Hot Topics to be aware

                 HOT TOPICS TO BE AWARE – A DETAILED OVERLOOK

What is GAAR ?
General Anti-Avoidance Rules
What is GAAR in simple terms ?
Tax Avoidance is an area of concern across the world.
 The rules are framed in different countries to minimize such avoidance of tax. 
Such rules in simple terms are known as  " General Anti Avoidance Rules "  or GAAR.   Thus GAAR is a set of general rules enacted so as to check the tax avoidance.
Why News for GAAR has been prominent in India in recent times ?
 Indian Government has taken initiative to introduce GAAR or General Anti Avoidance Rules with a view to increase tax collections.
Background for GAAR :
The methods adopted to reduce their tax liability can be broadly put into four categories :
  "Tax Evasion";
  "Tax Avoidance",
  "Tax Mitigation"
   Tax Planning". 
What is Difference between GAAR and SAAR ?
 Anti Avoidance Rules are broadly divided into two categories namely
 "General" and "Specific".   Thus, legislation dealing with
"General" rules are termed as GAAR,

Whereas legislation dealing with "Specific avoidance are termed as "SAAR"

                                                            BASEL III

What is Basel III?

Basel III or Basel 3 released in December, 2010  is the third in the series of Basel Accords. 

These accords deal with risk management aspects for the banking sector.  

              The global regulatory standard (agreed upon by the members of the Basel Committee on Banking Supervision) on bank capital adequacy, stress testing and market liquidity risk.   (Basel I and Basel II are the earlier versions of the same, and were less stringent)

What does Basel III is all About ?

"Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector".

Thus, we can say that Basel 3 is only a continuation of effort initiated by the Basel Committee on Banking Supervision to enhance the banking regulatory framework under Basel I and Basel II.  

 This latest Accord now seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency.

What are the objectives / aims of the Basel III  measures ?

Basel 3 measures aim to:

• →  improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source
• →  improve risk management and governance
• →  strengthen banks' transparency and disclosures.

 OVERALL CONCLUSION:

Thus we can say that Basel III guidelines are aimed at to improve the ability of banks to withstand periods of economic and financial stress as the new guidelines are more stringent than the earlier requirements for capital and liquidity in the banking sector.

How Inflation is Measured in India?

Inflation is usually measured based on certain indices.   Broadly, there are two categories of indices for measuring inflation i.e. Wholesale Prices and Consumer Prices.  

What is an Index Number ?

An Index number is a single figure that shows how the whole set of related variables has changed over time or from one place to another.

  In particular, a price index reflects the overall change in a set of prices paid by a consumer or  a producer, and is conventionally  known as a Cost-of-Living index or Producer's Price Index as the case may be.

· What is Core Inflation ?
The concept is used to estimate the inflation by excluding food and energy prices from the basket of goods and services that represents a typical household's consumption. 
 In mid 2012, RBI Governor threw up the conundrum posed by this "Core"inflation by saying "In our economy, where food constitutes nearly 50% of consumption basket and fuel has a weight of 15%, can a measure of inflation that excludes them can be called "Core".   He suggested that India should move towards developing and using a Producer Price Index (PPI) to gauge inflation more accurately as wholesale price index does not capture the price movement of services and is a hybrid of consumer and lproducer lprice quotes. 
What does SWIFT stand for?
 The full form of SWIFT is "Society for Worldwide Interbank Financial Telecommunication".
Headquarter: La Hulpe, Belgium.
 It handles the granting of codes to banks across the world and thus we can say that registration of SWIFT codes is handled by this Society.   
As such "SWIFT"  is the registered trademarks of S.W.I.F.T. SCRL with its Registered Office being at ' Avenue Adèle 1, B-1310 La Hulpe, Belgium'.

SWIFT Codes are Used for What Purpose :

SWIFT codes are a standard format of Bank Identifier Codes and each bank has a unique identification code.  
The SWIFT code is used for exchanging messages between banks. 
The most popular messages sent through SWIFT relate to transferring money between banks i.e. international wire transfers.  (Thus, in case you wish to transfer funds across countries, bank may ask you to give SWIFT code of the bank where you wish to transfer your funds)
The full SWIFT code for a branch consists of 11 characters (last three characters are branch code).  Thus, sometimes 8 digit code is also given for a bank.   The code thus consists of :-
      (a) First FOUR characters  :  Bank Code (consists of only letters);
      (b) Next TWO   characters :   ISO 3166-1 alpha- 2 country code (only letters)
      (c) Next TWO   characters :  Location Code (letters and digits)  [Passive participants will have 1 in the second character]
      (d) Last THREE characters :  These are optional and are used for branch specific codes (For primary offices they use "XXX") - These can be letters and digits

Consumer Price Index (CPI)

Ø  The CPI measures price change from the perspective of the retail buyer.

Ø  It is the real index for the common people.

Ø  It reflects the actual inflation that is borne by the individual. 

Ø  CPI is designed to measure changes over time in the level of retail prices of selected goods and services on which consumers of a defined group spend their incomes

Ø  Till January 2012, in India there were only  following four CPIs compiled and released on national level.    (In some countries like UK, Malaysia, Poland it is also known as Retail Price Index).

What is BPLR?

BPLR means the Benchmark Prime Lending Rate.  

BPLR is the interest rate that commercial banks normally charge (or we can say they are expected to charge) their most credit-worthy customers.

Although as per Reserve Bank of India rules, Banks are free to fix Benchmark Prime Lending Rate (BPLR) for credit limits over Rs.2 lakh with the approval of their respective Boards

The banks may authorize their Asset-Liability Management Committee (ALCO) to fix interest rates subject to their reporting to the Board immediately thereafter.

What is Base Rate?

The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except  for DRI advances, loans to bank's own employees and loan to banks' depositors against their own deposits. (i.e. cases allowed by RBI) 

What is the difference between BPLR and Base Rate?

BPLR nomenclature be scrapped and a new benchmark rate — known as Base Rate — should replace it.  

 Base Rate is much more transparent and banks are not allowed to lend below the base rate (except for cases specified by RBI).  

 Base Rate is to be reviewed by the respective banks at least on quarterly basis and the same is to be disclosed publicly. 

 On the other, the calculations of BPLR was mostly not transparent and banks were frequently lending below the BPLR to their prime borrowers and also under pressure due to various reasons

 What is Marginal Standing Facility?
Marginal Standing Facility Rate:  Under this scheme, Banks will be able to borrow upto 2% (earlier it was 1%, increased to 2% wef 17/04/2012) of their respective Net Demand and Time Liabilities". 
The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%)  above the repo rate.
This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.