2018

Volume 3

THIS MONTH

Season’s greetings!

In this issue, Mr. Gagan Rai, MD & CEO, NSDL, has presented his thoughts on Data – A New

Fuel. We thank Mr. Rai for his contribution to the APAS Monthly publication.

This month, the APAS column presents its views on Frauds in Banking Sector.

The economic indicators showed mixed performance. Manufacturing PMI fell to a 4-month low

in February to 52.1 from 52.4 in January. India’s annual infrastructure output in February grew by

5.3%. India's Index of Industrial Production (IIP) rose higher than expected to 7.5% in January.

PMI services fell to a 6-month low of 47.8 in February from 51.7 in January, while composite PMI

fell to 49.7 in February from 52.5 in January. CPI inflation fell to a 4-month low of 4.44% in

February from 5.07% in January. WPI inflation fell to a 7-month low of 2.48% in February from

2.84% in January.

The Reserve Bank of India (RBI) released the First Bi-monthly Monetary Policy Statement, 2018-

19 and kept the repo rate unchanged at 6%. The RBI also issued a circular providing relief to

MSME borrowers registered under GST. The RBI also issued a circular discontinuing issuance of

LoUs and LoCs for trade credits.

Cabinet approved Ayushman Bharat – National Health Protection Mission. The Insurance

Regulatory and Development Authority of India (IRDAI) notified premium rates for Motor Third

APAS

MONTHLY

Party Liability Insurance Cover for FY 2018-19. The IRDAI exempted reinsurance schemes, in

respect of specified insurance schemes, from the purview of GST-Reg.

Cabinet approved two percent dearness allowance to central government employees. Cabinet also

approved restructuring of National Skill Development Fund (NSDF) and National Skill

Development Corporation (NSDC).

The Securities and Exchange Board of India (SEBI) released a circular on Investor Grievance

Redressal Mechanism – New Policy Measures. The SEBI Board conducted a meeting in Mumbai

on March 28, 2018 and took some important decisions.

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts and

encourage you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Mr. Gagan Rai MD & CEO, NSDL

Data – A New Fuel

ECONOMY

➢ Index of Industrial Production – January

➢ Inflation update – February

➢ PMI update – February

➢ Core Sector – February

APAS COLUMN

Frauds in Banking Sector

BANKING

➢ RBI First Bi-monthly Monetary Policy Statement,

2018-19

➢ Relief for MSME borrowers registered under GST

➢ Discontinuance of LoUs and LoCs for trade

credits

INSURANCE ➢ Cabinet approves Ayushman Bharat –

National Health Protection Mission

➢ Premium Rates for Motor Third Party

Liability Insurance Cover for FY 2018-19

➢ Exemption of reinsurance schemes, in

respect of specified insurance schemes,

from the purview of GST-Reg

INFRASTRUCTURE ➢ Cabinet approves two percent dearness

allowance to Central Government

employees

➢ Cabinet approves restructuring of National

Skill Development Fund (NSDF) and

National Skill Development Corporation

(NSDC)

ECONOMIC DATA SNAPSHOT

CAPITAL MARKETS

➢ Investor Grievance Redressal Mechanism – New

Policy Measures

➢ SEBI Board Meeting

CAPITAL MARKETS SNAPSHOT

During the last decade, large data environments have globally emerged as a very important community

resource. However, the challenge has been to utilize this highly diverse data effectively to fulfill business

and / or social objectives. Voluminous data sets exist in organisations that provide services in the B2C or

G2C model, typically telecom companies, hospitals, Banks, Insurance companies, educational institutions,

public entities and so on. India owns one of the largest complex of human data gathered both, in the

public and private sector with this huge amount of data, intelligence and insights enabled by data analytics

can help in formulation of defining customer services, product features, policies, regulations and

initiatives that have a direct impact on the end-users.

As we move towards a more digitized future, data and information will be the foundation, upon which its

smarter and brighter tomorrow will be built. The recipe of a successful business is incomplete without

data. Data holds the key to achieving various organizational goals. All large corporations have leveraged

on big data of consumers and are busy collecting & understanding data. But the question is, will simply

data collecting help?

For data to be of optimum use, we have to essentially automate metadata management. Automation

would involve establishing policies and processes that ensure information can be integrated, accessed,

shared, linked, analyzed and maintained to best effect across organizations and users.

Along with collection, structuring and flow of data, the need of the hour is also to build better response

systems which can help in seamless decision making.

Data centric Governments

Governments across the world today are gathering lots of information about their citizens. This holds

especially true for fast-developing countries like India, which have been promoting rapid digitization as a

means of enabling better delivery of essential services such as banking, insurance, healthcare, education

etc. to their citizens. The new thrust by the government on digitization has increased the collection of

data and is being used effectively for delivery of public services via digitalization of records for several

Data – A New Fuel

Mr. Gagan Rai, MD & CEO, NSDL

purposes including issuing IDs, passports and for payment of subsidies. Initiatives like Digital India are

bringing a new wave in digital adoption and helping technology reach the rural parts of the country.

A lot has been written about the importance of analytics across various domains; their adoption across

government functionalities is now slowly picking up. In the past, we have seen analytics and data science

making a head way in the Revenue department, amongst its other used cases. Given the gaining popularity

of digital India and adoption of technology, it wouldn’t be unfair to say that data and analytics is soon to

become the next big wave of revolution in Indian government.

There are a variety of ways the government can use big data. The world today faces serious issues in areas

such as education, healthcare and so on. Government is using big data analytics in the process of policy

making & that is also helping in better governance. Furthermore, the use of Big Data can help the

government know the areas that they need to focus on, so that they can provide their people with better

opportunities!

All this has opened up a lot of opportunities which has helped to improve the citizens' experience, to

improve government efficiency, better offerings of products and especially in delivery of services and to

boost business to create capacity to serve both domestic and export markets.

Overcoming the challenges

As important data is paramount for development of smart technology, security of the same is critically

important. With growing innovations in cloud computing and AI sector, there is also an increase in cyber-

attacks and other security threats. Other relevant issue is pertaining to customer privacy as customers

appear to be less willing to share data, for the fear that their data is being misused and their privacy

violated. Companies must address their concerns and assure customers that use of data is to serve

customers better through innovations and otherwise.

*Views are personal. Neither APAS nor any of its employees endorse any view, product or services mentioned in the article.

The Indian banking sector has experienced tremendous growth and multiple changes since liberalisation

of economy in 1991. Though the banking industry is generally well regulated and supervised, the sector

has its own set of issues such as enforcement of ethical practices, management of financial distress and

health of corporate governance. Fraud is an outcome of such issues. This article covers issue of frauds in

the banking system, which in recent years have frequently been reported in India.

Whenever any fraud is reported, investigative and formal enforcement process takes in our country a fair

bit of time. Indeed, RBI data on banking frauds suggests that very few cases over the past five years have

had closure, and cases of substantive economic significance remain open. As a result, the overall

enforcement mechanism, at least until now, is not perceived to be a major deterrent to frauds relative to

economic gains from fraud. Hence, in such a scenario, prevention of frauds becomes necessary.

The various types of frauds that can take place in banks are forgery, fraudulent loans, cybercrime, cheque

kiting, etc. Some of the high-profile cases in recent times have shown that frauds not only erode profits,

operating efficiencies and reliability of services but also severely damage organization’s reputation. In

addition, it affects employee morale and investor confidence. Although there has been growth in

monitoring, surveillance and stringent regulations in banking sector, the frequency and cost of banking

frauds have increased manifold resulting in a very serious cause of concern for the stakeholders. Fraud

events raise questions around the credibility of the fraud deterrent processes and the technological

capabilities of the institution. Poor internal controls, non-adherence to procedures, lack of tools to identify

potential red flags, delays in legal procedures for reporting and various loopholes in the system have been

considered some of the major reasons of frauds. Such issues have obliged us to revisit various laws and

regulations.

Frauds in banking

sector

All commercial banks in India are regulated by the RBI under the Banking Regulation (BR) Act of 1949.

Additionally, all Public Sector Banks (PSBs) are regulated by the Government of India under the Banking

Companies (Acquisition and Transfer of Undertakings) Act, 1970; the Bank Nationalisation Act, 1980; and

the State Bank of India Act, 1955. Section 51 of the amended BR Act explicitly states which portions of the

BR Act apply to the PSBs. There are some regulations which restrict the RBI to some extent in regulating

PSBs as compared to other private banks. RBI cannot remove directors and management at PSBs,

supersession of a Bank Board is also not applicable in the case of PSBs (and regional rural banks or RRBs)

as they are not banking companies registered under the Companies Act, removal of the Chairman and

Managing Director of a banking company is also not applicable in the case of PSBs, RBI cannot force a

merger and cannot trigger liquidation of PSBs, etc. Such laws need to be updated to empower the

regulator to take strict actions against mal-practices. In case of private banks, persistent irregularities will

affect their capital raising ability and may also lead to replacement of their CEOs by their boards or even

by the RBI. Hence, it can be said that there are incentives to invest in governance to limit frauds and

regulatory violations.

Although risk of fraud can’t be eliminated entirely, it is important to have a system that can effectively

detect and prevent fraud. Banks’ operational risk management, internal control frameworks and external

audit function should typically play a key role in preventing frauds. The important element, therefore, is

that with evolving fraud threats, banks’ defensive strategies must be strengthened. Also, there is an

increasing need to identify early warning signals to capture frauds closer to their occurrence. Efficient

internal controls, technology and data analytics can help identify frauds faster and thereby help banks

limit the losses incurred.

Current laws can be made stronger to improve accountability of auditors toward their jobs. An RBI circular

on inspection and audit systems in banks proposed a series of changes to the Internal Audit function to

improve its effectiveness starting with expanding the coverage of the function itself. Internal Audit teams

are expected to specifically report on the position of irregularities in branches, analyse and make in-depth

studies of the corruption/ fraud prone areas during their inspection; thereby leaving no scope for any

irregularities remaining undetected.

Internal auditors along with their periodical audit plan shall consider the assessment of fraud risks and

review the management’s fraud mitigation capabilities and communicate with the person responsible for

risk assessments in the organization to ensure that action, if required, can be taken in time. They should

also have a well-defined action plan to handle potential frauds uncovered during an internal audit.

With banks facing deepened regulatory scrutiny, advanced analytics can help to identify potential fraud,

committed by employees, customers, and third parties. Analytics can change the way banks perform

monitoring and can help them to detect and identify potential fraud prior to the launch of a formal

investigation/ inquiry.

Data visualization is another emerging tool that banks can use to detect frauds which has been adopted

by various global banks. This tool provides a visual representation of multidimensional data patterns and

outliers which can be used to discover hidden and/ or indirect relationships, exhibiting complex networks

involving multiple layers and/ or several intermediaries and tracking the movement of funds especially in

anti-money laundering investigations and diversion of funds by borrowers.

Additionally, with organizations increasingly adopting technology, cybercrime risk can’t be ignored. A

good understanding of the known threats and controls, industry standards, and regulations can guide

banks to secure their systems by implementation of preventative and risk-intelligent controls. This

involves several security layers to provide redundancy and potentially slow down the progression of

attacks in progress, if not prevent them.

Overall, to prevent and overcome increasing number of frauds, we need better banking, better reporting

and better supervision along with various technological tools.

-APAS

IIP (Index of Industrial Production) – January

Index of Industrial Production (IIP) or factory output for the month of January 2018 rose higher than

expected to 7.5%, compared to 7.1% in December 2017 and 3.5% in January 2017.

The growth was mainly on the back of good show by manufacturing sector, coupled with higher offtake

of consumer and capital goods.

The cumulative growth for the period April-January continued to remain lower at 4.1%, against 5% in the

corresponding period of the previous year.

As per Use-based classification, the growth rates in January 2018 over January 2017 are 5.8% in Primary

goods, 4.9% in Intermediate goods and 6.8% in Infrastructure/ Construction Goods.

Capital goods, a barometer of investments, showed a sharp increase in output by 14.6% in January 2018,

as against a decline of 0.6% a year ago.

Consumer non-durable goods showed an increase of 10.5%, as against a growth of 9.6%, while consumer

durable goods recorded a growth rate of 8%, against a contraction of 2% a year ago.

The manufacturing sector, which constitutes 77.63% of the index, grew by 8.7% in January 2018, as

compared to 2.5% in January 2017, showing signs of recovery in the economy.

The electricity sector grew at 7.6%, while the mining sector showed a flat growth of 0.1%, compared to

8.6% a year ago.

In terms of industries, 16 out of 23 industry groups in the manufacturing sector showed positive growth

in January 2018.

ECONOMY

Source: APAS BRT, www.mospi.gov.in

CPI (Consumer Price Index) – February

India's consumer price index (CPI) or retail inflation dipped to a 4-month low of 4.44% in February 2018,

compared to 5.07% in January 2018, but higher than 3.65% in February 2017.

The corresponding provisional inflation rates for rural and urban areas are 4.37% and 4.52% respectively in

February 2018, compared to 5.21% and 4.93% respectively in January.

The Consumer food price index (CFPI) stood at 3.26% in February 2018, lower compared to 4.7% in January

2018, but higher than 2.01% in February 2017.

The core CPI inflation rose marginally to 5.04% in February, compared to 5% in January.

The cumulative CPI inflation for April-February was lower at 3.52%, compared to 4.58% in the previous year.

Major indicators of CPI eased down, with food & beverages at 3.38%, pan, tobacco & intoxicants at 7.34%,

clothing & footwear at 5%, housing at 8.28%, fuel & light at 6.68% and miscellaneous at 3.85%.

Housing inflation continues to remain a key concern for India’s CPI inflation.

Within the food items, the inflation fell for vegetables to 17.57%, fruits to 4.8%, meat and fish to 3.31%,

sugar and confectionary to -0.26%, cereals and products to 2.1%, milk and products to 3.83%, prepared

meals, snacks, sweets, etc. to 4.47%, oils and fats to 1.09% and non-alcoholic beverages to 1.34%. However,

the inflation moved up for pulses and products to -17.35% and spices to -1.01%.

3.8

2.2

8.4

7.17.5

Sep-17 Oct-17 Nov-17 Dec-17 Jan-18

IIP (% YoY)

Base rate 2011-12

Wthin the miscellaneous items, the inflation rose for transport and communication to 2.39% and health to

4.95%, while it has eased for personal care and effects to 4.24%, education to 4.05%, household goods and

services to 4.16% and recreation and amusement to 4.25%.

Source: APAS BRT, www.mospi.gov.in

WPI (Wholesale Price Index) – February

India's wholesale price index (WPI) inflation fell to a 7-month low of 2.48% in February 2018, lower than

2.84% in January 2018 and 5.51% in February 2017.

The rate of inflation based on WPI Food Index also eased to 0.07% in February from 1.65% in January.

The index for primary articles declined by 1.3% from the previous month.

Under primary articles, ‘Food Articles’ group declined by 2% due to lower prices of fruits and vegetables

(9%), gram, tea and masur (4% each), rajma and bajra (3% each), egg, fish-marine, peas/chawali, jowar and

urad (2% each) and wheat (1%). barley, and peas/chawali (1% each). However, the prices of betel leaves

(13%), ragi (3%) and arhar, maize, condiments & spices, coffee, moong, fish-inland, poultry chicken and

paddy (1% each) moved up.

‘Non-Food Articles’ group declined by 0.1% due to lower prices of floriculture (15%), niger seed (5%), raw

cotton and linseed (3% each), raw rubber and skins (raw) (2% each) and cotton seed, raw silk, rape &

mustard seed and copra (coconut) (1% each). However, the prices moved up for soyabean (11%), hides (raw)

(10%), mesta (8%), raw jute (5%), guar seed (4%), raw wool and fodder (2% each) and groundnut seed,

castor seed, gingelly seed and sunflower (1% each).

3.58

4.885.21 5.07

4.44

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

CPI

Base rate 2011-12

‘Minerals’ group rose by 0.2% due to higher prices of iron ore (3%) and copper concentrate (1%). However,

the prices declined for sillimanite (9%), lead concentrate (4%), manganese ore (3%) and chromite and

phosphorite (2% each).

‘Crude petroleum and natural gas’ group rose by 2.9% due to higher prices of crude petroleum (3%) and

natural gas (2%).

The index for fuel and power rose by 1.2% from the previous month.

Under fuel and power, coal group rose by 1.2% and mineral oils group rose by 1.8%.

The index for manufactured products rose by 0.4% from the previous month.

Source: APAS BRT, www.mospi.gov.in

Manufacturing PMI – February The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) fell to a 4-month low in February 2018

as factory output and new business orders rose at a slower pace.

The Manufacturing PMI fell to 52.1 in February from 52.4 in January. However, it has managed to stay above

the 50 level, that separates expansion from contraction, for the seventh consecutive month.

Total new orders rose for the fourth successive month during February. Companies that registered higher

new orders reported on improved underlying demand. However, the rate of growth was modest and the

lowest in the current upturn.

The new orders sub-index, an indicator of domestic and export demand, fell to 52.3, its lowest since

October. That is well below the long-run mean average of 57.1 for orders and marked the second

consecutive month it has fallen. Export order growth, while pulling back slightly, was still solid.

3.593.93

3.58

2.842.48

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1.50

2.00

2.50

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3.50

4.00

4.50

Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

WPI

Base rate 2011-12

Although companies raised hiring at a modest pace in February in response to greater production

requirements, optimism about future output slipped to a 3-month low.

It was promising to see that India’s manufacturing sector remained in growth territory, as the impact of

July’s Goods and Services Tax (GST) continues to dissipate. The expansion was primarily driven by a marked

rise in manufacturing production, whilst there were reports of improved underlying demand, with domestic

and external sources driving new business gains.

Manufacturers raised their output charges as a part of attempts to pass on higher cost burdens to clients.

Source: www.tradingeconomics.com

Services PMI – February

The Indian services sector contracted in February for the first time since November and fell to a 6-month

low, as rising price pressures led to a decline in new business orders.

The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index fell to 47.8 in February

from 51.7 in January, its lowest level since August. The index slipped below the neutral mark of 50, which

separates expansion from contraction, for the first time in 3 months.

Both activity and new work declined for the first time since November, with rates of contraction the

strongest since August, thereby ending the recent recovery experienced by India’s service sector. Poor

underlying demand conditions weighed on activity.

However, firms remained confident towards output growth over the next 12 months as jobs growth

quickened to the joint-fastest since June 2011. Firms seem to believe that the decline is transitory as they

raised their staffing levels, in line with positive projections of activity growth.

The seasonally adjusted Nikkei India Composite PMI Output Index fell from 52.5 in January to 49.7 in

February, as the fall in service sector activity outweighed an upturn in manufacturing production.

On the price front, input cost inflation accelerated to the strongest since November, while charges were

raised to the greatest extent since July. An imminent risk to firms’ margins are higher fuel prices, which

materialized into the fastest input cost inflation in the overall economy (manufacturing and services) since

July 2014.

Source: www.tradingeconomics.com

Core Sector Data – February

Eight infrastructure sectors grew by 5.3% in February 2018, higher than 0.6% in February 2017, mainly

helped by a robust performance of refinery products, fertilizer and cement segments.

The eight core sectors – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and

electricity – had expanded by 6.1% in January.

Petroleum refinery production spurted 7.8% against a negative growth rate of 2.8% in February 2017.

Cement production rose by 22.9% and fertilizer production rose by 5.3%.

Electricity generation also grew by 4% against 1.2% in February 2017.

Coal production growth slowed to 1.4% against 6.6% in February 2017 and steel production growth slowed

to 5% against 8.7% in February 2017.

Crude oil and natural gas were the only laggards and contracted during the month. Crude oil production

declined by 2.4% and natural gas production declined by 1.5%.

Cumulatively, the growth in the eight core sectors during April-February 2017-18 grew by 4.3%, as against

4.7% in the same period last financial year.

Source: APAS BRT, www.eaindustry.nic.in

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Core sector Trend - Monthwise

RBI First Bi-monthly Monetary Policy Statement, 2018-19

RBI released the First Bi-monthly Monetary Policy Statement, 2018-19. On the basis of an assessment of

the current and evolving macroeconomic situation at its meeting on 5th February 2018, the Monetary

Policy Committee (MPC) decided to keep the repo rate under the liquidity adjustment facility (LAF)

unchanged at 6.0 per cent.

Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing

facility (MSF) rate and the Bank Rate at 6.25 per cent. The decision of the MPC is consistent with the

neutral stance of monetary policy in consonance with the objective of achieving the medium-term target

for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting

growth. The main considerations underlying the decision are set out in the statement below.

Global economic activity has gathered momentum, both in advanced and emerging economies, though

financial market volatilities and potential trade wars pose a threat to the outlook. The US economy is

showing signs of recovery in Q1 2018. The unemployment rate remains low with hiring around multi-

month highs. In the Euro Area, economic activity remained buoyant, although consumer spending and

factory activity slowed down due to the strengthening of the euro, but a consistently falling

unemployment rate and elevated consumer confidence continued to underpin the strength of the

economy. Economic activity remained robust in emerging market economies (EMEs) in Q1 2018.

For the domestic economy, the Central Statistics Office revised its estimate of the GDP growth for 2018-

19 from 6.5 percent to 6.6 percent, from the first advance release of GDP growth estimate on January 5th.

Private consumption growth – whose contribution to GDP growth in 2017-18 was 68 per cent – moderated

in the second half. Goods and services tax (GST) implementation had an adverse, even if transient, effect

on urban consumption through loss of output and employment in the labour-intensive unorganised

sector. Government expenditure provided sustained support to aggregate demand, with a pick-up in pace

in the second half. Gross fixed capital formation turned around in Q2 and accelerated in the second half

– markedly so in Q3 – reflecting the first signs of a sustained expansion in capital goods production and a

modest revival of construction activity. Net exports dragged down aggregate demand in 2017-18 due to

BANKING

a surge in imports and deceleration in exports in Q3, the latter being driven in part by GST-related working

capital disruptions.

Retail inflation, measured by the year-on-year change in the CPI, fell from a high of 5.1 per cent in January

to 4.4 per cent in February due to a decline in inflation in food and fuel. Excluding the estimated impact

of an increase in the house rent allowances (HRA) for central government employees under the 7th central

pay commission (CPC), the headline inflation for February was at 4.1 per cent. Food inflation declined by

120 bps in February, pulled down by a sharp decline in vegetable prices, especially of onions and

tomatoes, along with continuing deflation in pulses. The fall in prices was also observed in other food

components such as eggs, sugar, meat and fish, oils, spices, cereals and milk.

Relief for MSME borrowers registered under GST

Presently, banks and NBFCs in India generally classify a loan account as Non-Performing Asset (NPA) based

on 90-day and 120-day delinquency norms, respectively. It has been represented to RBI that formalisation

of business through registration under GST had adversely impacted the cash flows of the smaller entities

during the transition phase with consequent difficulties in meeting their repayment obligations to banks

and NBFCs. As a measure of support to these entities in their transition to a formalised business

environment, it has been decided by the RBI, as per a circular, that the exposure of banks and NBFCs to a

borrower classified as micro, small and medium enterprise (MSME) under the Micro, Small and Medium

Enterprises Development (MSMED) Act, 2006, shall continue to be classified as a standard asset in the

books of banks and NBFCs subject to the following conditions:

1. The borrower is registered under the GST regime as on January 31, 2018.

2. The aggregate exposure, including non-fund-based facilities, of banks and NBFCs, to the borrower

does not exceed INR 250 million as on January 31, 2018.

3. The borrower’s account was standard as on August 31, 2017.

4. The amount from the borrower overdue as on September 1, 2017 and payments from the

borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days

from their respective original due dates.

5. A provision of 5% shall be made by the banks/NBFCs against the exposures not classified as NPA

in terms of this circular. The provision in respect of the account may be reversed as and when no

amount is overdue beyond the 90/120-day norm, as the case may be.

6. The additional time is being provided for the purpose of asset classification only and not for

income recognition, i.e., if the interest from the borrower is overdue for more than 90/120 days,

the same shall not be recognised on accrual basis.

Discontinuance of LoUs and LoCs for trade credits

RBI, on a review of the extant guidelines on the issuance of LoUs/ LoCs/ guarantees for Trade Credits for

imports into India under delegated powers of AD banks, has decided to discontinue the practice of

issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks with immediate

effect. According to the RBI circular, Letters of Credit and Bank Guarantees for Trade Credits for imports

into India may continue to be issued subject to compliance with the provisions contained in Department

of Banking Regulation Master Circular No. DBR. No. Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on

“Guarantees and Co-acceptances”, as amended from time to time.

AD Category-I banks may bring the contents of this circular to the notice of their constituents and

customers.

The Master Direction No. 5 dated January 01, 2016 on ‘External Commercial Borrowings, Trade Credit,

Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised

Dealers’ has been updated to reflect the changes. The changes are applicable from the date of issuance

of this circular.

Cabinet approves Ayushman Bharat – National Health Protection Mission

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the launch of a new

Centrally Sponsored Ayushman Bharat – National Health Protection Mission (AB-NHPM) having central

sector component under Ayushman Bharat Mission anchored in the MoHFW.

As per the press release, the scheme has the benefit cover of INR 5 lakh per family per year. The target

beneficiaries of the proposed scheme will be more than 10 crore families belonging to poor and vulnerable

population based on SECC database. AB-NHPM will subsume the on-going centrally sponsored schemes –

Rashtriya Swasthya Bima Yojana (RSBY) and the Senior Citizen Health Insurance Scheme (SCHIS).

AB-NHPM will have a defined benefit cover of INR 5 lakh per family per year. This cover will take care of

almost all secondary care and most of tertiary care procedures. To ensure that nobody is left out

(especially women, children and elderly), there will be no cap on family size and age in the scheme. The

benefit cover will also include pre and post-hospitalisation expenses. All pre-existing conditions will be

covered from day one of the policy. A defined transport allowance per hospitalization will also be paid to

the beneficiary.

Benefits of the scheme are portable across the country and a beneficiary covered under the scheme will

be allowed to take cashless benefits from any public/private empanelled hospitals across the country.

Implementation strategy

At the national level, to manage, an Ayushman Bharat National Health Protection Mission Agency (AB-

NHPMA) would be put in place. States/ UTs would be advised to implement the scheme by a dedicated

entity called State Health Agency (SHA). They can either use an existing Trust/ Society/ Not for Profit

Company/ State Nodal Agency (SNA) or set up a new entity to implement the scheme. States/ UTs can

decide to implement the scheme through an insurance company or directly through the Trust/ Society or

use an integrated model.

INSURANCE

Expenditure involved

The expenditure incurred in premium payment will be shared between Central and State Governments in

specified ratio as per Ministry of Finance guidelines in vogue. The total expenditure will depend on actual

market determined premium paid in States/ UTs where AB-NHPM will be implemented through insurance

companies. In States/ UTs where the scheme will be implemented in Trust/ Society mode, the central

share of funds will be provided based on actual expenditure or premium ceiling (whichever is lower) in

the pre-determined ratio.

Number of beneficiaries

AB-NHPM will target about 10.74 crore poor, deprived rural families and identified occupational category

of urban workers' families as per the latest Socio-Economic Caste Census (SECC) data covering both rural

and urban areas. The scheme is designed to be dynamic and aspirational and it would take into account

any future changes in the exclusion/ inclusion/ deprivation/ occupational criteria in the SECC data.

States/Districts covered

AB-NHPM will be rolled out across all States/UTs in all districts with an objective to cover all the targeted

beneficiaries.

Premium Rates for Motor Third Party Liability Insurance Cover for FY 2018-19

IRDAI has been notifying the premium rates applicable to Motor Third Party Liability Insurance every year starting from 2011.

In this regard, every year, once the premium rates are finalized, an exposure draft showing the proposed premium rates, detailing the methodology of arriving at the premium is released on the IRDAI website seeking the comments of various stakeholders. The stakeholders need to provide their comments within 15 days of release of the exposure draft.

This year, too, the Authority issued an Exposure Draft on 07th March 2018 on revision of premium rates for Motor Third Party Liability Insurance covers for the FY 2018-19 inviting comments on the proposed rates from all stakeholders concerned. The exposure draft provides the broad methodology used in estimating premium rates and also the proposed premium rates for the FY 2018-19. The last date for receiving feedback was 22nd March 2018.

After examining the comments received from various stakeholders, the IRDAI has now revisited the premium rates of a few categories vis-a-vis the exposure draft and has smoothened some rates.

Now, the Authority has notified the premium rates applicable to Motor Third Party Liability Insurance with effect from 01st April 2018.

Insurers are hereby advised to be mindful of the concerns expressed by vehicle owners about the availability of insurance. Considering the mandatory nature of Motor Third Party Liability Insurance, insurers are advised to ensure that Motor Third Party Liability Insurance is made available at their underwriting offices and through all available channels of distribution. The Authority will treat any complaint of non-availability of insurance or use of methods to deny/ delay the insurance cover, seriously.

Further, Insurers are not permitted to cancel the current insurance policies and issue fresh policies to effect new premium rates. This notification as well as the enclosed schedule of premium rates shall be prominently displayed on the Notice Board of every underwriting office and on the website of the Insurers where it can be viewed by the public. This notification is issued in supersession of the Authority's earlier notification dated 17th April 2017.

Exemption of reinsurance schemes, in respect of specified insurance schemes, from the purview

of GST-Reg

As per a letter from Ministry of Finance to IRDAI, it is informed that the proposal to exempt reinsurance

schemes in respect of specified insurance schemes has been approved by the GST Council in its 25th

meeting held on 18.01.2018 on the condition that the benefit of reduction in the premium on such

Insurance schemes, must be passed on to the beneficiaries and the State and Central exchequers. Insurers

shall avoid any undue enrichment on this account. According to Ministry of Finance, insurers may note

that if necessary benefit on account of reduction in premium is not passed on to the insured / Govt.,

suitable action against the Insurance Companies may be initiated with National Anti-Profiteering

Authority under Section 171 of the CGST Act.

In this regard, a letter was issued dated 24.01.2018 from the Finance Secretary, for information and

necessary action. All insurers are advised to comply with the above in letter and spirit.

Cabinet approves two percent Dearness Allowance to Central Government employees

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has given its approval to release an

additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief

(DR) to pensioners w.e.f. 01.01.2018, representing an increase of 2% over the existing rate of 5% of the

Basic Pay/Pension, to compensate for price rise.

As per the press release, this will benefit about 48.41 lakh Central Government employees and 61.17 lakh

pensioners.

The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief

would be INR 6077.72 crore per annum and INR 7090.68 crore in the financial year 2018-19 (for a period

of 14 months from January 2018 to February 2019).

This increase is in accordance with the accepted formula, which is based on the recommendations of the

7th Central Pay Commission.

INFRASTRUCTURE

Cabinet approves restructuring of National Skill Development Fund (NSDF) and National Skill

Development Corporation (NSDC)

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has given its approval for restructuring

of National Skill Development Fund (NSDF) and National Skill Development Corporation (NSDC) to

strengthen governance, implementation and monitoring framework.

As per the press release, the restructuring will also ensure better corporate governance, transparency and

accountability in operations of NSDC besides strengthening the oversight role of NSDF. The approval

would lead to restructuring of composition of Board of NSDF and the NSDC to strengthen governance,

implementation and monitoring framework.

NSDC and NSDF were set up by the Ministry of Finance and registered in July 2008 and January 2009

respectively, for implementing coordinated action for skill development. NSDF trust was incorporated to

act as a receptacle for financial contributions from Governmental sources, bilateral/multilateral and other

agencies. Its main objective is to enhance, stimulate and develop the skills of Indian youth force by various

sector specific programmes.

NSDF entered into an Investment Management Agreement (IMA) with NSDC for utilization of its corpus

to meet the desired objectives of National Skill Development Mission and encourage skill development in

the country. Provision of supervisory role of NSDF over NSDC's functions is also included in the IMA

between NSDC and NSDF.

Investor Grievance Redressal Mechanism – New Policy Measures

SEBI released a circular in continuation to SEBI circular dated 18th December 2014, regarding redressal of

investor grievances through SEBI Complaints Redress System (SCORES) platform.

SCORES is a web based centralized system to capture investor complaints against listed companies and

registered intermediaries and is available 24x7. It was introduced on June 8, 2011 and has been facilitating

redressal of investor grievances in a speedy manner.

SEBI encourages investors to lodge complaints through electronic mode in SCORES. However, complaints

received from investors in physical form are also digitized by SEBI and uploaded in SCORES. Thereafter,

follow-up actions of the complaint are done in electronic form only i.e. through SCORES. Investors can

easily access, retrieve and preserve the complaints lodged by them in electronic mode. Further, it

enhances the turnaround time and speed of redressal of a complaint.

Investors may contact the Investor Associations (IAs) recognized by SEBI for any assistance in filing

complaints on SCORES. The lists of Investor Associations are available on SEBI website. Investors may also

seek assistance in filing complaints on SCORES from SEBI’s toll free helpline number.

SEBI has received inputs from listed companies and intermediaries that investor grievances can be

resolved faster if the grievance is taken up directly with the entity at the first instance. Accordingly, it

appears to be prudent and time saving if the investors approach the concerned listed company or

registered intermediary first with all the requisite details to redress the complaints. In case, the listed

company or registered intermediary fails to redress the complaint to the investor’s satisfaction, the

investor may file a complaint in SCORES.

CAPITAL MARKETS

At present, following types of complaints are not dealt with through SCORES:

1. Complaints against the companies which are unlisted/delisted, in dissemination board of Stock

Exchanges

2. Complaints that are sub-judice, i.e. relating to cases which are under consideration by court of

law, quasi-judicial proceedings etc.

3. Complaints falling under the purview of other regulatory bodies, viz. RBI, IRDAI, PFRDA, CCI, etc.,

or under the purview of other ministries viz., MCA, etc.

4. Complaints against a sick company or a company where a moratorium order is passed in winding

up / insolvency proceedings

5. Complaints against the companies where the name of company is struck off from RoC or a

vanishing company as per list published by MCA

6. Suspended companies, companies under liquidation / BIFR / etc.

To enhance investor satisfaction on complaint redressal, SEBI has already put in place a ‘Complaint Review

facility’ under SCORES, wherein an investor, if unsatisfied with the redressal, may within 15 days from the

date of closure of his complaint in SCORES, opt for review of the complaint and the complaint shall be

escalated.

SEBI Board Meeting

The SEBI Board met in Mumbai on March 28, 2018 and took the following decisions:

1. Decision on the recommendations of Kotak Committee on Corporate Governance

SEBI had constituted the Kotak Committee in June 2017, under the Chairmanship of Shri Uday Kotak, to

make recommendations to SEBI for improving standards of corporate governance of listed entities in

India. The Committee was represented by different stakeholders, including the Government, industry,

stock exchanges, academicians, proxy advisors, professional bodies, lawyers, etc. The Committee

submitted its report, detailing several recommendations, on October 5, 2017.

The report of the Committee was placed on the SEBI website for public comments. Comments were

received from a variety of stakeholders, including industry, government, global associations, institutional

investors, lawyers, etc.

The Board considered the Kotak Committee recommendations and the public comments thereon.

The Board decided to accept several recommendations of the Committee without any modifications,

including the following:

i. Reduction in the maximum number of listed entity directorships from 10 to 8 by April 01, 2019

and to 7 by April 1, 2020

ii. Expanding the eligibility criteria for independent directors

iii. Enhanced role of the Audit Committee, Nomination and Remuneration Committee and Risk

Management Committee

iv. Disclosure of utilization of funds from QIP/preferential issue

v. Disclosures of auditor credentials, audit fee, reasons for resignation of auditors, etc.

vi. Disclosure of expertise/skills of directors

vii. Enhanced disclosure of related party transactions (RPTs) and related parties to be permitted

to vote against RPTs

viii. Mandatory disclosure of consolidated quarterly results with effect from FY 2019-20

ix. Enhanced obligations on the listed entities with respect to subsidiaries

x. Secretarial Audit to be mandatory for listed entities and their material unlisted subsidiaries

under SEBI LODR Regulations.

The Board decided to accept several recommendations with modifications, which included the following:

i. Minimum 6 directors in the top 1000 listed entities by market capitalization by April 1, 2019

and in the top 2000 listed entities, by April 1, 2020

ii. At least one woman independent director in the top 500 listed entities by market

capitalization by April 1, 2019 and in the top 1000 listed entities, by April 1, 2020

iii. Separation of CEO/MD and Chairperson (to be initially made applicable to the top 500 listed

entities by market capitalization w.e.f. April 1, 2020)

iv. Quorum for Board meetings (1/3rd of the size of the Board or 3 members, whichever is higher)

in the top 1000 listed entities by market capitalization by April 1, 2019 and in the top 2000

listed entities, by April 1, 2020

v. Top 100 entities to hold AGMs within 5 months after the end of FY 2018-19 i.e. by August 31,

2019

vi. Webcast of AGMs will be compulsory for top 100 entities by market capitalization w.e.f. FY

2018-19

vii. Shareholder approval (majority of minority) for Royalty/brand payments to related party

exceeding 2% of consolidated turnover (instead of the proposed 5%).

The Board decided to refer certain recommendations to various agencies (i.e. government, other

regulators, professional bodies, etc.), considering that the matters involved relate to them. Such

recommendations, inter-alia, include strengthening the role of ICAI, internal financial controls, adoption

of Ind-AS, treasury stock, governance aspects of PSEs, etc.

2. Measures for strengthening algorithmic trading framework

3. Rationalising and strengthening the framework of equity derivatives market

4. Proposal for amendment of the regulatory provision permitting charging of additional expenses

of up to 0.20% of the daily net assets of MF schemes

Presently, mutual funds are permitted to charge additional expenses of up to 0.20% of the daily net assets

of mutual fund schemes in lieu of the exit load credited to the scheme. Based on data and the

recommendations of Mutual Fund Advisory Committee (MFAC), the Board approved the proposal to

reduce the maximum additional expense permitted to be charged to a mutual fund scheme from 20 bps

to 5 bps.

5. Go Green initiative in Mutual Funds

6. Amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, regarding angel funds

7. Revised framework for non-compliance of the Listing Regulations

8. Distribution of cash benefits by listed companies through depositories

9. Amendment to Regulation 40 of SEBI (LODR) Regulations, 2015 for mandating transfer of

securities only in demat form

10. Public Consultation Process for laying down a framework of compliance with SEBI Regulations by

listed entities subject to Corporate Insolvency Resolution Process under the Insolvency and

Bankruptcy Code, 2016

11. Public Consultation Process for review of SEBI (Buy-back of Securities) Regulations, 1998 and SEBI

(Substantial Acquisition of Shares and Takeovers) Regulations, 2011

12. Budget estimates for the Financial Year (FY) 2018-19

The SEBI Budget for the financial year 2018-19 was considered and approved by the Board.

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange Source: Bombay Stock Exchange

Foreign portfolio investment (FPI) in stock markets more than

halved to INR 26,000 crore in 2017-18 on fears of faster than

expected rate hike by the US Federal Reserve and higher

valuations of Indian equities. In comparison, overseas investors

had put in INR 55,700 crore in equities in 2016-17 after pulling

out over INR 14,000 crore in 2015-16. However, a sharp

turnaround was seen in FPI inflows into debt markets in the just

concluded fiscal as foreign investors poured in a staggering INR

1.2 trillion in the segment against a net outflow of about INR

7,300 crore in 2016-17. The overall net foreign capital inflows of

INR 1.45 trillion have made 2017-18 as the best period for the

Indian capital markets (equity and debt) in past 3 financial years.

This year’s inflows have pushed FPIs’ cumulative net investment

in the Indian equity market, since being allowed over two decades

ago in November 1992, to INR 8.86 trillion. The cumulative figure

for debt securities has also grown to INR 4.2 trillion, taking the

total for both debt and equities to INR 13 trillion.

Sources: APAS Business Research Team Source: National Stock Exchange

1-M

ar-1

8

3-M

ar-1

8

5-M

ar-1

8

7-M

ar-1

8

9-M

ar-1

8

11

-Mar

-18

13

-Mar

-18

15

-Mar

-18

17

-Mar

-18

19

-Mar

-18

21

-Mar

-18

23

-Mar

-18

25

-Mar

-18

27

-Mar

-18

BSE Sensex (Mar-2018)

1-M

ar-1

8

3-M

ar-1

8

5-M

ar-1

8

7-M

ar-1

8

9-M

ar-1

8

11

-Mar

-18

13

-Mar

-18

15

-Mar

-18

17

-Mar

-18

19

-Mar

-18

21

-Mar

-18

23

-Mar

-18

25

-Mar

-18

27

-Mar

-18

CNX Nifty (Mar-2018)

10.0010.8011.6012.4013.2014.0014.8015.6016.4017.20

1-M

ar-1

8

3-M

ar-1

8

5-M

ar-1

8

7-M

ar-1

8

9-M

ar-1

8

11

-Mar

-18

13

-Mar

-18

15

-Mar

-18

17

-Mar

-18

19

-Mar

-18

21

-Mar

-18

23

-Mar

-18

25

-Mar

-18

27

-Mar

-18

Indian VIX (Mar-2018)

7.107.207.307.407.507.607.707.807.901

-Mar

-18

3-M

ar-1

8

5-M

ar-1

8

7-M

ar-1

8

9-M

ar-1

8

11

-Mar

-18

13

-Mar

-18

15

-Mar

-18

17

-Mar

-18

19

-Mar

-18

21

-Mar

-18

23

-Mar

-18

25

-Mar

-18

27

-Mar

-18

GIND10Y(Mar-2018)

64.60

64.70

64.80

64.90

65.00

65.10

65.20

65.30

1-M

ar-1

8

3-M

ar-1

8

5-M

ar-1

8

7-M

ar-1

8

9-M

ar-1

8

11

-Mar

-18

13

-Mar

-18

15

-Mar

-18

17

-Mar

-18

19

-Mar

-18

21

-Mar

-18

23

-Mar

-18

25

-Mar

-18

27

-Mar

-18

29

-Mar

-18

$/₹ (Mar-2018)

Sources: APAS Business Research Team

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year beginning 1st April

Countries GDP CPI

Current

Account

Balance

Budget

Balance Interest Rates

Latest 2018* 2019* Latest 2018*

% of GDP,

2018*

% of GDP,

2018* (10YGov), Latest

Brazil 2.1Q1 2.6 2.8 2.8 Feb 3.5 -1.3 -7.0 7.87

Russia 1.8 Q3 1.8 1.8 2.2 Feb 3.3 2.7 -1.0 8.13

India 7.2Q4 7.2 7.6 4.4 Feb 4.8 -2.0 -3.5 7.33

China 6.8 Q4 6.6 6.4 2.9 Feb 2.3 1.3 -4.0 3.66*

S Africa 1.5Q4 1.5 1.8 2.2 Feb 2.3 -2.7 -3.6 7.90

USA 2.5 Q4 2.8 2.4 2.1 Jan 2.1 -2.7 -4.5 2.84

Canada 2.9 Q4 2.2 1.9 2.2 Feb 1.6 -2.6 -1.8 2.14

Mexico 1.5 Q4 2.1 2.5 5.3 Feb 4.2 -2.0 -2.3 7.39

Euro Area 2.7 Q4 2.5 2.0 1.1 Feb 1.5 3.1 -1.0 0.5

Germany 2.9 Q4 2.5 2.1 1.4 Feb 1.7 7.8 0.8 0.5

Britain 1.4 Q4 1.5 1.5 2.7 Feb 2.6 -4.4 -2.8 1.5

Australia 2.4 Q4 2.8 2.8 1.9 Q4 2.2 -1.8 -1.2 2.66

Indonesia 5.2 Q4 5.4 5.5 3.2 Feb 3.8 -1.9 -2.3 6.79

Malaysia 5.9 Q4 5.5 5.4 1.4 Feb 3.8 2.8 -2.8 3.95

Singapore 3.6 Q4 3.0 2.9 0.5 Feb 0.9 19.5 -0.7 2.38

S Korea 2.8 Q4 2.9 2.9 1.4 Feb 1.9 5.1 0.7 2.68

Sources: The Economist

ABOUT APAS

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extended arm to the management in coping with the ever changing internal and external dynamics.

Leveraging deep business insights APAS develops business and operational strategy for its clients. APAS

provide transaction advisory services (Buy, sell and merge), and also specializes in governance and board

training. APAS facilitates investors and sellers with directional guidelines of pursuing transactions, by

utilizing subject knowledge, vast experience and deep market outreach. APAS has capability to identify

and analyze key transaction drivers, recognize possible partnerships, and initiate discussions with them

for possible growth opportunity. We help major insurance companies, payment institutions, and other

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Disclaimer – This informative APAS Monthly has been sent only for reader’s reference. Contents have been

prepared on the basis of publicly available information which has not been independently verified by APAS.

Neither APAS, nor any person associated with it, makes any expressed or implied representation or

warranty with respect to the sufficiency, accuracy, completeness or reasonableness of the information set

forth in this note, nor do they owe any duty of care to any recipient of this note in relation to this APAS

Monthly.