter of Credits (LCs), Bank Guarantees, but do not avail of any Fund based facility from any bank were facing difficulty. RBI has reviewed the situation and decided that Scheduled Commercial Banks can grant non-fund based facilities including Partial Credit Enhancement (PCE) to those customers, who do not avail any fund based facility from any bank in India, subject to the following conditions:

a) Board Approved Policy

Banks shall formulate a comprehensive Board approved loan policy for grant of non-fund based facility to such borrowers.

b) Verification of Customer credentials

The banks shall ensure that the borrower has not availed any fund based facility from any bank operating in India. However, at the time of granting non-fund based facilities, banks shall obtain declaration from the customer about the non- fund based credit facilities already enjoyed by them from other banks.

c) Credit Appraisal and due-diligence

Banks shall undertake the same level of credit appraisal as has been laid down for fund based facilities.

d) Compliance with Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards / Combating of Financing of Terrorism (CFT) / Obligation of banks under PMLA, 2002

The instructions/ guidelines on KYC/AML/ CFT applicable to banks, issued by RBI from time to time, shall be adhered to in respect of all such credit facility.

e) Submission of Credit Information to CICs

Credit information relating to grant of such facility shall mandatorily be furnished to the Credit Information Companies (specifically authorized by RBI). Such reporting shall be subject to the guidelines under Credit Information Companies (Regulation) Act, 2005.

f) Exposure Norms

Banks shall adhere to the exposure norms as prescribed by RBI from time to time.

3. As hitherto, banks are, however, prohibited from negotiating unrestricted LCs of non-constituents in terms of para 2.3.9 of our Master Circular RBI/2015-16/95. DBR.No.Dir.BC.10/13.03.00/2015-16 dated July 1, 2015 on Loans and Advances- Statutory and Other Restrictions. In cases where negotiation of bills drawn under LC is restricted to a particular bank and the beneficiary of the LC is not a constituent of that bank, the bank shall have the option to negotiate such LCs, subject to the condition that the proceeds are remitted to the regular banker of the beneficiary.

Source:RBI/2015-16/281

DBR.Dir.BC.No.70/13.03.00/2015-16 dated January 07, 2016

Setting up of IFSC Banking Units (IBUs) – Permissible activities

Scheme for setting up of IFSC Banking Units (IBU) by Indian Banks

The Reserve Bank has issued a notification under FEMA vide Notification No. FEMA.339/2015-RB dated March 02, 2015 setting out RBI regulations relating to financial institutions set up in International Financial Services Centres (IFSC).The regulatory and supervisory framework governing IBUs set up in IFSCs by Indian banks is detailed below.

2. The scheme

2.1 Eligibility criteria

Indian banks viz. banks in the public sector and the private sector authorised to deal in foreign exchange will be eligible to set up IBUs. Each of the eligible banks would be permitted to establish only one IBU in each IFSC.

2.2 Licensing

Eligible banks interested in setting up IBUs will be required to obtain prior permission of the Reserve Bank for opening an IBU under Section 23 (1)(a) of the Banking Regulation Act, 1949 (BR Act). For most regulatory purposes, an IBU will be treated on par with a foreign branch of an Indian bank.

2.3 Capital

With a view to enabling IBUs to start their operations, the parent bank will be required to provide a minimum capital of US$ 20 million or equivalent in any foreign currency to its IBU. The IBU should maintain the minimum prescribed regulatory capital on an on-going basis as per regulations amended from time to time.

2.4 Reserve requirements

The liabilities of the IBU are exempt from both CRR and SLR requirements of Reserve Bank of India.

2.5 Resources and deployment

The sources for raising funds, including borrowing in foreign currency, will be persons not resident in India and deployment of the funds can be with both persons resident in India as well as persons not resident in India. However, the deployment of funds with persons resident in India shall be subject to the provisions of FEMA, 1999.

2.6 Permissible activities of IBUs

The IBUs will be permitted to engage in the form of business mentioned in Section 6(1) of the BR Act as given below, subject to the conditions, if any, of the licence issued to them.

IBUs can undertake transactions with non-resident entities other than individual / retail customers / HNIs.
All transactions of IBUs shall be in currency other than INR.
IBUs can deal with the Wholly Owned Subsidiaries / Joint Ventures of Indian companies registered abroad.
IBUs are allowed to have liabilities including borrowing in foreign currency only with original maturity period greater than one year. They can however raise short term liabilities from banks subject to limits as may be prescribed by the Reserve Bank.(Modified on 07.01.2016 by RBI- it has been decided that " RBI will not prescribe any limit for raising short-term liabilities from banks. However, the IBUs must maintain LCR as applicable to Indian banks on a stand alone basis and strictly follow the liquidity risk management guidelines issued by RBI to banks. Further, NSFR will also be applicable to the IBUs as and when it is applied to Indian banks".
IBUs are not allowed to open any current or savings accounts. They cannot issue bearer instruments or cheques. All payment transactions must be undertaken via bank transfers.(This has been modified on 07.01.2016 by RBI)- "IBUs can open foreign currency current accounts of units operating in IFSCs and of non-resident institutional investors to facilitate their investment transactions.It is again clarified that the IBUs cannot raise liabilities from retail customers including high net worth individuals (HNIs). Also, no cheque facility will be available for holders of current accounts in the IBUs. All transactions through these accounts must be undertaken via bank transfers."
IBUs are permitted to undertake factoring / forfaiting of export receivables.
IBUs are permitted to undertake transactions in all types of derivatives and structured products with the prior approval of their Board of Directors. IBUs dealing with such products should have adequate knowledge, understanding, and risk management capability for handling such products.
With a view to providing greater flexibility to the IBUs in their business transactions, it has been decided that exposure ceiling for IBUs shall be 5 percent of the parent bank’s Tier-I capital in case of a single borrower and 10 percent of parent bank’s Tier-1 capital in the case of a borrower group. - Modified by RBI on 07.01.2016.

2.7 Prudential regulations

All prudential norms applicable to overseas branches of Indian banks would apply to IBUs. Specifically, these units would be required to follow the 90 days’ payment delinquency norm for income recognition, asset classification and provisioning as applicable to Indian banks. The bank’s board may set out appropriate credit risk management policy and exposure limits for their IBUs consistent with the regulatory prescriptions of the RBI.

The IBUs would be required to adopt liquidity and interest rate risk management policies prescribed by the Reserve Bank in respect of overseas branches of Indian banks and function within the overall risk management and ALM framework of the bank subject to monitoring by the board at prescribed intervals.

The bank’s board would be required to set comprehensive overnight limits for each currency for these Units, which would be separate from the open position limit of the parent bank.

2.8 Anti-Money Laundering measures

The IBUs will be required to scrupulously follow "Know Your Customer (KYC)", Combating of Financing of Terrorism (CFT) and other anti-money laundering instructions issued by the Reserve Bank from time to time. IBUs are prohibited from undertaking cash transactions.

2.9 Regulation and Supervision

The IBUs will be regulated and supervised by the Reserve Bank of India.

2.10 Reporting requirements

The IBUs will be required to furnish information relating to their operations as prescribed by the Reserve Bank from time to time. These may take the form of offsite reporting, audited financial statements for IBUs, etc.

2.11 Ring fencing the activities of IFSC Banking Units

The IBUs would operate and maintain balance sheet only in foreign currency and will not be allowed to deal in Indian Rupees except for having a Special Rupee account out of convertible fund to defray their administrative and statutory expenses. Such operations/transactions of these units in INR would be through the Authorised Dealers (distinct from IBU) which would be subject to the extant Foreign Exchange regulations. IBUs are not allowed to participate in the domestic call, notice, term, forex, money and other onshore markets and domestic payment systems.

The IBUs will be required to maintain separate nostro accounts with correspondent banks which would be distinct from nostro accounts maintained by other branches of the same bank.

2.12 Priority sector lending

The loans and advances of IBUs would not be reckoned as part of the Net Bank Credit of the parent bank for computing priority sector lending obligations.

2.13 Deposit insurance

Deposits of IBUs will not be covered by deposit insurance.

2.14 Lender of Last Resort (LOLR)

No liquidity support or LOLR support will be available to IBUs from the Reserve Bank of India.

ANNEX II

Scheme for setting up of IFSC Banking Units (IBU) by foreign banks already having a presence in India

The Reserve Bank has issued a notification under FEMA vide Notification No. FEMA.339/2015/RB dated March 02, 2015 setting out RBI regulations relating to financial institutions set up in International Financial Services Centres (IFSC). The regulatory and supervisory framework governing the IFSC Banking Units (IBU) set up by foreign banks is detailed below.

2. The scheme

2.1 Eligibility criteria

Only foreign banks already having presence in India will be eligible to set up IBUs. This shall not be treated as a normal branch expansion plan in India and therefore, specific permission from the home country regulator for setting up of an IBU will be required. Each of the eligible banks will be permitted to establish only one IBU in each IFSC.

2.2 Licensing

The banks will be required to obtain prior permission of the Reserve Bank for opening an IBU under Section 23 (1) (a) of the Banking Regulation Act, 1949 (BR Act). The applications of foreign banks will be considered on the basis of extant guidelines for setting up branches in India subject to the additional requirement of the home country regulator/s confirmation in writing of their regulatory comfort for the bank’s presence in the IFSC, having regard among other things, to the provisions of paragraphs 2.3 and 2.14 below.

2.3 Capital

With a view to enabling IBUs to start their operations, the parent bank would be required to provide a minimum capital of US$ 20 million or equivalent in any currency, other than INR, to the IBU. The IBUs should maintain the minimum prescribed regulatory capital on an on-going basis as per regulations amended from time to time. The parent bank will be required to provide a Letter of Comfort for extending financial assistance, as and when required, in the form of capital / liquidity support to IBU.

2.4 Reserve requirements

The liabilities of the IBU are exempt from both CRR and SLR requirements of Reserve Bank of India.

2.5 Resources and deployment

2.6 Permissible activities of IBUs

The IBUs will be permitted to engage in the form of business mentioned in Section 6(1) of the BR Act as given below, subject to the conditions, if any, of the licence issued to them.

IBUs can undertake transactions with non-resident entities other than individual / retail customers / HNIs.
All transactions of IBUs shall be in currency other than INR.
IBUs can deal with the Wholly Owned Subsidiaries / Joint Ventures of Indian companies registered abroad.
IBUs are allowed to have liabilities including borrowing in foreign currency only with original maturity period greater than one year. They can however raise short term liabilities from banks subject to limits as may be prescribed by the Reserve Bank.
IBUs are not allowed to open any current or savings accounts. They cannot issue bearer instruments or cheques. All payment transactions must be undertaken via bank transfers.
IBUs are permitted to undertake factoring/forfaiting of export receivables.
IBUs are permitted to undertake transactions in all types of derivatives and structured products with the prior approval of their Board of Directors. IBU dealing with such products should have adequate knowledge, understanding, and risk management capability for handling such products.

2.7 Prudential regulations

An IBU shall adopt prudential norms as prescribed by Reserve Bank of India. The bank’s board may set out appropriate credit risk management policy and exposure limits for their IBUs consistent with the regulatory prescriptions of the Reserve Bank of India.

The IBUs will be required to adopt liquidity and interest rate risk management policies prescribed by the Reserve Bank and function within the overall risk management and ALM framework of the bank subject to monitoring by the board at prescribed intervals.

The bank’s board would be required to set comprehensive overnight limits for each currency for these Units, which would be separate from the open position limit of the other branch/es of the foreign bank having a presence in India.

2.8 Anti-Money Laundering measures

The IBUs will be required to scrupulously follow "Know Your Customer (KYC)", Combating of Financing of Terrorism (CFT) and other anti-money laundering instructions issued by RBI from time to time, including the reporting thereof, as prescribed by the Reserve Bank / other agencies in India. IBUs are prohibited from undertaking cash transactions.

2.9 Regulation and supervision

The IBUs of foreign banks will be regulated and supervised by the Reserve Bank of India.

2.10 Reporting requirements

The IBUs will be required to furnish information relating to their operations as prescribed from time to time by the Reserve Bank. These may take the form of offsite reporting, audited financial statements for the IBU, etc.

2.11 Ring fencing the activities of IFSC Banking Units

The IBUs would operate and maintain balance sheet only in foreign currency and would not be allowed to deal in Indian Rupees except for having a Special Rupee account out of convertible fund to defray their administrative and statutory expenses. Such operations/transactions of these units in INR would be through the Authorised Dealers (distinct from IBU) which would be subject to the extant Foreign Exchange regulations. IBUs are not allowed to participate in the domestic call, notice, term, forex, money and other onshore markets and domestic payment systems.

The IBUs will be required to maintain separate nostro accounts with correspondent banks which would be distinct from nostro accounts maintained by other branches of that foreign bank in India.

2.12 Priority sector lending

The loans and advances of IBUs will not be reckoned as part of the Net Bank Credit for computing priority sector lending obligations of the foreign bank in India.

2.13 Deposit insurance

Deposits of IBUs will not be eligible for deposit insurance in India.

2.14 Lender of Last Resort (LOLR)

No liquidity support or LOLR support will be available to IBUs from the Reserve Bank of India.

Source : https://rbi.org.in

Monday, January 11, 2016

Distinction Between A Public Company And a Private Company

Distinction Between A Public Company And a Private Company – Following are the main points of difference between a Public Company and a Private Company :-

1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5,00,000.

2. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members.

3. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company.

4. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company

5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.

6. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have at least 3 directors.

7. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company.

8. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company
9. Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Public Company cannot start its business until a Certificate to commencement of business is issued to it.

10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares.

11. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share – holders, whereas a Public Company has to offer the further issue of shares to its existing share – holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share – holders in the general meeting of the share – holders only.

12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.

13. Quorum : The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.

14. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.

15. Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.

Friday, January 8, 2016

Three reasons for concern about the Chinese economy

A big reason Chinese shares are sinking is that Beijing is trying to undo some of the measures it took to prop up stock prices after the Shanghai market collapsed in June.

Though big reason Chinese shares are sinking is that Beijing is trying to undo some of the measures it took to prop up stock prices after the Shanghai market collapsed in June. Those who are watching the developments in China have found the following three reasons behind decelerating Chinese Economy:

Tumbling Currency
Tough Transition
Economic Mismanagement

Tumbling Currency: Chinese Govt. had devaluated its currency by about 2 % in the month of August 2015 , thus surprising the entire world. Pessimists felt that the Chinese Govt. was so desperate and worried about its economic growth that, by devaluating its currency it planned to assist the Exporters in foreign markets which would make Chinese products more affordable and cheap.

The Yuan after stabilising for about three months again showed signs of weakness since October 15 and dropped by more than 4 % against the US $. Though the Chinese Govt. said that they were only responding to the market signals, the Chinese Economy was weakening since last many years and the bubble had to burst one day, which resulted in the devaluation of Yuan.

Tough Transition: The Chinese Economy is going under transition from earlier growth of the past quarter-century which was built largely on massive investment in real estate and factories, much of it increasingly wasteful and inefficient to toward slower but more sustainable growth built on spending by Chinese consumers. Chinese Govt. is also pushing the country away from overdependence on manufacturing toward more reliance on services industries. Thus transition from a sprawling and enormously complex economy was seemingly difficult, and resulted in weakening Economy.Economic mismanagement: Chinese policymakers, long admired for their stewardship of a fast-growing economy, have worsened things by communicating poorly, meddling clumsily in the markets and backsliding on reforms.
The government's heavy-handed attempts to stop a freefall in the Shanghai stock market dismayed those who had hoped China was moving toward a more open financial system. Chinese authorities banned investors from betting against stocks, suspended trading in hundreds of companies and poured money into the market. At first, the desperation measures seemed to work. Yet stocks plunged again once the government began to back away.

The Govt. authorities have repeatedly confused investor. Officially, the Chinese economy grew about 7 per cent last year. Some economists suspect the actual growth rate might be 6 percent or lower.

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