Reply: These are temporary measures that are reviewed from time to time as regards their applicability period.
5. How did the Government of India fund the expansionist policy for increased public spending in 2008 2009 adopted to address the global crisis? (Page 17, paragraph 37)
Reply: The expansionary fiscal policies comprised tax cuts and expenditure hikes as indicated below:
Break up fiscal expansion with respect to 2007 08
(As % of GDP)
2008 09
2009 10
2010 11 (RE)
2011 12 (BE)
Total fiscal expansion
3.49
3.84
2.54
2.05
Expenditure
1.54
1.35
1.15
0.29
6. What tax rate is charged in the case of income tax and tax on dividends? (Page 20, paragraph 50)
Reply: For tax rates in case of income tax and dividends, kindly refer to www.finmin.nic.in.
7. Could India mention whether the adoption of a prudential framework for banks, applies equally to all financial institutions or there is some discrimination with regard to foreign capital financial institutions? (Page 21, paragraph 52)
Reply: The application of prudential framework for banks and financial institutions in India is based on the specific needs, size, core functions and capabilities, etc. of the concerned entity, viz. commercial banks, cooperative banks, regional rural banks, non banking financial companies, etc. However, the prudential framework is the same for all commercial banks including foreign banks having offices in India. It may be added that conscious steps are being taken for application of framework equally albeit at a different pace as suitable to the financial institutions other than commercial banks, based on the regulatory assessment.
8. Could India elaborate on why the regional rural banks and 'local' banks (territory wise) are excluded from the application of the principles of Basel II? What makes these banks different from other commercial banks to which BASEL II applies since the agreement was signed in 2009? (Page 22, paragraph 55)
Reply: Regional rural banks (RRBs) are state sponsored, region based, and rural oriented commercial banks with local feel and pro poor focus. They have been established primarily for the purpose of developing the rural economy by providing credit and other facilities particularly to the economically weaker/disadvantaged sections of the society such as small and marginal farmers, agricultural labourers, artisans, small entrepreneurs, etc. A large number of RRBs (196) were established during the period 1975 to 1987.
Factors like limited area of operation, weak clientele base, low volumes, high overheads, loan delinquency etc. led to high accumulated losses and piling up of bad assets in the case of many RRBs. Also, RRBs were lending at low interest rates as they were financing the weaker sections and were allowed to pay a slightly higher rate of interest on deposits. As a result, financial health of most of the RRBs became weak and in the case of few RRBs, there was an erosion of public deposits, besides capital. Many RRBs were having accumulated losses and negative net worth. Hence, owing to weak financial position of sizeable number of RRB, it was not desirable to apply Basel Norms for them. Incidentally, to address the problems of poor performance of the RRBs, several RRBs were recapitalized twice between 1994 95 to 2008 09.
However, several working groups and task force have suggested introduction of CRAR in phased manner. As a step towards this, RRBs were advised to disclose their CRAR as on 31 March 2008 and thereafter every year as "notes on accounts" to their balance sheets. In September 2009, Government of India constituted a Committee under the Chairmanship of Dr.K.C.Chakrabarty, Deputy Governor, Reserve Bank of India to study the current level of capital to risk weighted assets ratio (CRAR) of RRBs and to suggest a roadmap for achieving a CRAR of 9% by March 2012. The Committee submitted its Report to the Government of India on 30 April 2010.The Committee carried out an assessment of capital requirement for all the 82 RRBs to enable them to have CRAR of at least 7% as on 31 March 2011 and at least 9% from 31 March 2012.The Committee have assessed that 40 RRBs (out of 82) will require capital infusion to the extent of Rs 2200 crore. The three stake holders of RRBs have started releasing their contribution towards recapitalization. It is expected that now capital base of RRBs will become strong and best international practice of CRAR will also become applicable for RRBs in near future.
