ECONOMY by VIVEK SINGH

2023-09-30 08:00:12 A Financial Lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. Basically, the lessor takes the asset on behalf of the lessee and gets compensated by the rental payments that are paid by the lessee during the days of the lease. The ownership of the asset is with the lessor, but the lessee gets exclusive right to use the asset in the way desired. For accounting purposes, the lease provides the lessee with economic characters of ownership of the asset.

Lessor = Leasing Company = Finance Company = HSBC Unit registered in IFSC which is a deemed foreign entity
Lessee = Air India Fleet Services Ltd.
Asset = Airbus A350-900 aircraft

How a Finance Lease Works?
A finance lease is essentially a commercial rental agreement where the following steps take place:

First: Lessee selects an asset that they require for a business.

Second: Lessor, generally a finance company, purchases the asset.

Third: The lessor and lessee enter into a legal Agreement in which the lessee gets the right to use asset during the agreed upon lease.

Fourth: The lessee makes regular payments for the use of the asset.

Fifth: The lessor recovers the cost of the asset plus interest.

And lastly at the end of the lease agreement, the lessee has the option to acquire ownership of the asset.

Financial Lease is a kind of debt instrument and comes under External Commercial Borrowing (ECB). So, basically Air India Fleet Services Ltd. has taken ECB from HSBC Unit registered in IFSC which is a deemed foreign entity Open / Comment

2023-09-30 07:34:41 Source: Indian Express Open / Comment

2023-09-28 07:03:16 Source: The Hindu
Govt. of India would be for the first time issuing G-Secs with 50 year maturity. Till now maximum maturity period was 40 years. There is a demand of such bonds (50 year maturity) from Insurance firms, provident funds which park their long term funds in such bonds for their asset liability management. For example, an insurance firm receiving insurance premiums today may be required to align proceeds from invested assets (long term G-Secs) with the future policy claims they are contractually obligated to pay. Open / Comment

2023-09-27 06:38:06 Angel Tax:
https://t.me/VivekSingh_Economy/4103

As per todays news, Govt. has changed some rules for non-resident investors. No need to go in detail, just understand the basics of 'Angel Tax' from the above link.


Tax Collected at Source (TCS)
https://t.me/VivekSingh_Economy/4111

As per todays news, If we are spending money abroad (under Liberalized Remittance Scheme) on overseas travel packages which include medial, education, family maintenance etc. then TCS will be applicable. Banks and Credit Card Networks are now ready to implement TCS from 1st October. Jut get the TCS basics from the above link, no need to go in detail. Open / Comment

2023-09-25 06:03:22 Surety Bonds Open / Comment

2023-09-24 06:41:57 Global Debt includes the borrowings of Government, Institutions/businesses and Individuals.

Global Debt has increased to 336% of GDP and in absolute terms its rising. But it may not be a concern as every year the Global GDP is increasing and hence the Global Money Supply. Money supply gets created/increased through savings and then lending (debt) by banks using the concept of 'fractional reserve banking'. So as such its not a concern.

If Govt.'s debt has risen too much then it may default or it can 'Inflate away the Debt'. It means that letting inflation to increase (by borrowing more money from Central Banks) which will result in the drop in real value of money. [Inflation benefits Debtors]. The amount of money that the Govt. has to repay will have less value in real terms due to rising inflation and Govt.'s revenue (taxes and others) are in nominal terms. Open / Comment

2023-09-24 06:25:02 Source: The Hindu Open / Comment

2023-09-23 08:15:31 Presently if Govt. has to raise money (debt) from abroad, then there are two ways:

1. Govt. will borrow from foreign countries (bilateral) or from foreign institutions like World Bank, IMF (multilateral)

2. Foreign Portfolio Investors purchase Govt. of India bonds from the Indian market as these Govt. bonds are listed in Indian markets (G-Secs) or Capital markets.

But as per the news above, If JP Morgan will include Govt. of India's bond in its 'Global Bond Market Index' then Govt. of India will be able to list its bonds abroad and can raise money from abroad market from institutional/retail investors abroad in foreign currency. The following are its benefits/challenges:

1) As there will be more investors willing to purchase Govt. of India bonds, so interest rate on these bonds will come down i.e. Govt.'s cost of borrowing will come down

2) If India has Current Account Deficit (CAD), then it needs to be financed. So, money raised through Govt. bonds from abroad (capital account in Balance of Payment) will fund CAD.

3. Right now, banks and financial institutions purchase Govt. bonds (and keep under SLR or otherwise). If Govt. will raise money from abroad then Indian banks and financial institutions can lend to private sector (better/more productive allocation of financial resources)

4. Raising money from abroad through Govt. bonds will lead to currency appreciation and may negatively impact our trade competitiveness. And can also lead currency volatility but overall positives are more. Open / Comment

2023-09-23 07:56:56 Source: The Hindu Open / Comment

2023-09-22 06:44:33 RBI has published draft guidelines for classification of Wilful Defaulters:

1) Earlier RBI did not have a specific timeline within which a borrower should be declared a wilful default once a loan has turned NPA (i.e. a default has happened)

2) Wilful defaulters are those (Individuals & Companies) who have the ability to pay a bank’s (or NBFCs) dues but do not or divert bank funds. A wilful defaulter means a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above.

3) The lender shall examine the ‘wilful default’ aspect in all accounts with outstanding amount of Rs 25 lakh and above or as may be notified by the RBI from time to time, and complete the process of classification/ declaring the borrower as a wilful defaulter within six (6) months of the account being classified as NPA. Evidence of wilful default needs to be examined by an Identification Committee, to be set up by lenders.

4) Wilful defaulter are Individuals and in case of company, its Promoters and Directors at the time of default and in case of any entity (other than company), persons who are managing the company.

5) No additional credit facility be granted by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated.

6) Wilful defaulters will not be eligible for restructuring of credit facility.

7) In case the said guarantor refuses to comply with the demand made by the lender, such guarantor shall also be considered for classification as a wilful defaulter

8) Any (borrower) account included in List of Wilful Default (LWD), where the lender has entered into a compromise settlement with the borrower, will be removed from the list of LWD only when the borrower has fully paid the compromise amount.

Wilful default norms have been revised after a review of the instructions and consideration of various judgments and orders from the Supreme Court and High Courts, as well as representations and suggestions received from banks and other stakeholders Open / Comment