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Syllabus subtopic: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment. Prelims and Mains focus: about LTRO: features and significance News: The Reserve Bank of India had received Rs.1.71 lakh crore in the third long-term repo operation (LTRO) conducted for an amount of Rs.25,000 crore. The central bank received 66 bids in the three-year tenor LTRO, which has reversal date on March 1, 2023. Backgroun
RRB and COVID-19 Part of: GS Prelims and GS-III- Economics Recently, the Centre has approved a ?1,340-crore recapitalisation plan for Regional Rural Banks (RRBs). The move is crucial to ensure liquidity in rural areas during the lockdown due to the COVID-19 crisis. Key Points This recapitalisation (a strategy of enhancing the financial base of an entity to overcome a rough financial situation) would improve their capital-to-risk weighted assets ratio (CRAR)&nbs
Impact of Lockdown on Banks Part of: GS Prelims and GS-III- Economy -Bank Banks are concerned about the build up of Non-performing Assets (NPAs) as the disruption caused to business operations and supply chains during the 21-day lockdown period will take time to repair. This is despite the fact that the Reserve Bank of India (RBI) has injected fresh liquidity into the banking system and given banks leeway to deal with potential stress in loan accounts. What is NPA?
RBI relaxed the norms of State/UT to avail overdraft On April 7, 2020 The Reserve Bank of India (RBI) has decided to increase the number of days that a State/UT can continue to overdraft to 21 working days from the current stipulation of 14 working days as they are facing cash flow mismatches due to coronavirus. Key Points i.In addition, the number of days that a State/UT can overdraft in a quarter has also been increased to 50 working days from the
Centre approves extension of Bank Board Bureau members’ According to the Department of Financial Services, the Appointments Committee of the Cabinet (ACC) has approved the extension of tenure of all members and the current part-time chairman of the Bank Board Bureau(BBB) by 2 years, which is coming to an end on April 11,2020. Key Points: i.Bhanu Pratap Sharma,the former Secretary in the Department of Personnel and Training, will continue to hold the post of part-time me
NBFCs Face Moratorium Issue with Banks Part of: GS Prelims and GS-III- Economy-Bank (PT-MAINS-PERSONALITY TEST) Non-Banking Financial Companies (NBFCs) may face a tough time following the Reserve Bank of India’s recent directive on providing a moratorium on repayment. This is because though these entities are providing moratoriums to their customers, they still have to continue repaying banks and other borrowers. Important Banks are not willing to offe
RBI to infuse Rs 1 lakh crore – LTRO – RBI Rreforms Part of: GS-III- RBI reforms (PT-MAINS-PERSONALITY TEST) Context RBI Governor Shaktikanta Das announced new measures to maintain adequate liquidity in system, facilitate bank credit flow and ease financial stress. RBI announced ?50,000 crore worth of targetted LTRO and a cut in reverse repo rate. As India entered into the second phase of a nationwide lockdown to combat coronavirus, Reserve Bank of India (RBI) Govern
Ways and Means Advances (WMA) The WMA are short-term loan facilities which allow the Centre and states to borrow funds from the RBI to bridge their temporary mismatch between expenditure and receipts. The interest rate on WMA is the RBI’s repo rate. Repo rate is basically the rate at which RBI lends short-term money to banks. The WMA loans have a three-month tenure. States are allowed an overdraft facility (to borrow in excess of WMA limit) of 21 days.
RBI REPORT ON FOREX RESERVES According to the latest data from the Reserve Bank of India, in the reporting week ended April 17, foreign currency assets (FCA), a major component of the overall reserves, rose USD 1.55 billion to USD 441.88 billion. The RBI data showed that gold reserves increased USD 1.54 billion to USD 32.68 billion in the reporting week. While, special drawing rights with the International Monetary Fund,IMF were up by USD 3 million to USD 1.43 billion. The country's re
RBI Cancels Licence of CKP Part of: GS-III- Bank (PT-MAINS-PERSONALITY TEST) Recently, the Reserve Bank of India (RBI) has cancelled the licence of Mumbai-based CKP Co-operative Bank. RBI has cancelled the licence of the bank as the financial position of the bank was highly adverse and unsustainable. The bank is not in a position to pay its present and future depositors. The bank failed to meet the regulatory requirement of maintaining a minimum capital adequacy ratio of
NABARD The Parliament has recently passed the National Bank for Agriculture and Rural Development (Amendment) Bill, 2017. The Bill seeks to amend the NABARD Act, 1981 which establishes NABARD by transferring the agricultural credit functions of RBI and refinance functions of the then Agricultural Refinance and Development Corporation (ARDC). The amendment bill seeks to increase the authorised capital of the Bank to 30,000 crore rupees from 5,000 crore rupees. Currently the Central gov
The Negotiable Instruments (Amendment) Bill, 2017 It seeks to amend the Negotiable Instruments Act, 1881. A negotiable instrument is a document that promises payment to a specified person. E.g Cheque The Act defines promissory notes, bills of exchange, and cheques. It also specifies penalties for bouncing of cheques, and other violations with respect to such negotiable instruments.
Time after time: On RBI repo rate cut The RBI has once again reduced the repo rate that will reduce the cost of capital and ease the financial burden on businesses due to the extended lockdown. With Friday’s repo rate cut of 40 basis points, the RBI has shaved off 1.15 percentage points from the rate chart in the 58 days since the lockdown began, bringing the repo rate down to 4% and the reverse repo rate to 3.35%. Will it increase the liquidity in the market? In fact, the
RBI announces nine additional measures for strengthening the Economy Essay lines :"It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue." RBI Governor Shaktikanta Das drew hope and inspiration from the 1929 statement of the Father of the Nation, as he announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushe
Give loan to eligible borrowers without fear of CBI, CVC and CAG Part of: GS-III- financial assistance (PT-MAINS-PERSONALITY TEST) Banks should not be scared to extend loans as 100% guarantee is being given by govt, Nirmala Sitharaman told CEOs and MDs of public sector banks. Finance Minister said banks have been asked to extend loans automatically to eligible borrowers without fear of 3Cs -- CBI, CVC and CAG. Important Points She said clear instructions have been given in a
Credit scores A credit score determines how creditworthy a person is and helps banks and financial institutions decide on loans. In India, the scores are issued by credit reporting agencies such as CIBIL, Equifax, Experian, Etc. These agencies are regulated by the RBI and collect data from banks on their loans and come up with credit scores through use of algorithms. The data is updated frequently. Credit scores in India range from 300-900. A credit report may be obtained for free once a y
Banks Board Bureau Part of: GS-III- Bank (PT-MAINS-PERSONALITY TEST) The Banks Board Bureau (BBB) has selected SN Rajeswari as the Chairman and Managing Director (CMD) of the Delhi-based Oriental Insurance Company (OIC). The Ministry of Finance will now start the process of appointing Rajeswari as the CMD of OIC. This will be followed by the Finance Ministry's nod and a further approval from the Appointments Committee of the Cabinet and the Prime Minis
Prompt Corrective action (PCA) Union Finance Ministry as a part of reforming process about to initiate a performance review for public sector banks. These reforms will be under the RBI’s Prompt Corrective Action (PCA). The PCA is invoked when certain risk thresholds are breached, there are three risk thresholds which are based on Asset quality. Profitability. Capital and the like. The third threshold is the maximum tolerance limit, which has set NPA at over 12% and negati
Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi Scheme The Ministry of Housing and Urban Affairs launched a micro-credit scheme for street vendors, which was announced by Finance Minister Nirmala Sitharaman on May 14 as a part of the economic package for those affected by the COVID-19 pandemic and lockdown. The Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi Scheme is aimed at benefiting over 50 lakh vendors who had their businesses operational on or before March 24. The
MLCR The Marginal Cost of Funds-based Lending Rate (MCLR) refers to the minimum interest rate of a bank below which it cannot lend. The MCLR was introduced in April 2016, replacing the existing base rate system. Reserve Bank of India will link the base rate with the Marginal Cost of Funds based Lending Rates (MCLR). RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are more sensitive to changes in the policy rates.
Standing Deposit Facility Scheme RBI uses array of instruments such as Cash Reserve Ratio, Open Market Operation, Market Stabilisation Scheme to absorb excess liquidity in the economy. These measures are considered as Liquidity Adjustment Facility (LAF) to bring the liquidity gap under control. However, these tools were not proven to be useful when the money market liquidity is in excess to deal with. Eg. Post demonetization scenario. During post demonetization, RBI ran out of government s
Panel on Crypto currency The panel on cryptocurreny, headed by Economic Affairs Secretary Subhash Garg, is expected to submit its report. The panel was set up in 2017 to study the impact of crypto currencies and come up with recommendations to regulate them. In his budget speech Finance minister said that crypto currencies are not legal tender. However, the Centre will explore the uses of block chain technology, the encrypted data structure on which crypto currencies are built.
Committee to oversee Ownership of Private Banks Reserve Bank of India (RBI) has constituted an internal working group to review the existing guidelines on ownership and corporate structure of private sector banks. The group will be headed by RBI executive director P.K. Mohanty. The bank licensing rules mandated that a private bank’s promoter will need to pare holding to 40% within three years, 20% in 10 years and to 15% in 15 years. The rules on promoter holding have changed ove
Mobile Payments Market Report S&P Global Market Intelligence’s has launched 2020 India Mobile Payments Market Report. According to the report mobile payments and card transactions exceeded cash withdrawals from automated teller machines (ATMs) for the first time in 2019, indicating that the country’s push towards digital payments was bearing fruit. The highlights of the report are as follows Mobile payments, initiated by payment apps comprising account-to-account tran
Co-operative Banks under RBI Recently, the Central government approved an ordinance to bring all urban and multi-state co-operative banks under the direct supervision of the RBI (PT). The decision comes after several instances of fraud and serious financial irregularities, including the major scam at the Punjab and Maharashtra Co-operative (PMC) Bank in 2019. Till now, all the co-operative banks came under dual regulation of the RBI and the Registrar of Co-operative Societies. Previousl
Credit guarantee extended to larger firms, self-employed Context: The Centre has expanded its credit guarantee scheme for micro, small and medium enterprises (MSMEs) to cover loans given to larger firms, as well as to self-employed people and professionals who have taken loans for business purposes. News The Emergency Credit Line Guarantee Scheme was rolled out as part of the Centre’s Aatmanirbhar package in response to the COVID-19 crisis. It has a corpus of ?41,600
Institute of Banking Personnel Selection IBPS is an autonomous body formed in 1984. It is registered under the Societies Registration Act, 1860 and also a Public Trust under the Bombay Public Trust Act, 1950. It was created to render assistance to organisations in the areas of personnel such as recruitment, selection, placement, etc. It has its headquarters in Mumbai, Maharashtra.
Potholes on the digital payment superhighway By, R.B. Barman is Former Executive Director, Reserve Bank of India Context With such versatility and ease of settling financial transactions, the growth of digital payments is going to be phenomenal, supported by banks and Fin-Tech, or financial technology, companies. Digital payments have found strong ground, especially in India, increasingly relegating all other modes of payments to the background. Digital payments ensures faster m
Compound Interest Waiver on Moratorium Loans What is Compound Interest Waiver Scheme? Under this, the government will grant eligible borrowers ex-gratia payment of the difference between the compound interest and simple interest for the six-month moratorium period. Ex-gratia payment is the money which is paid due to moral obligation and not due to legal obligation. Simple interest is levied only on the principal amount of a loan or deposit. In contrast, compound interest is levied o
What is a bank moratorium, and when does it come into play? Context On November 17, the Centre, acting on the recommendation of the Reserve Bank of India (RBI), imposed a moratorium on Lakshmi Vilas Bank (LVB) for a period of 30 days. The 94-year-old bank, based in Karur, Tamil Nadu, has been struggling with losses for three years. As its financial position deteriorated, the regulator placed it under the Prompt Corrective Action (PCA) framework, which restricts certain operations d
RBI warns illegal digital lending apps Individuals and small businesses are falling prey to a growing number of unauthorised digital lending platforms/mobile. Reserve Bank of India has advised public to be wary of unauthorised digital lending platforms and mobile apps. RBI urged them to verify antecedents of the company loans online or through mobile apps.
Analysis of Banking sector and COVID-19 Context: Banking sector is one of the most important topics of UPSC Prelims and UPSC Mains Examinations. It is a part of GS III Economic Issues. After losses in two consecutive years, India’s scheduled commercial banks turned profitable in 2019-20. State-run banks continued to bleed for the fifth year in a row, but their losses were much more stifled. The Reserve Bank of India (RBI) reckons that the first half of 2020-21 saw even grea
Can a ‘bad bank’ solve the growing NPA crisis? Context Finance Minister in her Budget speech on Monday revived the idea of a ‘bad bank’ by stating that the Centre proposes to set up an asset reconstruction company to acquire bad loans from banks. The COVID-19 pandemic-triggered lockdown last year and the moratorium subsequently extended to borrowers by the Reserve Bank of India (RBI) have worsened the crisis. What is a ‘bad bank’? A bad
Finance Minister in her Budget speech revived the idea of a ‘bad bank’ by stating that the Centre proposes to set up an asset reconstruction company to acquire bad loans from banks. What is a ‘bad bank’? A bad bank is a financial entity set up to buy non-performing assets (NPAs), or bad loans, from banks. The aim of setting up a bad bank is to help ease the burden on banks by taking bad loans off their balance sheets and get them to lend again to customers
The RBI's proposal to provide direct access to retail investors to its government securities investment platform opens the door to this risk-free investment for retailers. Retail investors can now directly open their gilt accounts with the RBI through the 'Retail Direct’ facility to access both the primary market – where investors buy directly from the issuer — and secondary markets where trading takes place among investors. G-secs are debt instruments issued by
Data on Sectoral Deployment of Bank Credit in 2020-21 Year-on-Year Growth of outstanding bank loans are on decelerating pace. It slowed down to lowest in last 10 yrs. Industries: Credit to large industries contracted by 2.5%. Large industries constitute 82% credit off-take to industrial sector. Non Food Bank Credit All loans except those given to FCI for food grain procurement, decelerated to 5.7% in 2021. Personal loans Decelerated to 9.1% . L
About Finance Banks: They are niche banks that focus and serve the needs of a certain demographic segment of the population. The objectives of setting up of small finance banks will be to further financial inclusion by the provision of savings vehicles supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations. SFBs was recommended by the Nachik
Privatisation of Public Sector Banks Are private banks more efficient than PSB? In the recent Budget session, the Union government announced its intent to privatise Public Sector Banks (PSBs). While improving efficiency has been cited as the reason for this move, it is not clear whether privatisation brings efficiency or reduces associated risks. Around the world, innumerable private banks have failed, thus challenging the notion that only private banks are efficient. Similarl
The Reserve Bank of India (RBI) has announced the creation of a Standing External Advisory Committee under the chairmanship of Shyamala Gopinath for evaluating applications for Universal Banks and Small Finance Banks. This is part of the central bank’s earlier announced plan to give banking permits on a continuous basis to candidates, a process that is is commonly known as ‘on-tap’ licensing. About On tap licensing: It means the RBI window for granting banking licen
India’s Banking Sector a brief Timeline – UPSC PRELIMS GS Paper-3 Banking system – Prelims and Personality test Banking is considered to be the “Backbone of a Nation’s Economy”. It is the most leading part of the financial sector of the country as it is responsible for more than 70 % of the funds that flow through the financial sector in the country. The advancement of Indian Banking System can be classified into 3distinct Phases: 1. The Pre-I
Indian Banking system & Related Terms - UPSC GS-PAPER-3 Economics-Banking and associated terms Rates Base Rate – This is the minimum rate at which a bank can lend to its customers. It cannot lend below the base rate. All interest rates determined for various loans will use the base rate as the benchmark. Fixed Rate – A fixed rate is when the rate of interest for a loan remains constant throughout the entire tenure. Floating Rate – Opposite of fixed rate, a
What is Electoral Bonds Scheme? As per the scheme, Electoral bonds means a bond issued in the nature of promissory note which is a bearer banking instrument not carrying the name of buyer or payee. They are used for making donations to political parties. Govt launched it on 2 Jan, 2018. They are issued by Scheduled Commercial Banks upon authorisation from Central Govt (not RBI) to donor, but only against cheque and digital payments (not cash
Electoral Bonds in recent Assembly Elections As per the scheme, Electoral bonds means a bond issued in the nature of promissory note which is a bearer banking instrument not carrying the name of buyer or payee. They are used for making donations to political parties. Govt launched it on 2 Jan, 2018. They are issued by Scheduled Commercial Banks upon authorisation from Central Govt (not RBI) to donor, but only against cheque and digital payme
40th Foundation Day of NABARD What is NABARD? NABARD is a development bank focussing primarily on the rural sector of the country. It is the apex banking institution to provide finance for Agriculture and rural development. Its headquarter is located in Mumbai. It is responsible for the development of the small industries, cottage industries, and any other such village or rural projects. It is a statutory body established in 1982 under Parliamentary act-National Bank for Agricult
Bad Bank launched for stressed assets as a measure to clean up bank books What is a ‘bad bank’? A bad bank is a financial entity set up to buy non-performing assets (NPAs), or bad loans, from banks. The aim of setting up a bad bank is to help ease the burden on banks by taking bad loans off their balance sheets and get them to lend again to customers without constraints. After the purchase of a bad loan from a bank, the bad bank may later try to restructure and sell the
About DICGC Bill 2021 Accessing depositors money has been an issue of when it will be allowed and under what conditionalities. Normally, it takes about 8-10 years, after complete liquidation of the bank. Now, what we are saying is even. As per the proposed process, a bank under moratorium would have to collect all the account details and balances and share it with the Deposit Insurance Credit Guarantee Corporation (DICGC) within 45 days. The DICGC would get another 45 days
Everything about e-RUPI What is e-RUPI and how it works ? e-RUPI is basically a digital voucher which a beneficiary gets on his phone in the form of an SMS or QR code. It is a pre-paid voucher, which he/she can go and redeem it at any centre that accepts its. For example, if the Government wants to cover a particular treatment of an employee in a specified hospital, it can issue an e-RUPI voucher for the determined amount through a partner bank. The employee will rec
Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman today unveiled the fourth edition of the Public Sector Bank (PSB) Reforms Agenda ‘EASE 4.0’ for 2021-22 - tech-enabled, simplified, and collaborative banking. She unveiled the annual report for the PSB Reforms Agenda EASE 3.0 for 2020-21 and participated in the awards ceremony to felicitate best performing banks on EASE 3.0 Banking Reforms Index. State Bank of India, Bank of Baroda and Union Bank of India
Why in news? The Reserve Bank of India (RBI) said it has received applications from two more entities — Cosmea Financial Holdings Private Ltd. and Tally Solutions Private Ltd. — seeking licences to operate Small Finance Banks (SFBs). This is as per RBI’s guidelines for ‘on tap’ licensing of small finance banks in the private sector. With this, a total of six entities have applied for the licence. The other four applicants who were named in April 2021 are
National Payments Corporation of India (NPCI) NPCI was set up in 2008. It is a 'Not for Profit' company, was set up in 2008 as an umbrella organization for all retail payments system in India. It was set up with the guidance and support of (RBI) and Indian Banks’ Association (IBA). Initially the shareholding was for 10 banks, it was diversified to 56 banks. Objectives To consolidate an
The Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) on Tuesday announced a project to link their respective fast payment systems — Unified Payments Interface (UPI) and PayNow — to facilitate instant, low-cost, cross-border fund transfers. The linkage is targeted to be operationalised by July 2022. “The UPI-PayNow linkage will enable users of each of the two fast-payment systems to make instant, low-cost fund transfers on a reciprocal basis witho
Changes in the Prompt Corrective Action norms for banks Context: This topic is important for UPSE GS Paper 3. What will commercial banks under scrutiny need to do to get out of the restrictions imposed by the central bank? The story so far: The RBI issued a notification on November 2 revising norms for commercial banks to be placed under the regulator’s Prompt Corrective Action (PCA) framework should any of their key metrics fall out of line. The revision takes effect from January
Payment Banks Provides small savings and current accounts < 1 lakh, Mutual Funds, Insurance products, remittances to workers. They are differentiated or restricted banks. It was announced in Union Budget 2014-2015. It was based on the recommendations of the Nachiket Mor Committee on Financial Inclusion. They cannot lend and cannot set up subsidiaries to undertake Non-banking Financial services (NBFS) (lease, hire purchase). They are bound to meet CRR and 75% SLR and 25% i
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