RBI can take measures to reduce banks' bad debt

Q: Some of the banks in India which have non-performing assets (NPAs) are under great stress. However, the government has taken some measures to deal with the menace of NPAs. Will this restore confidence among bank depositors?
- T. Mitra, Abu Dhabi

A: The Reserve Bank of India has been empowered to take effective measures to reduce non-performing assets owned by certain banks. The suggestions made by the joint lending forums (JLF) will have to be implemented by the executives of the bank concerned without taking approval from its board of directors. The decision taken by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in the JLF will be considered as binding on the bank executives.

The government has made it mandatory for lenders to scrupulously adhere to the timelines prescribed in the framework for implementing the corrective action plan. Any non-adherence to the instructions and timelines will attract monetary penalties on the bank under the provisions of the Banking Regulation Act, 1949. Therefore, it is expected that banks' non-performing assets will be reduced with the aforesaid changes in the law.

Q: With a tepid growth in consumer spending globally, exports from India may take a beating. While small cars have been exported from India, there seems to be no spurt in the export of commercial vehicles manufactured in India.
- B.D. Aggarwal, Doha

A: India's exports of medium and heavy duty trucks rose by 25 per cent in the financial year 2016-17. Daimler India Commercial Vehicles, which is the Indian subsidiary of the world's largest heavy duty truck maker, has begun exporting Mercedes Benz trucks and buses manufactured in Chennai to South East Asian countries. Freightliners branded Giant Trucks are also being exported.

In the past, automobile manufacturers have exported compact cars and two-wheelers to emerging economies. At present, Mercedes school buses manufactured in India are being exported to all neighbouring countries. Therefore, the 'Make in India' campaign is catching up and India is fast becoming a hub for manufacture of automobile components and parts.

Q: I am associated with a trust in India which is treated as a charitable trust for the advancement of any object of general public utility. This trust also carries on trading activity. I am told that the trust may lose exemption and even the registration certificate may be cancelled. I want to know whether such a risk which will adversely affect the trust.
- T.R. Sevakram, Bahrain

A: If a charitable trust which is set up for advancement of any object of general public utility carries on any activity in the nature of trade, commerce or business and the aggregate receipts from such activity exceed 20 per cent of the total receipts of the trust, the exemption which the trust enjoys under section 11 of the Income-tax Act will not be available for such financial year. In that case, the entire income of the charitable trust will be liable to tax. However, if the receipts from trade, commerce or business are within the limit of 20 per cent of the total receipts of the trust, exemption under section 11 of the Act will be available.

Even where the receipts from trade or business exceed 20 per cent of the total receipts of the trust, the registration granted to the trust under section 12-AA of the Income-tax Act will not be cancelled or withdrawn. The only consequence of the commercial or business receipts exceeding 20 per cent of the total receipts of the trust is that the income-tax exemption for that particular financial year will not be available.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.

Source: Khaleej Times