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 * BFSI News
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 * Policy


RBI'S 'OPEN MOUTH OPERATION' KEEP YIELDS ON LEASH

The verbal assurance that liquidity will be in abundance, which market pundits
label 'Open Mouth Operations', a phrase borrowed from the central bank's open
market operations to influence market direction, has led to Indian yields rising
just about 8 basis points since the Russia-Ukraine war began on February 22.

 * Saikat Das
 * ET Bureau
 * March 24, 2022, 08:17 IST

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Mumbai: Indian bond yields have stayed under the lid as RBI governor Shaktikanta
Das talking down expectations appears to be working, despite a surge in
borrowing costs for governments across the world with central banks pedalling
back ultra-loose monetary policies.

The verbal assurance that liquidity will be in abundance, which market pundits
label 'Open Mouth Operations', a phrase borrowed from the central bank's open
market operations to influence market direction, has led to Indian yields rising
just about 8 basis points since the Russia-Ukraine war began on February 22,
compared with 42 bps in the US - reflecting the hope that RBI would be able to
keep rates low.

"Market is relying on RBI's dovish communication, which in turn is prompting
people to believe that not only any rate action is still a distant reality, but
also that RBI will keep the borrowing cost at a benign level amid growth
concerns," said Soumyajit Niyogi, associate director at India Ratings.


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"If the gap between the expectations and the reality stays for long, that could
turn out to be another source of volatility and eventually risk to stability in
the financial market going ahead," he said.

During the war-infested period, shorter duration sovereign securities - Treasury
Bills yielded about 9-11 basis points higher, show latest available data from
Financial Benchmarks India.

In the same period, similar maturity US Treasury Bills yielded 17-52 bps higher.

"RBI 'talk' has assuaged the market backed by the fact that there is no fresh
borrowing from the government," said Madan Sabnavis, chief economist at Bank of
Baroda. "This has also played a role. Also, the RBI has held on to the view that
inflation is only transitory that has added to the comfort."

"The constant reiteration by RBI in a different forum on these issues of growth
and inflation has helped to keep bond yields in a corridor," Sabnavis said.

Rating agency Fitch on Tuesday slashed India's growth forecast for the next
fiscal to 8.5% from 10.3%, citing soaring energy prices and rising inflation on
account of the Russia-Ukraine war.

Consumer prices rose at 6.07% in February this year breaching the central bank's
comfort range of 4-6%. This was the highest in eight months.



"Going forward we will ensure that there is abundant liquidity in the market for
the credit system to be active, for the credit system to function normally,"
Shaktikanta Das said two days ago at a conference.

The RBI has maintained an 'accommodative' stance.

The developments which have been taking place on the war front which has
manifested in high inflation has seen bond yields increase across the world.

Back home it has not been the same and yields have tended to be by and large
stable.

"The reason is that the MPC/RBI has reiterated that growth is a major concern
and that there will be an accommodative stance for the next year," Sabnavis
said.

However, market dealers are apprehensive of how long this stance will be
maintained. With consumer price inflation crossing RBI's upper tolerance limit a
call has to be taken.

Government borrowing for next year will also begin from April onwards, a key
event the local debt market is waiting for. Dealers are not seen taking any new
bets.

Despite global headwinds, foreign portfolio investors have not dumped local debt
securities compared to equities.

They sold a net of about $800 million in bonds against a net of $14.5 billion in
equities.



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RBI | Bond yields
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us treasury
Shaktikanta Das
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POLICY

 * 3 hrs ago
   
   GOVT PUSHES CHANGES IN FINANCE BILL TO CLEAR AIR ON TAXATION FOR DIGITAL
   ASSETS

 * 6 hrs ago
   
   INDUSTRY BODIES MAKE REPRESENTATION TO SEBI; PLEA TO REVIEW RELATED PARTY
   NORMS

 * 9 hrs ago
   
   RBI'S 'OPEN MOUTH OPERATION' KEEP YIELDS ON LEASH

 * 23 hrs ago
   
   CBIC ISSUES SCRUTINY NORMS RELATED TO GST

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 * IMPOSSIBLE TO BUILD PROFITABLE BUSINESS VIA GOOGLE, FACEBOOK ADS:
   POLICYBAZAAR CEO
   
   Sarbvir Singh, chief executive officer of PolicyBazaar, in this week's
   FinTech Diary, said that it is impossible for companies to build a profitable
   business by acquiring customers through Google and Facebook or digital
   marketing, and it "can only be a topping on top of your main business," he
   said. Singh reasoned that his company's model is able to manage its customer
   acquisition cost is because 80% of their transaction cost happens through
   people who come directly to the website to buy the product. This, Singh said,
   is because the company put out many advertisements on television done over
   the last 10-12 years. In FY21, the annual number of visits on PolicyBazaar
   website was 126.5 million, Singh said, adding that the company's health and
   motor insurance products are helping it build a large renewal book. PB
   Fintech, the parent company of PolicyBazaar, is the first InsurTech to be
   listed recently. Tune in for the full interview..

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GOVT PUSHES CHANGES IN FINANCE BILL TO CLEAR AIR ON TAXATION FOR DIGITAL ASSETS

The finance bill is scheduled to be taken up in the lower house for discussion
and consideration on Thursday. It would be likely taken up for passage on
Friday.

 * Deepshikha Sikarwar
 * ET Bureau

Click Here to Read This Story
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The government has moved around 39 changes to the finance bill including some
aimed at further tightening the proposed taxation regime for crypto assets.

The finance bill is scheduled to be taken up in the lower house for discussion
and consideration on Thursday. It would be likely taken up for passage on
Friday.

Union finance minister Nirmala Sitharaman will move an amendment to make it
clear that no tax deduction or set off would be available in lieu of mining
costs of cryptocurrencies and other virtual digital assets (VDAs) or losses from
their transfer.



The amendment is in line with the clarification given by minister of state for
finance Pankaj Chaudhary on Monday in response to a question in the Lok Sabha.

The government will also move an amendment to say all transfers of virtual
digital assets will be covered under the proposed 30% tax irrespective of
whether they were a capital asset or not. It will also move an amendment to
explicitly state that only the proposed rate of tax deducted at source on
virtual digital assets transactions would be applicable and not rate applicable
under any other provision.

The 2022-23 Budget had proposed levying income-tax of 30% on crypto assets with
effect from April 1.


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Policy
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nirmala sitharaman
finance bill
crypto tax
budget


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INDUSTRY BODIES MAKE REPRESENTATION TO SEBI; PLEA TO REVIEW RELATED PARTY NORMS

Industry bodies have made a representation to Sebi seeking changes in the new
norms on related party transactions that will come into effect from April 1.

 * Mayur Shetty
 * TNN

Click Here to Read This Story
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MUMBAI: Industry bodies have made a representation to Sebi seeking changes in
the new norms on related party transactions that will come into effect from
April 1. They have argued that the norms will make it difficult for companies
that are large financial investors like LIC and will need to frequently obtain
shareholder approval for transacting with firms they have invested in.

The new related party transactions norms were introduced by Sebi last year to
curb the diversion of funds by promoters. The norms were part of the listing and
disclosure requirements and were aimed at improving corporate governance in
companies.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has called
upon the markets regulator to make some changes. It has suggested that the
definition of promoter group company should apply only to those entities holding
more than 5% of the listed entity. Second, FICCI has said that institutional
investors should be allowed to hold up to 20% against 10%, which is enough to
trigger the norms from April 2022. It has also called for exclusions for
investments made by financial investors. Top corporate houses are also
understood to have made representation to Sebi on diluting the norms.



LIC would be particularly hit by these norms as it holds more than a 10% stake
in several entities that are related parties under the new norms. This could be
a challenge once the corporation would list as the new norms would require LIC
to declare every related party transaction.

The industry body has also called for several exemptions. The exclusions
suggested include the issue of preferential securities, tendering of securities
under buyback, grant of employee stock options and employee share purchase
plans, remuneration of key management personnel of the parent or subsidiary, CSR
contribution and normal banking transactions by a bank.

In November 2021, Sebi notified amendments to its listing regulations
incorporating changes recommended by a working group in 2020. The changes were
proposed in light of the several high profile corporate failures that were an
outcome of related party transactions that went undetected. These included the
DHFL collapse and more recently the default at Cox & Kings.



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Policy
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related party
LIC
Ficci
DHFL


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CBIC ISSUES SCRUTINY NORMS RELATED TO GST

The Central Board of Indirect Taxes & Customs (CBIC) on Tuesday issued scrutiny
guidelines for GST, for the first two years of the new indirect tax regime, as
part of a plan to plug leakages and shore up collections.

 * Sidhartha
 * TNN

Click Here to Read This Story
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NEW DELHI : The Central Board of Indirect Taxes & Customs (CBIC) on Tuesday
issued scrutiny guidelines for GST, for the first two years of the new indirect
tax regime, as part of a plan to plug leakages and shore up collections.

The CBIC has shared an indicative list of parameters, which suggested that there
was special emphasis on entities claiming input tax credit (ITC) from certain
segments, along with those where tax collected at source, such as for ecommerce.
For the last couple of years, tax authorities are keeping a close watch on ITC
as they have come across multiple cases of fraud and inclusion in the list of
parameters points to possible steps in future, in case widespread misuse is
seen.

Almost five years after its launch, the government is looking at scrutiny and
tighter audit norms to ramp up revenue generation from GST, along with a revamp
of the rate structure for which ministerial panels are at work.
The standard operating procedure issued to field officers on Tuesday said that
the Directorate General of Analytics and Risk Management has been assigned the
task to select the GSTINs registered with central tax authorities, whose returns
will be picked up for scrutiny. The GST numbers will then be shared with the
officers of the zone, with strict timelines given to complete the process.




While undertaking scrutiny, officers have been asked to look at data available
on the department’s systems, such as eway bills, and keep the interface with the
taxpayer to the minimal level. In fact, officers have been advised to avoid
seeking documents till the process is complete. In case of discrepancies, a
notice is to be issued, seeking explanation, with the amount due and interest on
it to be mentioned.

“It may also be ensured that discrepancies so communicated may, as far as
possible, be specific in nature and not vague or general,” officers have been
told.


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FED POLICYMAKERS LEAN INTO BIGGER RATE HIKES TO FIGHT INFLATION

Federal Reserve officials are doing little to downplay rising market
expectations the U.S. central bank will raise interest rates by half a
percentage point in May to curb the surge in inflation, but they also are not
dispelling fears the tightening cycle could blow a hole in the economy and labor
market.

 * Reuters

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By Lindsay Dunsmuir and Ann Saphir

- Federal Reserve officials are doing little to downplay rising market
expectations the U.S. central bank will raise interest rates by half a
percentage point in May to curb the surge in inflation, but they also are not
dispelling fears the tightening cycle could blow a hole in the economy and labor
market.

"The Fed needs to move aggressively to keep inflation under control," St. Louis
Fed President James Bullard told Bloomberg TV on Tuesday, repeating his call for
the central bank to raise its benchmark overnight interest rate above 3% this
year. "Faster is better," he said.



Bullard, who dissented on the Fed's decision last week to raise the federal
funds rate by just a quarter of a percentage point from the near-zero level, has
made this same point before. But his view appears to be gaining traction.

On Monday, Fed Chair Jerome Powell said the central bank must move
"expeditiously" to raise rates. When asked what would prevent the central bank
raising rates by half a percentage point at the May 3-4 policy meeting, he
responded: "Nothing."

Those comments prompted a flood of bets in futures markets on half-point
interest rate increases in May and June. Traders now see the federal funds rate
rising to the 2.25%-2.5% range by the end of the year - short of Bullard's view
but higher than the 1.9% suggested by Fed forecasts last week.

Powell said the economy is strong enough to withstand higher borrowing costs
without damaging the labor market and argued the best thing the Fed could do to
ensure continued labor market strength is to get inflation under control.

But traders are now also building bets that the Fed will start cutting interest
rates next year.

"The fixed income market squarely does not believe Powell's economic optimism:
It is telling us that a soft landing, if the Fed goes down Powell's path, will
not only be challenging - it will be impossible," wrote Roberto Perli, an
economist at Piper Sandler.



'HAWKISH PIVOT'

It's shaping up to be a rocky start for the Fed's first round of rate hikes in
three years, and particularly for the way its policymakers are communicating it.

Ahead of last week's interest rate increase, Powell had said the Fed would
proceed "carefully" due to high uncertainty about the impact on the U.S. economy
of the Russian invasion of Ukraine.

In his news conference following the release of the Federal Open Market
Committee (FOMC) policy statement and projections, Powell said the Fed must be
"nimble" in responding to the evolving outlook.

And this week the Fed chief downplayed worries over the potential dent to
economic growth and focused far more sharply on the likelihood the war in
Ukraine could worsen U.S. inflation, which has hit a 40-year high and is about
three times the central bank's 2% target.

The changes, wrote NatWest economist Kevin Cummins, could reflect Powell's
ongoing personal "hawkish pivot" that began in late 2021.

"In the near-term, Powell's comments are obviously not the last word as for the
size of the expected rate hike in May, especially since the May FOMC meeting is
not for another six weeks and Fed actions will be driven by the data," Cummins
wrote.



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PARLIAMENTARY PANEL CAUTIONS GOVT AGAINST EARLY EUPHORIA OVER NPA REDUCTION

The panel was informed that contrary to RBI's Financial Stability Report
projections of the gross NPA ratio of commercial banks increasing from 7.48 per
cent in March 2021 to 9.8 per cent by March 2022, the NPA figures at the gross
level for public sector banks have decreased from 9.11 per cent as on March 31,
2021, to 7.9 per cent at end-December, 2021.

 * PTI

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Cautioning the government against "any early euphoria" with regards to reduction
in NPA in the banking sector, a Parliamentary panel on Tuesday said that the bad
loans may go up due to some lag impact of the Covid pandemic. The Standing
Committee on Finance in its report tabled in Parliament observed that the
banking system appears to have weathered the pandemic shock well with respect to
non-performing assets (NPAs).

The panel was informed that contrary to RBI's Financial Stability Report
projections of the gross NPA ratio of commercial banks increasing from 7.48 per
cent in March 2021 to 9.8 per cent by March 2022, the NPA figures at the gross
level for public sector banks have decreased from 9.11 per cent as on March 31,
2021, to 7.9 per cent at end-December, 2021.

"The Committee would like to caution against any early euphoria on this count,
as there may still be some lag impact of the pandemic for the banking sector in
the pipeline," the report said.



It further said that absorbing excess liquidity that was injected as part of the
pandemic response to stimulate the economy is necessary, as there may be the
possibility of an increase in NPAs.

The panel was of the view that prudence is still required and the steps taken by
the government to reduce NPAs and to effect recovery should be continued with
the same vigour.

On digital economy and rising online frauds, the panel said whenever digital
frauds are reported by the victims, the onus for prompt redressal should be on
the concerned bank and financial institutions.

The customer should not be left in a lurch running from pillar to post for
grievance redressal, it said.

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OPTIMISING GST TO MAKE IT DELIVER

The move towards a revenue-neutral rate is overdue and the collection forgone
because of external events exerting a pressure on prices will make the case for
compensating states that much stronger. That imposes its own set of
complexities, because the compensation cess will, after June, go to paying loans
taken by the Centre to make up for the shortfall in collection during the last
two Covid-19 pandemic years. Compensation beyond the term set out in the
original bargain with states will distort the tax structure further.

 * ET Bureau

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A group of state finance ministers set up to debug India's still-subpar goods
and services tax (GST) is expected to collapse the rate structure from four to
three. But it is wary of raising the lowest slab on account of the inflationary
impact. The move towards a revenue-neutral rate is overdue and the collection
forgone because of external events exerting a pressure on prices will make the
case for compensating states that much stronger. That imposes its own set of
complexities, because the compensation cess will, after June, go to paying loans
taken by the Centre to make up for the shortfall in collection during the last
two Covid-19 pandemic years. Compensation beyond the term set out in the
original bargain with states will distort the tax structure further.

The GST Council has had some success in improving compliance, which is showing
up in collections in recent months. But this is close neither to the assumed
revenue-indifferent point nor to the projected buoyancy. Operational
improvements can work only up to a limit. However, to reach a position where,
say, every percentage point in economic growth delivers a fixed percentage point
in indirect tax collection, the compromises made at the outset will have to be
set right. These were in the nature of multiplicity of rates, limited coverage
and erosion of the self-policing nature of the tax.

India simply cannot afford to kick the GST can further down the road. The
pandemic has weakened the fiscal position of both the Centre and the states.
India's economic recovery during a period of elevated energy prices is
predicated on building physical infrastructure through a surge in government
borrowing. Improved tax buoyancy in the reconstruction stage would be better
than attempting to fix indebtedness afterwards. GST offers a clear way out of
the distortions and inefficiencies that have historically dogged India's tax
system. The country has a rules-based mechanism that is known to deliver. By the
end of its first decade, India must make its version of GST deliver.


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GOVT SHOULD EXTEND PERIOD OF LOAN REPAYMENT UNDER ECLGS FOR MSMES: PARL PANEL

New Delhi, Mar 21 (PTI) A Parliamentary panel on Monday suggested that the
government should extend the period of repayment of loans under the Emergency
Credit Line Guarantee Scheme (ECLGS) for the MSME sector.

 * PTI

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New Delhi, Mar 21 (PTI) A Parliamentary panel on Monday suggested that the
government should extend the period of repayment of loans under the Emergency
Credit Line Guarantee Scheme (ECLGS) for the MSME sector. The Parliamentary
standing committee on industry has also asked the government to digitise the GST
system to ensure paperless refund of claims.

It noted that under ECLGS, the repayment period of 3-4 years, including the
moratorium period, is a "very short" period for MSMEs, which are struggling to
survive after the second COVID wave.

"The committee, therefore, recommends that the repayment period should be
extended up to 7-8 years with at least two years of moratorium on the principal
amount.



"With respect to the interest, moratorium for interest from March 1, 2020
onwards should be announced by the RBI," it said.

Noting that a number of MSME-oriented products presently being imported can be
manufactured in India, the panel suggested that a Central Market Intelligence
Centre be set up for import-related products and components in the country.

Further, the committee said the Centre may be entrusted with the task of putting
out a list of products which are being imported along with their specifications.
It should also spread awareness of the same through electronic, print and social
media to attract interested entrepreneurs to set up new manufacturing
enterprises in the MSME sector.

The committee also expressed "deep concern" over under-utilisation of funds by
the Khadi and Village Industries Commission (KVIC) for their flagship schemes,
thereby hampering the promotion and development of Khadi and Village Industries
and employment generation in rural areas.

The KVIC, it suggested, should endeavour to popularise Khadi in new unexplored
global markets and also try to secure trademarks in those countries in respect
of its various products to safeguard the interests of its consumers and Khadi
artisans who are manufacturing genuine Khadi products through their hard work
and continuous efforts.

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RBI DIVERSIFYING RESERVES FROM DOLLAR

RBI governor Shaktikanta Das said on Monday that the central bank started
diversifying its reserves out of dollars six months ago. At the same time, he
said that the reserves cannot be spent as they are not “our money” but represent
a liability.

 * TNN

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MUMBAI: RBI governor Shaktikanta Das said on Monday that the central bank
started diversifying its reserves out of dollars six months ago. At the same
time, he said that the reserves cannot be spent as they are not “our money” but
represent a liability.

The governor’s comments were made during an interaction with industry leaders at
a CII National Council meeting here. Das was responding to a question on the
need to relook at reserve investment strategy in view of the West freezing
Russia’s reserves held overseas as a part of sanctions.

Das said he did not foresee a situation where India would face sanctions. “We
are a democracy, we have the rule of law and India doesn’t have any expansionary
ambitions. This is something which I think the government has stated and these
are not my words,” said Das. “We don’t foresee sanctions but yes, it is
something, which going forward, now I think every country will start thinking
about.”



On diversification of reserves, Das said that India’s forex holdings are
distributed in various foreign currencies not just concentrated in one. “We have
gold reserves, which are dispersed partly in India and partly outside…The other
issue is that you hold your reserves as what? Are you going to move completely
towards gold? Liquidity also should be there,” said Das.

He said that at present there was no need to talk about issues that don’t exist
and these are issues best left to the central bank. “I can only say that at this
point of time our reserves are distributed in many currencies, but yes, the
majority of which is without doubt dollars and we have decided to diversify, not
now but some six months ago we decided to diversify into other currencies.”

Explaining why India’s forex reserves cannot be used for domestic investment,
Das said that these reserves represent liabilities of the country. He said that
while today the reserves were more than the external debt, the situation could
change. “Reserves are something which add a lot of stability and confidence in
any economy,” said Das.

According to data released by the US government of the $7.7 trillion of
treasuries that are held internationally, India holds $199 billion as of
December 2021, which is down nearly 10% from $220 billion in June 2021. Of RBI’s
744 metric tonnes of gold reserves, 451 is overseas in safe custody with the
Bank of England and the Bank for International Settlements and the rest is in
India.




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ENSURE CORRUPT OFFICERS ARE PENALISED: CVC TO BANKS, GOVT DEPTS

New Delhi, Mar 21 (PTI) Citing non-implementation of penalty against corrupt
officers, the Central Vigilance Commission on Monday asked public sector banks
and government departments to ensure that guilty do face the punishment, and the
compliance report for 2020 and 2021 should be forwarded to the

 * PTI

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New Delhi, Mar 21 (PTI) Citing non-implementation of penalty against corrupt
officers, the Central Vigilance Commission on Monday asked public sector banks
and government departments to ensure that guilty do face the punishment, and the
compliance report for 2020 and 2021 should be forwarded to the CVC latest by
June 30. After completion of departmental proceedings, final orders are issued
against the Charged Officer (CO) by the competent authority, imposing an
appropriate penalty on him, if the charges against the CO are found to be
proved, it said.

The Commission and the Chief Vigilance Officer (CVO) are also informed about
issuance of final orders, the CVC said in an order.

"However, it has come to the notice of the Commission that there have been
instances where even after issuance of the final orders imposing the penalty,
the orders are not implemented in reality, thus making the whole process of
disciplinary proceeding infructuous," it said.



The Commission has, therefore, decided that in order to ensure end to end
action, the Chief Vigilance Officers of the organisations concerned should
confirm about implementation of the final penalty orders issued in respect of
each Charged Officer, who were found guilty, against whom advice for
departmental action was tendered by the Commission, the probity watchdog said.

A compliance report in this regard, for the calendar years 2020 and 2021, should
be forwarded to the Commission latest by June 30, 2022, said the order issued to
the secretaries of all central government departments, chief executives of
public sector banks and insurance companies among others.

In continuation, the Chief Vigilance Officers of respective organisations should
also submit an annual compliance report about implementation of final penalty
orders in respect of each such charged officer, latest by 30th June of every
year, for the previous calendar year, it added. PTI AKV RCJ

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