1770 Bank of Hindustan - 1st bank est at Calcutta by British 1806 Bank of Calcutta est => renamed in 1809 as Bank of Bengal 1840 Presidency Bank of Bombay established 1843 Presidency Bank of Madras established 1865 Allahabad Bank established = 1st Indian bank 1895 Punjab Commercial Bank (PNB), est. in Lahore by Indian Merchants = 1st bank purely managed by Indians. 1904 Concept of Co - op Banks introduced by Curzon 1921 Imperial Bank Of India — all Presidency Banks merged by British Govt. — later became SBI 1926 Hilton Young Committee's Report on Central Bank 5 Mar 1934 RBI Act, 1934 - statutory basis 1 Apr 1935 RBI commences ops. Sir Osborne Smith = 1st Governor of Bank. The Bank was constituted as a shareholders' bank. 5 Jul 1935 Scheduled banks reqd to maintain CRR = hold cash balances with RBI - 5% of their Demand Liabilities and 2% of their Time Liabilities. Jan 1938 First Reserve Bank notes issued. 11 Mar 1940 RBI Accounting Year changed from Jan-Dec to July-June 11 Aug 1943 Sir CD Deshmukh assumes office of Governor ( 1st Indian Governor) 12 Jan 1946 High Denomination Bank Notes of Rs 500, Rs 1000 and Rs 10,000 Demonetised to curb unaccounted money. 1 Jan 1949 RBI nationalised 16 Mar 1949 Coming into force of Banking Companies Act, 1949 = statutory basis of bank supervision & regulation SLR introduced for 1st time Banking Companies Act later renamed => Banking Regulation Act. 19 Sep 1949 Rupee devalued by 30.5 % as a defensive measure consequent to devaluation by other 'sterling area' countries. 1 Jul 1955 Imperial Bank of India => state owned, State Bank of India 1959 State Bank of India (Subsidiary Banks) Act, 1959 made the banks of the erstwhile Princely Sates of India the subsidiaries of the State Bank of India. These were The Bank of Bikaner, The Bank of Jaipur, The Bank of Indore. The Bank of Mysore, The Bank of Patiala, The Bank of Hyderabad, The Bank of Saurashtra and The Bank of Travancore were made subsidiaries of The State Bank Of India. The Bank Of Bikaner and The Bank of Jaipur were amalgamated in 1963 to form the State Bank of Bikaner and Jaipur. Feb 1964 Unit Trust of India est to extend facilities for an equity type investment to small investors and also mobilize resources & channel them into investments to facilitate the growth of the economy. 1 Jul 1964 IDBI est as a subsidiary of RBI for providing long term industrial finance. 6 Jun 1966 Rupee devalued by 36.5 % - USD eqt from Rs 4.75 to Rs 7.50 17 Apr 1967 Size of Bank notes reduced. 19 Jul 1969 14 major Indian SCBs with deposits > Rs 50 crores nationalised to serve needs of devpt of economy in conformity with national policy objectives 01 Jan 1970 SDRs created by the IMF to enhance international liquidity. 01 Jan 1974 Foreign Exchange Regulation Act (FERA), 1973 came into force to conserve forex. Its admin entrusted to RBI. 09 Dec 1974 Asian Clearing Union (ACU) est to facilitate payments for current intl trxns on a multilateral basis. Clearing operations were to be denominated in member's currency or AMU which would be eqt to 1 SDR 76 Sep 1975 Regional Rural Banks set up as alternative agencies to provide credit to rural in context of 20 Point Programme 1975 20 point economic programme introduced. 02 May 1977 M. Narasimhan appointed Governor up to Nov 30, 1977. 27 May 1978 Deposit Insurance & Credit Guarantee Corp (DICGC) was formed. 15 Apr 1980 6 private sector banks nationalised 1. Andhra Bank 2. Corporation Bank 3 New Bank of India 4. Oriental Bank of Commerce 5. Punjab and Sindh Bank 6. Vijaya Bank 01 Jan 1982 EXIM Bank of India est to provide comprehensive financial and allied services to exporters and importers. 12 July 1982 B Shivraman Committee => NABARD 16 Sep 1982 Manmohan Singh appointed Governor. Apr 1988 SEBI est to deal with devpt & regulation of securities market & investor protection. Jul 1988 NHB est as an apex body of housing finance and to promote activities in housing development. Mar 1989 Certificates of Deposit (CDs) and Commercial Paper (CPs) introduced in India to widen monetary instruments and Banking System in India Monday, June 17, 2019 12:12 PM Finance Page 1
Transcript
1770 Bank of Hindustan - 1st bank est at Calcutta by British
1806 Bank of Calcutta est => renamed in 1809 as Bank of Bengal
1840 Presidency Bank of Bombay established
1843 Presidency Bank of Madras established
1865 Allahabad Bank established = 1st Indian bank
1895 Punjab Commercial Bank (PNB), est. in Lahore by Indian Merchants = 1st bank purely managed by Indians.
1904 Concept of Co-op Banks introduced by Curzon
1921 Imperial Bank Of India — all Presidency Banks merged by British Govt. — later became SBI
1926 Hilton Young Committee's Report on Central Bank
5 Mar 1934 RBI Act, 1934 - statutory basis
1 Apr 1935 RBI commences ops. Sir Osborne Smith = 1st Governor of Bank. The Bank was constituted as a shareholders' bank.
5 Jul 1935 Scheduled banks reqd to maintain CRR = hold cash balances with RBI - 5% of their Demand Liabilities and 2% of their Time Liabilities.
Jan 1938 First Reserve Bank notes issued.
11 Mar 1940 RBI Accounting Year changed from Jan-Dec to July-June
11 Aug 1943 Sir CD Deshmukh assumes office of Governor (1st Indian Governor)
12 Jan 1946 High Denomination Bank Notes of Rs 500, Rs 1000 and Rs 10,000 Demonetised to curb unaccounted money.
1 Jan 1949 RBI nationalised
16 Mar 1949 Coming into force of Banking Companies Act, 1949 = statutory basis of bank supervision & regulation SLR introduced for 1st timeBanking Companies Act later renamed => Banking Regulation Act.
19 Sep 1949 Rupee devalued by 30.5 % as a defensive measure consequent to devaluation by other 'sterling area' countries.
1 Jul 1955 Imperial Bank of India => state owned, State Bank of India
1959 State Bank of India (Subsidiary Banks) Act, 1959 made the banks of the erstwhile Princely Sates of India the subsidiaries of the State Bank of India. These were The Bank of Bikaner, The Bank of Jaipur, The Bank of Indore. The Bank of Mysore, The Bank of Patiala, The Bank of Hyderabad, The Bank of Saurashtra and The Bank of Travancore were made subsidiaries of The State Bank Of India. The Bank Of Bikaner and The Bank of Jaipur were amalgamated in 1963 to form the State Bank of Bikaner and Jaipur.
Feb 1964 Unit Trust of India est to extend facilities for an equity type investment to small investors and also mobilize resources & channel them into investments to facilitate the growth of the economy.
1 Jul 1964 IDBI est as a subsidiary of RBI for providing long term industrial finance.
6 Jun 1966 Rupee devalued by 36.5 % - USD eqt from Rs 4.75 to Rs 7.50
17 Apr 1967 Size of Bank notes reduced.
19 Jul 1969 14 major Indian SCBs with deposits > Rs 50 crores nationalised to serve needs of devpt of economy in conformity with national policy objectives
01 Jan 1970 SDRs created by the IMF to enhance international liquidity.
01 Jan 1974 Foreign Exchange Regulation Act (FERA), 1973 came into force to conserve forex. Its admin entrusted to RBI.
09 Dec 1974 Asian Clearing Union (ACU) est to facilitate payments for current intl trxns on a multilateral basis. Clearing operations were to be denominated in member's currency or AMU which would be eqt to 1 SDR
76 Sep 1975 Regional Rural Banks set up as alternative agencies to provide credit to rural in context of 20 Point Programme
1975 20 point economic programme introduced.
02 May 1977 M. Narasimhan appointed Governor up to Nov 30, 1977.
27 May 1978 Deposit Insurance & Credit Guarantee Corp (DICGC) was formed.
15 Apr 1980 6 private sector banks nationalised 1. Andhra Bank 2. Corporation Bank 3 New Bank of India 4. Oriental Bank of Commerce 5. Punjab and Sindh Bank 6. Vijaya Bank
01 Jan 1982 EXIM Bank of India est to provide comprehensive financial and allied services to exporters and importers.
12 July 1982 B Shivraman Committee => NABARD
16 Sep 1982 Manmohan Singh appointed Governor.
Apr 1988 SEBI est to deal with devpt & regulation of securities market & investor protection.
Jul 1988 NHB est as an apex body of housing finance and to promote activities in housing development.
Mar 1989 Certificates of Deposit (CDs) and Commercial Paper (CPs) introduced in India to widen monetary instruments and
Banking System in IndiaMonday, June 17, 2019 12:12 PM
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Mar 1989 Certificates of Deposit (CDs) and Commercial Paper (CPs) introduced in India to widen monetary instruments and give investors greater flexibility.
1 & 3 Jul '91 External Payments (BOP) Crisis. Rupee Devalued in two stages. Cumulative devaluation about 18% in USD terms.
Nov 1991 Narsimhan Committee Report suggested widescale reforms - phased ↓ in SLR & CRR, accounting standards, income recognition norms and capital adequacy norms
Mar 1992 A dual exchange rate system - Liberalised Exchange Rate Management System (LERMS) introduced to enable a transition to a market determined exchange rate system.
22 Dec 1992 C. Rangarajan appointed Governor
1993 Unified Exchange rate
1994 'Committee on Reform of the Insurance Sector', RN Malhotra
3 Feb 1995 Bharatiya Reserve Bank Note Mudran Limited est as a fully owned subsidiary of RBI. Commenced printing of Notes at Mysore on June 1 and at Salboni on Dec 11.
Jun 1995 The Office of Banking Ombudsman est for expeditious & inexpensive resolution of customer complaints related to Banking services.
1 Apr 1997 WMA - RBI & GoI agree to replace system of ad hoc Treasury Bills with Ways and Means Advances ending automatic monetisation of fiscal deficits.
1999 FEMA, 1999 replaces FERA, 1973 - operative from Jun 2000 along with a sunset clause
2008 IDBI Nationalised
2008 NPCI Founded
2010 ICICI acquires Bank of Rajasthan
2012 'RuPay' launched by National Payments Corporation of India.
2013 Bhartiya Mahila Bank formed. 19 November, 2013.
1 April 2017 Associate banks of SBI - State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP) and Bhartiya Mahila Bank Merged with SBI.
Banking licence round= 1993, 2001
History of Banking in India
Presidency bank of Bengal in 1806 •Presidency bank of Bombay in 1840 •Presidency bank of Madras in 1842 •1861: All 3 were given right to issue currency •1921: Formation of Imperial Bank of India by merging all above 3 banks
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1955: Nationalization of imperial bank => SBI •
East India Company established 3 presidency banks Pre Independence banks in India
Bombay, Bengal, Madras Presidency Banks => Imperial Bank' 21 => SBI in '55
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Catered British Army, Bureaucrats, Judges, merchants •
Foreign Banks
Allahabad Bank (est. 1865) •Punjab National Bank (est. 1894, HQ Lahore •Bank of India (est. 1906)•Bank of Baroda (est. 1908)•Central Bank of India (est. 1911)•
Indian Banks
By 1930 India had > 1000 banks working solely on company's law
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In Oct 24, 1929, stock market bubble finally burst, as investors began dumping shares en masse.
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A record 12.9 million shares traded that day = Black Thursday •1934, to check such situation, RBI as banker's bank. •
RBI SBI, ICICI, PNB, BOB •Catered Merchant & industrial houses •Bank branches ↑ but only to cater industrial markets •no expansion in rural areas •=> for rural Govt began nationalizing the banks •
Post-independence banks in India
Nationalisation of banks-I 14 commercial banks nationalized 19th July, 1969, Indira G
1. Central Bank of India 2. Bank of India 3. Punjab National Bank 4. Bank of Baroda 5. United Commercial Bank 6. Canara Bank 7. Dena Bank
8. United Bank 9. Syndicate Bank 10. Allahabad Bank 11. Indian Bank 12. Union Bank of India 13. Bank of Maharashtra 14. Indian Overseas Bank
Nationalisation of banks-2
Andhra Bank 1.Corporation Bank 2.New Bank of India 3.Oriental Bank of Commerce 4.Punjab & Sindh Bank 5.Vijaya Bank6.
6 more commercial banks nationalized in April 1980. These were:
to overhaul banking sector of India & to overcome its problems viz.
Bank licences 1st Round (1993) Total 10 private banks given licenses => 6 still running + 4 closed
Narsimhan Committee Il — 1998 Introduced Voluntary retirement scheme (VRS) in PSBs. •Legal reforms for loan recovery => SARFAESI act 2002 •
Payment and Settlement Act ○
Retail Transaction => ECS, NEFT, Credit Card ○
Wholesale Transaction => RTGS ○
Permit new private / foreign banks ○
Computerization, electronic fund transfer, legal framework
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Total 10 private banks given licenses => 6 still running + 4 closed
ICICI, HDFC, UTI (Axis bank (2007)), IDBI, IndusInd, DCB (Development Credit Bank)
•6 Running
Global Trust Bank merged with Oriental bank of Commerce, •Bank of Punjab merged with Centurion bank, •Centurion bank merged with HDFC bank, •Times Bank merged with HDFC bank•
4 Closed
Permit new private / foreign banks ○
New Bank licenses 2nd round (2001) RBI gave license only to 2 strongest contenders viz.
1. Kotak Mahindra 2. Yes Bank
10 years successful work-ex with min capital Rs. 500Cr •Get its shares listed on stock exchange w/i 3 years; •bring down voting rights to 15% within 12 years. •foreign shareholding must not be > 49% for 1st 5 years •50% directors = independent •bank must not invest in shares/bonds of its parent group. •Must open at-least 25% branches in unbanked rural areas •Have to comply with PSL norms •
New Bank licenses 3rd Round (2013—14) — RBI conditions RBI — Bimal Jalan Committee Based on committees recommendations RBI gave license only 2 strongest contenders viz. 1. Bandhan Microfinance 2. IDFC
To meet the specific requirement from different sectors (i.e. agriculture, housing, foreign trade, industry)
Classification of banks
All banks included in 2nd Schedule to Reserve Bank of India Act, 1934 are Scheduled Banks. •These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks. •
having a paid up capital and reserves of at least 25 Lakh ○
satisfying the RBI that its affairs are not being conducted in a manner prejudicial to interests of its depositors. ○
To be included under this schedule of RBI Act, banks have to fulfill certain conditions: •
Types Of Commercial Scheduled commercial Banks •
majority stake is held by Govt - SBI, Bank of India, Canara Bank, etc. ○
Public Sector Banks
majority of share capital of bank held by private individuals. ○
regd as companies with limited liability.○
Eg: ICICI Bank, Axis bank, HDFC, etc. ○
Private Sector Banks
These banks are regd and have their headquarters in a foreign country but operate their branches in our country. ○
Examples: HSBC, Citibank, Standard Chartered Bank, etc ○
Foreign Banks
Est 1975 during 5th FYP period (1974-79)○
under an Ordinance promulgated on 26th September 1975 and RRB Act, 1976 ○
to develop rural economy and supplement Coop Credit Structure' to enlarge institutional credit for rural and agri sector. ○
Area of ops limited to as notified by Gol - one or more districts in the State. ○
are jointly owned by GoI, concerned State and Sponsor Banks (27 SCBs and 1 State Cooperative Bank); ○
issued capital of a RRB = 50%, 15% and 35% resp○
Prathama bank = 1st RRB - Moradabad in UP○
Source of funds = owned funds, borrowings from NABARD, sponsor banks, others including SIDBI and NHB○
RRBs mobilise deposits primarily from rural/semi-urban areas and provide loans/advances mostly to small & marginal farmers, agri labourers, rural artisans and other segments of priority sector
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Regional Rural Banks
A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
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Often created by persons belonging to the same local or professional community or sharing a common interest. ○
generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts, etc).○
Cooperative Banks •
Scheduled Banks
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generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts, etc).○
provide limited banking products and are specialists in agriculture-related products. ○
Cooperative banks are the primary financiers of agricultural activities, some small-scale industries and self-employed workers. ○
Co-operative banks function on the basis of "no-profit no-loss"○
Anyonya Co-operative Bank Limited (ACBL) = 1st - Vadodara○
Non —scheduled Banks = not included in 2nd schedule of RBI Act, 1934
Commercial banks dominate credit off take in all sectors and among them esp PSBs•
A/c should be denominated in Indian Rupees. ○
may be opened / maintained as current, savings, FD/RD accounts. ○
Interest rates offered by banks on NRO deposits can't be higher than corresponding domestic rupee deposits. ○
includes sale proceeds of immovable properties held by NRls/PlOs. ▪
NRI/PIO cant remit from balances held in NRO a/c > 1 Mn USD per FY, subject to payment of applicable taxes. ○
Loans upto Rs1 Cr against security of funds held in FCNR (B) deposit either to depositors or 3rd parties. ○
Interest rates are stipulated by Dept of Banking Ops & Devpt, RBI○
Foreign Currency Non Resident (Bank) A/c — FCNR (B) A/c3.
Italian word 'nostro' means 'ours'. Hence, Nostro account points at - "Our account with you" ○
Nostro a/c are generally held in a foreign country (with a foreign bank), by a domestic bank (from our perspective, our bank) . It obviates that a/c is maintained in that foreign currency
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Nostro A/c4.
Italian word 'vostro' means 'yours'. Hence, Vostro account points at - "Your account with us" ○
Vostro accounts are generally held by a foreign bank in our country (with a domestic bank). It generally maintained in IndianRupee (if we consider India)
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For example, HSBC account is held with SBI in India○
Vostro A/c5.
Italian 'loro' means 'theirs'. Therefore, it points at - "Their account with them" ○
Loro accounts are generally held by a 3rd party bank, other than the account maintaining bank or with whom account is maintained.
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For example, BOI wants to transact with HSBC, but doesn't have any account, while SBI maintains an account with HSBC in U.K. Then BOI could use SBI a/c.
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LORO A/c6.
While a bank maintains Nostro account with a foreign bank, it has to keep an account of the same in its books. ○
This is more or less a reflection or a shadow of the nostro account. ○
The entries in the mirror account are used for reconciliation of entries in the nostro account. ○
The mirror account is maintained in two currencies, one of which is the foreign currency and other = home currency○
Mirror A/c7.
Types Of Accounts
Negotiable Instruments Act, 1881 A/c to Sec 13 of Negotiable Instruments Act,"A negotiable instrument = a promissory note, bill of exchange or cheque payable either to orderer or to bearer= any agreed upon medium of exchange of payment is a negotiable instrument. Maker of a negotiable instrument = DrawerPerson directed to pay = Drawee
Types Of negotiable instruments
Promissory Note - explained in Sec 4 of the act = an instrument in writing (not a currency-note) containing an unconditional promise signed by maker, to pay a specified sum of money only to, or to order of a particular person, or to the bearer of the instrument.
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Bill of Exchange- Sec 5 = an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.
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Cheque- Sec 6 = It is a bill of exchange drawn on a specified bank & not expressed to be payable except on demand•
Other negotiable instruments not defined in the act can also be used so long as they •
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Other negotiable instruments not defined in the act can also be used so long as they •(i) are easily transferable by trade; (ii) are free of conditions, defects and the person getting it in good faith is entitled to the amount specified.
Bank, Tagline and their headquarters Bank Tagline HQ
SBI With you all the way, Pure Banking Nothing Else, The Nation banks on us Mumbai
Union Bank of India Good People to Bank With Mumbai
Central Bank of India Central To you Since 1911 Mumbai
Dena Bank Trusted Family Bank Mumbai
IDBI Banking For All, "Aao Sochein Bada" Mumbai
Bank of India Relationship Beyond Banking Mumbai
Yes Bank Experience our Expertise Mumbai
HDFC Bank We understand your world Mumbai
Bank of Maharashtra One Family One Bank Pune
Bank of Baroda India's International Bank Vadodara
PNB The Name You Can Bank Upon New Delhi
Punjab & Sind Bank Where Service Is A Way Of Life New Delhi
Oriental Bank of Commerce Where Every Individual Is Committed Gurgaon
Canara Bank Together We Can Bangalore
Corporation Bank A Premier Public Sector Bank Mangalore
Vijaya Bank A Friend You Can Bank On Bangalore
Syndicate Bank Your Faithful And Friendly Financial Partner Manipal
Indian Overseas Bank Good People to Grow With Chennai
Indian Bank Your Tech-Friendly Bank Chennai
Allahabad Bank A Tradition of Trust Kolkata
UCO Bank Honours Your Trust Kolkata
South Indian Bank Experience next generation banking. Kerala
Andhra Bank Where India Banks Hyderabad
HSBC The world's local bank London
Some Important Facts related to banking in India Allahabad Bank, est 1865 — oldest PSB in India having branches all over India and serving the customers for the last 145 years. •Imperial Bank of India was later renamed in 1955 as SBI•1st Bank of India with Ltd Liability to be managed by Indian Board was Oudh Commercial Bank - est in 1881 at Faizabad. •Punjab National Bank = 1st bank purely managed by Indians, est in Lahore in 1895. •First Truly Swadeshi bank — Central Bank of India est in 1911 and wholly owned and managed by Indians. •Union Bank of India was inaugurated by Mahatma Gandhi in 1919. •Savings a/c system in India was started by Presidency Bank, 1833. •Central Bank of India = 1st public bank to introduce Credit card. •
internet banking•mobile ATM•
ICICI Bank = 1st Indian bank to provide •
1st Indian bank to open overseas branch = Bank of India - in London in 1946•Bank of Baroda has max overseas branches•
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Core Purpose = RBI’s commitment to the Nation: foster confidence in internal & external value of rupee, contribute to macro-economic stability•
regulate markets and institutions under its ambit to ensure financial system stability & consumer protection•
promote integrity, efficiency, inclusiveness and competitiveness of financial and payments system•
ensure efficient mgt of currency & banking services to Govt and banks; •support balanced, equitable and sustainable economic devpt•
Values Public interest •Integrity and independence of views•
Responsiveness and innovation•Diversity and inclusiveness•Introspection and pursuit of excellence •
About RBI Est 1st April 1935 a/c to RBI Act, 1934 •Central office initially in Calcutta; •moved to Mumbai in 1937 – {Governor sits + policies made}•Nationalisation in 1949 •
Official: Governor + upto 4 Dy. Governors•
Govt Nominated: 10 Directors from various fields + 2 govt officials
•
Others: 4 Directors, one each from 4 local boards •
Non official:•
Governed by Central Board of Directors appointed by GoI •
4 Directors from Central Board as members for 2 years •+ Governor as Chair •+ Dy Governors as ex-officio members •
Financial supervision By Board for Financial Supervision •
Acts administered by RBI Reserve Bank of India Act, 1934 •Public Debt Act, 1944 •Govt Securities Act, 2006 •Govt Securities Regulations, 2007 •Banking Regulation Act, 1949 •Foreign Exchange Management Act, 1999•Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002
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Credit Info Companies (Regulation) Act, 2005 •Payment and Settlement Systems Act, 2007 •Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and BPSS Regulations, 2008
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The Payment and Settlement Systems (Amendment) Act, 2015 -No. 18 of 2015
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Factoring Regulation Act, 2011•
Monetary authority – monetary policy - Controller of money supply and credit creation in the economy
1.
Issuer of currency 2.Regulator and supervisor of financial system - Lender of last resort - stands by commercial banks in case of bank run
3.
Manager of forex – manages FEMA Act 1999 4.Banker to govts and to banks 5.Developmental role 6.
Functions
Deposit Insurance and Credit Guarantee Corp of India •Bhartiya Reserve Bank Note Mudran Pvt ltd •
Fully owned subsidiaries
Sir Osborne Smith •Sir James Braid Taylor •Sir CD Deshmukh (1st Indian)•Sir Benegal Rama Rau (1st post-independence)•
1st Governors
NS Vishwanathan •BP Kanungo •MK Jain •
Viral V Acharya •
Present Deputy Governors
CFO = Sudha Balakrishnan
Rabi N Mishra promoted as Executive Director (ED) - RBIPost was vacant since Rosemary Sebastian retdRBI currently has 12 EDs, including CFO
RBI Deputy governor BP Kanungo to run Monetary Policy & Forecasting Dept•
After Viral Acharya's exit, Kanungo became 6th member of RBI's MPC•
Now, all 3 deputy governors have 12 depts each•
Monetary Policy1.Monetary Policy = use of monetary instruments under the control of the central bank to influence variables, such as interest rates, money supply and availability of credit, with a view to achieving the objectives of the policy.
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over time, the role of Monetary Policy in India evolved to maintain a judicious balance between price stability, economic gro wth and financial stability.
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Broadly, monetary policy framework consists of objectives, operating procedure and governance arrangements.Objectives = aims of monetary policy = goal variables or nominal anchors and long-term in scope but are not directly under the control of the central bank => central banks strive to achieve these objectives only indirectly by targeting intermediate andoperating targets, which bear a stable relationship with the ultimate objectives, through instruments which are under its dir ect control. The choice of the operating target is crucial as this variable is at the beginning of the monetary transmission mech anism.
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Operating procedure = how the central bank intends to influence the operating target and intermediate target with the use of monetary policy instruments. essentially the day-to-day management of monetary conditions consistent with the overall stance of monetary policy.
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Governance arrangements = process of decision making and focus on responsibilities, powers and accountability of monetary •
Evolution of Monetary Policy Framework•
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Governance arrangements = process of decision making and focus on responsibilities, powers and accountability of monetary authority.
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Historically, bank reserves and short-term interest rates = 2 dominant operating targets - post 1990s & de-regulation era mein the overnight rate emerged as most commonly pursued operating target in conduct of monetary policy.
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=> Financial repression with interest rate prescriptions, statutory pre-emptions and directed credit partly crowded out the private sector => Committee to Review the Working of Monetary System (Sukhamoy Chakravarty) recommended in 1985 a new monetary policy framework based on monetary targeting with feedback, drawing on empirical evidence of a stable demand function for money.
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During 1971-1985, monetisation of fiscal deficit exerted a dominant influence on conduct of monetary policy. Resultant inflationary consequences of high public expenditure necessitated frequent recourse to CRR to neutralize secondary effects of the expansion
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broad money = intermediate target while reserve money = main operating instrument for achieving control on broad money growth. Accordingly, monetary (M3) projection was made consistent with the expected real GDP growth and a tolerable level of inflation. This framework was in operation during mid-1980s to 1997-98
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But, targets were rarely met. biggest impediment to monetary targeting was lack of control over RBI's credit to the central government, which accounted for the bulk of reserve money creation.
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LPG Reforms se shift in financing government and the commercial sector with increasing reliance on market -determined interest rates and exchange rate. Financial innovations/external swings in capital flows, volatility in exchange rate and global busin ess cycles imparted instability to demand for money + increasing evidence of changes in underlying transmission mechanism of monetary policy with interest rate and the exchange rate gaining importance vis -à-vis quantity variables => changed in 1998-99 to next approach
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Monetary Targeting Framework {mid-1980s to 1997-98}•
Under this approach, a number of quantity variables such as money, credit, output, trade, capital flows and fiscal position a s well as rate variables such as rates of return in different markets, inflation rate and exchange rate were analyzed for drawing monet ary policy perspectives
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forward looking indicators since the early 2000s drawn from the RBI's surveys of industrial outlook, credit conditions, capac ity utilization, professional forecasters, inflation expectations and consumer confidence
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Worked well till 2008 => visible signs of stagflation + also no clarity in RBI's objective => Urjit Pate commtee 2014•
Multiple Indicator Approach (apr 1998 onwards)•
However, pursuant to the amendment to RBI Act, 1934, in May 2016, the primary objective of monetary policy is to maintaining price stability while keeping in mind the objective of growth
•
inflation target set by GoI, in consult with RBI, once in every 5 years ○
GoI notified 4% (±2%) CPI inflation = target for Aug 5, 2016 to Mar 31, 2021○
Failure = avg CPI beyond limits for any 3 consecutive quarters ○
Explicitly mandated under RBI Act, 1934 - amended in May 2016 - statutory basis for flexible inflation targeting framework •
Financial Markets Operations Dept (FMOD) operationalizes the monetary policy, mainly through day-to-day liquidity management operations.
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The Financial Markets Committee (FMC) meets daily to review the liquidity conditions so as to ensure close alignment of the operating target - the weighted average call money rate (WACR) – with the policy repo rate.
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Flexible Inflation Targeting•
Monetary Policy Committee (MPC) by GoI under Sec 45 ZB •determines policy interest rate to achieve inflation target •
Must meet atleast 4 times a year – presently 6 times {Bimonthly}•Quorum for meeting is 4 members •Governor has casting vote in case of a tie•
RBI people
RBI Governor – ex-officio Chairperson •Dy. Governor in charge of monetary policy (Kanungo)•1 RBI officer nominated by Central Board •
Govt nominees{for 4 yrs term - re-appointment}
Chetan Ghate from ISI•Pami Dua from DSE •Ravindra Dholakia from IIM-A •
(a) the resolution adopted by the MPC; •(b) the vote of each member on the resolution, ascribed to such member; •(c) the statement of each member on the resolution adopted. •
(a) the sources of inflation; ○
(b) the forecast of inflation for 6-18 months ahead.○
Once in every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain •
On the 14th day, the minutes of the proceedings of the MPC meeting are published which include •
maintain price stability while keeping growth in mind - Price stability is a necessary precondition to sustainable growth •Primary Obj of monetary policy •
Monetary policy conducted through interest rates and money supply - BIMONTHLY policy review•RBI uses following for conducting monetary policy•
CRR - average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its ▪
Varying Reserve Requirements - CRR & SLR○
Quantitative tools: (affect volume of credit) - OMOs, SLR, CRR, bank rates, LAF, MSF, SDF/UDF•Instruments •
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CRR - average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify
▪
SLR - set aside this much money into safe liquid assets such as g-secs, cash or gold or RBI approved securities. Banks do earn interest
▪
Sells securities to reduce supply of high powered money□
RBI buys and sells govt securities in open market to control money supply - used for sterilization (control temporary mismatches in liquidity due to foreign capital flow)
▪
Open Market Operations: ○
Market Stabilization Scheme (MSS) = RBI uses another instrument to keep liquidity intact - Govt pays interest on MSS. Specifically is purpose k liye hai. RBI sells G-sec, T-bill and cash management bills (CMB) to suck excess liquidity of a more enduring nature arising from large capital inflows. The cash so mobilised is held in a separate government account with the Reserve Bank.
▪
Sterilizing against external shocks and inflation○
borrow long term funds from RBI, not the main tool to control money which is Repo rate/policy rate. If bank don’t maintain CRR, SLR, penalty as per bank rate. Bank Rate is published under Section 49 of RBI Act, 1934
▪
From 2012, Bank Rate = MSF
Bank rate - rate at which RBI buys or rediscounts bills of exchange or other commercial papers - aligned with MSF rate ○
Penal rate jispe banks borrow addl amount of overnight money from RBI over and above repo window by dipping into their SLR portfolio up to a limit - banks can use up to 1% of securities from SLR = (repo + 0.25). This provides a safety valve against unanticipated liquidity shocks to the banking system.
▪
Marginal Standing Facility ○
LAF - Consists of overnight as well as term repo auctions. Aim of term-repo is to help develop the inter-bank term-money○
Repo rate – fixed interest rate at which RBI provides overnight loans to any client of RBI (Union/state govt, banks, non-banks) against g-secs and other secs under the LAF - g-secs = collateral & buy those back - 7 day/14 days term repo
▪
Reverse repo rate – fixed interest rate at which RBI absorbs liquidity on an overnight basis under LAF. RBI pays banks to park excess funds into RBI. RBI pledges G-Secs as collaterals = repo – 0.25
▪
{Narasimham Committee (1998) recommendations, the RBI introduced the Interim Liquidity Adjustment Facility (ILAF) in April 1999 => LAF in 2000}
▪
market, which in turn can set market-based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy. Both the below rates are overnight and create the benchmark for other overnight rates in the market.
(=50 basis points) shortened to align with call rates (gives better liquidity management control to RBI)▪
to further align weighted average call rate with the repo rate, the policy rate corridor around the policy repo rate was further narrowed to 50 bps in April 2017.
▪
Corridor - MSF rate & reverse repo rate determine the corridor for daily movement in weighted average call money rate ○
Standing deposit facility (SDF) / UDF (Uncollateralized Deposit Facility) - started budget 2018 - Similar to reverse repo but RBI will not pledge any G-sec as collateral. Objective - help RBI suck excess liquidity esp given lack of G-secs to pledge as was in DeMo. RBI can simply promise to pay (interest) without any ‘G-sec’ as guarantee / collateral to the other party
○
Negative/restrictive controls like take permission from RBI if loan to an individual over 1 cr (ye pre LPG reforms mein hota tha)
▪
credit rationing (PSL - Credit Guarantee Corp of India Ltd established in 71 to facilitate ), □Consumer Credit control/ EMI (min instalment & down-payments kitni, - if increased then lesser loans, if decreased then more loans),
□
Margin requirements/Loan to value ratio (Akshay kumar pays only x% of worth of gold/asset).□
Direct action - penalties imposed on violation of directives under Banking Regulation Act 1949 and Payment and Settlements Act, 2007, FEMA, 1999
○
Qualitative tools (affect distribution of credit) •
Some banks borrow money from RBI’s repo window, say Rs.60○
Some banks park their money in RBI’s reverse repo window, say Rs. 40○
At any point of time,•
So, NET 60 MINUS 40 = +20. It means RBI injected liquidity in the system. If answer was a negative figure, then It’s said tha t RBI absorbed liquidity from the system.
•
Central Bank Liquidity•
Cash, including foreign currency.1.Cash beyond CRR2.G-Sec beyond SLR3.Marketable securities backed by PSE, Multilateral development banks, Foreign Governments.4.
BASEL-III norms mandated that banks have to keep enough amount in high quality liquid assets (HQLA) so that bank can survive a 30 days stress-test scenario. HQLA eligible assets includes:
•
If bank has sufficient HQLA to survive total net cash outflow for next 30 calendar days => liquidity coverage ratio is 1 (or 100%).
•
RBI began implementing LCR gradually since 2015 (60%, 70% .. like that it was raised every year).•From 1/1/2019, banks must keep an LCR of 100% or MORE.•If SLR is kept high and LCR is also implemented, then Indians banks will have less loanable funds therefore, in recent times RBI has gradually reduced SLR while hiking the LCR requirement,
•
Liquidity Coverage Ratio (LCR) & HQLA
Finance Page 8
has gradually reduced SLR while hiking the LCR requirement,
•
Monetary policy can’t control supply side issues, Fiscal deficit, leakage of Govt money to informal money lenders - and their impact on the loan market.
1.
Repo borrowing is not major source of funding for Indian banks. So, changing repo will not immediately impact the bank loan rates.
2.
Even if RBI cuts repo rate, banks are not cutting lending rates due to NPA problem3.
Limitations of Monetary Policy in combating inflation•
Extension of MSF to Scheduled Primary (Urban) Cooperative Banks •Extension of LAF and MSF to Scheduled State Cooperative Banks •to permit Primary (Urban) Co-operative Banks to undertake eligible trxns for acquisition / sale of non-SLR investment in secondary market with mutual funds, pension / provident funds, and insurance companies
•
RBI Last year (3rd Bimonthly monetary policy mein)•
Issuer of currency 2.GoI = issuing authority of coins and supplies coins to RBI on demand => puts coins into circulation on behalf of GoI •
Dewas (MP), Mysore, Nasik & Salboni (WB) -- DEVMANUS•Presses in Dewas and Nasik owned by Security Printing and Minting Corp (owned by GoI) •Other 2 owned by Bhartiya Reserve Bank Note Mudran Pvt Ltd (owned by RBI) •
Printing presses •
Mumbai•Noida•Kolkata•Hyderabad•
Mints •
Coins are legal tender only for amounts < Rs 1000 as per Indian Coinage Act •
2000 Motif of Mangalyaan on reverse •Magenta •66x166 mm •
500
66x150 mm •Stone grey •Predominant new theme is Red Fort •Numerals in Devanagari in new notes •Gandhi face now at centre •Swachch bharat logo and slogan •
200 - Sanchi stupa •100 - Rani ki Vav; = Lavender •50 - Hampi = blue•10 - Konark = brown•
Currency note features •
RBI as Banker and Debt Manager to govt 3.
with all its money, remittance, exchange and banking transactions in India and the management of its public debt•RBI Act, 1934 requires GoI to entrust the RBI •
Govt also deposits its cash balances with RBI•RBI may also, by agreement, act as banker and debt manager to State Govts•
Currently, banker to all State Govts in India (incl UT of Puducherry), except Sikkim {state bank of Sikkim which merged into SBI = banker for Sikkim}
•
For Sikkim, has limited agreement for mgt of its public debt •
RBI as banker to banks 4.E-Kuber = Core Banking solution of RBI •
Finance Page 9
E-Kuber = Core Banking solution of RBI •Guarantor against bank run•
Regulator & Supervisor of Financial system5.Commercial banking striving towards a more competitive, efficient and heterogeneous banking structure. •Licensing policies regarding Universal Banks, Small Finance Banks and Payments Banks => building a heterogeneous banking system. •
How does RBI regulate •
Licensing of universal banks – IDFC and Bandhan given licenses in 2013 ○
Now RBI accepts applications under on-tap licensing policy○
licenses to differentiated/niche banks like Small Finance Banks and Payments Banks – furthering Fin-clu○
Issues licenses for opening of banks •
Authorization for opening of branches •Governing entry and expansion of foreign banks in India and Indian banks abroad •Resolution mechanisms•
Basel III regulations for Indian banks by 31st March 2019, instead of 31st March 2018 as announced earlier. ○
Monitoring of maintenance of CRR and SLR by banks ○
According prior approval for 5%+ shares or voting rights of pvt banks ○
Risk mgt norms •
Internationally agreed date = 1st Jan 2019 •
= apex (but non-statutory) body constituted by GoI ○
No funds allocated to it separately ○
FM is Chair ○
Members = RBI Governor, Chairs of SEBI, IRDA, PFRDA, IBBI, Secys to Depts. in MoF, CEA etc ○
Coordinate with Financial Stability and Development Council •
Cooperative banking Cooperative credit structure = 3-tier system •
outside purview of Banking Regulation Act 1949 => not regulated by RBI ○
Central Cooperative Banks @distt level and State Cooperative banks @state level under State Cooperative Societies Act and regulated by RBI – powers to NABARD to conduct inspection of these
•
urban and semi-urban areas ○
primarily regd as cooperative societies under State Cooperative Societies Acts ○
Banking laws made applicable to cooperative societies only in 1966 by amending Banking Regulation Act 1949, •
banking related fxns regulated by RBI ○
mgt related fxns regulated by resp State govts/Central govt ○
thus duality of control over these banks •
NBFCs NBFC = company regd under Sec 3 of Companies Act, 1956 engaged in business of NBFI as under Sec 45 1(a) of RBI Act, 1934•loans and advances, •acquisition of shares/stocks/bonds/debentures/securities issued by Govt or local authority or other marketable securities of a like nature, •leasing, hire-purchase, insurance business, chit business•
company’s financial assets constitute > 50% total assets ○
and income from financial assets constitute > 50% gross income○
50-50 rule - Financial activity as principal business is when •
A company which fulfils both above will be regd as NBFC by RBI •Minimum Net Owned Fund (NOF) of ₹ 2 Cr•(Minimum NOF reqd for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs are different)•Systemically Important NBFCs = whose asset size ≥ ₹ 500 Cr as per last audited balance sheet•
BanksLicence from RBI under Banking Regulation Act•All supervised by RBI•
Time Deposits (FDRD)○
Deposits from Public - both•
NBFCLicensed under Company Act•Not All, Insurance cos = IRDA, Merchant banking Cos = SEBI•Can accept Time Deposits (Deposit taking NBFCs) •but not Demand Deposits •
~RBI as Regulator of Financial systemWednesday, July 31, 2019 11:47 AM
Finance Page 11
Time Deposits (FDRD)○
Demand Deposits (CASA)○
Can•Are•available•
but not Demand Deposits •
cannot issue cheques drawn on itself •Not part of Payment system, CTS•Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFC
•
NBFCs accepting public deposit (hold a deposit accepting certificate of regn)○
NBFCs not accepting/holding public deposit (no such certificate)○
NBFCs classified into 2 broad categories
Presently, max interest rate which can be offered by an NBFC = 12.5%•Interest may be paid or compounded at rests not shorter than monthly rests•NBFCs allowed to accept/renew public deposits for a min period of 12 months and maximum period of 60 months (5 yrs)•No demand deposits allowed•The deposits with NBFCs are not insured•RBI does not ensure the repayment of deposits by NBFCs•
Deposits in an NBFC
NBFCs regulation
related to banking, lending RBI
related to stock broking, merchant banking, Venture Capital Fund, shares/stocks SEBI
Insurance & other Insurance companies IRDAI
Housing NBFCs & other Housing Finance Companies NHB
Chit funds state govts
Nidhi companies MoCA
Nidhi company = mutual benefit society; borrowing from members and lending to members only; membership limited to individuals
Misc Imp Regulatory InfoCoop banks, RRBs - NABARD regulates and supervises the functions •Priority sectors decided by RBI & not GoI•Small banks = 75% PSL + SLR + CRR•Co op banks no PSL norms, only members can borrow•Wholesale banks exempted from SLR•Payment Banks - Only CASA, no loans, hence no PSL or SLR•MFIs are regulated by RBI, but only those which are regd with it as NBFCs•MUDRA Bank regulates + refinances other MFIs which lend to MSMEs associated with mfg, trading and service activities•
Financial Markets RBI has designated industry bodies
Fixed Income, Money Markets and Derivatives Asso. of India (FIMMDA) - benchmark administrator for Rupee interest rate•Foreign Exchange Dealers Asso. of India (FEDAI) - benchmark administrators for forex •FIMMDA, FEDAI and IBA have since jointly floated an independent company•
an anonymous order matching trading platform •G-secs markets - Trading largely on Negotiated Dealing System-Order Matching (NDS-OM)•
Call money market - repo rates•
Payment Systems Board for regulation and supervision of payment and settlement systems (BPSS) #UpdateA sub-committee of Central Board of RBI •highest policy making body on payment systems•Members = Governor as Chair + 4 •Dy. Govs (Kanungo is Vice Chair) + 2 other Central Board members •
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Dy. Govs (Kanungo is Vice Chair) + 2 other Central Board members •
Paper based payments {#Update}Instruments (like cheques, drafts, and the like) = ~60% volume of total non-cash trxns•In value terms, share presently ~11%•been steadily ↓ •
speeding up ▪
and bringing in efficiency in processing of cheques ▪
(9 digits – first 3 city code, next 3 bank code and last 3 branch code)▪
RBI introduced Magnetic Ink Character Recognition (MICR) tech for •
Electronic paymentsElectronic Fund Transfer (EFT) in 1990s •
More secure Nation-wide payment system facilitating one-to-one fund transfer ▪
Info of date/time of credit to the beneficiary a/c available in the system ▪
Accepts cash for originating trxns => Even individuals w/o bank a/c can, @NEFT enabled branches (limit of Rs. 50k per txn) ▪
from any NEFT enabled branch even to a beneficiary w/o a NEFT enabled a/c in Nepal. •beneficiary paid in Nepalese Rupees•Max Rs. 50k per trxn•
NEFT facilitates one way cross border transfer from India to Nepal under Indo-Nepal Remittance Facility Scheme. ▪
Other than above 2, no limit to amount through NEFT ▪
Necessary for beneficiary to have a bank a/c with a NEFT enabled destination bank ▪
on half-hourly basis – 23 batches from 8am to 7pm on all working days of the week •NEFT works on a Deferred Net Settlement (DNS) basis which settles trxns in batches ▪
NEFT Clearing Centre in RBI is operated by National Clearing Cell ▪
Unique ID of a bank branch participating in NEFT system •
1st 4 = bank
5th char = 0
last 6 chars = branch
11 digit code •
IFSC (Indian Financial System Code) ▪
NEFT is a credit push system ▪
NEFT (National Electronic Funds Transfer) since 2005 •
real time => payment trxn not subjected to any waiting period ▪
Gross settlement => trxn settled on 1-to-1 basis w/o bunching or netting with any other transaction ▪
Since funds settlement takes place in books of RBI, once processed, payments are final and irrevocable ▪
settles all inter-bank payments and customer transactions > 2 lakh▪
continuous (real-time) settlement of funds individually on an order by order basis without netting▪
For large value trxns - Min 2 lakhs with no upper ceiling ▪
9.00 am to 4.30pm on week days •9.00 am to 2pm on Saturdays •
RTGS service window for settlement at the RBI end ▪
for customer trxns from 7 AM to 6 PM ▪
for inter-bank transactions from 7 AM to 7.45 PM▪
At present, RTGS System is available ▪
RTGS (Real Time Gross Settlement) system - since 2004•
to handle bulk & repetitive payments like salary, dividend etc▪
Mainly for credit/debits of low value in large or frequent trxns▪
ECS Debit, which involves a transfer of funds from your account ○
ECS Credit which takes place when money comes into your account○
2 types: ▪
Electronic Clearing Service (ECS) in 1990s•
@National Clearing Cell (NCC) in Mumbai ▪
multiple credits to beneficiary a/cs against a single debit from sponsor account▪
National Electronic Clearing Service (NECS) in 2008 •
Education – loans upto 10 lakh 4.Housing – loans upto 28 lakh in metropolitan cities and 20 lakh in other places (loans to banks own employees not eligible)
5.
Social infra – loans upto 5 Cr per borrower for social infra in non-Tier I cities, bank credit to MFIs for on lending to individuals, SHGs or JLGs for water & sanitation facilities
6.
RE – loans upto 15 Cr for RE, non-conventional energy based public utilities like street lighting, remote village electrification; for individual households, loan limit = 10 lakh per borrower
7.
Others 8.
Targets and sub-targets
Domestic SCBs (excluding RRBs and Small Finance Banks) + foreign banks ≥ 20 - (comply by march
2018 )
Foreign banks < 20 branches
Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposurewhichever is higher.
Total Priority Sector - 40% of 40% - phased manner by 2020 export credit upto 32% = eligible.
Agri (farm credit, agri infra, ancillary activities)– 18% w/i this 18%, 8% for Small (1-2 ha) and Marginal (< 1 ha)Farmers {phased manner - 7% by Mar 2016 & 8% by Mar 2017}
NA
Micro enterprises – 7.5% NA
Advances to weaker sections – 10% NA
What else PSL•social infra - loans up to Rs 5 crore a borrower for building social infra for activities in tier-II to tier-VI centres○
renewable energy {Rs 15 crore for solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants, etc}
○
Bank credit to MFIs for lending to individuals, SHGs and JLGs provided MFIs meet norms prescribed for micro lending (loan pricing, amount, etc). Every quarter, MFIs to furnish certi from a CA, stating guidelines have been followed.
○
All loans to MSME will qualify as PSL against the earlier limit of loans up to 10 Cr○
food and agro processing units ▪
Distinction b/w direct and indirect agri removed => banks can meet their entire agri lending target by funding indirect agri, which includes loans to companies engaged in agri sector.
▪
agri infra such as storage, soil conservation and watershed dev▪
ancillary activities like agro clinics and agribusiness centres▪
What's now under Agriculture ○
For individual households, loan limit = Rs 10 lac a borrower▪
Rs 28 lakh to individuals in metros - provided overall cost of dwelling unit is Rs 35 lakh ▪
Rs 20 lakh in others - provided overall cost of dwelling unit is Rs 25 lakh▪
Home finance - loans upto ○
For foreign banks > 20 branches - sub-targets for small/marginal farmers and MSMEs = applicable after 2018. •For long-term bonds to fund affordable housing/infra projects, RBI exempted banks for maintaining CRR, SLR and PSL•Housing loans backed by long-term bonds exempted from PSL mandate○
if a bank categorises a home loan under PSL, it won't get exemption in terms of CRR and SLR •Priority Sector Lending Certificates – surplus banks can sell•Priority sector guidelines do not lay down any preferential rate of interest for priority sector loans•PSL: What if targets not met? •
Desi (+Foreign ≥ 20) Foreign < 20
Remaining $$ to RIDF = Rural Infra Devpt fund - managed by NABARD
To SEDF (Small Enterprises Devpt Fund) - managed by SIDBI
NABARD pays interest to bank SIDBI pays interest to bank
State govt get cheap infra loans State industrial fin corp get cheap loans
Banking ombudsman scheme Under Sec 35A of Banking Regulation Act 1949 •wef 1995 •Banking ombudsman = senior official appointed by RBI to redress customer complaints •All SCBs, RRBs covered •For amounts upto 20 lakh •Can award compensation upto 1 lakh for mental agony and harassment •Appellate authority vested with a Dy. Governor of RBI •
Deposit Insurance and Credit Guarantee Corp Deposit Insurance and Credit Guarantee Corporation Act 1961 •Board of Directors – Chairman is an RBI Dy Gov + 1 RBI Officer + 1 govt officer + 5 Directors nominated by the govt in consultation •
Finance Page 14
Board of Directors – Chairman is an RBI Dy Gov + 1 RBI Officer + 1 govt officer + 5 Directors nominated by the govt in consultation with RBI
•
Head office at Mumbai •Kanungo = Chairman•
All commercial banks – incl branches of foreign banks, RRBs, local area banks ▪
All cooperative banks – all state, central and primary cooperative banks (aka urban cooperative banks) ▪
Primary cooperative societies are not insured by DICGC ▪
Banks included •
Foreign govts ▪
Central/state govts ▪
Inter-bank deposits ▪
Insures all deposits such as savings, fixed, current, recurring etc upto 1 lakh except those of •
Bhartiya Reserve Bank Note Mudran Ltd Est 1995 •Wholly owned by RBI •Head office @ Bengaluru •Presses at Mysore and Salboni (WB) •Kanungo - Chairman (non-Executive) •S K Maheshwari is ME and CEO •
Security Printing and Minting Corp of India Incorporated in 2006; •Mini-Ratna wholly owned by GoI •Head office in Delhi •Security paper, minting coins, printing currency, non-judicial stamp papers of state govts, passports and visa stickers for MEA etc
•
Under Dept of Economic Affairs, FM •Presses at Nashik and Dewas •Security paper mill at Hoshangabad (MP)•Mints at Mumbai, Hyderabad, Kolkata, Noida •Tripti Patra Ghosh = CMD •
Bank Note Paper Mill India Pvt Ltd JV of SPMCIL and BRBNMPL •Incorporated in 2010 •office in Mysuru •Total capacity of 12000 MT per annum (recently received nod to increase to 16000 MT) •Tripti Patra Ghosh is CMD of this as well •
MSMEs Current definition a/c to MSME Devpt Act, 2006•
3 general kinds of commodities - representative of all commodities being produced within economy: ○
Consumers who decide what and how much to consume. •Producers who decide what and how much to produce. •
Macroeconomic policies are pursued by State itself or statutory bodies like RBI, SEBI, etc○
Entities like govt, corps, banks which also take different economic decisions like how much to spend, what interest rate to charge on the credits, how much to tax, etc.
•
Economic Units/Economic Agents - individuals or institutions which take economic decisions. ○
Factors of Production: Capital, land and labour and entrepreneurship○
Firms•Govt•Household sector•External Sector (imports and exports)•
Entities in Economy:○
Revenue = Money earned by selling goods/services○
Profit = Earning of Entrepreneurs after cost of capital, land and wages paid off○
Investment Expenditure: Investment to raise productive capacity○
Private ownership of means of production •production for selling output in market •sale and purchase of labour services at a price = wage rate (labour sold and purchased against wages = wage labour)•
Capitalist economy: in which most of the economic activities have the following characteristics ○
Intermediate Goods: goods used by other producers like material inputs (ex, steel sheets for automobiles, etc.)○
Consumption Durables: durable consumables like TV, washing machine, etc. which last long (unlike food, etc. which doesn’t)○
Consumption/Consumer Goods - goods like food, clothing, recreation and services•
Capital Goods - Enable production (tools, machines, etc.), undergo wear and tear and have to be replaced•
Final Good = An item meant for final use - no more stages of production or transformations○
Inventory = The stock of raw materials, semi-finished goods, unsold finished goods which a firm carries one year to the next ○
Stock : a variable measured at one specific time Flow : a variable measured over an interval of time.Change in stocks over a particular interval of time becomes a flow
Eg a person or a country might have stocks of money, financial assets, liabilities, wealth, capital, inventories, human capital
Eg : income, production, profits
○
Part of final output that comprises capital goods = Gross Investment of an economy○
Net Investment = Gross investment – Depreciation○
Depreciation = Consumption of Fixed Capital = Replacement Investment: annual allowance for wear/tear of a capital good = cost of good divided by no of years of useful life. No real expenditure may have actually been incurred each year yet depreciation is annually accounted for.
○
by producing consumption goods•generating income for those involved in production process•
Production makes consumption feasible in 2 ways○
If an economy produces more consumer goods, it is producing less of investment goods and vice-versa•But more capital goods produced now, more productive capacity of system in future. Hence a larger volume of consumption goodscan be produced in future => If, presently, economy sets aside a greater fraction of output for investment, capacity to produce more output in future rises.
•
Because capital goods, unlike non-durable consumer goods, do not get immediately exhausted with their use – they add to stock of capital in quantitative terms - thus make production of other commodities possible.
•
In a specific time period, say year, total production of final goods can be either in consumption (consumer goods) or investment (capital goods) and thus a trade-off.
○
Firms’ demand for FoP to run production process creates payments to public. In turn, public’s demand for goods and services creates payments to firms and enables sale of products they produce
○
Money & its SupplyIn India financial Regulators are RBI & SEBI
Money Primary Functions Derivative Functions
Macroeconomics & Money SupplyTuesday, July 30, 2019 7:45 PM
Store of Value (Savings & Investment) - you can't store rice easily but money can be
•
Transfer of Value (Kashmir 2 Kanyakumari) •Deferred Payment (Time value of Money) •Unit of Account•
eg, since one ounce of pure gold is equivalent to any other ounce of pure gold, gold is fungible ○
Fungibility does not relate to the exchange of one commodity for another different commodity○
Fungibility = property of a good/commodity whose individual units are capable of mutual substitution. ○
Transaction demand for money is positively related to the real income of an economy (i.e., real GDP) and also to its average price level
▪
Transaction Motive : 1.
Bond prices align to make its market price equal to present value in open market▪
Speculations regarding future movements in interest rate & bond prices give rise to speculative demand for money▪
When interest rate (bank wale interest rates) is very high (and therefore bond prices are low since people would rather put in FD than invest in bonds) everyone expects it (interest rates) to fall in future and hence anticipates capital gains from bond-holding. Hence people convert their money into bonds. Thus, speculative demand for money is low.
□
When interest rate comes down, more and more people expect it to rise in the future and anticipate capital loss. Thus they convert their bonds into money giving rise to a high speculative demand for money.
□
Hence speculative demand for money is inversely related to the rate of interest□
Note: bond yield (interest rate earned) & bond prices are negatively correlated▪
Speculative Motive2.
↑ interest rate, □↑ income □and hence does not stimulate economic growth.□
prevailing interest rates are low and savings rates are high, making monetary policy ineffective□In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings, because prevailing belief that interestrates will soon rise.
□
Because bonds have an inverse relationship to interest rates, many consumers don't want to hold an asset with a price that is expected to decline.
□
Liquidity trap = situation when expansionary monetary policy does not ▪
Total Demand for money in an economy is sum of transaction demand and speculative demand○
Demand for Money - tradeoff between the advantage of liquidity and the disadvantage of foregone interest•
RBI issues currency notes and GoI coins (and Re1 note)•Demand Deposits: balance in savings/current account deposits held by public in banks•Time Deposits: Like fixed deposits which have a period to maturity•Total = Net Deposit and time liabilities. Also unclaimed deposits form part of this•
Also called legal tenders as they cannot be refused by any citizen of country for settlement of any kind of trxn. ○
Cheques drawn on savings or current a/c, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders
○
Currency notes and coins are called fiat money bcz no intrinsic value like a gold/silver coin - value comes from the fiat/govt saying so•
Households, ▪
firms, ▪
local authorities▪
NBFIs, ▪
non-departmental PSBs▪
reserves of foreign banks, govts and IMF, etc. held in Indian rupee▪
public: ○
But Public excludes suppliers of money such as GoI, RBI & Commercial banks○
Money Supply = The total stock of money in circulation among public at a particular point of time•
RBI publishes figures for 4 alternative measures of money supply - M1, M2, M3 and M4•
Narrow Money = m1 Broad Money = m3
M1 = CU + DD (commercial banks) M3 = M1 + Net Time Deposits with commercial banks
M2 = M1 + Savings Deposits of Post Office M4 = M3 + Total deposits with Post Office (excluding National Savings Certificates)
Liquidity = M1 > M2 > M3 > M4CU = currency (notes plus coins) held by public ○
interbank deposits, which a commercial bank holds in other commercial banks = not part of money supply. □Net => only deposits of public held by banks are to be included in money supply. ▪
DD = Net demand deposits held by commercial banks○
M0 = Reserve Money = currency in circulation + banker's deposit with RBI + Other deposits with RBI•
M3 = Aggregate monetary resources = most commonly used measure of money supply▪
Narrow money = liquid▪
Finance Page 17
Narrow money = liquid▪
Broad money = less liquid, used by banks for lending▪
Represents people's preference for liquidity○
CDR ↑ during festive season as people convert deposits to cash balance for meeting extra expenditure○
Current Deposit Ratio: CU/DD => ratio of money held by public in currency to that they hold in bank deposits. •
Cash Reserve Ratio: fraction of deposits banks must keep with RBI▪
Statutory Liquidity Ratio: fraction of total deposits (demand + Time deposits) to be kept in the form of liquid assets▪
Bank Rate: rate of interest that RBI charges to banks when they borrow from it when they run out of cash reserves. Increase in this causes banks to keep more liquidity with themselves
▪
RBI uses various instruments to keep healthy RDR in commercial banks ○
Reserve Deposits Ratio: proportion of total deposits commercial banks keep as reserves (vault cash in banks + deposits of
commercial banks with RBI)
•
Commercial Banks accept deposits from public and lend out this money to interest earning investment projects. ○
The interest rate offered by bank to deposit holders = borrowing rate○
The rate at which banks lend out their reserves to investors = lending rate○
cash credit, demand and short term loans to private investors ▪
banks’ investments in g-secs and other approved bonds. ▪
Lending by commercial banks consists mainly of ○
Creditworthiness of a person is judged by her current assets or collateral he/she can offer.○
Working of banks•
currency in circulation (notes and coins in circulation with public and vault cash of commercial banks)▪
deposits held by GoI and commercial banks with RBI.▪
Consists of ○
High Powered Money = Monetary Base: the total liabilities of RBI •
Currency in circulation = currency with public - cash with banks•Money supply = liquid currency + deposits•
○
=> The increment in total money supply exceeds the amount of high powered money initially injected by RBI into the economy. ○
=> Total amount of deposits held by all commercial banks in country is much larger than the total size of their reserves. ○
If all account-holders of all commercial banks in country want their deposits back at the same time, the banks will not have enough means to satisfy the need of every accountholder and there will be bank failures.
○
Money multiplier = ratio of stock of money to stock of high powered money in an economy - Its value is > 1•
Bank run - a situation where everybody wants to take money out of one’s bank account before the bank runs out of reserves•
Savings ratio = total amount of person’s income not spent on consumption and invested in either bank deposits, bonds or other market instruments. In any economy, savings finance investments. Higher savings increase liquidity in market and reduce cost of credit => higher economic growth
•
Demand & SupplyEx Post measures = The actual or accounting values of variables – consumption, investment or output of final goods •Ex Ante measures = The planned values of variables – consumption, investment or output of final goods•
gives us ratio of total additional planned savings in an economy to total additional income of economy. ○
Marginal Propensity to save (mps) = Proportion of total additional income of economy that people wish to save•
Marginal Propensity to consume = Fraction of total income that people use to consume -•
only in equilibrium ex ante supply = ex ante demand○
When not in equilibrium there is accumulation of inventory on the right side of equation○
The Ex-Ante aggregate demand for final goods = sum total of the ex-ante consumption expenditure and ex ante investment expenditure on such goods
•
Effective Demand Principle = equilibrium output will be solely determined by aggregate demand in economy assuming fixed prices•The aggregate price level in economy changes only when adjustments in all markets of economy fail to eliminate excess demand or supply. Prices are, therefore, assumed to vary only in long run
•
Initial increment in autonomous expenditure spills over on equilibrium value of aggregate demand & output and they increase by an amount greater than initial increment in autonomous expenditure (thus govt spending has multiplier effect)
○
When govt is included in the economy, then its aggregate demand and effect of taxes has to also be considered•
Output Multiplier of the economy = ratio of total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure (= govt spending). It is > 1
•
If all the people of the economy increase the proportion of income they save (ie if mps of economy ↑) the total value of savings in the economy will not ↑ – it will either ↓ or remain unchanged.
○
Paradox of Thrift - states that as people become more thrifty they end up saving less or same as before•
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Consumers & firms can choose b/w domestic & foreign goods = product market linkage•Investors can choose b/w domestic & foreign assets = financial market linkage•Firms can choose where to locate prodn and workers can choose where to work = factor market linkage. •Labour market linkages have been relatively less due to various restrictions on movement of people through immigration laws•
Interaction with other economies of world widens choice in 3 broad ways•
Total foreign trade (exports + imports) as a proportion of GDP = common measure of degree of openness of an economy•
In Open Economy Domestic demand for goods ports (ie foreign demand) Imports
because part of domestic demand falls on foreign goods. •It also results in a deterioration of trade balance•
Open Economy Govt Spending Multiplier is smaller than that in a closed economy •
Domestic income ↑ => ↑ imports spending => Trade deficit•An increase in foreign income ↑ => ↑ exports => ↑ domestic output => improves trade balance.•In inflation exports invariably get fucked {bcz we lose competitiveness}•
Smaller saving {matlab pvt corporate investments are ↓}○
In such cases country’s capital stock will not rise rapidly enough to yield enough growth (called ‘growth dividend’) it needsto repay its debt
▪
or a larger budget deficit {matlab bahar k paise se sarkaar chal rahi hai}○
But reason to worry about country’s long-run prospects if trade deficit reflects •Trade deficits not alarming if country invests borrowed funds yielding a growth rate > interest rate•
Twin deficits = when economy has both trade deficit and budget deficit•
Balance of PaymentsBoP record trxns in goods, services & assets •b/w residents of country with rest of world for a specified time period typically a year•Two main accounts in BoP•
1. Current Account: records exports and imports in goods and services and transfer payments
pvt transfers by citizens of one country to those of another○
3 basic categories of invisible imports/exports:•Invisible imports and exports not taken into consideration for calculation of trade deficit or surplus•
=> possible to have trade deficit yet current account surplus (invisible exports are way larger than trade balance)•Adding trade in services and net transfers to trade balance, we get Current Account balance, surplus and deficit•
Current account balance: sum of balance of merchandise trade, services and net transfers received from rest of world. •
=> potentially spurs economic growth because we can import now & make them into finished products later and export them thus causing a temporary deficit
○
or high rate of investment •
or both (India's CAD is 1.5 - 2.5% of GDP)•
CAD reflects •
Reduce fossil fuel dependence •
Will ensure savings are invested into economy rather than Gold ○
↓ Inflation & ensure +ve Real Interest rate •
boost services but alone insufficient => Make in India•Promote FDI - Capital PLUS but Current MINUS => promote tech and stds upgradation to develop competitive indigenous industry to finally boost exports
•
To reduce CAD ?•
2. Capital Account: records all international purchases and sales of assets such as money, stocks, bonds, etc.
Any trxn resulting in a payment to foreigners = debit = −ve sign•Any trxn resulting in a receipt from foreigners = credit = +ve sign•
Capital Account Inflow
Most Stable Most volatile
Capital Account Outflow
Profits of foreign investors•
Open Economy Macroeconomics Wednesday, July 31, 2019 11:10 AM
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Most StableFDIExternal assistance (Soft loans) ECB
Most volatileFII (FPI) FCNR Foreign Currency Non. Resident a/c
Profits of foreign investors•Indian investments abroad•Repatriation of FCNR A/cs or other foreign savings invested in India
•
Capital account balance: capital flows from rest of world, minus capital flows to rest of the world
BOPBOP deficit or surplus is obtained after adding current and capital account balances•The ↓ (or ↑) in official reserves = overall BOP deficit (or surplus)•
How to face BOP crisis?
Great depreciation of currency•↓ CAD or make it into surplus•Capital surplus should be large (attract investment, Business reforms, EoDB)•Central Bank must have large-FOREX reserve•
BOP crisis occurs when capital account surplus insufficient to finance current deficit •
Twin deficit = High CAD and High FD•
Currency Exchange
Foreign currency assets (FCA) (USD, Euro, Pound Sterling, Canadian Dollar, Australian Dollar and Japanese Yen etc.)•Gold•Special Drawing Rights (SDRs) of IMF •Reserve tranche position (RTP) IMF •
Components of FOREX Reserves•
Devaluation vs Depreciation •
Devaluation - in a fixed rate regime, if own currency value is decreased deliberately. Eg like China does to its Renminbi to boost its exports
Revaluation - ulta
Deprecation - In a floating rate regime, if a currency loses its value bcz of lack of demand for it or its over-supply. Eg when Rupee falls in case of lot of FPI outflows
Appreciation - ulta
Nominal exchange rate = price of one unit of foreign currency in terms of domestic currency•
= nominal exchange rate *
•
It measures international competitiveness of country in intl trade•When real exchange rate = 1, the 2 countries are in purchasing power parity (PPP)•
Real exchange rate = relative price of foreign goods in terms of domestic goods. •
Nominal Effective Exchange Rate (NEER)multilateral rate •= weighted avg of nominal exchange rates of foreign currencies, each weighted by importance to domestic country in intl trade.
•
NEER > 1 => apni currency ka worth zada hai compared to the basket•
Real Effective Exchange Rate (REER)= weighted average of real exchange rates of all its trade partners, the weights being shares of respective countries in its foreign trade.
One foreign currency is traded for another without having to first exchange the currencies into USD•Cross Currency = arrangement where a pair of currencies traded in forex that does not include USD•
↑ interest rates in US => appreciation of USD => everyone starts putting money in various devices at home => demand increase => currency appreciation => INR falls compared to USD
○
Interest rate differential b/w countries.1.
Speculation2.
If one country has higher inflation than another, its exchange rate ↓○
Exchange rates b/w any two national currencies adjust to reflect differences in price levels in two countries○
According to PPP theory, differences in domestic inflation & foreign inflation = major cause 3.
Other things equal, a country whose aggregate demand grows faster than rest of world’s normally finds its currency depreciating because its imports grow faster than its exports
4.
Other factors are more important than relative prices for exchange rate determination in short run. However, in the long run,
purchasing power parity plays an important role5.
Factors affecting exchange rate
ConvertibilityWhy restrictions on convertibility?
Central bank cannot ”manage” floating exchange rate regime all time otherwise Forex-reserve will get empty•
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Central bank cannot ”manage” floating e change rate regime all time otherwise Fore -reserve will get empty•Hence quantitative restrictions on rupee-conversion to foreign currency•Two types based on purpose:•
FULL convertibility => Rupee fully convertible into another currency, for current account transactions and vice-versa•Some restrictions under FEMA {check forex mkts}•
Current A/c Convertibility •
Not full convertibility•
100% convertibility for Investment in Bhutan○
cept can't invest in FATF “Non co-operative countries" - eg Iran, N. Korea▪
Everywhere else: max $75k per year (individuals). eg buying shares, opening foreign bank accounts○
Restrictions under FEMA for FDI, FII•
Some FEMA restrictions for ECB eg Sectoral quotas eg 1 Bn $ Entire Aviation sector + Approval RBI needed in certain cases•
Capital A/c Convertibility •
=> ↑ FDI attracted. •But, FII is speculative and highly volatile => frequent movement (in/out)wards will create volatility in exchange rates & in financial markets (mainly money mkt)
•
Full capital account convertibility => FDI/FII allowed to move in/out of India w/o any restrictions•
Large forex reserve couldn't BoP crisis in Malaysia and Thailand (late 90s) ○
India, China did not face crisis bcz they didn't have full capital account convertibility
○
Don't need large FII, FDI, ECB, just make people invest in bank/securities instead of gold/ real-estate.
○
It can't fix •
When the NRIs park their funds in India = also a type of external debt = NRI deposits. If the external debt is denominated in Indian Rupee, it is called Rupee Debt.
•
100% FDI in following sectors - infra, pharma, railways, textiles, automobiles••
FIPB abolished - Processing of applications for FDI and approval of Govt now be handled by concerned Ministries/Depts in consultation with DIPP for < 5k crore
•
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National Income AccountingNet Domestic Product = GDP – Depreciation
National Product = domestic product + income of nationals staying abroad – income of foreigners in country○
Factor cost: cost incurred in paying FoP ie land (rent), labour (wages), Capital (interest, dividend), entrepreneur (profits). Essentiallycost of prodn.
○
Market price of good = Factor cost + Indirect taxes – subsidies○
=> GDP at mkt price = GDP at factor cost + Indirect Taxes – Subsidies○
Real GDP = Nominal GDP at current market prices/ GDP deflator○
Expenditure Method = total expenditure by all households on all goods and services received by all firms•Income Method = total of all payments to factors of production. •Product Method = total value of goods and services produced by all firms excluding intermediate products used by them(GVA)•
Ways of measuring National income
= (value of production of firm - value of intermediate goods used by firm)•
Value Added = Net contribution by firm to total value of produce ○
The sum total of gross value added by all the firms in an economy gives GDP
GVA at basic prices includes production taxes and excludes production subsidies available on the commodity.○
GVA at factor cost excludes taxes and includes subsidies ○
GDP at market prices includes both production and product taxes and excludes both production and product subsidies. ○
GVA at basic prices = GVA at factor cost + (Production taxes less Production subsidies)○
Net is always (Gross - Depreciation)○
= GDP + Factor income earned by domestic factors of production employed in rest of world – Factor income earned by factors of production of rest of world employed in domestic economy
•
Gross National Product (GNP)○
Net National Product (NNP) = GNP - Depreciation○
Everything is measured at market prices which includes indirect taxes levied by Govt (which ↑ market prices) and subsidies provided by Govt (which ↓ prices).
○
Net National Product @ factor Cost = National Income = NNP - Indirect taxes + Subsidies○
Undistributed profits = part of profits undistributed among factors of production○
Corporate tax = tax levied on firms' earnings by govt○
Transfer payments = from govt and firms (pensions, scholarship, prizes) - added to calculate Personal Income of households○
= National Income – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to households from govt and firms
Personal Income = Part of national income received by households○
= personal Income - Tax Payments - Non tax payments (fines, etc)
Part of personal income over which households have complete say = Personal Disposable Income ○
gives an idea of maximum amount of goods and services that domestic economy has at its disposal•National Disposal Income = NNP at market prices + Other current transfers from the rest of the world (gifts, aid, etc.)•
National Disposable Income
Nominal and Real GDPGDP is measured at prevailing market prices○
Nominal GDP: GDP measured at current market prices•Real GDP: when goods or services are evaluated at Constant Prices (which remain fixed)•Base year = the year whose prices (constant price) are being used to calculate the real GDP•
based on both CPI & WPI (more weight) ○
calculated by CSO○
GDP Deflator: Nominal GDP/ Real GDP •
=> To compare economies or compare one year's GDP with another's, we need to take prices out of the equation○
If value of depreciation is included in value added, then = Gross Value Added ○
If we deduct the depreciation value from Gross Value Added then Net Value Added ○
Per Capita Real Income = most appropriate measure of a country’s economic growth○
GDP doesn’t showUnderground economy○
Opportunity Cost○
Tuesday, July 30, 2019 9:34 PM
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HDI reflects opportunity cost •○
Gini coefficient reflects income inequality•
Income inequality○
Distribution of GDP - how uniform is it○
Non-Monetary Exchanges - std GDP calculation doesn’t include barter e changes, work done for free (like housewives, children do)○
Aren't included in GDP •
But it will benefit local businesses, because of increased accessibility○
Eg cost of envt pollution due to mfg, construction of a new airport•
Externalities - the cost or benefit that affects a party who didn't choose to incur that cost or benefit○
Consumer Price Index= index of prices of a given basket of commodities which are bought by the representative consumer.○
CPI is expressed in %age terms. ○
Base year = year whose consumption level is included in creation of basket of goods and services is called base year•Current year•
We have 2 years under consideration ○
The BASE year for inflation is just for basket of goods and not %age calculation. Inflation is calculated YoY, but prices of goods a/c to the selected base year
○
This way, on previous years base, this year’s inflation is calculated and if inflation was e traordinarily high last year, du e to high base, this year’s inflation will appear subdued and this is known as base effect
○
GDP Deflator and CPI comparison
The goods purchased by consumers do not represent all goods produced in a country. GDP deflator takes into account all such goods and services.
CPI includes prices of goods consumed by representative consumer, hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.
The weights differ according to production level of each good in GDP deflator.
If govt decides to spend more by borrowing, it increases aggregate demand and known as expansionary fiscal policy
Direct taxes > Indirect taxes•Corporate tax > Income tax > Excise > Service tax > Customs duty {Cash in Ex Servicemen's Customs}•Non plan expenditure> Plan expenditure (> 2X)•
Tax concessions can also be considered as implicit subsidy
Govt should subsidize merit goods.○
Merit goodsA good which would be under-consumed (and under-produced) in free market economyBcz associated with positive externality i.e. they also benefit public but since consumers and producers will take account ofonly private benefits, they are likely to consume less than desired. Eg edu>>earns more <private benefit> + more productive individual >>benefit society + higher taxes<societal benefit>
○
Increasing consumption of items govt considers important such as health, edu, nutritious food, renewable energy•
For this subsidies should be well targeted >>minimal leakages. Without inclusion errors or exclusion errors. Exclusion errorsare worst since they direct affect poor <kerosene meant for poor not reaching him, how will she light her house>
○
Redistributive effect i.e. to provide min level of protection to poor <welfare fxn, tax rich, distribute in poor>•
Purpose of subsidies is 2 fold
Subsidy rationalization = process of better targeting to weed out unintended beneficiaries + phasing out subsidies on non-merit goods.
End perverse subsidies while investing in state capacity to deliver basic goods and merit goods such as health, edu, skills etc.•Incentivize R&D, env friendly tech etc.•Borrow only to invest•Adhere to FRBM targets of zero RD•
Solution
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Budget Deficits & Taxes
Medium-term Fiscal Policy Statement sets a 3-year rolling target for specific fiscal indicators and examines whether revenue expenditure can be financed through revenue receipts on a sustainable basis and how productively capital receipts including market borrowings are being utilized.
•
Fiscal Policy Strategy Statement sets priorities of govt in fiscal area, examining current policies and justifying any deviation in important fiscal measures.
•
Macroeconomic Framework Statement assesses prospects of economy wrt GDP growth rate, fiscal balance of GoI and external balance
•
Along with budget, 3 policy statements mandated by FRBMA 2003•
Budget is divided into 2
1. Revenue Budget2. Capital Budget
Both have two parts.•
Incoming: Tax > non-tax ○
Outgoing: Non-plan > plan ○
NET: Expenditure > Receipts ○
Revenues•
Revenue Account: day-to-day account which shows what govt receives and spends on day-to day basis.
Capital Account: long-term account
Budget Deficits => Expenditures > ReceiptsAre of 4 types
Revenue Receipts (RR)Govt receipts which neither create any liability for govt nor cause reduction in its assets.
Tax receipts = direct and indirect,•Non-Tax receipts = dividend, interest earned, fees & fines, gifts & grants, fees, fines, income from sale of spectrum, escheat & lapse
•
Revenue Expenditure (RE)
day-to-day expenditure like •on law & order, interest payment, pension & salaries, subsidies, maintenance & repair of assets.
•
Disinvestment1.Proceeds from sale of assets – spectrum, coal blocks,2.Recovery of past loan,3.borrowing both from inside & outside country4.
[here 1, 2 & 3 are non-debt creating receipts]•
Capital Receipts (CR) = Govt receipts which either (i) create liabilities (eg borrowing) or (ii) reduce assets (eg disinvestment) Loans to state/UTs•
Repayment of past loan•expenditure on infra – physical (roads, etc), social (edu, healthcare etc)
•
Capital Expenditure (CE)
=> the amount that needs to be borrowed to run my daily affairs •fixed as 0 by FRBMA => govt must be able make general expenses from its revenue receipts without borrowing•
Will build up debt and interest liabilities and force govt, eventually, to cut expenditure○
When revenue deficit => govt is dissaving = using up savings of other sectors of economy to finance a part of its consumption expenditure => has to borrow not only to finance investment but also its consumption requirements.
•
Since major part of revenue expenditure is committed expenditure, it cannot be reduced•=> Often govt ↓ productive capex or welfare expenditure => ↓ growth and adverse welfare implications•
Grants to states = revenue expenditure (even if some of it is used for asset creation)•
Effective Revenue Deficit (ERD) = (RD − Grants for capital asset creation)•
= [ Total Expenditure (b+d) – { a + (i,ii,iii of c) } ] •indicates total borrowing requirements of govt from all sources => amount govt has to borrow to create assets etc (loan to bu y house)•Gross FD = Net borrowing at home + Borrowing from RBI + Borrowing from abroad•
Fiscal Deficit (FD) = Total Expenditure – {(Revenue Receipts) + (Non-debt creating capital receipts)}•
if PD = 0 then all debt is due to previous govt, ○
if PD = FD then all loans are due to present govt○
=> amount of loans taken by current or older govt, •
Primary Deficit (PD) = FD – interest payments (of loans taken in past)•
When there's a Budget DeficitDeficit Financing through Central Bank Monetizing Debt
Tuesday, July 30, 2019 7:58 PM
Finance Page 24
Deficit Financing through Central Bank BorrowingIn case of budget deficit, Govt needs to borrow money to pay for its expenditures
•
=> borrows money from RBI by selling T-bills or g-secs to RBI
•
The money ultimately comes into the economy (eg as salary) and becomes a part of money supply.
•
Monetizing Debt
Monetizing Debt can be thought of as what US FED did in subprime crisis when it bought all bad derivatives
○
Central bank buys govt debt and prints money in its lieu.•
Essentially govt get its borrowing for free as central bank can print as much money as it wants but it's very inflationary hence RBI stopped it and now it doesn’t happen in India
•
Now there's Ways and Means Allowance which allows for short term mismatches•
•
Printing Currency is the last resort for the government in managing its deficit (as it increases inflation => need to increase salaries => more printing => inflation = vicious cycle
○
External Borrowings used to manage fiscal deficit when external loans are comparatively cheaper and long-term. considered better than the internal borrowings as it prevents crowding out
○
The act/process of financing/supporting a deficit budget by a government is deficit financing•
Govt taxes ↓ disposable income => ↓ consumption => ↓ demand •Keeping taxes constant if govt ↑ its demand (i.e., FD) => demand ↑ => firms ↑ prodn => need more labour & ↑ bonuses => ↑ income •a tax cut (or ↑) will cause an ↑ (or ↓) in consumption & output, tax multiplier is a negative multiplier.•
because an ↑ in govt spending directly affects total spending •whereas taxes enter multiplier process through their impact on disposable income which affects household consumption•
Tax multiplier is a smaller multiplier as compared to govt spending multiplier•
If an ↑ in govt spending is matched by an equal ↑ in taxes, so that budget remains balanced, output ↑ by amount of ↑ in govt spending.•
=> This helps limit upward fluctuation in consumption spending. ○
When GDP ↑, disposable income also ↑ but by < ↑ in GDP because part siphoned off as taxes. •
During recession when GDP ↓, disposable income ↓ less sharply, and consumption does not drop as much as it otherwise would have fallen had tax liability been fixed. This reduces ↓ in aggregate demand and stabilises economy.
•
Proportional income tax (a constant fraction of income taxes), thus, acts as an automatic stabiliser – a shock absorber because it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP
•
Transfer payment = Govt transfer = Transfer = redistribution of income in market system. •
ie transfer is made without any exchange of goods or services. •Eg transfer payments include welfare (financial aid), social security, and govt making subsidies for certain businesses (firms).•Transfer payments are receipts which residents of country receive ‘for free’, without having to make any present or future pa yments in return. They consist of remittances, gifts and grants and Subsidies
•
Is non-exhaustive bcz dont directly absorb resources or create output •
On transfers income increases by less than it increased with a rise in govt spending•If govt invests in infra, future generations may be better off, provided ROI > rate of interest•Central govt must ensure inter-generational equity, long term macro-economic stability by achieving sufficient revenue surplus, removing fiscal obstacles to monetary policy and effective debt mgt by limiting deficits and borrowing
•
Tax Avoidance Tax Evasion
ReportedLegal loopholes used to avoid taxBlack money - can't sayVodafone CGT
some examples of capital assets: land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery. This includes having rights in or in relation to an Indian company. It also includes rights of management or control or any other legal right.
•
Not considered capital assets = Any stock, consumables or raw material held for the purpose of business or profession. Personal goods such as clothes and furniture held for personal use. Agricultural land in rural India. gold bonds issued by central govt. Special bearer bonds (1991). Gold deposit bond issued under the gold deposit scheme (1999)
•
Sale of spectrum = Non-tax Revenue Receipt. Though an asset, the 'sale' is not classified in the Capital Account. The Government does not 'sell' the spectrum, it gives license to the telecom companies. Technically, the Government is still the owner of the spectrum. The asset-liability equation does not change with the sale of the spectrum, as a reason the proceeds are not classified as Capital receipts. It is treated as provisioning of services.
•
Taxes
Direct Taxes Have two subtypes
On Income/ ExpenditureIncome tax Corporate Tax (and MAT) Interest tax (on banks)* Fringe benefits tax * Hotel receipt Tax*
On properties/ assets/ CapitalWealth Tax Securities transaction Tax (STT)Dividend distribution TaxCapital Gains Tax.Commodities Transaction TaxBanking cash transaction tax* Estate duty*
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Estate duty* Gift tax*
Taxes marked in ( * ) have been abolished long time ago. In case nostalgic UPSC professor wants to ask classification
We should also know the direct taxes of state government.
DIRECT TAXES OF UNION
Income tax Corp Tax (and MAT)
Taxes on Income
Wealth Tax DDT, CGTSTT, CTT
Taxes on assets
DIRECT TAXES STATES
Agriculture income ta •Professional tax •
Taxes on income
Land Revenue •Stamp duty/ regn •Property tax in urban areas•
Taxes on properties
Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges except agricultural commodities.Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax, considered as a direct tax
Hierarchy of amounts gotten by govtCorp >> IT >> STT > wealth tax
infrastructure and power sectors, ○
free trade zones, ○
charitable activities, ○
venture and angel funds. ○
MAT applicable on all companies except those engaged in {MAT came through IT act and not Companies Act}
Foreign companies with income sources in India also come under MATFIIs and FPIs - MAT not applicable - retro from 2001Profit and loss of a corp calculated as per Companies Act, the income tax is calculated as per Income Tax Act
Indirect taxes Indirect taxes (Union) Custom Duty (Import, Export) Excise Duty Service Tax Central sales tax (CST)* *CST-Central sales tax- belongs to Union but cash entirely given to States. So in budget estimates, it's collection is listed as "" or "00". But for MCQ, know that it is "Indirect tax of Union."
GST (IGST, CGST)
Indirect Taxes (States) Sales Tax/ VAT (now SGST)Excise duty on liquor and Narcotics Motor vehicle tax, Taxes on boats and animals. Toll taxElectricity tax. Luxury tax (on restaurant, spa etc.) Taxes on Betting and GamblingAdvertisement tax (other than TV, Radio, Newspaper)
Service Tax levied by Centre but Collected and Appropriated by Centre and States (Article 268-A)
Rice: services related to loading, unloading, packing, storage and warehousing. Putting service tax on rice related services= raises the cost of implementing Food security act.
○
Cord Blood bank (they store umbilical cord for future stem cell therapy) ○
Make no mistake: they're exempted, but not put in "negative list"○
Following items been exempted from service tax payment
Service tax "negative list"
Govt. cannot levy Service tax on the names included in this list (total 17 items)
•
To modify this list, - Amend Finance Act •Examples •Services by RBIBetting and gambling. (because they fall under State list.) Funeral, burial
Exempted list
Theoretically, these services are taxable under service tax, BUT for the time being, FM gave them exemption
•
FM can modify this list by a simple notification. •Examples •Rice loading-unloading Cord blood bank
Sales tax is levied when goods are sold/bought within country or state. There are two major types of sales taxes – central sales tax, levied by Union Govt and sales taxes, by state govts.
Central sales taxes applied when a dealer sells goods during interstate commerce or trade. These taxes are also implemented when product sold outside a state or when exported/imported.
•
Sales tax Levied and Collected and Retained by States>>belong to states exclusively. Enumerated in state list. For e.g. land revenue; taxes on agri income, succession and estate duties in respect of agri land; taxes on lands and buildings, on mineral rights, on animals and boats, on road vehicles etc.
•
Counter Veiling Duty (CVD)
Vehicle mfg by Desi player Foreign co (and imported in India)
Subjected to Excise duty Custom duty
•
Finance Page 26
Foreign co (and imported in India) Custom duty •
It may happen that, desi vehicle is expensive because high excise duty on its input (chassis, engine, wiring, glass etc.) •
=> domestic industry gets less sales. IIP declined, job loss, industrial sickness. •Result: Foreign vehicle cheaper, junta more attracted to buying foreign vehicle than Desi. •
Possible- Solutions: •Give subsidy to desi vehicle makers •Reduce excise duty on desi vehicle (and its inputs) •Increase custom duty on foreign vehicle => Put additional custom duty on foreign vehicle to such a level that it becomes of same level like [taxes on desi vehicle].. This solution is called counter veiling duty (CVD).
•
Surcharge = a charge on any ta already paid. It’s a fee or other charge added to cost of a good or service.Goes into CFI •
Typically added to existing tax, and may not be included in stated price of good/service. •May be a temporary measure to defray cost of increased commodity pricing, such as with fuel surcharge, or may be permanent.•
govt can spend on any item deemed fit. •
Cess
Tax on a tax levied by govt to raise funds for a specific purpose. •Collections from Cess reqd to be kept outside CFI to be spent only on specific purpose for which it was levied.•
VATSales tax levied on sale of goods/services when ultimately sold to consumer. •While VAT levied on sale of goods/services and paid by producers to govt, actual tax collected from customers who purchase - Indirect tax.•Multi-stage tax levied at each step of production of goods/services which involves sale/purchase. •VAT levied both on local/imported goods.•Comes under purview of state govts and hence varies state to state•
Octroi :
duty levied in some states on goods entering a town or city. Just as customs duty ensures that goods for other countries are taxed, Octroi is meant to ensure that goods crossing state borders within India are taxed appropriately.
•
It is levied by the ULB •
Excise Duty (CENVAT)collected from those entities that receive mfgd goods and employ people to transport goods from mfg to themselves.•
GST
GST Council has specified 12 categories of services for reverse charge▪
Reverse charge mechanism - liability to pay tax is of the recipient of goods & services rather than the supplier when the goods or services have been received from an unregistered person.
E-way bill - from Apr 1 2018, value > 50K, distance beyond 10km. Daily needs items exempt. Single E-way bill for throughout country
•
Consumer Welfare Fund - set up by Dept of Revenue, operated by the dept of Consumer Affairs, MoCAF&PD○
Profiteering = unfair profit realized by traders by manipulating prices, tax rate adjustment etc - Undue benefits made by businesses under GST-regime, have to be deposited in GST Consumer welfare fund, IF the benefit can’t be passed on to an identified recipient.
•
Education cess on imported goods, a.Secondary and higher education cess on imported goods, b.Cess on crude petroleum oil, c.Additional duty of excise on motor spirit and diesel oil (road cess), d.Special additional duty of excise on motor spirit e.NCCD on (tobacco and tobacco products) and (crude petroleum oil)f.
Cesses not subsumed under GST = 7 + 1 (1% cess for NHPS announced this budget)•
GST COMPOSITION SCHEME•compliance friendly tax scheme for SMEs - pay a fixed %age of their turnover as tax. They need to fill only reduced number of returns compared to normal tax payers under GST.• A tax payer under the Composition Scheme under GST will be required to file summarized returns only on a quarterly basis.• Turnover limit: less than Rs. 1.5 crores.• for businesses dealing in goods. Services providers can’t avail the scheme. But restaurants can opt for the scheme. Ecommerce firms can’t • only for intra-state supplies• A Composition scheme firm is not allowed to avail input tax credit of GST.• A Composition Dealer is not allowed to collect composition tax from the buyer.
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To protect the minimum wages against inflation, GoI introduced variable Dearness Allowance (VDA) linked to CPI○
Indices of Inflation & sources
Measure Base Yr Frequency Time Lag By
WPI 2011-12 Monthly 1 Month Economic Adviser in (DIPP) under MoC&I
CPI (UNME) 1984-85 Monthly 2 Weeks CSO under MoSPI
CPI (IW) 2001 Monthly 1 Month Labour bureau
CPI (AL) 1986-87 Monthly 3 Weeks Labour bureau
CPI (RL) 1983 Monthly 3 Weeks Labour bureau
CPI (Urban) 2012 Monthly 1 Month CSO under MoSPI
CPI (Rural) 2012 Monthly 1 Month CSO under MoSPI
CPI (Urban+ Rural) 2012 Monthly 1 Month CSO under MoSPI
WPIBase year 2011-12○
Office of Economic Adviser, In DIPP, MoC&I○
Monthly - 14th of Every month: all commodities○
Final - Above two are “provisional” because some prices are not available.Final list released two months (~EIGHT weeks). When they get authentic price data for all commodities
○
Weekly - Every Thursday○
Primary articles - Respective ministries, depts, PSU, State Govts○
The new WPI series does not include indirect taxes in its calculation. This insulates the WPI from the effect of policy changes related to indirect taxes and thus makes it a more accurate measurement. It has also modified the weightages of its categories, placing a higher weightage to primary articles while reducing the weightages of fuel and power, and manufactured products.
○
The new series saw 173 new items added to the list and 135 items being dropped. ○
A composite food index, which combines ‘food articles’ segment of primary articles category and ‘food products’ segment under manufactured products category>>better understanding of movement of food prices, especially when viewed together with CPI.
○
WPI FOOD INDEX (Weight 24.38%)○
shows performance of different industrial sectors of Indian economy - general level of industrial activity in the economy.•Modifications of IIP
Base year - updated to 2011-12 •By CSO, MoSPI•monthly basis with time lag of six weeks from reference month•
Sector wise: Mfg, Mining, Electricity○
Goods category wise using same components as above, but data presented for goods category wise○
IIP is a quantitative index, prodn of items expressed in physical terms.○
But for some items, info received in “Value” term rather than quantity or volume.○
IIP data released in two formats•
new series has a total of 809 items, up from the 620 earlier. It is also more updated, having added 149 items of more recent use, such as steroids, hormonal preparations, and pre-fabricated concrete blocks, and deleted 124 other items such as calculators, and colour TV picture tubes.
•
It also changed weightages >>increasing for manufacturing sector and marginally for mining sector, while reducing for
Index of Industrial Production - IIP○
IndicesTuesday, July 30, 2019 7:44 PM
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It also changed weightages >>increasing for manufacturing sector and marginally for mining sector, while reducing for electricity sector.
Updated item basket and weighting structure.•National Industrial Classification (NIC) 2008 adopted in new IIP.•Items in item basket selected at NIC 3-digit level to ↑ representativeness.•No of item groups ↑ from 399 to 407 {149 = new/ emerging items}•Electricity generation from RE sources included under ‘Electricity’ sector.•Weights rationalised to reflect actual value addition of each sector incorporating effects of subsidies.•New use-based classification adopted with categories•
New Series (base 2011-12) Weight (%)
Primary goods 34.05
Intermediate goods 17.22
Consumer nondurables 15.33
Consumer durables 12.84
Infrastructure/construction goods 12.34
Capital goods 8.22
A review mechanism introduced through a Technical Review Committee.•
8 core industries (Refining Engineer Saw Costly Crude Near Cement Factory) arranged in order of weight for IIP •
Both ASI and IIP by CSO but core industries index by OEA in DIPP•Data from 14 agencies in various Ministries/Depts - but majorly DIPP (322/407 item groups with a weight of 47.54% in overall IIP)•IIP is released every month as Quick Estimates with a time-lag of 6 weeks as per IMF norms•
CPIBase year 2012○
By CSO, MoSPI○
Annual: with lag of one month.○
State/UT’s separate CPIs released only if they provide 80% of the necessary data.○
Monthly basis: for urban, rural, all India○
Urban areas NSSO official survey. Data entered into NIC web portal.○
Rural areas NSSO officials + Postal Officials (if NSSO can’t reach). Not all villages surveyed, ~1200 villages.○
CPI Data collection○
Headline CPI inflation: The number you get from combined data of above categories.○
Core CPI inflation: Core CPI =Headline CPI MINUS (food and fuel components.)○
Consumer Food Price Index (CFPI)By same CSO (under MoSPI), Using same Laspeyre formula○
Using same base year: 2012○
If total weight of CPI = 100, then Food price index = ~52% of its weight○
measure of change in retail prices of food products consumed by a defined population group in a given area with reference to a base year○
3 categories - rural, urban and combined - separately on an all India basis○
Service performance indices (SPI)No Index covers service sector inflation completely○
CPI - Partially e.g. education, healthcare○
IIP - doesn’t capture “inflation”, only increase/decrease in “prodn”. But Service sector prodn not counted.○
There4, Economic Advisor started services price indices(SPI) on experimental basis using Laspeyre's formula○
To capture inflation in - Railways SPIs, Banking SPIs, Banking services, Postal SPIs, Telecom SPIs○
Baltic Dry indexLondon based Baltic Exchange, released on daily basis.○
Measures cost to transport raw materials by sea.○
If Baltic number Increases => More raw material shipped. World economy growing and vice versa○
Producer Price Index (PPI)Govt set up Goldar committee to devise PPI.○
Measures price change from perspective of producer .i.e. Avg change in selling prices received by domestic producers for their output.○
Covers both goods + services. (WPI only covers goods)○
Sellers’ and purchasers’ prices differ due to govt subsidies, taxes and distribution costs.○
There4, better to use PPI. Bcz CPI doesn’t cover this.○
Majority of OECD countries measure inflation based on PPI○
WPI replaced in most countries by PPI due to broader coverage provided in terms of products and industries○
PPI has more concordance with system national account. (Compared to WPI)○
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National Income Accounting; •conduct of Annual Survey of Industries, •Economic Censuses and its follow up surveys, •compilation of IIP, + CPI for Urban Non-Manual Employees, •Human Development Statistics, Gender Statistics, •Imparting training in Official Statistics, •FYP work relating to Development of Statistics in the States and UTs; •dissemination of statistical information, •work relating to trade, energy, construction, and environment statistics, •revision of National Industrial Classification, etc.•
CSO Activities
Business Expectations Index is by RBI •
household perceptions and expectations on general economic situation, the employment scenario, the overall price situation an d their own income and spending
○
conducted in 6 metros- Mumbai, Kolkata, New Delhi, Chennai, Hyderabad, Bengaluru.○
Consumer Confidence Survey by RBI
Manufacturing PMI (Purchasing Managers’ Index) is by Nikkei India •
new orders, inventory levels, production, supplier deliveries ○
and the employment environment○
PMI is based on 5 major indicators: •
NHB Residex, by NHB, tracks housing price indicators across Indian cities on quarterly basis•Its revamped version was launched in 2017 with wider coverage (50 cities now, earlier 26), and a new base year(2012-13) and new data source (banks and home finance companies and market surveys)
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Definitions in line with companies act and MSME Act )○
new bill allows ↑ authorized capital from Rs. 5K crore to Rs. 30K crore and even further in consultation with RBI, as deemed necessary from time to time.
oNABARD – 100% GoI •
EXIM – 100% GoI•NHB – 100 % GoI •SIDBI - SBI, LIC, IDBI other PSBs, Insurance companies•
SEBI - Securities & Exchange Board of India Board Chairman – Ajay Tyagi •
G Mahalingam, oMadhabi Puri Buch, oSK Mohanty oAnanta Baruao
4 Whole time members•
NS Vishwanathan (RBI Dy Gov'nor)oAnand Mohan Bajaj - Jt secy, DEA, MoFoKVR Murty - Jt Secy, MoCorp AffoDr V Ravi anshuman (IIM-B)o
4 Part time members •
Acts says 1 Chair appointed by GoI + 1 RBI official + 2 govt officials + 5 others to be appointed by GoI •Important Committees by SEBIAlternative Investment Policy Advisory Committee under Narayan Murthy •Corporate Bonds and Securitization Advisory Committee under HR Khan •Secondary Market Advisory Committee under Jayanth Varma •Primary Market Advisory Committee under TV Mohandas Pai •
About Head office at Bombay •1st est 1988 as a non-statutory body for regulating securities market •Est 12th April 1992 in a/c with provisions of SEBI Act 1992•Appeals against SEBI orders lie in Securities Appellate Tribunal •Forward Markets Commission which was chief regulator of commodity futures markets in India, merged with SEBI in 2015•
Securities Appellate Tribunal Justice Tarun Agarwala = Presiding Officer of SAT•Statutory body under SEBI Act 1992 to hear and dispose of appeals against orders passed by SEBI •
IRDAI IRDAI Act 1999 •
Chairman ○
5 whole time members ○
4 part time members ○
Authority is a 10 member team, all appointed by GoI, consisting of •
K. Ganesh (life)○
TL Alamelu (member non life)○
Pravin Kutumbe (Finance & investment)○
Sujay Banerjee (distribution)○
Pournima Gupte (actuary)○
Members appointed this year oCurrent Chairman is Subhash Chandra Khuntia •
HQ = Hyderabad •Life insurance sector was nationalized in 1956 and LIC was established •
National Insurance Company, oNew India Assurance Company, oOriental Insurance CompanyoUnited India Insurance Company o
Insurance industry nationalized in 1973 and insurers were amalgamated and grouped into 4 companies –•
PFRDA
Fin Institutions - updatedSunday, April 21, 2019 10:40 AM
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PFRDA PFRDA Act passed in 2013 and notified in 2014 •PFRDA regulates NPS, subscribed by employees of Govt. of India, State Governments and by employees of private institutions/organizations & unorganized sectors
•
Head office in Delhi •Composition – Chairman + upto 5 members of whom at least 3 should be full time members – all appointed by govt •Current Chairman – Ravi Mital, addl Secy DFS•
NHB
RBI could not own those entities which are regulated by it○
Part of ending the cross-holding in regulatory institutions - recommendation of Narasimham-IIoNational Housing Board is a fully owned subsidiary of RBI => now 100% govt - Govt bought from RBI for 1450Cr•
Set up in 1988 under NHB Act 1987 •Apex level institution for housing finance •Head office at Delhi •Sarada Kr Hota is MD and CEO•
Consists of Price Indices and Rental Index oPrice Indices consist of Housing Price Index, Land Price Index and Building Materials Price Indices o
NHB Residex – housing price index launched in 2007 •
NABARD National Bank for Agriculture and Rural Development •Set up on recommendations of B Sivaraman Committee •NABARD Act 1981 •NABARD formed in 1982 by transferring agricultural credit functions of RBI and refinance functions of then Agri Refinance and Dev Corp
•
Initial capital of 100 crore; paid up capital of 5000 crore in 2016•Owned entirely by GoI •Chairman – Harsh Kumar Bhanwala •Head office in Mumbai •
Direct finance – loans for food parks and food processing units in designated food parks; oFM in 2014 had set up a special fund of Rs. 2000 croreoWarehouse Infra Fund for warehouses, silos, cold storage and other infra oCredit facilities to marketing federations – govts, cooperatives, registered companies eligible oRural Infra Development Fund – total allocation has reached 2,92,500 croreoDirect refinance to cooperative banksoFinancing and supporting producer orgs oLong Term Irrigation Fund with corpus of 20k crore created in NABARD oRefinance activities o
Financial functions •
State cooperative banks oCentral cooperative banks oRegional rural banks RRBs o
Supervisory functions over •
SIDBI Small Industries Development Bank of India •Set up in 1990 for promotion, financing and development of MSME sector •Mohammad Mustafa is Chairman and MD •SBI is biggest shareholder, followed by GoI •Headquarters at Lucknow •CriSidEx, India’s first sentiment index for micro and small enterprises (MSEs) has been developed jointly by CRISIL & SIDBI •
EXIM Bank Commenced operations in 1982 under EXIM Bank of India Act 1981 as a purveyor of export credit •
Geetha Muralidhar is Chairman of Export Credit Guarantee Corporation of India (ECGC) = a directoro+ SBI CM + RBI director Patra + IDBI + Union Bank of India CMo
MD is David Rasquinha •
MUDRA Micro Units Development and Refinance Agency – initially wholly owned subsidiary of SIDBI with 100% capital by it; •presently authorized capital is 1000 crore and paid up capital is 750 crore •Head office in Mumbai •Shishu loans upto 50k, Kishore loans from 50k to 5 lakh and Tarun loans from 5 lakh to 10 lakh •MUDRA announced in Budget 2015-16 and registered under Companies Act and as NBFC under RBI; launches in April 2015 •
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Responsible for developing and refinancing all Micro-enterprises sector by supporting the finance institutions which are in the business of lending to the micro/small business engaged in manufacturing, trading and service activities
•MUDRA announced in Budget 2015-16 and registered under Companies Act and as NBFC under RBI; launches in April 2015 •
MUDRA does not directly lend to micro entrepreneurs or individuals•
India Infra Finance Company Ltd wholly-owned GoI company set up in 2006 to provide long-term financial assistance to viable infra projects through Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd (I IFCL), broadly referred to as SIFTI.
•
regd as a NBFC-ND-IFC with RBI since September 2013 •authorized capital of 6k crore •For direct lending to Greenfield projects – Senior debt – exposure upto 20% of project cost (including subordinate debt upto 10% of project cost)
•
upto 30% of total project cost •Credit enhancement, refinance etc also done •
For brownfield projects – Takeout finance scheme to address Asset Liability Mismatch and exposure constraints faced by banks; •
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NPCI = National Payments Corp of Indiaumbrella org for operating retail payments and settlement systems in India•initiative of RBI & Indian Banks’ Association (IBA) under Payment and Settlement Systems Act, 2007 •
SBI, PNB, Canara, BoB, UBI, BoI, •ICICI, HDFC, Citi and HSBC •
10 core promoter banks under aegis of IBA•
Presently, 56 banks are shareholders of NPCI. •Not for Profit company under Companies Act •
MD & CEO : Dilip Asbe RBI nominee: Deepak Kr (CGM, dept of IT at RBI) Non-exec Chairman: Biswamohan Mahapatra •
HQ = Mumbai •aims to become "best payments network globally"•
Products and services
largest network of shared ATMs in India•NFS ATM network with 37 members and connecting ~50K ATMs was taken over by NPCI from Institute for Development and Research in Banking Technology (IDRBT) in 2009
•
Currently, around 941 members and 2.37 lakh ATMs •
Discover Financial Service (DFS), •Japan Credit Bureau (JCB) •China UnionPay International (CUPI) •
NPCI has also tied up with International card schemes which allows their cardholders to use ATMs connected to NFS network •
enables cardholders of participating member banks to use NFS networked Cash Recyclers/Cash Deposit Machines of participating member banks for depositing cash in their own account or third party account
▪
limit per trxn = 50k ▪
Interoperable cash deposit -•
Mobile banking registration•Card to Card fund transfer•Cheque book request•Statement request•Aadhaar number seeding•
Special services offered•
NFS : National Financial Switch •
instant, 24x7, interbank electronic fund transfer service•Can be accessed on multiple channels like Mobile, Internet, ATM, SMS, Branch and USSD •Provided by NPCI through its existing NFS switch •
IMPS: Immediate Payment Service •
bank led model which allows online interoperable financial inclusion trxns at PoS (Micro ATM) through BC of any bank using Aadhaar authentication
•
fast and secure - biometric details •User required to remember only his Aadhaar no for trxns •Useful for Banking Correspondents (BC) using micro POS in rural areas•
Balance Check○
Cash Deposit○
Cash Withdrawal ○
Aadhaar to Aadhaar Fund Transfer○
Only 4 services through AEPS•
For AEPS trxn, one needs Aadhaar, Bank IIN or Name and Fingerprint•
bank customer○
Banking correspondent – The facilitator of AEPS ○
BC's bank – The bank to which banking correspondent is attached ○
Your Bank – bank with which you hold the bank account ○
NPCI – It does switching, clearing and settlement of transactions○
UIDAI – For finger-print authentication ○
In AEPS, 6 institutions are involved•
AEPS = relatively costly trxn - upto Rs 15 for one transaction•
AePS: Aadhaar enabled Payment System •
extended cut-off time for acceptance of cheques by banks•CTS : Cheque Truncation System •
NPCIThursday, August 1, 2019 2:38 PM
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extended cut-off time for acceptance of cheques by banks•easy retrieval of info•reduced timelines for clearing•
card payment scheme; •conceived to fulfil RBI’s vision to offer a domestic, open-loop, multilateral system to allow all Indian banks and FIs to participate in e-payments.
•
Similar to foreign gateways like Visa and Master cards •accepted at all ATMs across India •Less processing fees for banks, no quarterly fees and no entry fees to payment gateway compared to Visa, MasterCard •Faster trxn compared to other gateways•
Lower cost since processing will happen domestically ○
Customized products and services for Indian customers ○
Trxn and customer data to reside in India ○
Financial inclusion ○
Advantages •
RuPay•
web based solution to facilitate interbank, high volume, electronic trxns which are repetitive and periodic in nature •
distribution of subsidies, dividends, interest, salary, pension etc. ○
collection of payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance premium etc. ○
can be used for making bulk transactions towards •
NACH’s Aadhaar Payment Bridge (APB) System, by NPCI helping Govt and its Agencies - DBT scheme successfully•
NACH : National Automated Clearing House •
developed by NPCI and launched by GoI in 2014•USSD (Unstructured Supplementary Service Data) •common number across all service providers•customer can transact through an interactive menu displayed on mobile screen •connects directly to telecom operator’s server & to bank’s server for tr n on basis of regd mobile no•
*99# - NUUP (National Unified USSD Platform) •
powers multiple bank a/cs into a single mobile app of any participating bank; •also caters to P-2-P collect request •24x7 •Single click 2 factor authentication •Authenticates identity of user using phone as a tool•round-the-clock funds transfer•A/c details not shared during processing of trxn •One can map multiple bank accounts with a single UPID unlike in IMPS•In NEFT, RTGS and IMPS only sender can initiate a transaction but in UPI receiver can also initiate a trxn•
UPI : Unified Payments Interface •
By NPCI•let users verify UPI credentials using a QR code•Now get invoices from merchants directly in inbox to verify authenticity of credentials•Allows scheduling payment transfers at a later date with pre-authorisation•allows customers to link their overdraft (OD) a/c with UPI {Pehle only CASA}•
UPI 2.0•
NPCI authorized by RBI to be Bharat Bill Payment Central Unit (BBPCU) •Banks are Bharat Bill Payment Operating Units (BBPOU) •
BBPS: Bharat Bill Payment System•
Fastags linked to this •NETC: National electronic Toll Collection •
app that lets you make simple, easy and quick trxns using UPI; •trxns made using just mobile number or Virtual Payment Address (VPA) •Currently available in 12 languages •3 factor authentication •No charges on the transactions done through BHIM app•
BHIM : Bharat Interface for Money (BHIM)•
BHIM Aadhaar Pay •
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For merchants to receive digital payments from customers OTC through Aadhaar authentication •Per trxn limit = 10k •BHIM Merchant Incentive Scheme – Merchants provided incentive of 0.5% of trxn value•
BHIM Aadhaar Pay •
merchants can display these QR codes at their premises and customers can pay through their card linked account/VPA/IFSC + Account/Aadhaar by scanning these QR codes via Bharat QR enabled app
•Bharat QR •
EGCS = ETC Global Clearing and Settlement •
Difference b/w IMPS, NEFT and UPI
IMPS NEFT UPI
Trxn initiation pt
Sender/Remitter bank's app only Sender/Remitter bank's app only any bank's UPI app to chosen Sender/Remitter bank a/c
Types of transfers
Only push (Payment trxns) possible
Only push Both push & pull - both Payment & Collect trxns possible
Beneficiary details
Need Beneficiary a/c details - IFS Code & A/c No
beneficiary mobile & MMID of the a/c only Beneficiary Virtual ID
Beneficiary addn
Pre-addition & bank approval Pre-addition & bank approval before trxn (except for a few banks)
No pre addition of Beneficiary reqd
Transfer details reqd
IFS Codes MMIDS are bank issued & different for each a/c => hard to remember
Virtual ID = user generated => easy to remember + multiple a/c can be linked to 1 Virtual ID
Transfer Speed
Batch processed at pre-set timings Instantaneous, real-time Instantaneous, real-time
2FA (2 Factor Authentication)
1st Factor: Bank specific Internet/ Mobile Banking Login ID & password 2nd Factor: OTP and/or Trxn Password/Debit Card Grid
1st Factor: Bank specific Internet/ Mobile Banking Login ID & password 2nd Factor: OTP and/or Trxn Password/Debit Card Grid
1st Factor: UPI App Login ID & Pswd (common to all banks with same regd mobile no) 2nd Factor: 4/ 6 digit WPIN
Per trxn limit
Rs 10 lakhs 10K using MMID & Mobile No higher with IFS Code & A/c no
Currently 1 lakh
NPCI In newsMulls Using Blockchain Solution to Strengthen Digital Payments •
Issues global cards that run on Discover Network outside the country•RuPay global debit/credit cards currently issued by 40 banks•can be used @merchant locations & cash withdrawals on Discover Global Network in countries like US, Singapore, SL•Discover Global Network includes Discover Network, Diners Club International, PULSE and affiliated networks. •
Issues 64 mn RuPay cards since '14, aims to grow International Acceptance •
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Finance Ministry FM : Nirmala Sitharaman MoS : Anurag Thakur Fin Secy: Rajiv Kumar
Dept of Economic Affairs
Secy : Atanu Chakraborty
•
Indian Economic Service & Budget Division under this
•
Dept of Expenditure
Secy : Girish Chandra Murmu•Nodal Dept for PFMS in GoI and matters connected with state finances
•
responsible for implementation of recommendations of FC and CPC, monitoring of audit comments/ observations, preparation of Central Govt Accounts
•
Dept of Investment and Public Asset Mgt (DIPAM)Secy : DIPAM secretary Anil Khachi
Govt thrust directed towards efficient mgt of its investment in CPSEs, with overall focus on higher economic growth through consistent long-term policies as well as efficient and effective allocation of resources.
•
Based on this philosophy, Budget 2016-17 focused on the need to migrate from ’disinvestment-based approach’ to ‘investment-based approach’ for CPSEs. Accordingly, renaming the Dept as ‘DIPAM’ with e panded mandate denotes a paradigm shift in thinking process of the Government on its strategy to manage its investment in CPSEs.
•
to streamline the disinvestment process, GoI (in 2017) transferred the role of advising on how to utilise the proceeds from disinvestment from DIPAM to DEA.
•
Dept of Revenue
Secy : •
Each Board headed by Chairman = ex-officio Special Secy to GoI
•
controls matters relating to all Direct and Indirect Union Taxes through two statutory Boards - Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and Customs (CBIC)
•
CBDT Chairperson: Sushil Chandra•CBIC Chairperson: S Ramesh•
Dept of Financial Services
Secy : •covers fxning of Banks, FIs, Insurance Cos and National Pension System
•
Fin-clu, Social Security, and Insurance as a Risk Transfer mechanism
•
Credit Flow to key sectors of economy/ farmers/ common man
•
Initiatives and reforms relating to •
Ministry of Commerce & Industry Minister : Piyush Goyal MoS : Hardeep Singh Puri
Commerce dept
Secy : •formulates, implements and monitors the Foreign Trade Policy (FTP) which provides the basic framework of policy and strategy to be followed for promoting exports and trade
•
also entrusted with responsibilities relating to multilateral and bilateral commercial relations, Special Economic Zones, state trading, export promotion and trade facilitation, and development and regulation of certain export oriented industries and commodities
•
Dept for Promotion of Industry & Internal Trade (DPIIT)
Secy : •Formulation of FDI policy o Formulation of policy related to IPRs
•
Provide inputs on issues relating to WTO, TRIPS etc
•
DPIIT annual report - India's highest ever FDI inflow @ $64.37 Bn recorded in FY19 (18-19)
Ministry of Corporate Affairs Minister : Nirmala Sitharaman MoS : Secy : •
Also responsible for administering the Competition Act, 2002 to prevent practices having adverse effect on competition, to pr omote and sustain competition in markets, to protect the interests of consumers through the commission set up under the Act
•
Competition Commission of India Chairman is Sudhir Mittal •exercises supervision over the three professional bodies, namely, Institute of Chartered Accountants of India (ICAI), Institu te of Company Secretaries of India (ICSI) and the Institute of Cost Accountants of India (ICAI)
an independent regulator to oversee the auditing profession and accounting standards with jurisdiction extending to all liste d companies and large unlisted companies.
•
ICAI under the Chartered Accountants Act, 1949 shall continue to audit smaller unlisted companies.•Quality Review Board will also continue quality audit in respect of private limited companies, public unlisted companies and also with respect to audit of those companies delegated by NFRA.
•
It will have the power to investigate Chartered Accountants and their companies either suo motu or on a reference for any misconduct.
•
The Companies Act 2013 provides for setting up a National Financial Reporting Authority (NFRA). •
Related MinistriesThursday, August 1, 2019 2:38 PM
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misconduct.
NFRA will have the same powers as of a Civil Court while trying a suit.•NFRA has a larger remit than NACAS (National Advisory Committee on Accounting Standards), which it replaces. ○
NACAS only recommends accounting standards. ○
Section 25 companies under the Companies Act, 1956 = Non-Profits or No Profit - No Loss companies.•
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WTOWTO (HQ- Geneva) = intergovernmental org that regulates international trade. officially commenced on 1 Jan 1995 under Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
GATT was part of the Bretton Woods-inspired family, including the International Monetary Fund (IMF) and World Bank. A series of trade negotiations, GATT rounds began at the end of World War II and were aimed at reducing tariffs for the facilitation of global trade.
Foundations for regulating trade in services.•WTO covers services and intellectual property as well.•WTO dispute settlement system is faster, more automatic than the old GATT system. Its rulings cannot be blocked.•The updated GATT lives alongside the new General Agreement on Trade in Services (GATS) and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The WTO brings the three together within a single organization, a single set of rules and a single system for resolving disputes.
•
Uruguay Round of GATT => WTO
was negotiated during Uruguay Round of General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995
•Agreement on Agriculture (AoA) is an international treaty of WTO. •
AoA divides domestic support into two categories: trade-distorting and non-trade-distorting (or minimally trade-distorting) - 3 boxes amber (most directly linked to production levels), blue (production-limiting programmes that still distort trade), and green (minimal distortion)
domestic support, •
36% average reduction - developed countries - with a minimum of 15% per-tariff line reduction in next six years.24% average reduction - developing countries - with a minimum of 10% per-tariff line reduction in next ten years.Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs
market access = reduction of tariff (or non-tariff) barriers to trade. •
required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years. For developing countries, the agreement required cuts were 14% (by volume) and 24% (by value) over ten year
○
export subsidies.•
Special Safeguard Mechanism○
Special Products -- At 2005 WTO Ministerial Conference in Hong Kong, WTO members agreed to allow developing countries to assign or make appropriate list of products for tariff lines as Special Products (SPs) based on "food security, livelihood security and rural development
○
Mechanisms for developing countries•
Agreement on Agriculture constitutes of 3 pillars—
Agreement has been criticised by civil society groups for reducing tariff protections for small farmers, a key source of income in developing countries, while simultaneously allowing rich countries to continue subsidizing agriculture at home.
•
has allowed the rich countries to maintain or raise their very high subsidies by switching from one kind of subsidy to another...This is why after the Uruguay Round the total amount of subsidies in OECD countries have gone up instead of going down
•
It counters the efforts by some countries to target the subsidies of the developing countries while letting the developed countries retain their huge farm subsidies.
•
The joint paper reveals that developed countries, including the US, the EU and Canada, have been consistently providing trade-distorting subsidies to their farmers at levels much higher than the ceiling applicable to developing countries
•
while developed Members have access to huge amount of AMS beyond their de minimis (5% of value of production for developed countries, 10% for developing.) in contrast most developing Members have access only to de minimis resulting in a major asymmetry in the rules on agricultural trade
•
on 18 July 2017 India and China jointly submitted a proposal to WTO calling for elimination – by developed countries – of the most trade-distorting form of farm subsidies, known in WTO parlance as Aggregate Measurement of Support (AMS) or 'Amber Box' support as a prerequisite for consideration of other reforms in domestic support negotiations
•
FSBmonitors and makes recommendations about the global financial system.•established after G20 London summit April 2009 •as a successor to Financial Stability Forum (FSF). •
all G20 major economies, •The Board includes •
International - updatedWednesday, July 31, 2019 11:56 AM
Finance Page 39
all G20 major economies, •FSF members•European Commission. •
(FSF), had emerged from a group of finance ministries, central bankers, and international financial bodies, which had been founded in 1999 to promote international financial stability by the finance ministers and central bank governors of G7 countries.
•Hosted and funded by the Bank for International Settlements, the board is based in Basel, Switzerland.•
FSB promotes international financial stability; it does so by coordinating national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory and other financial sector policies. It fosters a level playing field by encouraging coherent implementation of these policies across sectors and jurisdictions.
•
FATF (Financial Action Task Force) Inter-governmental body established in 1989 and housed in OECD headquarters in Paris, established at G7 Summit •President = Xiangmin Liu of CHN•Executive secy = David Lewis •37 members currently and India is also a member; China in, Pak not a member; GCC and European Commission are members •
Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; •and, promotes the adoption and implementation of the FATF Recommendations globally •
Starting with its own members, the FATF monitors countries' progress in implementing the FATF •
FATF recommendations revised most recently in 2012 •Decision making body, FATF plenary, meets 3 times every year •Pakistan will be placed on the FATF grey-list in June - Putting a country in “grey list” does not involve a direct legal or penal action but involve increased scrutiny from watchdogs, regulators and financial institutions; Pakistan had earlier been on theFATF ‘grey list’ from 2012 to 2015
•
Should Islamabad fail to submit an action plan, or if the FATF does not accept it, the group can place Pakistan on its blacklist or "Non-Cooperative Countries or Territories" (NCCTs), along with North Korea and Iran
•
World Bank official goal of reduction of poverty, provides loans to developing countries for capital programmes •
International Bank for Reconstruction and Development (IBRD) •International Development Association (IDA), •
World Bank comprises only 2 institutions •
International Finance Corporation (IFC), •Multilateral Investment Guarantee Agency (MIGA)•International Centre for Settlement of Investment Disputes (ICSID) •
World Bank Group comprises 3 more •
Part of the UN system •HQ = Washington DC •President is David Malpass, USA•Aparna Subramani is India’s D on board IBRD, IFC and IDA representing BBIS (S=SL) •
IBRD – 70,631 votes i.e. 2.93% •IFC – 103,767 votes i.e. 3.82% •IDA – 801,260 votes i.e. 2.87% •MIGA – 5,597 votes i.e. 2.56% •
India voting powers •
For a country to be a member of WB, it has to be a member of IMF first •IBRD : provides commercial or concessional loan to only sovereign states or projects backed by sovereign states. Its loans are aimed to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation
•
IDA : helps the world’s poorest countries and aims to reduce poverty by providing interest-free loans {called IDA Credits} and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions.
•
IFC : established in 1956, which provides various forms of financing without sovereign guarantees, primarily to the private sector; IFC has been issuing offshore rupee bonds known as ‘Masala Bonds’. They provide a new source of funding for Indian companies which benefit in the longer term from comparative pricing of bonds
•
MIGA : established in 1988, which provides insurance against certain types of risk, including political risk, primarily to the private sector.
•
ICSID : established in 1965, which works with governments to reduce investment risk; •India is one of the founding members of IBRD, IDA and IFC. India accesses foreign funds mainly through IBRD and IDA. •India is NOT a member of ICSID •
International Monetary Fund to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and •
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to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty
•
primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
•
IMF can lend 1Tn USD to member countries •MD is Kristalina Georgieva from Bulgarian•Indian origin Gita Gopinath is Economics counsellor •India’s Governor is FM and alternate Governor is RBI Governor •India’s quota is 13.11 bn SDRs (2.76%) and votes are 132,609 (2.64%) •India’s ED is Surjit Bhalla representing BBIS •created in 1945 •SDR – based on basket of 5 currencies – USD, Euro, Renminbi, Yen, Pound •Nauru latest to join •
Bank for international settlements (BIS) Established in 1930, owned by 60 central banks (including India) •Head office in Basel, Switzerland •Chairman of BoD is Jens Weidmann •
New Development Bank formerly BRICS Development Bank, is a multilateral development bank established by the BRICS states •headquartered in Shanghai; first regional office of the NDB is in Johannesburg •shall support public or private projects through loans, guarantees, equity participation and other financial instruments; shall cooperate with international organizations and other financial entities, and provide technical assistance for projects to be supported by the Bank
•
initial authorized capital of the bank is $100 bln •initial subscribed capital of the NDB is $50 bln; initially contribute $10 bln each; Each member cannot increase its share ofcapital without all other four members agreeing; allow new members to join but the BRICS capital share cannot fall below 55%
•
equal voting rights for all 5 members •President K V Kamath •Agreement signed during 6th BRICS Summit in Fortaleza •
Asian Clearing Union established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of United Nations Economic and Social Commission for Asia and Pacific (ESCAP) for promoting regional co-operation
•
to facilitate payments among member countries for eligible transactions on a multilateral basis thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries
•
Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU
•
Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts and ACU Euro Accounts, which should be distinct from the other US Dollar and Euro accounts
•
Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’ and ‘ACU Euro’, which is equivalent in value to one US Dollar and one Euro respectively. All instruments of payments under ACU have to be denominated in AMUs.
•
Asian Development Bank President is Takehiko Nakao, will leave office in Jan 2020•Headquarters in Manila •India's Diwakar Gupta is VP for Pvt sector & Public sector p-ships•India’s Director is Kshatrapati Shivaji {+ for plenty other countries too}•India's governor is FM and alternative governor is Atanu chakroborty (DEA)•India has 6.3% shareholding •
Asian Infrastructure Investment Bank HQ in Beijing •President is Jin Liqun; •D J Pandian, IAS is VP •Capital of 100 bn USD •India = 2nd largest shareholder after China •
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India = 2nd largest shareholder after China •India's governor is FM and alternative governor is Atanu chakroborty (DEA)•Sameer Kumar KHARE = India's director on board•
European Bank for Reconstruction and Development President is Sir Suma Chakrabarti •Headquarters in London •
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Camels f-work○
PCA○
Basel norms○
Managing Risk •
Banking Regulation Act,1949○
Companies Act, 2013, ○
Directors should not have exceeding 5 Lakh or 10% of paid up capital of the company□Banks cannot lend money to the company if any of its board member is director of the borrowing company□Director can hold office for maximum tenure 8 years, except Chairman□
Clause 10 A: Minimum 51% of directors should have special knowledge or practical experience in respective fields and out of this minimum 2 directors should have knowledge in agriculture and rural economy, co-operation or small-scale industry
▪
2. Clause 10 B: Banking company must have whole time Chairman else RBI approval required for part-time basis3. Clause 10BB: If position of Chairman is vacant then RBI can appoint a person to be the Chairman in depositor’s interest4. Clause 10 C: Chairman and certain directors cannot hold qualification shares 5. Clause 10 D: Any appointment or removal of a Director shall not be entitled to claim any compensation for the loss or termination of office6. Clause 16: Banking company cannot have any of its director to be in the board of directors of other banking company7. Clause 36AA: In the depositor’s interest, RBI can remove Chairman, chief e ecutive officer or any person of the banking company8. Clause 36AB: In the depositor’s interest, RBI can appoint additional directors in the banking company9. Clause 36AC: Provisions of 36AA and 36AB overrides any other contrary provision in the Companies Act, 1956 or any other law operating at that time
SEBI Guidelines in Clause 49 of Listing Agreement contain provisions ○
Managing Governance Aspects•
Mechanisms of Corporate Governance in Banks
Responsibilities of Board of Directors: Corporate Board is expected to follow 4 major roles of overseeing and managing risk profile (Bank), integrity of business, control mechanisms and maximising interests of stakeholders ▪ Also, required that directors need to get acquainted before getting inducted into BOD about functioning of bank
•
2. Training Facilities for Board of Directors: To ensure that the directors discharge their duties to the best of their abilities, frequent trainings must be arranged for them to acquaint them with emerging changes in the banking sector
•
3. Establishment of various Committees on the Board: ▪ Shareholders' Redressal Committee: Banks which have issued shares, debentures to public under the chairmanship of a non-executive director
•
▪ Risk Management Committee: Every banking organization is required to set up ▪ Supervisory Committee: To monitor the exposures (both credit and investment) of the bank, adequacy review, ensuring compliance, etc.▪ Nomination Committee: To nominate and see fitment of the people to become directors on the board of the company▪ Compensation Committee: Evaluates performance of CMD and ED’s
▪ For nominating/co-opting directors, certain broad 'fit and proper’ norms should be formed○
▪ A person can be rejected if he does not fulfil fit and proper criteria
Candidate should normally be a graduate (exception categories of farmers, depositors, artisans, etc)Between 35 and 65 years of age Should not be a Member of Parliament / Member of Legislative Assembly/ Member of Legislative Council
Criteria for nominating independent/ non-executive directors:
Nomination committee need to determine fit and proper’ status of the e isting elected directors/proposed candidates based on qualification, track record and integrity
•
Nomination committee: Minimum three directors (all independent and nonexecutive)•4 whole- time directors •Nomination of up to 3 shareholder directors on basis of percentage of shareholding•RBI can appoint one or more additional directors•
After amendments in the Section 9(3)(i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/1980 and State bank of India Act 1959 to include the ‘Fit and Proper Criteria’
○
Fit and Proper criteria for the Board of Directors in the Private Banks: •
Ganguly Committee Recommendations (2002):
Splitting of post of Chairman (leader of Board) and MD/CEO (leader of mgt) from 1st Apr 2020 for top 500 companies
○
Min. 6 Directors on Board (currently only 3 required) ○
Reshaping the Institution of the Board of Directors •
Kotak committee recommendations accepted by SEBI (40/80, accepted as is, 15 with modifications, 8 referred to
govt)
++Corporate Governance Monday, June 17, 2019 12:12 PM
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Min. 6 Directors on Board (currently only 3 required) ○
At least 1 woman independent director to be appointed by 1st April 2019 & Apr 2020 for top 1000 & top 2000 listed entities resp
○
Quorum will be 1/3rd of total strength of Board or 3, whichever is higher ○
Director should attend at least half the meetings over a 2-year period ○
Min number of meetings of Board be increased from 4 to 5 ○
to avoid ‘board interlocks’, a person who is a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director, will not be eligible to be an independent director in the listed entity. -- meri company mein tu independent director nai ban sakta agar main teri company mein independent director hoon
•
Expanded Eligibility Criteria for Independent Directors–No person who is a part of promoter group can be appointed
○
Reduced max no. of listed company directorship from 10 to 8 ○
At least half directors should be Independent Directors in all cases (currently only 1/3rd are required to be Independent and half in case Chairman is related to promoters)
○
Disclosure of utilization of funds from QIP/preferential issue •Disclosure of auditor credentials, auditor fees and reasons for resignations of auditors ○
Disclosure of expertise/skills of Directors ○
Enhanced disclosure of Related Party Txns - w/i 30 days of publication of its standalone and consolidated financial results for the half year,
One independent director from the board of directors of a listed entity should also be a director on the board of its unlisted foreign material subsidiary (as opposed to the extant requirement pertaining to an unlisted material subsidiary incorporated in India).
•
Additionally, the board of all listed entities will now have to be appraised of significant transactions involving all unlisted subsidiaries (as opposed to the extant requirement of significant transactions of only unlisted material subsidiaries).
•
A material subsidiary = whose income or net worth >10% (as opposed to 20 percent) of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year
•
Enhanced Obligations on Listed Entities wrt Subsidiaries –○
All listed companies and their material subsidiaries incorporated in India will have to undertake secretarial audit and annex a secretarial audit report given by a practicing company secretary with their Annual Reports.
•
Secretarial Audit to be Mandatory for Listed Entities and their Material Unlisted Subsidiaries–○
Down-streaming Corporate Governance in case of complex corporate structures with multiple subsidiaries•
Level playing field in Algo Trading for all investors - shared colocation services to reduce cost + Free tick-by-tick data feed for all trading members
○
Imposed restrictions on algo trading by introducing a congestion charge for a prescribed slab on trades ○
Requirement of shareholder approval being majority of minority for royalty/brand payments to a related party exceeding 2% of consolidated turnover (instead of the proposed 5%)
○
Mandatory webcast of AGMs wef from FY 2018-19. •have to hold their AGM w/i 5 months from date of closing of FY•
The top 100 listed entities by m-cap ○
↑ Shareholder Participation & involvement•
Increased max investment amount in VC undertakings by an angel fund to 10cr from 5cr •
Appointments – separation of post of CEO and MD •
To advice banks on how to raise funds and how to go ahead with mergers and acquisitions •Hold bad assets of PSBs •Recommend for selection of heads of PSBs •Chairman + 3 ex-officio members + 3 expert members •
Bank Boards Bureau •
P J Nayak committee recommended Mission Indradhanush of which 2 components are Appointments and Bank Boards
Bureau
The board may delegate some of its functions but not its responsibilities to board committees•
Establish the bank’s risk appetite along with senior management and CRO •Oversee the implementation bank’s capital adequacy assessment process, capital and liquidity plans, compliance •
Few Responsibilities of Board: •
Principle 1: The board has overall responsibility for the bank, including approving and overseeing management’s implementation of the bank’s strategic objectives, governance framework and corporate culture
•Corporate Governance Principles by Basel Committee (1974):
Finance Page 44
Oversee the implementation bank’s capital adequacy assessment process, capital and liquidity plans, compliance policies and obligations, and the internal control system
•
Approve the annual financial statements•Approve the selection and oversee the performance of the ceo, key members of senior management and heads of the control functions
•
Oversee the bank’s approach to compensation, including monitoring and reviewing e ecutive compensation•
Board Composition: Sufficient number of independent directors with balance of skills, diversity and expertise•Well-defined selection process for board members •Board members should not have conflict of interest with the bank •Should have Nomination Committee in place•
Principle 2: Board members should be and remain qualified, individually and collectively, for their positions. They should understand their oversight and corporate governance role and be able to exercise sound, objective judgment about the affairs of the bank.
•
Organisation and assessment of the board: Periodically review its structure, size and composition as well as committees’ structures. Assess the ongoing suitability of each board member periodically and maintain appropriate records of its discussions & decisions
•
Audit Committee: Independent chair responsible for internal audit and financial reporting and Appointment, remuneration and dismissal or external auditors
•
Risk Management Committee: Independent chair having experience in Risk management and can advise the board on the bank’s overall current and future risk appetite
•
Compensation Committee: For overseeing the remuneration system’s design and operation and ensuring that remuneration is appropriate
•
Nomination Committee: Recommending to the board for new board members and members of senior management•Ethics Committee: Ensuring appropriate means for promoting proper decision-making•
Various Board Committees need to be established: •
Principle 3: The board should define appropriate governance structures and practices for its own work, and put in place the means for such practices to be followed and periodically reviewed for ongoing effectiveness
•
Senior management consists of a core group of individuals for day-to-day management of the bank•Decision-making of senior management should be clear and transparent •Senior management is responsible for delegating duties to staff•
Principle 4: Under the direction and oversight of the board, senior management should carry out and manage the bank’s activities in a manner consistent with the business strategy, risk appetite, remuneration and other policies approved by the board
•
Principle 5: In a group structure, the board of the parent company has the overall responsibility for the group and for ensuring the establishment and operation of a clear governance framework among the child companies of the parent company
•
Principle 6: Banks should have an effective independent risk management function, under the direction of a chief risk officer (CRO), with sufficient stature, independence, resources and access to the board
•
Principle 7: Risks should be identified, monitored and controlled on an ongoing bank-wide and individual entity basis. The sophistication of the bank’s risk management and internal control infrastructure should keep pace with changes to the bank’s risk profile, to the external risk landscape and in industry practice
•
Principle 8: An effective risk governance framework requires robust communication within the bank about risk, both across the organisation and through reporting to the board and senior management
•
Principle 9: The internal audit function should provide independent assurance to the board and should support board and senior management in promoting an effective governance process and the long-term soundness of the bank.
•
Principle 10: The governance of the bank should be adequately transparent to its shareholders, depositors, other relevant stakeholders and market participants
•
Finance Page 45
SECC 2011
Rural = Dept of RD○
Urban by MoHUPA○
Caste census by Registrar General of India under MHA○
By MoRD for both rural and urban areas. Overall coordination by Dept of RD•
1st paperless census in India conducted by hand held electronic devices in 640 districts •
14 parameters for automatic exclusion○
5 parameters of automatic inclusion○
7 criteria for grading of deprivation○
Parameters for SECC laid down by SR Hashim Committee. •
Census 2011 SECC 2011
Apex org Census Commissioner (MHA) MoRD + Planning Commission
Time every 10 year - Last census in 2011 1st = 2011
Act? Census of India act 1948 None
Personal Data confidential Yes No
Purpose? Provide general demographic info: age, gender, religion, occupation, migration etc.
help prepare BPL list and IDing beneficiaries for welfare schemes.
Automatically included (5 parameters) = 15.95 lakh ○
Households considered for deprivation = 10.74 crore ○
Households with any of 7 deprivations = 8.73 crore ○
49% households = poor = facing some deprivation ○
Only 30% rural households depend on cultivation as main source of income. ○
51.1% derive sustenance from manual casual labour ○
56.25% of rural households hold no agricultural land ○
Findings •
5 parameters of automatic inclusion are
Households without shelter •Destitute, living on alms •Manual scavenger families •Primitive tribal groups •Legally released bonded labour •
7 indicators of deprivation are Landlessness •SC/ST •no literate > 25 •handicapped members •female head & no working age male•kutcha house •no working age adult•
Conducted uninterruptedly from 1881•1st census = 1872; {1st complete census = 1881}•Responsibility for census = Office of Registrar General and Census Commissioner under MHA •1st Census Commissioner = WW Plowden in 1881 •1st Indian Census Commissioner = RA Gopalaswami in 1949 •Current Registrar General cum Census Commissioner = VIVEK JOSHI•only source of primary data in the village, town and ward level•Delimitation of Constituencies uses Census data•Cost of census = Rs 220 Cr•
↑ of 1.81 Cr from 2001○
17.7% decadal (against 21.5% previously)○
growth of females (18.3%) > males (17.1%)○
Popn = 121.02 Cr •
2001-11 = 1st decade which added lesser popn than previous (except 1911-21)•Uttar Pradesh is the most populous state and Sikkim is the least populous state in India. •
rural ↑ -- 946 to 949 ▪
urban ↑ -- 900 to 929 ▪
KL = highest =1084 (total), 1078 (rural) and 1091(urban) ○
State-wise lowest in HR (879)○
Lowest rural in Chandigarh ○
Sex ratio ↑ from 933 to 940•
Census 2011 = 15th National Census
14th FC, SECC, CensusFriday, June 28, 2019 5:53 PM
Finance Page 46
Lowest rural in Chandigarh ○
Lowest urban in Daman and Diu ○
D&D with 618 is UT with lowest sex ratio○
rural ↓ -- 934 to 923 ○
urban ↓ -- 906 to 905○
Ar P (972) = Highest, HR(834) lowest, ○
A&N highest in UT's, DL lowest (871)○
CG highest in rural areas ○
Pudu highest in urban areas ○
CSR ↓ 927 to 919, lowest since 1961•
Highest decadal growth in BR•
D&D in urban areas ○
Meghalaya = highest growth in rural areas •
Delhi densest @11,320/sq km > Chandigarh ○
Major states -- BR > WB (top in 2001)○
Min density in Arunachal (17) ○
Population density – 382/sq km, ↑ of 57 from 2001 •
Female literacy rate has increased by 10.9% points ○
increase of 5.6% in male literacy rate ○
Gap in literacy among males and females has reduced from 21.6% to 16.3% ○
Highest number of rural literates in UP ○
Highest number of urban literates in MH ○
Effective literacy rate of 73% (rural 68% and urban 84%) •
WPR for males has increased from 51.7% to 53.3% ○
WPR for females has fallen from 25.6% to 25.5% ○
HP has highest WPR total as well as for females; lowest in Lakshadweep and lowest female in Delhi ○
Work participation rate of 39.8% •
Out of 481.7 mn total workers, 362.4 mn are main workers and remaining 119.3 mn are marginal workers •
307 mn migrants = 30% of population ○
258.6 mn migrants intra state = 84%; ○
42.3 mn inter-state = 13.8 ○
6.17 mn migrants from other countries ○
Migration •
Metadata on Census 2011 Census ops carried out in 2 phases – Houselisting and housing census followed by Population Enumeration•
Statutory towns ○
Min population of 5000 ▪
75%+ of male working in non-agri▪
Density > = 400 persons/sq km ▪
Census towns – administrative units satisfying following 3 criteria ○
Urban areas are of 2 types •
City – towns with populations > 1 lakh •Urban agglomeration – continuous urban spread constituting a town and its adjoining outgrowths or 2 or more physically contiguous towns together with or without outgrowths of such towns
•
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towns together with or without outgrowths of such towns
Generally, revenue village is the basic administrative unit in the Census ○
Rural area – any administrative area not classified as Urban (statutory/census town) is treated as a rural area. •
Sex ratio = number of females per 1000 males = (females/males)*1000 ○
Effective literacy rate = (number of literates/population aged 7+)*100 ○
Work participation rate = (total workers/total population)*100 where total workers include both main and marginal workers ○
Commonly used formulae •
Census 2011 data
CM = YV Reddy - former gov'nor RBI•
14th FC
Normal consti wale + •
state of finances, deficit and debt levels of Union & States in view of fiscal consolidation roadmap recommended by 13th FC, and suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth.
○
present arrangements as regards financing of Disaster Mgt wrt funds constituted under DMA, 2005○
Review & make recommendations•
TOR
Criteria Weight
Distance from highest per capita income district 50%
Popn (1971 census) 17.5%
Area (floor limit of 2% for small states) 15%
Demographic change (1971-2011 census) 10%
Forest Cover {opportunity cost of not having green cover} 7.5%
Devolution to be based on Area, Popn, Demography, Income distance & Forest cover•
FD should ↓ to 3.6% of GDP in FY15 => 3% in FY 16 & kept same for 3 more years. ○
Not different from existing roadmap, though present time frame ends in 2016-17. ○
RD - 2.9% in FY15 to 2.56% in FY16 ○
progressively ↓ to 0.93% by 19-20○
Centre's Fiscal & RDs•
FD = 2.76% in FY16 => 2.74% by FY20 though it could increase in between○
be Revenue Surplus in all these years ○
States' Fiscal & RDs•
To come ↓ from 45.4% of GDP in FY15 to 43.6% in FY16 ○
progressively ↓ to 36.3% by FY20 ○
Centre's Debt•
Projected to ↑ from 21.90% in FY16 progressively to 22.38% in FY20 ○
States' Debt•
States be taken away from operation of NSSF from next financial year ○
NATIONAL SMALL SAVING FUND (NSSF) •
Examine possibility of setting up of CST for amortisation of debt of Union govt ○
CONSOLIDATED SINKING FUND •
Replace advisory body with a statutory body - amendments to Railways Act, 1989, ○
RAIL TARIFF AUTHORITY •
States should empower local bodies to impose this tax to augment their revenues ○
Advertisement Tax•
States' share in net proceeds of tax revenues be 42% (from 32% of 13th FC) = largest change ever in %age of devolution. ○
Total devolution of states in 2015-16 will ↑ by > 45%○
Recommended tax devolution be the primary route of transfer of resources to states•
grant constituting gram panchayats▪
grant constituting municipal bodies ▪
divided into 2 broad categories on basis of rural and urban population ○
Distribution of grants to states for local bodies using 2011 population data. •
90:10 for panchayats ○
80:20 for municipalities○
Grants to states for local bodies be in 2 parts, a basic grant and a performance grant - Ratio of Basic to performance grant •
Of this, Rs 200292.20 Cr to Panchayats ○
Rs 87,143.80 crore to Municipalities○
Total grants recommended = Rs 2,87,436 Cr for April 1, 2015 to March 31, 2020. •
= Rs 55,097 crore○
After implementation of GST, the recommendations of the panel on disaster relief would be implemented ○
No change wrt %age share of states for disaster relief - follow existing mechanism. •
○
The panel has recommended post-devolution revenue deficit grants of Rs 1,94,821 Crore on account of expenditure requirements of states, tax devolution and revenue mobilisation capacity of 11 states below
•
Change in sharing pattern for many centrally sponsored schemes => ↑ fiscal responsibility to states for implementing schemes ○
8 centrally sponsored schemes => delink from Centre support •
FC made recommendations on cooperative federalism, GST, fiscal consolidation roadmap, pricing of public utilities and PSUs •
Finance Page 49
freedom to RBI in conduct of monetary policy ▪
+ further flexibility to banking system in deployment of resources▪
2005-06 Union Budget, GoI removed limits on SLR and CRR => ○
Statutory Preemptions: •
=> enabled commercial banks to determine their BPLRs (benchmark prime lending rates) fostering competition among players
○
De-regulation of Interest Rate Structure - Financial sector reforms •
individuals and group borrowers, ○
specific industries or sectors ○
Exposure Norms: RBI placed exposure norms regarding --- to avoid concentration of credit and better risk mgt•
Compromise/one-time settlement, ○
Filing of suits,○
Debt Recovery Tribunals, ○
Lok Adalat forum, ○
Corporate Debt Restructuring (CDR), ○
Sale to securitization/reconstruction companies and other banks or to NBFCs, ○
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 ○
setting up of Credit Info Bureau of India Ltd. (CIBIL) for defaulter or borrower info sharing ○
NPL (Non-performing Loans) Management: Options have given power to creditors•
Constitution of independent Board for Financial Supervision (BFS) under RBI - inspection of banks and check their internal control system to manage risk
○
Use of CAM L’S Framework to manage risk ○
capital to risk-weighted assets ratio (CRAR), ▪
net non-performing assets (net NPA) ▪
Return on Assets (RoA) ▪
with specific threshold limits which if not maintained => structured/discretionary actions to be taken by the RBI▪
Introduction of PCA to oversee the financial health of the Banks based on 3 financial indicators, ○
Risk Management: •
Technological Changes introduced for speeding up cheque clearing system by RBI and development of other electronic fund mechanism systems like RTGS, INFINET, ECS, NDS, CFMS, SFMS, etc.
restricted banking functions under Banking Regulation Act of 1949 •
Airtel M Commerce Services Ltd1.Dept of Posts 2.Finotech 3.Shri Dilip Shantilal Sanghvi4.Aditya Birla Nuvo Ltd (idea) 5.Cholamandalam Distribution Services Ltd6.National Securities Depository Ltd {NSDL}7.Reliance Industries Ltd8.Tech Mahindra Ltd9.Vodafone m-pesa Ltd10.Reliance Industries - Jio11.
RBI in August 2016 - licenses to 11 entities (Highlighted ones have been set up) •
Vodafone m-pesa shut shop in July 2019. •Aditya Birla Nuvo ended ops by Oct 2019. •Only 3 PBs — Airtel, Fino, and Paytm are fully operational, while India Post, Jio, and NSDL are yet to scale up.•No margins in the business except trxn charges and any allied 3rd party services, PBs found the going tough to open new a/cs without the aid of tech.
•
As digital payment options grew and got integrated with offline merchant payments, use cases for PBs continued to reduce while •
Payment Banks
*Changing Landscape of Banking sectorMonday, June 17, 2019 12:11 PM
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As digital payment options grew and got integrated with offline merchant payments, use cases for PBs continued to reduce while customer growth was flat-lined.
•
Remittances, which was considered a key use case for PBs, also could not fire the small-ticket size market.•Airtel and Paytm are leveraging their vast existing customer networks to expand the PB operations. •Both have the options to cross-sell other services, thus generating new sources of income. •Presumably, Jio and to a lesser extent NSDL can do the same. •India Post has grappled with delays to its tech infra upgrade and to find a place in Indian banking system, an endeavour it has taken up a couple of decades too late.
•
Fino is the only pureplay PB, working w/i the constraints to run its operations. •Only Paytm PB declared a profit as per the most recent financial data available•
Guidelines for payment banks Can accept demand deposits restricted to Rs. 1 lakh per customer•pay interest on the deposits•Can issues ATM/debit cards but not credit cards •offer financial products like loans, insurance, mutual funds, pension funds etc. by partnering with other FIs and banks and offer debit cards or open ATM’s
•
Cannot lend money or issue credit cards and passbooks to the people •Maintain CRR, •Min paid up capital of 100 crore •
and hold max 25% in current and time/fixed deposits with other SCBs for operational purposes and liquidity mgt ○
required to invest min 75% of demand deposit balances in SLR eligible Gsecs/T-bills with maturity upto 1 year •
Minimum Capital Requirement: 15% and Common Equity Tier 1: 6%•should have a leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves)
•
Au financiers1.Capital local area bank2.Disha microfin3.Equitas holdings4.Esaf microfinance 5.Janalakshmi financial services6.Raven (north east) microfinance 7.Suryoday micro finance8.Ujjivan financial services 9.Utkarsh micro finance10.
16 September, RBI gave in-principle licenses to 10 entities (8 are microfinance companies), •
India’s first small finance bank is the Capital Small Finance Bank •
accepting deposits & lending to unserved and underserved sections, including small business units, small and marginal farmers, MSMEs, and unorganized sector
▪
Primarily undertake basic banking activities of ○
No restriction in area of ops of SFBs○
CRR and SLR norms same as for other SCBs ○
Can issue debit or credit cards, passbooks and also open ATM’s ○
single - 10% ▪
group obligators - 15%▪
Maximum loan size and investment limit exposure not more than of its capital funds○
Must extend 75% of its Adjusted Net Bank Credit (ANBC) to PSL○
Ensure that Min 50% of loan portfolio = advances of upto Rs 25 lakh ○
Min paid-up equity capital: Rs100 crore ○
Min initial contribution from promoters = 40%○
25% branches in unbanked rural centres w/i 1 year from date of commencement of ops○
Can undertake financial services like distribution of MF units, insurance products, pension products, etc with prior approvalfrom RBI
○
Guidelines for small finance banks •
Capital adequacy framework•
Small Finance Banks
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Liquidity Coverage Ratio (LCR) = highly liquid assets held by FIs to meet short-term obligations
Small banks and Payment banks - commonMinimum Capital required 100 crores. (Regular bank license 500 Crore). On tap SFBs 200CrFDI limits, voting rights similar to regular commercial bank like SBI, PNB, ICICIExternal Committee screening large industrial and business not allowed
PAYMENTS BANK
Deposits only upto 1 lac / individual customer •No lending •Can open small savings accounts {ie Only CASA}•Remittance services √•Can issue ATM/debit cards •No credit cards •Can distribute products such as MFs, insurance & 3rd-party loans
•
SMALL FINANCE BANK
Any deposits •Can lend but focus will on small lending •Can finance small and marginal farmers, MSMEs, unorganised Sector entities •Remittances √•credit cards / ATM / debit cards •50% of portfolio = advances of upto 25lac•25% rural branching •Can distribute financial products like MFs, Insurance & pension •MFI, NBFC can convert + Even individuals with 10 years' experience in bank/coops but Coop bank can't apply + NRI can apply
•
PSL 40% norm — comply in 3 years •Cant setup subsidiaries •Can appoint BCA. But can't become BCA of other bank•
Previously, RBI used to announce a brief window for licensing of banks •On-Tap Licensing:
Large industrial houses can invest only 10% into these banking entities •Initial min paid-up voting equity capital for a bank = Rs. 500 Cr •Aggregate foreign investment limit = 74% •
Regulations
Individuals who are 'residents' with 10yrs experience in BFS @senior level + successful track record for least 10 years •or NBFCs 'controlled by residents' with successful track record for atleast 10 years. •Must have assets of ≥ 5000 crore •
Who can Apply
Value stored on such instruments = value paid for by cash holders, by debit to a bank a/c or by credit card○
smart cards, ▪
magnetic stripe cards, ▪
internet accounts, ▪
internet wallets, ▪
mobile accounts & wallets▪
paper vouchers ▪
and any such instrument, which can be used to access the pre-paid amount▪
Pre-paid instruments can be issued as ○
RBI - payment instruments that facilitate purchase of goods/services, incl funds transfer, against value stored on such instruments. •
Regulated by RBI under the Payment and Settlement Systems Act (PSS), 2007 •
PPI’s (Pre-paid Payment Instruments)
Companies incorporated in India •Min paid-up capital of 5 crore •Min positive net worth of 1 crore at all the times •
Permitted to issue PPIs
Close-ended systems: Can be used only at issuer’s location of instrument •Types of PPIs
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Close-ended systems: Can be used only at issuer’s location of instrument •Semi-closed systems: recognized by a group of people/ merchants and can only be used at establishments of the group members•Open ended systems: are equal to currency and are recognized at large by all merchants, traders and business houses•Reloadable PPIs: can be reloaded again and again with cash •Non-Reloadable PPIs: cannot be loaded again and again with cash•
Only Banks and NBFC’s can issue PPIs •others need to take permission from RBI•
Banks after taking permission from concerned RBI dept permitted to issue semi-closed and open system PPIs ○
Non-bank entities are permitted to issue only semi-closed system○
Related to Semi-closed and Open ended systems: •
No interest is payable on PPI balances ○
Cash loading to PPIs ltd to Rs. 50K/month○
Loading and Reloading of PPIs: •
Regulations related to PPIs
RBI allowed 3rd-party WL ATMs to accept international cards, incl prepaid cards & can now tie up with any commercial bank for cash supply
•
RBI allowed Indian AIFs, to invest abroad, to increase investment opportunities for these funds•RBI allowed additional reserves to be part of tier-1 or core capital of banks, such as revaluation reserves linked to property holdings, foreign currency translation reserves and deferred tax assets
•
RBI issued guidelines for PSLCs (= tradable certificates issued against PSL to enable banks to achieve their target and sub-targets)•
Masala Bonds: Rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee, and not in foreign currency
○
From October 3, 2017, Masala bonds no longer form part of limit for FPI investments in corporate bonds rather form part of ECBs and will be monitored accordingly, as per RBI
•
Aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, subject to a cap of 10 lacs○
Aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of 10 lacs○
Exposure of a single lender to same borrower, across all P2Ps, shall not exceed 50K○
Maturity of loans shall not exceed 36 months○
P2P platforms treated as NBFCs and be regulated by RBI for which RBI has stipulated certain norms•
RBI can issue directions to banks for resolution of stressed assets, can specify authorities or committees to advise banks onresolution of stressed assets of which the members will be appointed or approved by the RBI
○
GoI amended Banking Regulation (Amendment) Act, 2017•
If customer's fault like password sharing with someone then bank will not pay any money○
If bank's fault then bank to pay entire amount irrespective of whether customer reports it or not immediately○
If customer reports within three days – entire loss has to be absorbed by the bank▪
If customer reports within 4-7 days then customer’s liability is up to 25000 per transaction▪
If customer reports after 7 days then it is up to the discretion of the bank to decide what amount to pay to customer if any▪
If 3rd party's fault then if ○
RBI issued conditions on which a customer would have zero liability or limited liability in online banking transactions in case of any fraud
•
will feature ‘Bharat Sarkar’ on its masthead, and ‘GoI’ printed below○
One-rupee note always been issued by GoI ○
Also feature an image of ‘Sagar Samrat’ oil exploration rig○
RBI announced that new one-rupee note printed by govt •
In case of JLFs, RBI ↓ threshold for implementing a CAP (Corrective Action Plan) — decisions agreed to by a min of 60% of creditors by value and 50% of creditors by number
•
RBI asked all existing ARCs to have a minimum NOF of Rs100 crore by March 2017 •RBI - inter-disciplinary standing committee under Meena Hemchandra, (RBI ED), on cyber security to review threats inherent in the existing and emerging tech
•
RBI permitted multilateral and regional FIs (= ADB, NDB) to invest in masala bonds•GoI constituted committee under Dinesh Sharma - to come up with an action plan for dealing with virtual currencies to fix the regulatory gaps in the existing framework governing virtual currencies
•
RBI proposed to allow banks to invest in REITs and InvITs with a cap of 10% of equity linked investments (which is 20% of NOF)•
T-bill, ▪
certificate of deposit rate ▪
RBI's repo rate ▪
rather than leaving it to discretion of each bank. Right now, banks use MCLR rate○
RBI committee headed by Dr Janak Raj suggested that interest rate on loans be pegged to anyone of the 3 benchmark rates •
SBBJ○
State Bank of Hyderabad, ○
State Bank of Mysore, ○
SBoP ○
Five associates and Bharatiya Mahila Bank merged with SBI making it one of top 50 banks globally in terms of assets •
Recent steps taken by RBI, GOI and other Regulators (old)
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SBoP ○
State Bank of Travancore○
NABARD Act, 1981 Amendment: Increased authorized capital of NABARD from Rs. 5K crores to 30K crores and further increase in it will be in consultation with RBI. Also, Transfer of 0.4% equity of RBI in NABARD amounting to Rs. 20 crores to GoI
•
IRDAI allowed insurers to invest up to 10% in additional tier 1 (AT1) bonds, that are issued by banks•Linking of Aadhaar with bank a/c mandatory for any trxn > 50K•UIDAI launched mAadhar app for mobile users that will allow users to carry UID profile on their mobile•IBBI has notified that investigation authority has to serve a notice intimating the entity concerned about the probe at least 10 days in advance
•
BBPS: An integrated bill payment system offering interoperable and accessible bill payment service to customers through a network of agents, enabling multiple payment modes and providing instant confirmation of payment
○
NPCI to function as Bharat Bill Payment Central Unit (BBPCU) and operate Bharat Bill Payment System (BBPS) •
= an Account Aggregator - transfers user’s personal financial data like bank statements, ITRs, Aadhar details, etc to requesting entities.
•
Consenting users, via a digital app, can share this info with their banks, hospitals, or any relevant agency as per their requirements.•Announced by Infosys co-founder and its former chairman, Nandan Nilekani, •set up as a non-govt, private ltd company. •work to increase adoption of framework via awareness programmes and workshops with potential AAs and Financial Intelligence Units.
•
In 2016, RBI had approved a new segment of NBFCs to act as account aggregators.•
NESL Asset Data, ○
CAMS Finserv Financial Services, ○
Cookiejar Technologies Pvt Ltd, ○
FinSec AA Solutions Pvt Ltd, ○
Yodless Finsoft Pvt Ltd, ○
Jio Info Solutions. ○
For now, 6 AAs have received an in-principle approval from RBI•
By end of 2019, companies expected to roll out their services. •
The tech framework for the Account Aggregator has been created by iSPIRT.•
Sahamati
Help credit bureaus.•Easier credit expansion, especially for MSMEs•enable growth of microloans and companies offering them.•Given the time and money be saved by banks => translated into a relatively lower interest rate for borrowers•Fuel infra savings in long run, ↓ need for paper trails and verification.•Enable people access products in real-time, pushing retail consumption forward•
Benefits
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Financial Inclusion (Fin-clu) = availability of financial services to poor in urban /rural
Access financial services @reasonable cost for all households○
Sound & safe institutions with clear regulation / industry performance standards○
Financial and institutional sustainability○
Competition among institutions○
UN definition = •
UN partnered with NABARD to bring Fin-clu amongst poor by creating financial products, bringing awareness and strengthening financial literacy in the country, especially in women
•
73% of farmer households - no access to formal credit sources○
NSSO 59th Round Survey = 51.4% of farmer households are financially excluded from both formal/ informal sources •
65% adults excluded from formal financial system○
Census 2011 = only 58.7% households availing banking services•
Measured on scale of 100 - higher => higher Fin inclusion○
CRISIL's - financial inclusion index = Inclusix in 2013•
Penetration (no of adults having bank a/c), ○
Availability of banking services (no of bank branches/1000 popn) ○
Usage (measured as outstanding credit and deposit)○
RBI Working Paper Study: Sadhan Kumar - an Index on financial inclusion (IFI) based on 3 variables •
Financial Inclusion in Urban areas - only challenge of financial literacy •Financial Inclusion in Rural areas - financial literacy + reqd infra to provide financial services•
Services under fin-clu{Rangarajan Committee Report on Financial Inclusion 2008}
Payment and remittance services •Financial Advice•Savings product and accounts •Credit facility •Entrepreneurial credit •Loans and insurance •Mortgage •
Fin-clu = access to below services
Retirement Savings ▪
Buffer Savings ▪
Insurable Contingencies ▪
Contingency Planning •
Business Livelihood ▪
Emergency Loans ▪
Housing Loans ▪
Consumption Loans ▪
Credit •
Savings & Investments based on household's level of financial literacy and risk perception
▪
Wealth Creation •
intermediaries appointed by bank - charge commission from bank for enrolment of clients, transactions, deposits etc. ○
help ↑ reach of banking services to unbanked areas. ○
Business Correspondents (BC’s) = work on behalf of banks ○
Business Facilitators (BF’s) = don’t work on behalf of bank but merely to facilitate banking business○
SHGs linked to banks▪
Retd teachers▪
NGOs and MFIs under Societies, Trust Acts ▪
Grocery, chemist & fair-price shop owners▪
Petrol pump owners▪
PCO operators ▪
BCs & BFs can be○
BC (Business Correspondent Model):•
Non-BC Model: tech used to provide financial inclusion to people in remote areas•
Financial Inclusion Models
Priority Sector Lending (PSL)○
Lead Bank Scheme○
Est of Regional Rural Banks (RRBs-1975-76)○
Service Area Approach (1989)○
SHG Bank Linkage Programme (1989-90)○
Setting up of Local Area Banks ○
Nationalisation of banks (1969 and 1980)•
Intro of Basic Saving Bank Deposit (BSBD) accounts: •
Past Financial Inclusion measures
*Fin InclusionMonday, June 17, 2019 12:11 PM
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no min balance▪
Deposit/withdrawal of cash at bank branch and ATMs▪
receipt/ credit of money through e-payment channels▪
ATM card▪
with common facilities like ○
•
'NIL' or very min balance needed to be maintained as well as minimum charges are placed○
No- Frills Account:•
Simplified KYC norms (+ Aadhaar) •Use of ICT => banking services in rural through BC model•All domestic SCBs – both public / private sector need to draw up board-approved Financial Inclusion Plans (FIPs) => submitted to RBI and implemented over blocks of 3 years
•
Intro of a general-purpose credit card (GCC) by Banks upto 25K @rural/semi-urban branches•Intro of KCC Scheme - banks issue smart cards to farmers for timely/adequate credit from single window for their farming needs•
provided using various models and tech including branchless banking through BCs○
Swabhimaan Fin-clu campaign, banking services in villages with popn > 2,000 •
popn > 1,000 in NEn/hilly states ○
popn > 1,600 in plains (census 2001)○
Swabhimaan extended to habitations with •
Setting up of Ultra Small Branches: small area of 100-200 sq. feet where officer designated by bank available with a laptop on pre-determined days. Mostly done in unbanked areas or villages with low population
•
IMF ‘Financial Access Survey’ FAS 2018 ResultsAnnual data on access to and use of financial services around the world. The database contains indicators tracking the availability and use of financial products such as deposit accounts, loans, and insurance policies etc.
mainstreaming gender disaggregated data •reporting non-branch retail agent outlets, a form of branchless banking •tracking the number of debit and credit cards in circulation •
This year’s FAS has expanded in 3 new dimensions:
Access to & use of Financial Services Yr 2017
Branches of commercial banks per 100,000 adults 14.72
ATMs per 100,000 adults 22.07Branches of all MFIs per 100,000 adults NA
Mobile money agent outlets: registered per 100,000 adults
Deposit accounts with commercial banks per 1,000 adults 1888.75
Deposit and customer accounts with all MFIs per 1,000 adults NA
Mobile money accounts: active per 1,000 adults
Loan accounts with commercial banks per 1,000 adults 178.24
Loan accounts with all MFIs per 1.000 adults NA
Mobile money transactions: number per 1,000 adults 317.91
Data with respect to India is Shown below
=> India needs to do much for Financial inclusion
No of commercial bank branches per 100,000 adults•No of ATMs per 100,000 adults•
2 FAS indicators are adopted as part of the 2030 SDGs:
Mar 2016 - all domestic SCBs (incl RRBs) to set new board approved FIP targets for next 3 years (2016-19) (Phase III of FIP)•Committee on Medium-term Path on Financial Inclusion (CMPFI) by RBI - Deepak Mohanty•Aug 2015, RBI rolled out a capacity building programme = National Mission for Capacity Building of Bankers for Financing the MSME Sector’ (NAMCABS) in collab with CAB, Pune for banks’ field-level fxnaries for developing their entrepreneurial sensitivity for lending to MSME sector
•
farmers, a.small entrepreneurs, b.SHGsc.school students d.senior citizense.
Financial Literacy Centres (FLCs) - tailored financial literacy programmes designed for 5 target groups •
Financial edu in school curriculum - class VI to X to be approved soon by resp state boards and CBSE•RBI designed framework for graded certification/training programme for BCs•A framework for a Registry of BC agent covering all BCs - by RBI to track BC performance•SIDBI framework for accreditation of credit counsellors - facilitators for entrepreneurs to access formal financial system•Set up of RSETIs at district level•RBI - new license to open a bank needs mandatory at least 25% branches in rural areas•
Aug 2016, RBI 11 licenses for payment banks Sept 2016, 10 licenses for small finance banks •
RBI’s Vision for 2020 to open ~600 million new customers' a/c and service them through a variety of channels by leveraging tech•DBT & Aadhaar seeding + PMJDY•
Recent Fin-clu Measures
Alliance for Financial Inclusion (AFI) - HQ: Kuala Lumpur
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Network of Fin-clu policymakers -- Bill & Melinda Gates Foundation-funded project •encourage adoption of inclusive financial policies in developing nations, to lift 2.5 billion citizens out of poverty•Utilizes a p2p learning model to connect, encourage and enable financial policymakers to interact•One of 3 implementing partners for G20 Global Partnership for Financial Inclusion (GPFI)•Through GPFI, helps non-G20 developing country policymakers participate in GPFI work•In 2011, AFI members adopted Maya Declaration = make fin-clu a centrepiece of national efforts for poverty ↓ & economic stability•
Alliance for Financial Inclusion (AFI) - HQ: Kuala Lumpur
Small and self-operated IT-enabled regional language based centres in villages ○
provide banking features such as cheque or cash deposit, internet banking, non-cash ATM transactions and other enquiries○
Internet Enabled Kiosks and PC’s:
small portable handheld device, cheap with net connection to bank servers▪
acts as cash cache for ATM □collects deposits and feeds data □pays out from his pocket and debits the a/c □
Used by BCs ▪
Micro ATM’s: ○
Biometric ATM: designed for illiterate/semi-literate - ATM facilities - uses thumb impression for verification ○
Mobile ATM: Vans that carry mobile ATM’s on predetermined days○
ATM’s (Automated Teller Machine)
Helps users access financial services (transfers, payments, receipts or investment) from mobile devices ○
either through mobile browsers /apps based on username and password authentication○
Mobile Banking:
Mobile Payments: SMS, prepaid instruments, UPI, payment banks apps
Near-field communication (NFC): - w/i 4 cm (2 in) of each other = contactless payment systems
Smart Cards and POS: card stores customer a/c info + a/c trxn details - no net reqd @ time of trxn - later connects to bank servers when internet connected
CBS (Core Banking Solution): networking of branches - enables customers to operate their a/c and avail of banking services from any branch of Bank on CBS network, regardless of a/c location
○
White Label ATM’s: are ATM’s set up, owned and operated by non-banks to provide ATM services to customers of all banks. These requires RBI’s authorization under Payment and Settlement Systems Act 2007
○
Paper Based Payment Systems: Use of paper-based instruments (like cheques, drafts) which covers max non-cash transactions○
Magnetic Ink Character Recognition (MICR) tech used for speeding up & ↑ efficiency in processing of cheques○
Speed Clearing of Cheques: local clearance of outstation cheques drawn on core banking enabled branches of banks○
Cheque Truncation System: no need of physical movement of cheques and enables use of images for payment processing○
NEFT ▪
RTGS ▪
ECS ▪
Electronic Fund Transfer system:○
Tech Devpt in Banking:
Fin-clu through use of Technology
PSL revised guidelines mandatory - 40% including sectoral sub-targets•Relaxed Margin and Security Norms stipulated by NABARD for SHG’s •Banks advised that financing of SHG not be impacted due to presence of Individual defaulters in it•
Steps by RBI for Fin-clu
Revised branching guidelines by RBI
Particulars Old Provisions New Provisions
Banking Outlets/Other Outlets defined
Branch = all kinds - full-fledged/specialized /mobile branches/satellite offices, Extension Counters, Off-site ATMs, admin offices, service branches (back office or processing centre) etc.
A call centre ≠ branch
instead of branch, banking outlet (= branch / BC outlet, amongst others) defined: Banking Outlet - for a DSCB/PB/SFB = fixed point service delivery unit, either bank's staff or BC where services - accepts deposits, encash cheque/ cash withdraw or lend money for min 4hrs/day for atleast 5 days/week
Part Time Banking Outlets - Any fixed point service delivery which does not comply with min working hours/days
25% branches rule modified
Atleast 25% branches opened during FY must in unbanked rural (Tier 5 & Tier 6) centers
At least 25% total ‘Banking Outlets’ opened during a FY must in an unbanked rural centers (Tier 5 & 6)
Restriction on Tier Total branches opened in Tier 1 centers during Restriction on no. of Tier 1 branches removed
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Restriction on Tier 1 Branch
Total branches opened in Tier 1 centers during FY < opened in Tier 2 - 6 centers and all centers in NEn States and Sikkim.
Restriction on no. of Tier 1 branches removed
Role of Board of Directors
Only approves Annual Branch Expansion Plans Fin-clu = overarching obj + operational flexibility to banksBoard to ensure guidelines compliance
Deposit scheme for girl child – Sukanya Shiksha•Link individual’s credit a/c with unique biometric ID like Aadhaar and store with credit info companies•Utilize mobile banking for max possible G2P payments•Digitisation of land records •Universal crop insurance for marginal and small farmers for all crops with a ceiling of 2lac @ nominal premium for agrarian distress•Framework for movable collateral registry •Intro online regn of BCs•NPCI to develop a multi-lingual mobile app for customers•
Committee on Medium Term Path on Fin-clu (By Deepak Mohanty)
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By World Bank in 2011 in p-ship with Gallup World Poll + funding by the Bill & Melinda Gates Foundation•World’s most comprehensive set of data providing consistent measures (>100 indicators) of people’s use of financial services across economies and over time
•
2014 edition - 62% adults worldwide have an a/c at a bank or another type of FI or with a mobile money provider•Fin-clu IDed as an enabler for 7/17 SDGs •G20 commitment for fin-clu is based on digital approach, financial innovation & risk, enabling legal & regulatory framework, building digital financial services framework, protecting consumers, strengthening financial literacy & awareness and tracking progress
•
Universal Financial Access (UFA) by 2020: extending access to fin services to 1 billion adults through UFA, which envisions that adults worldwide will be able to have access to a transaction a/c to store money, send or receive payments
○
Financial Sector Assessment Programs (FSAPs): by World bank to help strengthen countries’ overall financial systems and cover a range financial sector issues also covers financial inclusion measures
○
WB's 2 initiatives to promote financial access and inclusion •
National fin-clu strategies (NFIS)1.Modernize retail payment systems and govt payments 2.Reform national payments systems (NPS) 3.Diversify financial services for individuals 4.Leverage tech for fin-clu5.Strengthen competition and expand access points 6.Financial consumer protection 7.Mechanism to measure Financial capability 8.Segregation of fin-clu data9.
Unified approach designed by World Bank focusing on 9 areas of extending financial inclusion are: •
Global Findex
MICROFINANCE
Microfinance = provision of thrift, credit & other financial services and products of very small amounts to poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards
•
landless labourers - agri, mining & construction○
self-employed in non-farm activities & in urban informal sector○
small and marginal farmers○
rural artisans & weavers○
Women○
For •
Task Force on Supportive Policy and Regulatory Framework for Microfinance (NABARD),1999, defines
SHGs: A regd/unregd group of 15-20 members - relatively homogeneous socio-economic background - voluntarily come together to save small amounts regularly to a common fund and to meet their emergency needs on mutual-help basis
•
Many SHGs have women as their members •Microfinance is used by SHGs to meet the survival needs, meet working-capital requirements •
MicrofinanceFriday, August 2, 2019 1:31 PM
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Microfinance Delivery Mechanism (3 Approaches)Conventional Weaker-section Lending by Banks: Cooperative and RRBs were set up to reach rural + even SCBs reqd to provide microfinance under PSL guidelinesSHG-Bank Linkage Programme: Most popular mode of providing microfinance
Small groups of poor encouraged to pool their savings regularly => small interest-bearing loans to members + bank credit made available to group to augment its resources for lending to its members
•
SHG-Bank Linkage Programme = p-ship model b/w 3 agencies - SHGs, banks and NGOs. •
NABARD-Bank-SHG: SHGs formed & financed by banks - no NGO intervention - NABARD supports banks and banks support SHGs.
1.
NABARD-Bank-SHG (with NGO as a facilitating agency): NGOs promote SHGs and link them with banks. SHGs formed by NGOs are directly financed by banks.
2.
NABARD-Bank-NGO-SHG (with NGO as financial intermediary): Funds flow from NABARD to banks and from banks to NGOs. The SHGs are financed by banks through NGOs
MFIs lending through individual and group approach - SHPI (SHG Promoting Institution): Helps to organize, nurture and enable credit linkage of SHGs with banks.
Accesses financial resources from Banks and other mainstream FIs and provide financial and support services to the poor•Helps bridge gap b/w the formal FIs and rural poor •
MFIs classified into the following 3 categories based on their legal structure:•
NABARD and SIDBI = apex-microfinance service providers. •NABARD = promoter and regulator of SHG-BLP•
Direct lending to individuals organized in JLGs○
Lending to SHGs ○
Lending to SHGs Federations○
Credit Lending Methodologies in MFIs: •
MFIs cannot access public deposits and hence, rely on bank deposits to fund their growth + also deprived of equity capital•
Microfinance Institutions (MFIs)
Est in India in 2014 by NABARD to provide institutional credit to small farmers•Joint Liability Groups:
Finance Page 60
Est in India in 2014 by NABARD to provide institutional credit to small farmers•Group of 4-10 of same village/locality of homogenous nature and of same Socio-economic background who mutually come together to form a group for availing loan from a bank without any collateral
•
either financing to group directly ▪
or individual in the groups ▪
but in both cases all members of JLG responsible for repaying loan amount○
A bank can finance a JLG in 2 ways, •
1st needs to be promoted by any individuals/institutions (JLGs Promoting Institutions). Thereafter, bank requires KYC, Loan Application, Inter Se Agreement and DPN
•
NABARD provides refinance support to banks upto 100% of bank loans disbursed to SHGs•
Micro Finance Devpt & Equity Fund (MFDEF)○
Micro Enterprise Devpt Programme (MEDP) for skill development, training & capacity building of SHGs○
Livelihood and Enterprise Devpt Programme (LEDP), promotes Women SHGs in backward districts, collaborates with NRLM, conducts village level programmes and grants supports to promoting agencies of SHGs
○
NABARD also does promotional support for SHG-Bank Linkage through •
SIDBI launched SIDBI Foundation for Micro Credit (SFMC) in 1999 for micro finance in India providing a complete range of financial and non-financial services and also supports in development of the MFIs
•
Difference b/w JLGs & SHGs model of Microfinance
SHGs
Community based savings oriented group•Women only•10-20 people /group•Loans for consumption, income gen, community devpt, etc
•
Quantum of loan based on savings of the group•A formal structure with proper hierarchy like animator, rep, secy, etc
•
Promoted mainly by NABARD•Eligible for loans from fin insti only after 6 months•Community driven model - rules by members themselves•Best for empowering homogenous community of rural women
•
JLGs
Supply driven Credit oriented group•both men & women•4-10/Group •Loans only for income-gen purposes•Credit based model => no impact of savings on loan process•Informal group from same socio-economic background who seek loan for biz
•
Promoted mainly by MFIs•From very next week of formation•Agency driven model - rules by financial insti which promotes JLGs
•
Best for regions with heterogenous enterprising popn•
Initiatives by NABARD in microfinance sector
open strategic advisory board departmentally in NABARD to oversee devpt in microfinance sector•Expert Group on DFI for Women SHGs by MoRD under Usha Thorat, Ex-DG, RBI which recommended to
E-shakti: a platform containing digitised records of SHGs with pilot project in Ramgarh (JH) and Dhule (MH)
RBI - Sub-Committee of its Board (Malegam Committee) which recommended intro of new category of NBFCs-the NBFC-MFI
•
(For NBFC-MFIs regd in NER min NOF = 2 crores)○
An NBFC-MFI should have min NOFs = 5 crores. •
Loan to be extended without collateral •Total indebtedness of borrower does not exceed 1 lac•Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs.1 lac or urban and semi-urban household income not exceeding 1.6 lacs
•
Loan amount does not exceed Rs. 60K in 1st cycle and 1lac in subsequent cycles•Not more than 2 NBFC-MFIs can lend to the same borrower•Capital adequacy ratio consisting of Tier I and Tier II capital which shall not be less than 15% aggregate risk weighted assets
•
RBI Regulations on NBFC-MFIs
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= an agreement b/w 2 parties – the user (lessee) and the owner (lessor)•
The Lessor grants the lessee right to use property of lessor for a defined period. Lessor is also called Asset based lender •
In return Lessee agrees to pay series of fixed payments to the lessor.○
The Lessee just has rights to use but does not have the ownership rights. •
Leasing (Asset based Lenders) -•
Operating/Service lease: one of short-term and cancelable leases. The asset returned to lessor after lease period ends 1.
Financial/Full Payout lease: A long term lease period. Eg 100 years. During lease period ownership remains with lessor but the ownership is transferred to lessee after the lease period
2.
Direct lease: When the lease belongs to owner of assets and users of the assets with direct relationship it is called as direct lease3.
Sale and Lease Back: owner sells an asset for cash to a prospective leaser and then leases back the same asset, making fixed periodic payments for its use
4.
Single investor lease: When lease belongs to only 2 parties namely lessor and lessee it is called as single investor lease5.
the lessor▪
the lender▪
the lessee▪
The lessor acts as equity participant supplying a fraction of total cost of assets while the lender supplies the major part.○
Leveraged lease: used to acquire high level capital cost of assets and equipment’s. Under this lease, there are 3 parties involved; 6.
Domestic lease: In the lease transaction, if both the parties belong to the domicile of the same country it is called as domestic leasing7.
International Lea8.
Types of Leasing
Types of Franchise – Product Franchise, Management Franchise and Business Format Franchise•
Franchising: Under this model the Company (Franchisor) which does not have capital to expand, give the franchise rights (right to run a local business under the brand name of the franchisor) to an individual or a company(Franchisee)
•
the factor who purchases the receivable {jo bills khareedta hai) •
the one who sells the receivable (jo bills bechta hai)•
the debtor who has a financial liability that requires him or her to make a payment to the owner of the invoice {jisne billed cheez khareed rakhi hai udhaar pe}
•
3 parties directly involved: •
The sale of the receivable transfers ownership of the receivable to the factor, indicating the factor obtains all of the rights associated with the receivables
•
Notified Factoring - debtor is informed about change in Ownership of receivables where as in non-notified factoring the debtor is not informed on the same
•
If the factoring transfers the receivable "without recourse", the factor (purchaser of the receivable) must bear the loss if the account
debtor where as in with recourse factoring the seller is responsible for any non-payment by debtor
•
Fee paid to the factor○
Interest Expense paid to the factor ○
Bad debt expense for nonpayment by debtor○
Factor's holdback receivable amount to cover merchandise returns○
4 principal parts to the factoring transaction•
Kalyanasundaram Study Group by RBI in Jan 1988 to examine feasibility and mechanics of starting factoring orgs in India•
also specifies that any entity conducting the factoring business would need to be registered with RBI as NBFCs○
GoI enacted Factoring Regulations Act, 2011 to bring in legal framework for factoring business. •
Factoring: Through this process, a service provider will give you the money on invoices that have been billed out, which you then pay back once the customer has settled the bill
•
Forfeiters only work with exporters unlike in factoring where transaction can take place with any entity•
Forfeiting: similar to factoring which allows exporters to get cash by selling their receivables from foreign country at some discount.•
Alternate source of finance + FDIMonday, June 17, 2019 12:11 PM
Finance Page 62
Borrowers can raise money mostly without need for collaterals and at much lower rates compared to banks, while investors that are sitting on idle cash have the option to get returns that are very lucrative.
•
The platform provides a credit rating to the individual who wants to borrow money.•
The platforms provide services such as details of credit history of a borrower or collecting interest payments from the borrower.•
For this the platforms charges a fee from both the lender and borrower.•
Must act only as intermediaries - cannot take on the functions of a bank and seek and keep deposits○
Funds must move directly from the lender’s account to the borrower’s account to prevent risk of money laundering○
P2P platforms can’t assure returns to lenders -- (in interest% and not that money wont be secured) ○
The companies must have a min capital of 2 crore ○
May be limits on max contribution by a lender to a borrower/segment of activity○
Promoters, Directors and CEOs of P2P platforms will have to meet “fit and proper” criteria○
All P2P platforms may have to be structured as companies○
RBI’s Regulation of Peer to Peer Platforms•
Peer To Peer Platform: Online P2P sites seek to connect interested lenders with borrowers, eliminating intermediaries and costs.•
Crowd Funding: allow businesses to pool small investments from a no of investors instead of having to look for a single investment •
Since investments are made from large number of people and hence the name crowd funding •
Rewards crowdfunding: entrepreneurs presell a product or service to launch a business concept without incurring debt or sacrificing equity/shares
•
Equity crowdfunding: Equity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a part of the capital markets.
•
Debt Based Crowdfunding: = Peer to Peer lending•
Litigation Funding: done basically to fund a litigation for a common cause •
Charity donation-based crowdfunding: is the collective effort of individuals to help charitable causes.•
Two Main types •
individual / group who invest their own money in early (concept) stages of company and in return take a share in the company•
Invest typically less money than VCs and they are not involved much in functioning of the company•
Decide quickly on the investment decision •
Angel Investors:•
are professionals managing money of corporates, pension funds and individuals which is invested into companies with high potential requiring funding
•
Not much into funding at early stages of business though if the concept is really good they might invest in early stage also. They invest huge amounts of money, much larger than Angel Investors.
•
When they invest, they also designate people on the board of the company (they are fully involved in the functioning of company) and people who have the industry knowledge to work on a daily basis in the operations of the company
•
Due diligence => take time to invest•
Venture Capitalists:•
only possible for companies with established business model looking for capital for further growth•
Public Equity: equity (Share in business) offered to general public (Individuals or Corporates like pension funds, mutual funds) through Initial Public Offering (IPO)
•
Funding Type
Benefit Drawbacks Suitable for
Leasing Property Is not sold but still finance is arranged
Person needing finance and having idle lying property
Franchising
Growth without much investment Franchisee eats into the profits Established brands looking for growth in local area without investment
Factoring Credit for payments due in future Fees may be charged from lender Companies having poor cash flows and problems with working capital
Forfeiting Credit for payments due in future in foreign countries and thus eliminating the risk
Fees may be charged from lender which can be high
Companies having poor cash flows or wants to eliminate the risk of payment from foreign country
P2P Gets best interest rate after comparison Risk for the investor that he does not Small business which are deemed to be risky
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P2P Gets best interest rate after comparison Risk for the investor that he does not know the risk involved in the business
Small business which are deemed to be risky
Crowd Funding
Flexible funding timelines and not much pressure to perform
Not much guidance from the funders Where angel Investors and VC’s do not agree for funding or funding is required for social cause
Angel Investors
Some coaching and contacts Some meddling by investors and regular results reporting
Early in the company concept stage
VCs Don't have to pay the money back. VCs can also bring advice and partners
VCs involvement in the company may challenge management
Early stage typically before you want to make big but have a proven model
Public Equity
Access to Large amount of Capital
Public Investors do not interfere in day to day activities
Lot of money and effort spent on accounting reporting
Effort spent on managing/Informing the stock exchanges
Companies which are profitable and has sustained business model
Large Amount of Money
Private and Social Cost BenefitPrivate Costs: = costs borne by those directly involved in decision to produce a product. Eg labour cost •
Private Benefits: = benefits received by those directly involved in consumption and production of a product eg revenue earned from selling the wood
•
Company XYZ might only consider private costs and benefits and as long as private benefits exceeds the cost, the company will keep on cutting the trees
External Costs: The negative effects on 3rd parties, due to consumption and production activities of others•
External Benefits: The positive effects on 3rd parties, due to consumption and production activities of others. In Case of company XYZ, external benefits may include reduced transport costs and reduced transport time for tourist firms in the area due to constru ction of roads by company XYZ
•
Social costs = total costs of an economic activity to society. The social cost of cutting down trees in the wild life forest, will consist of both external and private costs. When social costs exceed private costs, there are external costs involved
•
Social benefits = total benefits to society, arising from an economic activity. They include both private and external benefits. Again, where social benefits are greater than private benefits, external benefits exist
•
The level of output which will cause maximum benefit to the society and not only individual will occur when the social benefi t of the last unit produced is equal to the social cost of that unit. If the social cost exceeds the social benefit, it implies that too ma ny resources are being devoted to the production of the product
Social Costs = Pvt costs + external costs
Social Benefit = Pvt Benefit + external Benefit
FDI FII/FPI
Long-term relation with company & its board •
Unlisted: any investment is FDI •
Listed company: ≥ 10% •
Anonymous & Short-term •
Any Public ltd. Company: < 10% •
If public listed then anyone can purchase below 10% •
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Sectoral caps are there •
Only one category "FDI" •
NRI- further deliberation, said Mayaram •
FDI applies to Equity finance only•
Debenture - NO•
Fully convertible debenture - YES•
G-Sec / T-Bill: NO (Debt instruments) •
RBI (FEMA) •
FIPB•
Companies required to disclose •
Earlier sub-categories: FII, QFI•
• SEBI: FPI
• RBI: ReFPI
NRI investment not counted •
Both debt and equity, But can't buy T-Bill •
G-Sec:30 billion •
Corporate bonds: 51 billion •
Individual: SCI •
Aggregate: RBI •
Companies required to disclose •
Prohibited for FDI:-
(i) lottery business;
(ii) gambling and betting;
(iii) chit fund business
(iv) Nidhi company
(v) Trading in Transferable Development Rights (TDRs)
Real estate business shall not include development of townships, construction of residential/commercial premises, roads or bridges and REITs registered and regulated under SEBI (REITs) Regulations 2014; #allowed
•
(vi) real estate business or construction of farm houses
(vii) manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
= (i) atomic energy and (ii) railway operations
(viii) activity/sector not opened to private sector investment,
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Disinvestment typically refers to sale from govt, partly or fully, of a govt-owned enterprise•
Only when govt sells > 51% of its ownership to pvt○
Privatization: transferring mgt & ownership from public to private sector•
BoP crisis - 1990-91 - IMF & World Bank conditions for gradual opening and liberalization○
=> New Industrial Policy, 1991 emphasizing increasing role and importance of private sector○
fiscal deficits faced by govt in recent years○
Why Privatisation ↑•
Advantagescapital inflow ↑ Capacity => enter new markets ↑ competitiveness
DisadvantagesLosing of public interest Fear of foreign controlEmployee/trade union probs
Disinvestment/ Divestment / Divestiture: = action of an org (or govt) selling or liquidating an asset or subsidiary
10th Dec, 1999 = Setup Dept of Disinvestment •6th Sept, 2001 = Dept of Disinvestment renamed to Ministry of Disinvestment •27th Mar 2004 => Dept of Disinvestment under MoF•14th Apr 2016 => Dept of Disinvestment renamed to Dept of Investment and Public Asset Management (DIPAM)•
Inception of DIPAM:
Promote people’s ownership of CPSEs to share in their prosperity through disinvestment•Efficient mgt of public investment in CPSEs for accelerating economy + augmenting Govt’s resources for higher expenditure•
Vision of DIPAM:
Matters wrt mgt of GoI investments in equity including disinvestment of equity in CPSUs•Matters wrt sale of GoI equity through various mode in erstwhile CPSUs•Decisions on recommendations of Ministries, NITI Aayog, etc. for disinvestment including strategic disinvestment.•Matters wrt Independent External Monitor(s) for disinvestment and public asset management•The Unit Trust of India Act, 1963 (52 of 1963) + subjects relating to Specified Undertaking of Unit Trust of India (SUUTI)•
Mandate of DIPAM:
In-principle consent by Administrative Ministry of the CPSE concerned 1.Approval by CCEA 2.Constitution of an Inter-Ministerial Group (IMG) to guide and oversee the disinvestment process3.IMG appoints Advisers including Merchant Bankers/ Book Running Lead Managers (BRLMs)/ Legal Advisers4.Presentation by BRLMs before High Level Committee (HLC) on Valuation 5.HLC recommends price band/ floor price to the Alternative Mechanism (AM) based on recommendations of BRLMs6.Approval by AM of recommended price band/ floor price, method of disinvestment, price discount for retail investors, etc.7.
Steps in Disinvestment Process:
Minority stake sale in listed CPSEs: Govt to retain majority shareholding (≥ 51%) & mgt control of PSUs1.Strategic disinvestment: Sale of Govt shareholding in the CPSEs upto ≥ 50%, + transfer of mgt control2.
Current Disinvestment Policy:
Disinvestment through minority stake sale: Listed profitable CPSEs: achieve min 25% shareholding through offer of sale or IPO’s or combination of both
•
Unlisted CPSEs (only profitable ones) to be listed •Follow-on public offers for capital investment of CPSEs on a case by case basis
•
DIPAM identifies CPSEs in consult with resp administrative ministries and submit proposal to Govt in cases requiring offer of sale of Govt equity
•
Strategic Disinvestment: Through a consultation among different Ministries/Depts, incl NITI •NITI identifies CPSEs for strategic disinvestment and advises on mode of sale, %age shares to be sold and method for valuation of CPSE
•
The Core Group of Secretaries on Disinvestment (CGD) consider NITI recommendations to facilitate a decision by CCEA on strategic disinvestment and to supervise/monitor implementation process
•
Initial Public Offering (IPO): Offer shares to public for subscription for 1st time •Further Public Offering (FPO): Offer shares by a listed CPSE or Govt out of its shareholding or a combination of both to public•Offer for sale (OFS): Offer of shares by promoters through Stock Exchange mechanism •Strategic sale: Sell Govt shareholding in CPSEs upto ≥ 50% + transfer of mgt control•Institutional Placement Program (IPP): Only Institutions can participate in offering •
Constituent stocks are listed and actively traded ○
May have representation from various sectors to provide ETF unit holders adequate diversification○
CPSE ETF: a security (of underlying CPSE stocks) that tracks an index like an index fund, but trades like a stock on an exchange •
Methods of disinvestment of minority stake in CPSEs:
Steps taken by GOI to accelerate disinvestment process:
DivestmentTuesday, June 25, 2019 2:05 PM
Finance Page 66
Rolling Plan: Replaced earlier system of announcement of annual plans for CPSEs disinvestment (provided scope for price hammering) with rolling plan system
•
T-1 dispensation for Offer for Sale (OFS): OFS trxns takes place on very next day after notice for issue given to stock exchanges•
Reserve 20% shares on PSUs-OFS trxns with a price discount upto 5% for retail investors○
Allowing retail investors to bid in an OFS issue on T+1 day○
Boost Equity Culture in India•
Steps taken by GOI to accelerate disinvestment process:
Subscribing to Rights shares issued by CPSEs ▪
Subscribing to Preferential shares issued by CPSEs▪
Ensure non dilution of 51% Govt ownership in CPSEsa.
Recap of PSBs and public-sector insurance companies (BASEL III norms achievement)b.Investment by Govt in RRBs/IIFCL/NABARD/Exim Bank c.Equity infusion in various Metro projects d.Investment in Bhartiya Nabhikiya Vidyut Nigam Ltd and Uranium Corp of India Ltd e.Investment in Indian Railways towards capexf.
NIF approved purposes •Disinvestment proceeds credited into National Investment Fund (NIF) constituted Nov 2005 - used for approved purposes
Budget 2019 Disinvestment Target: Rs 1.05 lakh Crore in 2019-20
Worksheet
= Disinvestment1. _________ can be defined as the action of an organisation (or govt) selling or liquidating an asset or subsidiary.
= Initial Public Offering (IPO)
2. __________ method of disinvestment involves offer of shares by an unlisted CPSE or Govt out of its shareholding or a combi nation of both to the public for subscription for the first time
= Privatization3. __________ generally refers to inducing private sector participation in the management and ownership of PSEs.
4. The proceeds of disinvestment are credited into ____________Fund constituted in November, 2005 and are used for the approv ed
= National Investment Fund (NIF)purpose, as decided from time to time.
= New Industrial Policy, 1991
5. The __________ Policy emphasized the increasing role and importance of the private sector in developing the industrial hea lth of the economy.
= False - ulta○
In Disinvestment, full ownership is transferred to strategic partner but in Privatization, usually, some % of share is retained with the government company, and the rest is transferred to the strategic partner.
•
= False - Strategic disinvestment involves sale of substantial portion of Govt shareholding in identified CPSEs ≥ 50%, alongwith transfer of management control.
○
Strategic disinvestment involves sale of substantial portion of Govt shareholding in identified CPSEs ≥ 10%, alongwith transfer of management control.
•
= True○
The Unit Trust of India Act, 1963 (52 of 1963) along with subjects relating to Specified Undertaking of the Unit Trust of India (SUUTI) falls under mandate of Department of Investment and Public Asset Management (DIPAM).
•
= True○
Offer for sale (OFS) method of disinvestment of shares of CPSEs by promoters through Stock Exchange mechanism allows auction of shares on the platform provided by the Stock Exchange.
•
True/False
MCQs
The Department of Disinvestment was set up as a separate Department on 10th December, 1999.•Department of Disinvestment was later renamed as Ministry of Disinvestment form 6th September, 2001•From 27th May, 2004, the Department of Disinvestment was one of the Departments under the Ministry of Finance•Department of Disinvestment has been renamed as Department of Investment and Public Asset Management (DIPAM) from 14th April, 2006.
•
1. Which of following is/are incorrect regarding Administration of Disinvestment in India?
Approval of the proposal to disinvest by CCEA•Constitution of an Inter-Ministerial Group (IMG)•In-principle consent by the Administrative Ministry of the CPSE concerned•None of the above•
2. The first step in the process of disinvestment is:
Management of Central Government investments of equity in Central Public Sector Undertakings•Matters relating to sale of Central Government equity through offer for sale or private placement•Decisions on the recommendations of Administrative Ministries, NITI Aayog, etc. for disinvestment•
3. Which of the following falls under the mandate of DIPAM?
Finance Page 67
Decisions on the recommendations of Administrative Ministries, NITI Aayog, etc. for disinvestment•All of the above•
Disinvestment through minority stake sale in listed CPSEs retaining at least 51% shareholding and management control•Strategic disinvestment by way of sale of substantial portion of Govt shareholding in identified CPSEs upto 50 per cent or more, alongwith transfer of management control
•
Both of the above•None of the above•
4. Which of the following approach is/are adopted by govt. as part of current disinvestment policy?
Finance Minister•Minister for Road Transport & Highways•Minister of Administrative Department concerned•
{An Alternative Mechanism (AM) consisting of Finance Minister, MoRT&H and Minister of Administrative Dept will be set up to decide on matters relating to terms and conditions of the sale from the stage of inviting of Express of Interests (Eols) till inviting of financial bid}
○
Prime Minister•
5. Recently, CCEA, chaired by PM Modi, approved Setting up an Alternative Mechanism for strategic disinvestment to decide on the matters relating to terms and conditions of the sale from the stage of inviting of Express of Interests (Eols) till inviting of financial bid. Which of the following will not be a part of the mechanism?
Disinvestment is to be undertaken through a consultation process among different Ministries/Departments, including NITI Aayog•NITI Aayog is to identify CPSEs for strategic disinvestment and advice on the sale related matters•The Core Group of Secretaries on Disinvestment (CGD) will consider the recommendations of NITI Aayog to facilitate a decisionby the CCEA on strategic disinvestment.
•
None of the above •
6. Which of the following is/are incorrect regarding approach towards strategic disinvestment under current disinvestment policy?
Public Account•7. Disinvestment proceeds are credited to the existing NIF (National Investment Fund) which is a ________ under the Govt Acco unts
Disinvestment receipts are disclosed in Union Budget as part of Miscellaneous Capital Receipts.•Govt constituted a 'National Investment Fund' (NIF) into which proceeds from disinvestment of Govt equity in selected CPSEs is channelized.
•
The funds so credited to NIF will be withdrawn and used for financing expenditure on infra project, education, health sectors and investment in Indian Railways
•
d) None of the above•
8. Which of the following is incorrect regarding Government Budgeting and disinvestment?
Initial Public Offering (IPO)•Offer for sale (OFS)•Institutional Placement Program (IPP)•All of the above•
9. Which of the following method(s) is/are used by government for disinvestment of minority stakes in CPSEs?
E&Y Bharat 26 Index•S&P BSE Bharat 22 Index•Crisil India 22 Index•None of the above•
10. Recently, launch of which index announced by Asia index Pvt Ltd to track performance of state -run companies in which the central govt has divested its stake?
Finance Page 68
Public Private Partnership (PPP or 3P): = Contractual arrangement b/w a public agency and a pvt sector entity to deliver a service or facility for use of general publicImportance of PPP
Limited Govt Resources to execute big investments •private efficiency •Equitable risk allocation and mitigation b/w state and private agency •Objective of govt (providing pubic goods) and private sector (profits) complement each other•
Different PPP Models
Service Contract: Govt hires a private company or entity to carry out one or more specified services for a period, typically 1–3 years. Govt remains primary provider of infra service and contracts out only portions of its ops to private partner
•
Maintenance Contract: some/all of daily management, operation, control and authority given to Private entity but ultimate obligation for service ie. loss and profits remains in the public sector
•
Lease Contract: In this, responsibility for service is transferred from public to private sector and financial risk for operation and maintenance is borne entirely by private sector operator through lease given for 10-20 years. Although, assets owned by Public sector and no capital investment done by Private sector
•
Concessions: Responsibility for full delivery of services, incl operation, maintenance, collection, management, and construction and rehab of system is given to private agency. Capital investment by private sector but public sector still owns assets even during concession period
•
Design Build (DB) (= Build Transfer): Govt contracts a private to design and build a facility and ownership transferred to the govt after completion of contract
•
Design Build Maintain (DBM): Designing, building and maintenance of the facility is assigned to private sector but ownership still stays with the govt
•
Design Build Operate (DBO) (= Build Transfer Operate): design, building and operating facility assigned to private sector and the ownership stays with the government
•
Build Own Operate: private entity not required to transfer ownership to govt and is given rights to finance, design, build, operate and maintain the project
•
Design-Build-Finance-Operate/Maintain (DBFO, DBFM or DBFO/M): The private sector designs, builds, finances, operates and/or maintains a new facility until the end of long-term lease
•
BOT’s (Build Operate Transfer): Private partner provides capital to build new facility, Operate & Maintain (O&M) for contract period and then returns facility to Govt as per agreed terms. The private operator owns assets for contract period and public sector assumes ownership beyond that. Different BOT models
•
Steps Taken by Govt to Promote PPPs
Provided as a capital subsidy to attract private sector players to participate in PPP projects = 20% project cost.•Grant under VGF needs to be approved by either Empowered Institution or Empowered Committee •
Empowered Institution (up to Rs. 100 crore for each project)Additional Secy (Economic Affairs) •Additional Secy (Expenditure) •Representative of Planning Commission not below rank of Joint Secretary
•
Jt Secy in line Ministry dealing with the subject
•
Jt Secy (FT), DEA -- Member Secretary
•
Empowered Committee (up to Rs. 200 crore for each project): Secy (Economic Affairs) •CEO Niti Aayog•Secy (Expenditure) •Secy of line Ministry dealing with the subject•Eligibility:
Projects by Central Ministries, State Govt or Statutory Authorities (like Municipal Authorities and Councils), which own the underlying assets
•
Developed, financed, constructed, maintained and operated for the project’s term by a Private Sector Company
•
Projects assigned through a transparent and open competitive bidding process •The project should provide a service against payment of pre-determined tariff or user charge
•
Company in which ≥ 50% subscribed and paid up equity owned and controlled by a private entity
•
1. Viability Gap Funding: to support economically justified but not financially viable projects.
Costs incurred in feasibility studies, EIA studies, financial structuring, legal reviews etc. before PPP projected started○
IIPDF provides financial support to cover transaction costs •
corpus Rs. 100 Crore to quicken the process of project preparation •IIPDF contributes only upto 75% project development expenses as an interest free loan and balance 25% is co-funded by the party•
2. India Infra Project Development Fund (IIPDF):
Responsible for appraisal of PPP projects in Central Sector above Rs 1,000 crore in value and then sent for cabinet approval•
Secy, Dept of Economic Affairs (in the Chair) ○
CEO Niti Aayog ○
Secy, Dept of Expenditure○
PPPAC comprises of •
3. PPP Appraisal Committee (PPPAC):
PPPMonday, July 15, 2019 5:30 PM
Finance Page 69
Secy, Dept of Expenditure○
Secy, Dept of Legal Affairs○
Secy, Dept sponsoring a project○
Wholly-owned GoI company set up 2006 •to provide long term finance to viable infra projects through a SPV•
Transportation, energy, water, sanitation, and communication, social and commercial infrastructure○
Eligible Sectors: •
Registered as a NBFC-ND-IFC •IIFCL raises funds through long-term resources from both domestic as well as global markets•As senior debtor, IIFCL provides long-term funds to infra projects, taking an exposure of upto 20% Total Project Cost•As subordinate debtor in consortium, IIFCL provides subordinate debt up to 10% project cost•+ Credit Enhancement Facility to infra companies by upgrading their bond ratings for refinancing their existing loans which could be upto 20% Total Project Cost
•
4. India Infra Finance Company Ltd (IIFCL):
mitigation and unbundling of risks○
predictability of costs & obligations○
reduction of transaction costs and termination, etc○
Spells out policy and regulatory framework for implementation of a PPP project - like •5. Model Concession Agreement (MCA):
Specifically for stalled highway construction projects •HAM = mix b/w – BOT Annuity and EPC •BOT Annuity Model: - govt makes payment to developer on 6 month basis after completion of project•BOT Toll Model: a road developer constructs road and is allowed to recover his investment through toll collection till 30 years mostly - no govt payment in this case
•
EPC Model: the costs, i.e. raw material and construction costs are met by govt. Govt invites bids for engg knowledge from private•HAM: payment is made in a fixed amount for a considerable period and then in a variable amount in remaining period•
Govt - 40% project cost in 1st 5 years - annuity○
60% payment on basis of assets created and developer performance ○
Revenue with NHAI○
As per HAM, •
6. Hybrid Annuity model (HAM):
Challenges in PPP sectorCommercial Viability of projects •Insufficient experience of partners, particularly of public sector while contracting PPP projects•Mandatory expenses grow and the hidden long term debt arises for the govt •Long Gestation Period of the projects •Negative financial impacts in case the partnership breaks •Transfer of Risk from private sector to the public sector •Focus more on Economic Benefits at cost of social and environmental aspects •Weakness in enabling policy and regulatory framework •Limited Capacity to Manage PPP in Public Sector •Lack of Political Will•Varied Institutional Framework across different states•
Vijay Kelkar Committee on Revisiting and Revitalizing the PPP model: set-up in 2015
Contracts need to focus more on service delivery instead of fiscal benefits•
Model Concession Agreements to distribute the Risk •+ renegotiation of contracts in case private entity feels that project is not viable during the re-course of project•Obsolescing Bargain: {= loss of bargaining power related to tariffs and other matters in case of abrupt changes in economic or policy envt, which are beyond developer’s control which gives the govt an upper hand over private developer after project completion}
•
Better identification and allocation of risks b/w stakeholders -•
Banks and FIs should be encouraged to issue deep discount bonds for long-term capital at low-cost•Equity in project may be offered to long-term investors including overseas institutional buyers after completion of projects•Independent sectoral regulators be set up as and when a new sector is declared to adopt PPP model•PSUs not be allowed to bid for PPP projects•Constitute Infra PPP Project Review Committee (IPRC) to evaluate and advise on any problems of PPP project•Infrastructure PPP Adjudication Tribunal (IPAT) - with experts from various fields - to adjudicate issues•Institutionalization of mechanism like National Facilitation Committee (NFC) to ensure time bound resolution of issues eg Clearances
•
Unsolicited Proposals (Swiss Challenge) to be discouraged to avoid info asymmetries and lack of transparency.•Don’t adopt PPP structures for very small projects•Amend Prevention of Corruption Act, 1988 to distinguish b/w genuine errors in decision-making and acts of corruption.•Build up capacity in all stakeholders, incl regulators, authority, consultants, financing agencies, developers.•
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Build up capacity in all stakeholders, incl regulators, authority, consultants, financing agencies, developers.•Set up an institute of excellence in PPP (3PI) to inter alia guide the sector, provide policy input, timely advice and undertake sustainable capacity building.
•
Recent Developments in PPP sector:
MHRD had announced to set up 20 new Indian Institute of Information Technology (IIITs) across the country under PPP of which 15 is operational.
•
Each IIIT Rs. 128 crore - Centre, State and industry in ratio of 50:35:15•
IIIT PPP Bill, 2017 passed by both LS and RS. •
buyers purchasing a low-end house from a private developer eligible for financial help. •8 models in PPP - 6 models utilize govt lands and 2 models utilize private lands•Models Using Private Land - subsidy to buyer and not builderEligible buyers can avail fin assistance of about ₹2.50 lakh per house as interest subsidy on bank loans, from GoI1.If people dont take loan, can avail up to ₹1.50 lakh2.
Models using govt land
Govt land to be allocated based on least cost of construction. ○
Payments to builders by public authority based on progress of project as per agreed upon milestones and buyers will pay to govt.
○
DBT Model: private builders can design, build and transfer houses built on govt lands to public authorities. 1.
Mixed-Development Cross Subsidized Housing: Govt land allotted based on no of affordable houses to be built on plot offered to private builders, cross subsidizing this segment from revenues from high-end house building or commercial development.
2.
Annuity-Based Subsidized Housing: Builders will invest against deferred annuity payments by govt. Land allocation to builders is based on unit cost of construction.
3.
Annuity-cum-Capital Grant Based Affordable Housing: builders paid (annuity + a share of project cost as upfront payment)4.
promoters to directly deal with buyers and recover costs. ○
Allocation of public land is based on unit cost of construction.○
Direct Relationship Ownership Housing: no govt mediation in payments 5.
Recovery of costs by builders is through rental incomes from houses built on govt lands○
Direct Relationship Rental Housing: 6.
Sept 2017, GoI announced new PPP Policy to improve affordable housing•
6 airports = Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru•100% private participation allowed for operation, development and management•
Cabinet approved leasing out 6 airports of AAI for operation, management and development under PPP in 1st phase - through Private Partnership Appraisal Committee (PPPAC).
•
MoCAv, ○
Dept of Economic Affairs ○
Dept of Expenditure ○
headed by CEO, NITI Aayog with Secretaries of •Cabinet approved Empowered Group of Secretaries to decide on any issue falling beyond scope of PPPAC •
Maharashtra Govt launched World Bank assisted State of MH’s Agribusiness and Rural Transformation (SMART) Project to transform rural MH - and also sustainable agriculture through PPP
•
to strengthen cybersecurity ecosystem in India in line with ‘Digital India’ - a PPP mission - 1st such of its kind•Will leverage expertise of IT industry in cybersecurity. •The founding partners include leading IT companies - Microsoft, Intel, WIPRO, Red hat and Dimension Data. •Knowledge partners include Cert-In, NIC, NASSCOM and FIDO Alliance and premier consultancy firms Deloitte and EY•
MeitY launched Cyber Surakshit Bharat •
International Organizations
supports govts to implement measures to promote PPPs, incl through development of training materials on assessing PPP readiness. •has constituted 9 committees to work in different areas •
ESCAP: = Economic and Social Commission for Asia and Pacific regions under UN•
a global, not-for-profit association for orgs involved in infra and energy. •has as its members the key players within the industry (both public and private sector), including FIs, project sponsors, operators, law firms and construction companies as well as govt depts, local authorities and PPP units
•
Established in 1998, IPFA was initially created to raise awareness and understanding of project finance and PPPs and their crucial role in economic development
•
encourage networking and dialogue b/w public and private sector.○
provide info on best practices, industry trends and new devpts that can be applied to projects immediately○
The principle objectives of IPFA are:•
IPFA (International Project Finance Org): •
Finance Page 71
C*****************************************************************************Special category status
TFP often seen as real driver of growth within an economy and studies reveal that whilst labour and investment important contributors, Total Factor Productivity may account for ~60% of growth within economies
o
Total-factor productivity (TFP) = multi-factor productivity = variable which accounts for effects in total output growth
relative to growth in traditionally measured inputs of labour and capital. If all inputs are accounted for, then total factorproductivity (TFP) can be taken as a measure of an economy’s long-term technological change or technological dynamism
•
Dependency ratio is a measure showing number of dependents, aged 0-14 and >65, to total popn, aged 15-64. It is also
referred to as "total dependency ratio."
•
Population stabilisation is a stage when size of popn remains unchanged = stage of zero popn growth. India expects to
reach population stabilisation of 2.1 TFR at 165 crore by 2040
•
For popn stabilisation, a person must die for everyone who is born. But when more young couples starting families than older
people dying, popn continues to grow = Population Momentum•
India expects to reach population stabilisation of 2.1 TFR at 165 crore by 2040. •Data with Health Ministry: so far only 14/35 States achieved TFR of 2.1•
Total Fertility Rate = avg no of children expected to be born per woman during her entire span of reproductive period
assuming that age specific fertility rates, to which she is exposed to, continue to be same and that there is no mortality
•
Goa < WB < Punjab < HP•TFR is high in North India () while low in South India (1.6-2.0)•
TFR Rates – Bihar > UP > MP > Rajasthan•
In 2011, UP = highest rural popn while lowest rural popn = Lakshadweep. •Urban popn max = MH while min = Lakshadweep•
Demographic transition = model that describes popn change over time - 4 clear stages of population growth & socio-
economic devpt
•
STAGE 1 : Typically seen in less developed countries where birth rates + death rates of preventable causes high >>stable popn.
STAGE 2 : Death rates fall steeply as deaths from preventable causes reduced by better food supply and improved public health, but birth rates remain high due to high fertility, poor social dev and limited access to health/contraceptive services>>spurt in popn.
STAGE 3 : Birth rates fall but popn continues to grow because large no of people in reproductive age group due to high fertility of previous generations.
STAGE 4 : Countries achieve a stable population once again with low birth and low death rates but at a higher level of social and economic dev. Population is stable but higher than in stage one.
India is currently at third stage.•
In India > 301. In developed world <20 women die during child births•
MMR = no of maternal deaths/ lac live births due to causes related to pregnancy or within 42 days of termination of
pregnancy.
•
FRBMANK Singh FRBM panel recommFY23 - FD = 2.5FY23 - RD = 0.8 (reduce steadily by 0.25 %age (of GDP) points each year)FY20 - PD = 0Reduce D/gdp ratio to 60% combined (40+20states)(against 49.4+21% currently)
To bring down the debt-to-GDP ratio to 40%•The FD target will be the key operational parameter,
•
Finance ministry accepted the recommendations of the FRBM Committee
miscWednesday, November 6, 2019 5:09 PM
Finance Page 72
Public debt to GDP ratio = medium-term anchor for fiscal policy in India.
○
Fiscal deficit as the operating target {from the current 3.5% (2017) to 2.5% by 2023.}
○
Formation of Fiscal Council to advice the govt, escape clause for emergencies (0.5% as escape clause for fiscal deficit target)
currently)parameter,
3.3% for FY 19 ○
3% of GDP pushed to 2020-21○
Budget set a fiscal deficit of 3.5% (of GDP) for FY18
Person “A’who enters the stock trade buys a stock at 400 spot price and sells it at 440. Another person ‘B’ buys futures with 20% margin money at 400 and sells the same at 440. What would be the profit percentage in both the trades A and B respectively
1.
9 yearsa.8 years b.10 yearsc.16 yearsd.2 years e.
In how many years amount of 1000 becomes 2000 at 8%. Use rule 722.
29000a.25500b.24000c.27600d.28300e.
A person invests 5000 at the end of each year for the next 5 years at a interest rate of 5%. What would the total amount at the end of the duration. Assume present value of annuity factor at 5% interest rate for 5 years to be 5.52
3.
883a.793b.763c.830d.773e.
A zero coupon bond has a par value of 1000 and gives a yield of 8%.calculate the price of it , if it matures in 3 years4.
30 lakh crore decreasea.30 lakh crore increaseb.10 lakh crore increase c.10 lakh crore decrease d.None of the abovee.
A bank has lent 400 lakh crores when CRR was 20%. How much would the bank lending capacity change when it has received 40 lakh crores deposits and rbi announces the incremental CRR to be 25%
5.
10%a.9%b.8%c.7%d.12%e.
A company capital was in the form of 16 crores equity at a rate of 9%, 4 crores preference share component at the rate of 8%, 20 crore debt component at a rate of 12%.Find the after tax cost of capital provided the tax rate is 40%
6.
6%a.7%b.8%c.9%d.10%e.
An amount of 250 deposited in a bank compounded into 1000 at the end of 16 years. Calculate the rate of return7.
44.8, 44.8a.50.4,50.4b.44.8, 50.4 {no need to solve, simply dekh k ho ja rha hai, RBI ka zada hai}c.50.4,44.8d.NONE of the abovee.
RWA of the bank are 560 million. Calculate the amount of capital to be deployed in banks according to BASEL and RBI norms8.
A numerical based on waccc9.One numerical based on a construction company cash flow- initial investment 4000 crore—cash flow statement was given for 5 years-you need to identify if project is financially sustainable or not –if it is then why
10.
FINANCE QUESTIONS- RBI GRADE B 2017
Providing Subsidiesa.Opening savings accountb.Providing loans and insurancec.Micro creditd.None of thesee.
Which among the following doesn’t come under the financial inclusion process1.
Net present value of all the equal cash flows which are paid regularly for a constant period of time a.Net present value of all the variable cash flows which are paid for a constant period of timeb.Net present value of all the variable cash flows which are paid indefinitelyc.Net present value of all the equal cash flows which are paid for a constant period of timed.None of the abovee.
Which of the following is the definition of annuity2.
It assumes that the money received every year is subsequently reinvested at the internal rate of returna.It assumes that the money received every year is subsequently not reinvested at the internal rate of returnb.It assumes that the money received every year is reinvested at the interest rate defined by the market at that financial yearc.It assumes that the money received every year is subsequently reinvested at a discount rated.None of the abovee.
Which among these is assumed regarding internal rate of return3.
A marketable obligation to buy or sell a particular commodity at a predetermined price at a specified time in the future a.An option to buy or sell a particular commodity at a predetermined price at a specified time in the futureb.A marketable obligation to buy or sell a particular commodity at the spot price at a specified time in the futurec.An option to buy or sell a particular commodity at the spot price at a specified time in the futured.None of the abovee.
A futures contract is 4.
UPI is by NPCIi.UPI is by UIDAIii.One requires bank details of the person to send the amountiii.One requires virtual details of the person to send the amountiv.
i and iiia.i and ivb.ii and iiic.ii and ivd.none of the abovee.
Which among the following statements are true regarding UPI5.
By selling govt bondsa.By printing currencyb.Adjustment in interest ratec.By raising taxesd.All of the abovee.
How does the government finance its debt6.
Peer to peer lending is not regulated by rbi (as of july 2017)a.Peer to peer lending gives higher rate of return to the lenderb.Peer to peer lending is banned in Indiac.It gives higher rate of interest for the borrower and lesser rate of interest to the lenderd.All of the abovee.
Which among the following statement is false regarding peer to peer lending7.
Market regulator SEBI has set up a committee to help improve the standards of corporate governance of listed companies in India. Panel has been tasked to among other things make recommendations for "ensuring independence in spirit of independent directors and their active participation in functioning of the company".
Kumar mangalam Birlaa.Narayana murthyb.Uday kotakc.Nandan nilekanid.Both a and be.
Under whose chairmanship the corporate governance committee was formed by the SEBI8.
Improving disclosures for related party transactionsa.go into issues in accounting and auditing practices by unlisted companiesb.salaries of top level managementc.to increase corporate social responsibility d.none of the abovee.
Which among the following options is provided as a mandate to work for by the committee9.
swapsa.forwards b.futuresc.a and bd.none of the abovee.
Which among these is generally not done out of the counter exchange10.
if affects the exchange rate and money supply in the economya.it leads to increase in importsb.it leads to increase in FPI’S in and out of the countryc.decrease access to forexd.none of the abovee.
With respect to the capital account convertibility , how does it affect the economy11.
paying dollar for import of goods and servicesa.make sundry remittancesb.equity investments in companiesc.cross border transactions in capital assetsd.none of the abovee.
which among the following options come under the capital account convertibility12.
primary market is concerned with new issues of debt while the secondary market is concerned with new issues of equitya.primary market is a place where investors and traders can buy a new issue of a security while secondary market involves buying and selling of securities between other investors
b.
primary market is concerned with new issues of equity while secondary market caters to the debt capitalc.both b and cd.none of the abovee.
which among the following option explains the difference between primary and secondary market13.
payment banks cannot lend money while small finance banks can lend moneya.both the banks cannot accept depositsb.both the banks are subjected to 75% SLR requirementc.the minimum paid up capital for payments bank is 100 cr while for small finance banks is 500 crd.
which among the following option is true regarding payment and small finance banks14.
Finance Page 75
the minimum paid up capital for payments bank is 100 cr while for small finance banks is 500 crd.none of the abovee.
reduction in import quota is seen as which among the following reforms15.
A numerical based on CRR- if present bank has X money and has 20% CRR limit –if the limit is increased identify the amount of money in the market
16.
Wacc numerical17.Numerical based on identify the interest if you receive 90 in total in an year based on 45 principle amount 18.Systemic risk coefficient is identified through which among the following-beta19.CRAR was given- we need to identify the capital equivalent based on BASEL AND RBI limit20.One numerical based on a construction company cash flow- initial investment 4000 crore—cash flow statement was given for 5 years-you need to identify if project is financially sustainable or not –if it is then why
21.
What is assumption in internal rate of return--- it is reinvested 22.Which among this is not a solvency ratio-options were debt to equity ratio,liquid ratio,quick acid test ratio, both liquid and quick acid, interest rate returns
23.
A process in which a cooperative is converted into a stock company- demutualization24.A discount rate problem where discount rate is given and an amount is given.need to identify the years25.***Difference between primary and secondary market26.Difference between payment and small bank27.who regulates disclosure requirements(something similar to it)- I guess its sebi28.A bond which doesnt give any coupon payments29.2 questions based on capital convertibility – how does it affect the economy 30.Options were given-chose among them which comes under capital account convertibility31.How does one transfer price risk?32.Which among these is generally not done out of the counter exchange33.A question based on peer2peer lending –you need to identify which was true 34.Financial inclusion doesn’t includes which among the following- savings account, subsidies benefits etc- answer is subsidies35.Options were given chose which properly defines annuity36.Reduction in import quota is considered as which reform37.How does government reduce its debt – options were selling government bonds, printing currency38.UPI question- identify the wrong statements39.
Fin 1 Markers11. MAX-min approach8. Standard deduction 40k9. 25% in bonds10. Resolution plan- NCLT15. Udyami mitra-msme16. Ppp- large infrastructure18. Crowdfunding19. Depository20. GST maximum rate- 28%21. Fiscal deficit target22. Whistleblowing23. Wpi revised base year24. UPI monitored by NPCI29.
2 markers1. Clearing corporation question2. IBC related 4 questions- liquidation order3. NCLT, DRT are approached by4. 180 days without extension period asked5. IBC covers which among the options-9. ________10. Basel related 3 questions- 3 pillars11. Risks covered12. 3 capitals13. FRBM amendment- ways and means advacnces, short term needs14. Finance concepts 4 questions- highest P/e numerical- hdfc15. EPS16. Bonus issue17. Profitability ratio- return on investment18. Priority sector 3 question- housing loan limits
Finance Page 76
18. Priority sector 3 question- housing loan limits19. 40% ANC,18% agriculture20. Educational loan limits- 10 and 20 lakhs29. EOQ32. Rbi RELATED 4 questions- selling currencies33. Repo sucks and reverse repo injects liquidity34. Liquidity management tools35. MPC + 2 answerable to central government
Finance Page 77
From NCFM/edutap•From CA•Ye sab already pta hain•
Banking System in India, RBI- functions and conduct of monetary policyFinancial Institutions – SIDBI, EXIM, NABARD, NHB, etc
(a) Financial System - Regulators of Banks and Financial Institutions
Primary and 2ndry Markets (Forex, Money, Bond, Equity, currency etc.)
Financial Sector, Portfolio Investment, Public Sector Reforms, Disinvestments
Recent Developments in
Financial Inclusion- use of technology
private and social cost-benefit,
Public-Private Partnership
Alternate source of finance,
the role of e-governance in addressing the issues of corruption and inefficiency in the govt sector.
Corporate Governance in Banking Sector,
Direct and Indirect taxesNon-tax sources of RevenueGST14th FCFiscal PolicyFRBM
Budget
time value of money
bond yields and prices of bonds
accounting ratios
balance sheet and income sheet
derivatives
risk mgt
Numericals based on
(c) General Topics
***************************************Looked up each and every tab and link on the RBI website => notes of all relevant material - incl FAQs section in detail
•
Other relevant websites like SEBI, NABARD, EXIM etc and made notes of relevant facts - not in as much detail as RBI
•
My notes from RBI website in ‘RBI website facts’ and from other websites in ‘Facts from other websites’ docs below
•
Financial Markets and Finance Numericals
Basics on financial markets, instruments etc. covered from the first NCFM module (pdf easily available on the internet)
•
Net Present Value, pricing of bonds, Yield to Maturity etc▪
Chapters 3, 4 and 5 for questions based on ○
Part II Value and Capital Budgeting •Corporate Finance by Ross Westerfield 6th Edition (pdf easily available on the internet)•
pricing of bond, •yield of bond, •
This RBI FAQs page for •
Fin - Syllabus + strategySunday, April 21, 2019 10:21 AM
yield of bond, •yield of T-Bill •other related concepts•
referred to this book only to understand Balance Sheets from Chapter 3, and hence the freely available version sufficed
•Finance and Management by Prasanna Chandra 7th edition (pdf partially available on the internet for free)•
XII Accountancy Part II NCERT Chapter 5 (pdf easily available on the internet) -> for all the requisite accounting ratios
•
Compilation of formulae offered by Oliveboard for free•Note : Only 1 numerical asked in this year’s exam•My notes on numerical formulae and derivations in ‘Numericals’ doc below•NumericalsDownload
Other topics from Finance syllabus
Looked up the remaining topics on the net and made notes•For the topics ‘Alternate Source of Finance’ and ‘Private and Social Cost-Benefit’, I studied a pdf by Edutap that was available on the net for free
•
Some of my notes on these topics (along with a few downloaded from the net) are in the docs below•Finance other topicsDownload
Key to Budget docsDownload
Risk mgt excluding Basel IIIDownload
Hi Pranav, thanks a lot.I did not study any of the RBI circulars from RBI website. Relevant RBI updates are covered in sufficient detail by the various Current Affairs magazines available online. I used the RBI website mostly to study static part (most of which has already been covered in my notes uploaded on the blog).Also, I began visiting the RBI site frequently only after Phase – II results to keep up with the latest circulars as part of interview prep.
The way I covered the website has been mentioned in detail in my answer here – https://www.quora.com/How-do-I-use-RBI-website-for-RBI-Grade-B-
*****************************************JIGA*******************************************Numerical topics over years•
2015 2016 2017 2018
Ratio Analysis (2Q) Bond Valuation questions (2 Qs) Bond Valuation questions (2Qs) PE Ratio
Derivatives Breakeven point calculation 72 rule
Present Value Basis Point Cash from Operating Activities Incremental CRR
Capital Gearing Ratio Capital Adequacy Ratio
NPV Sum
WACC
Futures Position Profit
practice 20+ numerical on each of above topics•
a/c Ratios, ○
Cost of Capital, ○
Derivatives, ○
Bond Valuation, ○
Equity Valuation, ○
Time Value of Money○
Cash Flow Statements ○
Breakeven analysis.○
Refer PC Chandra or Edutap•
The most important topics for numerical are •
Numericals are easier than those in any of the mocks•
Budget•Economic Survey•Finance Commission Report Highlights•FAQs on RBI Site•Important RBI circulars•
Thoroughly read •
including the most recent monetary policy statement pdf that RBI uploads on the web•1-2 Questions were asked on Monetary Policy Committee - know details•
+ editorials on these => usually as it is aa jaate hain as 2 marker Qns•Read highlights of important reports by RBI, IMF, World Bank etc•
