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Important Banking/Finance/Insurance Committees Constituted in 2019 

2019 was a year of reforms and changes. With several committees framed throughout the year, know the major recommendations by financial committees in detail.
Jan 8, 2020 17:53 IST
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Important Finance Committees
Important Finance Committees

India being a developing nation undergoes continuous economic and financial changes every day. To monitor the growth, fetch recommendations and audit decisions and policies various committees are constituted to keep the economy on track. Let’s have a look at each of these Committees constitutes in 2019 in detail. 

1. HLAG on Elephant Bonds

A High-Level Advisory Group (HLAG) headed by Surjit S Bhalla recently issued a suggestion to the Government of India to issue “Elephant Bonds” to help India recover up to $500 billion of black money stashed overseas.

What is Elephant Bond?

The elephant Bond is a proposed debt instrument that:

- Is a 25-year sovereign bond in which people declaring undisclosed income will be bound to invest 50 percent of that income in these bonds.

- is like an Amnesty scheme to help State treasury raise tax revenues, adding beneficiaries in tax base who have not declared their assets previously.

Key Recommendations of the Committee

- The funds raised through these bonds will solely be utilized for boosting economic growth by utilizing the collected money to fund infrastructure projects in the country.

- lowering the effective corporate tax rate and bringing down the cost of capital and simplifying regulatory.

- State governments need to be closely involved in improving the competitiveness of exports by providing support measures in a WTO (World Trade Organisation) consistent manner.

- The group recommended increasing the capital base of EXIM Bank by another Rs 20,000 crore by 2022, setting up of empowered investment promotion agency and seeking inputs from industry and MSMEs before signing free trade agreements (FTAs) and sensitizing them of its benefits.

- It also suggested separate regulations for medical devices and a single ministry for the sector.

- To promote tourism and medical value tourism, the group recommended simplification in the medical visa regime, setting up of a pan-India tourism board.

- For the textiles and garments sector, it suggested modification in labor laws (like the Industrial Disputes Act, 1947) to remove the limitation on firm size and allow manufacturing firms to grow.

2. Committee on MSME

The Reserve Bank of India on January 2, 2019, constituted an eight-member expert committee to propose long term solutions for the economic and financial sustainability of the MSME (Micro, Small and Medium Enterprises). Headed by UK Sinha, the panel submitted its report to the RBI on June 24, 2019. 

Key Recommendations of the Committee

- The Panel recommended a government-sponsored Fund of Funds (FoF) of Rs 10,000 crore to support Venture Capitalists or PE firms investing in the MSME sector.

- The Committee recommends for the creation of a Distressed Asset Fund, with a corpus of ₹ 5000 crores, structured to assist units in clusters where a change in the external environment, e.g. a ban on plastics or ‘dumping’ has led to a large number of MSMEs becoming NPA. 

- The Committee has made wide-ranging recommendations for expanding the role of SIDBI. According to the panel, SIDBI should play the role of a facilitator to create a platform wherein various Venture Capital Funds can participate and in turn, create a multiplier effect for providing Equity Support to MSMEs.

- The government should take active efforts to provide insurance coverage to MSME employees on the lines of PMSBY and PMJJBY schemes. Workers at urban and rural formalized MSEs need to be specifically covered under Ayushman Bharat - PMJAY.

-The committee recommends for the creation of pooled API of all TReDS platforms providers that would enable the financiers to understand the past repayment history of buyers thus enabling them to make more informed decisions. It will also rule out the possibility of dual financing.

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3. Committee to Strengthen CIC Framework

The Reserve Bank of India constituted a 6 member committee to strengthen the supervisory framework applicable to core investment companies (CICs) headed by Tapan Ray.

What is CIC?

RBI defines Core Investment Company (CIC) as a non-banking financial company (NBFC) that undertakes the business of acquisition of shares and securities. These CIC should follow the mentioned guidelines: 

- Holds not less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;

- Its investments in the equity shares in group companies constitute not less than 60 per cent of its net assets.

Recommendations of the Committee

- Capital contribution by a CIC in a step-down CIC, over and above 10% of its owned funds, should be deducted from its Adjusted Networth, as applicable to other NBFCs. Further, step-down CICs may not be permitted to invest in any other CIC, while allowing them to invest freely in other group companies;

- The number of layers of CICs in a group should be restricted to two. As such, any CIC within a group shall not make an investment through more than a total of two layers of CICs, including itself;

- Every Group having a CIC should have a Group Risk Management Committee (GRMC);

- Constitution of the Board level committees viz., Audit Committee and Nomination and Remuneration Committee should be mandated ;

- Offsite returns may be designed by the Reserve Bank and may be prescribed for the CICs on the lines of other NBFCs. Annual submission of Statutory Auditors Certificates may also be mandated; and

- Onsite inspection of CICs may be conducted periodically.

4. Committee on Corporate Loans

RBI has set up a six-member committee headed by TN Manoharan, Chairman, Canara Bank on development of the secondary market for or Corporate Loans to come up with recommendations to increase the efficiencies of the debt market and aid in the resolution of stressed assets.

Key Recommendations of the Committee

The panel recommended creating a self-regulatory body (SRB) to manage the secondary market. This would develop appropriate benchmark rates for secondary market purchase and sale of corporate loans.

- It said the secondary market for corporate loans, currently dominated by banks, be thrown open to mutual funds, pension funds, and insurance companies.

- The panel points out that banks and NBFCs are currently the only participants in the primary and secondary loan markets. It recommends that depending upon the experience gained, other categories of loans like revolving credit facilities should follow suit.

5. Committee on Deepening of Digital Payments

The Reserve Bank of India constituted a high-level committee on Digital Payments under the Chairmanship of Sh. Nandan Nilekani, former Chairman, UIDAI, in January 2019. 

Key Recommendations of the Committee

Initiatives such as removing transaction charges on digital payments made to the government, simplifying KYC processes, and reducing KYC costs for banks are among the committee’s 73 recommendations. 

6. Committee to Review the Regulatory Framework on Microinsurance

The Insurance Regulatory and Development Authority of India (IRDAI) has set up a 13 member committee led by to review the regulatory framework on microinsurance and recommend measures to increase the demand for such products. The committee is led by IRDAI Executive Director Suresh Mathur as the Chairman.

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7. Committee to Review Mortgage Securitization of India 

The Reserve Bank of India (RBI) on Wednesday formed a committee to review the existing state of mortgage securitisation and suggest ways to develop the market further under the chairmanship of Harsh Vardhan, senior advisor, Bain & Co.

Key Recommendations of the Committee

- setting up of a government-sponsored intermediary, through the National Housing Bank, to enable market making and standard-setting;

- developing standards for loan origination, loan servicing, loan documentation, and loans to be eligible for securitisation, including standardized formats for data collection and aggregation;

- separation of regulatory guidelines for direct assignment transactions and transactions involving pass through certificates as well as for mortgage-backed securities (MBS) and asset-backed securities (ABS);

- relaxation of regulatory norms for minimum holding period (MHP) and minimum retention requirement (MRR) for MBS;

- amendments and/or clarifications for registration and stamp duty requirements and tax guidelines to reduce the transaction costs for securitisation as also to encourage investments in pass-through-securities;

- treating the assets underlying a securitization transaction as well as any exposures in the form of credit enhancement as bankruptcy-remote under the insolvency laws for financial firms; and,

  • changes to regulations issued by financial sector regulators to incentivize participation of their respective regulated entities as investors.

8. Research Advisory Committee

In order to strengthen its research function and enhance its linkage to policymaking, SEBI has constituted a Research Advisory Committee headed by Dr. Sankar De and comprising of prominent financial economists and market practitioners as members.

The terms of reference of the Committee are:

- Defining objectives, scope and direction of research relevant for development and regulation of capital markets in India and for SEBI, especially keeping in view the linkage of research to policymaking.

- Strategy for effective execution and delivery of research identified under item (1) above.

- Promotion/development/maintenance of databases relevant to capital market regulation research.

- Exploring research collaborations with external researchers, including other regulators as well as academic institutions, both domestically and overseas, as appropriate. 

- Promotion/development of research proposals in-house as well as by interested external researchers. 

9. GoM to Boost the Real Estate Sector Under the GST Regime

The Government has announced the formation of the Group of Ministers (GoM) for the Study of Real Estate sector on 15th January 2019, under the leadership of Nitin Patel, Deputy Chief Minister of Gujarat.

Terms of Reference for the GoM

  • Analyze GST rate and inter-alia challenges for boosting the Real Estate Sector under the GST regime by providing a Composition Scheme for Residential Construction Units
  • Examine and suggest ways for Composition Scheme or any other Scheme for boosting Real Estate Sector and suggest Scheme for Transition and its introduction
  • Examine various aspect of levy of GST on Transfer of Development Rights (TDR) and Development Rights in a Joint Development Agreement
  • Examine legality of inclusion or exclusion of land in composition and suggest Valuation Mechanism
  • Examine and suggest aspects relevant to boost Real Estate Sector
  • The GoM may invite officers from the Centre and the States, as may be required, for boosting the sector.
  • The Conveners of Law Committee and the Fitment Committee will assist the GoM.

10. Committee to Review Reduce Tax Litigation by CBDT

The Central Board of Direct Taxes (CBDT) has formed a four-member committee, headed by income tax commissioner Sanjeev Sharma, to address taxation-related pain points and cut down the number of tax litigations, while focusing on some of the major issues that may lead to revenue generation,

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11. Expert Committee on Economic Capital Framework

RBI, in consultation with the Government of India, constituted an Expert Committee to review the extant Economic Capital Framework of the RBI headed by Dr. Bimal Jain.

 

Key Recommendations of the Committee:

 The Committee recommended revising the presentation of the liabilities side of the RBI balance sheet to reflect the distinction of the use of surplus in revaluation balances over market risk provisioning requirements for covering the shortfall in provisions for other risks is not permitted

- The Committee has recommended the adoption of Expected Shortfall (ES) methodology under stressed conditions (in place of the extant Stressed-Value at Risk) for measuring the RBI’s market risk on which there was a growing consensus among central banks as well as commercial banks over the recent years. 

- The Committee also recommended the development of methodologies for assessing the concentration risk of the forex portfolio as well as jointly assessing the RBI’s market-credit risk.

- The Committee has recommended a surplus distribution policy that targets the level of realized equity to be maintained by the RBI, within the overall level of its economic capital vis-à-vis the earlier policy which targeted the total economic capital level alone. Only if realized equity is above its requirement, will the entire net income be transferable to the Government?

12. Committee to the Uniform Tax Rate on Lottery

The GST Council has constituted an eight-member Group of Ministers under Maharashtra Finance Minister Sudhir Mungantiwar, the Finance Ministry said in a statement. The panel will see whether the disparity in tax structure on lottery be continued or a uniform rate be prescribed for both.

Key Recommendations of the Committee

- The Committee fixed a uniform tax rate of 28 percent on both state and private lotteries.

- It was recommended to raise the GST to a uniform rate of 18 percent from 12 percent on all such bags falling under HS 3923/6305 including Flexible Intermediate Bulk Containers (FIBC), he said, adding this change shall become effective from January 1, 2020.

Committee Name

Head of Committee

Committee Formed by

HLAG on Elephant Bonds

 

Surjit S Bhalla

Goverment of India

Committee on MSME

UK Sinha

RBI

Committee to Strengthen CIC Framework

Tapan Ray

RBI

Committee on Corporate Loans

TN Manoharan

RBI

Committee on Deepening of Digital Paymetns

b

RBI

Committee to review the regulatory framework on microinsurance

Suresh Mathur

IRDAI

ommittee to review state of mortgage securitisation

Harsh Vardhan

RBI

Research Advisory Committee

Dr. Sankar De 

SEBI

GoM to Boost the Real Estate Sector under the GST regime

Nitin Patel

Goverment of India

Committee to review reduce tax litigation by CBDT

Sanjeev Sharma

CBDT

Expert Committee on Economic Capital Framework

 

Dr. Bimal Jain

RBI

Committee to uniform tax rate on lottery

 

Sudhir Mungantiwar

GST Council

 

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