ED arrests Kotak Mahindra Bank employee under PMLA

The Enforcement Directorate (ED) on Wednesday arrested the manager of a Kotak Mahindra Bank branch in connection with its money laundering probe upon detection of nine alleged fake accounts with deposits worth Rs 34 crore post demonetisation.

Officials said the agency arrested the manager of the bank’s branch in the KG Marg area in New Delhi, identified as Ashish Kumar, late Tuesday night after questioning. “The manager has been arrested under the provisions of the Prevention of Money Laundering Act (PMLA) and will be produced before the court for further custody,” they said.

Last week, two Kotak Mahindra Bank customers had been arrested for depositing Rs 34 crore.

The Kotak Mahindra Bank spokesperson Rohit Rao said the bank had proactively informed the Financial Intelligence Unit (FIU) and the employee has already been suspended. “The bank has zero tolerance towards employees not adhering to its code of conduct, and takes strict measures against them,” he said.

The ED took on the case and registered it under PMLA laws after taking cognizance of Delhi police crime branch’s report in the said case. The bank confirmed that it has a robust system of regularly and proactively filing necessary reports with the FIU for all large transactions.

“The bank has on record all necessary know your customer documents, including PAN card,” added Rao.

Inter-ministerial group to assess incentives sought by Apple

A group of senior officials from ministries, including commerce and finance, will early next month deliberate on the incentives sought by the US-based iPhone maker Apple to set up a manufacturing unit in the country.

Officials from the departments of commerce, industrial policy and promotion, revenue, environment and forest, electronics and information technology will attend the meeting.

The group is likely to Inter-Ministerial Group Apple meet in the first week of January to discuss the issue, sources said.

In a communication to the government, the Cupertino-based technology major has asked for several tax and other incentives to enter India in the manufacturing sector. However, government sources said the technology-major should set up the manufacturing unit in India without seeking additional support.

“Several companies in India are manufacturing mobile phones in India. Nobody is asking for additional incentives. Currently, the government provides sufficient support to boost electronic manufacturing,” they added.

China to spend $503 bn on railways to boost growth

China plans to spend 3.5 trillion yuan ($503 billion) to expand its railway system by 2020 as it turns to investments in infrastructure to bolster growth and improve connectivity across the country.

The high-speed rail network will span more than 30,000 kilometers (18,650 miles) under the proposal, according to details released at a State Council Information Office briefing in Beijing Thursday. The distance, about 6.5 times the length of a road trip between New York and Los Angeles, will cover 80 percent of major cities in China.

The plan will see high-speed rail lines across the country expand by more than half over a five-year period, a boon to Chinese suppliers of rolling stock such as CRRC and rail construction companies including China Railway Construction Corp and China Railway Group Ltd. Earlier this year, China turned to a private company for first time to operate an inter-city rail service on the mainland, part of President Xi Jinping’s push to modernize the nation’s transport network amid slowing growth in the world’s second-largest economy.

China will also add 3,000 kilometers to its urban rail transit system under the plan released Thursday.

At the end of 2015, China had 121,000 km of railway lines, including 19,000 kilometers of high-speed tracks, according to a transportation white paper issued Thursday. The US had 228,218 kilometers of rail lines as of 2014, according to latest available data from the World Bank.

The Chinese government will invite private investment to participate in funding intercity and regional rail lines, Yang Yudong, administrator of the National Railway Administration, said at the briefing.

CRRC shares Guangshen Railway advanced as much as 1.5 per cent in Hong Kong trading. Shares of China Railway Construction climbed as much as 2.1 percent, and China Railway Group rose 0.8 percent in Hong Kong.

Further rail investments will be made in the poorer western cities despite unprofitable operations, Yang said. “We believe these railway lines will break even over time as the flow of people and goods experience fast growth,” he said.

The government plans to “adjust” fares to ensure rail businesses nationwide are viable, the official said, without being more specific.

The rail reforms, including raising ticket prices and allowing private investment, would help ease some financial burdens of state-run China Railway Corp. The rail operator incurred a loss after tax of 5.57 billion yuan in the first nine months of 2016 and its liabilities totaled 4.29 trillion yuan as of Sept. 30, according to its third-quarter audited report. The company spent more than 600 billion yuan on rail-related infrastructure in the past two years.

Guangshen Railway Co. could see profits rise as much as 68 percent if average long-distance rail fares climb 30 percent, Yang Xin, an analyst at China International Capital Corp., wrote in a note on Dec. 26. The company is the only one among three listed rail operators in China to focus on passenger transport. It operates railways along the Pearl River Delta region and is co-operator with MTR Corp. for the line linking Hong Kong to the mainland.

Viral Acharya wanted Indira Gandhi’s masterstroke reversed

In various sections of the press, the media has projected Viral Acharya as a singer, sportsman, lyricist and author. But there is more to this new deputy governor of the Reserve Bank than just his multi-talented and colorful personality.

Acharya proposed repealing the Banks Nationalisation Act, 1970 and 1980, introduced by former Indian prime minister Indira Gandhi. He also proposed privatising a large number of public-sector banks in India.

He made these suggestions in an academic paper titled ‘State intervention in banking: the relative health of Indian public sector and private sector banks’, which Acharya co-authored with Krishnamurthi Subramanian of the Indian School of Business. The paper was published in June 2015, when Acharya was a professor of economics at New York University.

In the paper, Acharya and his co-author extensively detailed the problems plaguing public-sector banks in India. The paper identified systemic risks to public-sector banks, primarily arising out of increase in their debt liabilities. It also pointed out that the return-on-assets of state banks had been declining consistently over the years. One of the highlights of the paper was that it pointed to a higher risk faced by public sector banks owing to higher operational inefficiency. This manifests in various forms. Not only is the profit per employee in public banks lower than their private sector counterparts, the very people working in state owned banks pose a risk to their existence.

The paper further extrapolates this risk caused by the banks human capital. It quotes a 2013 McKinsey report to state that 60 to 90% of the middle management in state run banks will retire by 2016-17. The staff shortage that will be caused in the coming years will be further exacerbated by the Viral Acharya limitations on the decision making capabilities of the banks staff. Since public sector bank employees are always under the scanner of vigilance and investigative agencies, their decision making capabilities are not as efficient as private banks.

Acharya then proceeds to provide a solution to address these problems in the concluding part of his paper. His solution is to repeal the Bank Nationalisation Acts 1970 and 1980 along with SBI Act and the SBI (subsidiaries) Act. The report states, “In order to improve governance of public sector banks, the Government must distance itself from several bank governance functions that it presently discharges. For this purpose, the Bank Nationalization Acts of 1970 and 1980, together with the SBI Act and the SBI (Subsidiary Banks) Act must be repealed. All banks be incorporated as regular corporations under the Companies Act and must be mandated to satisfy the corporate governance norms prescribed by the Securities Exchange Board of India.”

The Indira Gandhi government had nationalised 14 private banks in 1969 through an ordinance. In 1980 another 6 private banks were taken over by the government. With these two phases of bank nationalisation, the government came to control more than 90% of India’s banking system. The SBI Act 1955 meanwhile had taken over the Imperial Bank and christened it as SBI with the Reserve Bank of India being its shareholder.

Acharya also goes on to suggest mass scale privatisation of other banks as well. The paper states, “Over the long run, some of the public sector banks can be privatized or their assets reallocated. Some of them could be acquired by the relatively well-capitalized private sector firms; the ones with worst asset quality could be wound down; and, greater entry of smaller and newer banks can be enabled to yet maintain healthy levels of competition.”