July-2011-National

NATIONAL AFFAIRS

RBI links new bank licence to rural branch
Signboards of new private banks which are common on high street will soon be visible in the remotest of rural areas with the Reserve Bank India (RBI) linking new branch licensing to the number of rural branches that banks open.

Most new private banks which have already drawn up branch expansion plans in large cities have decided to go ahead even if this means having to identify places that have never seen a bank branch before. Private banks are taking the change in policy in their stride although some feel RBI’s policy increases the onus on smaller banks.

With financial inclusion being a key agenda of both RBI and the government, the central bank has decided to give private banks a push to go rural. RBI, in its circular, said that “banks should allocate at least 25% of the total number of branches proposed to be opened during a year in un-banked rural (tier 5 and tier 6) centres.” An un-banked rural centre would mean a rural (tier 5 and tier 6) centre that does not have a brick-and-mortar structure of any scheduled commercial bank for customer- based banking transactions. Earlier banks were expected to reach most of the un-banked customers through the use of business correspondents. The new circular shifts the emphasis to a physical branch.

The rural directive could be a setback albeit a small one for new generation private banks which have turned into profit machines with earning growing over 20%. For these banks with heavy investment in technology, it would be difficult to break even in an un-banked branch unless banks are able to find some way to generate interest income by growing loans in rural areas.

SEBI liberalises takeover norms
On July 28, 2011, the Securities & Exchange Board of India (SEBI) announced that an entity buying 25 per cent stake in a listed firm will have to mandatorily make an offer to buy additional 26 per cent from public shareholders. This is seen as an attempt to lure investment after mergers and acquisitions fell 37 per cent.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently, while the trigger for such offer has also been raised from 15 per cent in the existing regulations.

In Japan, the trigger for an open offer is 33.3 per cent, while in Hong Kong it is 30 per cent and in Singapore it is 29.99 per cent. In all three, the trigger requires an acquirer to make an offer for the entire company.

The panel on new takeover regulations had recommended an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent. While the recommendation on trigger has been accepted, the same for the offer size has been kept lower due to intense opposition from industry and market participants.

For removal of non-compete fees, which could be as high as 25 per cent of deal value, the logic was given that promoters should not get higher price than that for public shareholders.

Gorkhas get more autonomy in Bengal
Ending two decades of uncertainty in the Darjeeling hills, a historic tripartite agreement for a new council with more powers was signed on July 18, 2011, even as the West Bengal government ruled out any division of the State.

The agreement for Gorkhaland Territorial Administration (GTA) was signed in the presence of Union Home Minister P. Chidambaram, Chief Minister Mamata Banerjee and Gorkha Janmukti Morcha President Bimal Gurung. The CPI(M) and other Left parties boycotted the function. A 48-hour bandh was observed in the adjoining Terai and Dooars in the plains against the signing.

The new autonomous, 50-member elected hill council will have more administrative and financial powers to independently run the three hill sub-divisions of Kurseong, Kalimpong and Darjeeling, as compared to its former avatar, the Darjeeling Gorkha Hill Council, formed in the late 1980s. While 45 members will be elected, the remaining five will be nominated by the government.

The GTA will get 60-odd different government departments, including finance, health, land reform, food and agriculture, electricity, irrigation and waterways and tourism. However, the Home Department (police) will not be under its control.

There will be a direct flow of funds from New Delhi to the GTA for development works. Finance Minister Pranab Mukherjee has already sanctioned Rs 600 crore as special assistance for Darjeeling. Mamata Banerjee also assured a complete economic package to the GTA, which, she said, would function within West Bengal.

India-Bangladesh ink border management deal
On July 30, 2011, India and Bangladesh inked a key agreement aimed at enhancing quality of border management and ensuring cross-frontier security through measures like joint vigils to deal with human trafficking and smuggling of drugs and weapons.

The comprehensive border management agreement was signed in the presence of visiting Home Minister P. Chidambaram and his Bangladeshi counterpart Sahara Khatun.

Chidambaram said the agreement, signed by Border Guard Bangladesh’s Director General Maj Gen Anwar Hossain and his Indian counterpart from the Border Security Force (BSF) Raman Srivastava, was expected to resolve all outstanding frontier issues, including combating cross-border crimes.

India and Bangladesh share 4,096 km border, of which 6.1 km is still un-demarcated.

Britain, India strike major trade deals
On July 25, 2011, Britain and India confirmed trade deals worth billions of dollars between the two countries at talks in London. Britain’s Chancellor of the Exchequer George Osborne and his Indian counterpart, Finance Minister Pranab Mukherjee, met in London for discussions on boosting economic ties between the G-20 partners.

The meeting came after India cleared a £4.4-billion ($7.2-billion) deal for Reliance Industries Ltd to sell a major stake in two dozen of its oil and gas blocks to Britain's BP.

London is determined to boost trade with Brazil, China and India to help drag Britain out of the financial crisis.

Visit of Pakistan’s Foreign Minister
On July 27, 2011, at the talks between External Affairs Minister S.M. Krishna and his young Pakistani counterpart Hina Rabbani Khar, New Delhi extracted an assurance from Islamabad to fight and eliminate the scourge of terrorism in all its forms and manifestations.

Refraining from rhetoric with a clear intent to keep the dialogue process on track, India and Pakistan also announced additional cross-LoC travel and trade confidence-building measures (CBMs) and resolved to find a peaceful solution to the Kashmir issue by narrowing down differences and building convergences.

India, however, did express its sense of dissatisfaction over the progress in trial of the seven accused lodged in Pakistani jails for their involvement in the 26/11 Mumbai attacks. However, there was no reference to the Mumbai attacks in a joint statement that was released after nearly two-and-a-half hours of deliberations. The statement touched all outstanding issues between the two countries that have bedevilled their ties and reaffirmed the importance of carrying forward the dialogue process.

Significantly, the usual acrimony associated with an India-Pakistan dialogue was clearly missing this time around as Krishna set the tone for talks by declaring that India desired to see a stable, peaceful and prosperous Pakistan and wished the people of the neighbouring country well. The two sides have perhaps learnt a lesson from what happened in July 2010 when Krishna’s joint press conference with his then Pakistani counterpart Shah Mehmud Qureshi in Islamabad ended in a disaster, giving a setback to the attempts to revive the dialogue process. Therefore, a joint press interaction by the two ministers was carefully avoided. Krishna and Khar just gave soundbytes at the conclusion of their meeting and did not take any questions. Instead, the two sides fielded Foreign Secretary Nirupama Rao and her Pakistani counterpart Salman Bashir to address the media.

On her part, Khar said Pakistan desired a genuine interaction with India in order to maintain cooperative relations. “We feel the relationship between the two countries should not be held hostage by the past.” She said officials on both sides must be “respectful of the reality of the two countries”.
The glamorous Pakistani minister, however, did earn the wrath of New Delhi for meeting separatist leaders from J&K shortly after her arrival in New Delhi.

New Delhi also drew Pakistan’s attention to the anti-India statements being made on a regular basis by some key terrorist leaders like Jamat-ud-Dawaa (JuD) chief Hafiz Mohammed Saeed. The Pakistani side again sought to brush the provocative statements under the carpet, saying one should not consider the views held by an individual as those of the State.

India, South Korea ink N-deal
On July 25, 2011, India signed a “historic” civil nuclear cooperation agreement with South Korea, paving the way for the possibility of Seoul exporting its atomic power plants.

The agreement, signed after summit talks between President Pratibha Patil and her South Korean counterpart Lee Myung-bak, provides legal ground for South Korea’s participation in atomic power plant construction projects in India.

South Korea has now become the ninth country which had signed nuclear agreement with India after it got the waiver from the Nuclear Suppliers’ Group (NSG) in 2008. The other countries are the US, France, Russia, Canada, Mongolia, Kazakhstan, Argentina and Namibia.

India and South Korea had decided to start talks on civil nuclear cooperation during a meeting between Prime Minister Manmohan Singh and Lee on the sidelines of the ASEAN Summit in Hanoi in October 2010.

Besides the agreement on nuclear cooperation, the two sides also signed a memorandum of understanding on media exchanges and another agreement on administrative arrangements to provide social security to people working in India and Korea.

India-US Strategic Dialogue
The India-US strategic dialogue was held in New Delhi on July 18, 2011, during the visit of US Secretary of State Hillary Clinton. A joint statement issued after the strategic dialogue said the two sides covered a wide range of bilateral issues as well as global developments during the four-hour talks.

The two countries also signed a MoU to promote closer cooperation and the timely exchange of information between the organisations of their respective governments responsible for cyber security.

Defence, security and counter-terrorism were high on the agenda since the dialogue. The dialogue, which was originally scheduled to be held in April, was postponed to July in view of the developments in North Africa and the Assembly elections in India. There were apprehensions that it could be deferred yet again after the July 13 explosions in Mumbai but Clinton decided to stick to the schedule.

On the issue of terrorism, Clinton was quite forthright in telling Pakistan that it was in its own interest to deal with violent extremism. “Pakistan is a key ally in the fight against terrorism. We have made it clear to Islamabad that terrorism threatens Pakistan itself… bombings in mosques, markets, police stations and government buildings. Pakistan must act on its own behalf to protect its territorial integrity and sovereignty.”

In a clear reference to the US raid that found and killed Osama Bin Laden in Abbottabad in early May, she said: “We want mutual recognition that we cannot tolerate a safe haven for terrorists anywhere. When we know the location of terrorists whose intentions are clear, we need to work together. We do not believe there are any terrorists who should be given a safe haven or free pass by any government."

On the civil nuclear cooperation, Clinton, while reassuring Washington’s commitment to the 123 agreement, wanted India to sign the Convention on Supplementary Compensation (CSC) for nuclear damages with the IAEA before the end of the year.

The main problem for US operators is a clause in the Indian law that makes the suppliers of reactors liable for 80 years for any accident at a plant. Private US nuclear firms are unwilling to sign up, mainly because they are unable to find insurance to cover them for potentially crippling claims for damages.

However, differences continued to plague the two sides on the civil nuclear deal though Clinton expressed the Obama’s administration commitment to implementing the accord in letter and spirit, notwithstanding the recent decision of the Nuclear Suppliers’ Group (NSG) to deny access to enrichment and reprocessing (ENR) technologies to countries which are not signatories to the NPT.

But one major positive that emerged from the strategic dialogue from India’s perspective was Washington’s commitment to New Delhi that the process of reconciliation with the Taliban in Afghanistan would be Afghan-led and Afghan-driven, and not dictated by Pakistan or any other country.

Supreme Court appoints SIT to probe black money
In a far-reaching order to deal with the “massive” problem of “astronomical levels” of black money stashed in secret overseas bank accounts, the Supreme Court, on July 4, 2011, directed the government to set up a Special Investigation Team (SIT), headed by former SC judges B.P. Jeevan Reddy and M.B. Shah, and disclose the names of such bank account holders against whom show-cause notices have been issued.

Slamming the government for conducting the investigations “at a laggardly pace,” a Bench comprising Justices B. Sudershan Reddy and S.S. Nijjar observed that even the “named individuals had not yet been questioned with any degree of seriousness. These are serious lapses, especially when viewed from the perspective of larger issues of security, both internal and external, of the country.”

The Bench passed the order on a bunch of PILs seeking steps to bring back over $1trillion of black money taken out of the country illegally by individuals and entities in order to evade tax. Among the petitioners are former law minister Ram Jethmalani and former police chiefs of Punjab—KPS Gill and Julio F. Riberio.

The SIT would have powers to investigate, initiate proceedings and prosecute the accused in all black money related cases, the SC clarified. The SIT would keep the SC informed of all major developments by filing periodic status reports.

Karnataka Lokayukta report nails Yeddyurappa
Karnataka Lokayukta Santosh Hegde’s report on illegal mining, submitted to the State government on July 27, 2011, has accused Chief Minister B.S. Yeddyurappa of corruption and asked the Governor to take action against him under the Prevention of Corruption Act.

Justice Hegde, while addressing the media, said: “In the course of the investigation, it was found that a trust run by family members of the Chief Minister had received a donation of Rs 10 crore from a firm dealing in iron ore.”

Citing another instance of illegal gratification received by Yeddyurappa’s kin, Hegde said they sold a plot near the Bangalore airport to a mining company at an exorbitant price. Describing the price as “abnormally high”, Hegde said while the guidance value of the plot suggested that its price should not exceed Rs 1.4 crore, it was sold for a staggering amount of Rs 20 crore. On the money received by the Prerna Trust run by Yeddyurappa’s two sons (including Raghavendra, a Lok Sabha MP from Shimoga), Hegde said the South West Mining Company, affiliated to the Jindal group, had to borrow money from others for making the donation.

“I find it extremely difficult to accept that someone has to borrow money for making a donation”, Hegde said. He said the nature of the two payments — the donation and the purchase of the land from CM’s sons by a mining company—has led him to conclude that the “payments were made for reasons other than the genuine reason”.

He said that in the light of these two cases, he indicted the CM under the Prevention of Corruption Act and made a recommendation to the Governor, who is the competent authority for acting against the CM, “to take further steps in this regard”.

The report also names the two Reddy brothers, Janardhana and Karunakara, both Cabinet ministers in Karnataka, V. Somanna, also a member of the Yeddyurappa-led Cabinet, JD(S) leader and former Chief Minister H.D. Kumaraswamy and Congress MP Anil Lad.

Hegde said about 100 companies were found guilty during the investigations. He has suggested cancellation of their mining leases. The total loss to the State exchequer caused due to illegal mining during the period under investigation (2006-10) was an estimated Rs 16,085 crore.