Banking Awareness 2013

8/13/2019 Banking Awareness 2013

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More regulatory reforms for insurance sector to spur growth: IRDA chiefOctober 16th, 2013

As per Insurance Regulatory and Development Authority (IRDA) Chairman T. S.

Vijayan, the insurance industry will undergo another round of regulatory reforms,

particularly focused on distribution channel, to instill growth.

As per him, IRDA is focusing on bank channels and sub-broker level distribution

and citizen service centres (CSCs)for better growth prospects. The insurance

penetration is expected to rise substantially in the years to come. The insurance

industry was going to witness major changes in the coming days. Several insurance

firms would be listed on stock exchanges and open up abundant opportunities in the

segment.

IRDA is concerned about the product design and miss-sellingaims to make sure that

products approved by IRDA should have least chances ofmiss-selling.

What is Misselling?

Missellingis an intentional and ethically questionable practice of selling of products or

services in circumstances where the contract is either misrepresented, or the

product/service is unsuitable for the customers needs. For example, selling life

insurance to someone with no dependents is regarded as misselling. In this case, the

investor would arguably have little need for whole life insurance and, therefore, an

insurance salesperson describing the product as something the investor urgently needed

to protect his or her assets in the event of death could be considered a case of

misselling.

RBI cuts MSF rate by 50 bps to 9.0%October 10th, 2013

The Reserve Bank ofIndiahas reduced one of the key short-term borrowing rate, theMarginal Standing Facility (MSF), by 50 basis points to 9.0%. The step has been taken

as the rupee has recovered 11.4% after hitting an all-time low of 68.85 to the dollar on

August 28, 2013.

What is MSF?

Marginal Standing Facility (MSF)was introduced by the ReserveBank of

Indiain 2011-12as part of its monetary policy. Under this facility, banks can borrowfunds from RBI at a fixed rate, which is, normally, 1% or 100 basis points above the

Liquidity Adjustment Facility-repo rate, against pledging Government securities (G-Sec).

Banks can borrow funds through MSF when there is a considerable shortfall of liquidity.

This measure was introduced by RBI to regulate short-term asset liability mismatches

more effectively.

CCEA takes steps for operationalisation of IDFsSeptember 29th, 2013

TheCabinet Committee on Economic Affairs (CCEA)has taken the following

steps to promote the operationalisationofInfrastructureDebt Funds (IDFs).
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The annual Guarantee Fee payable to the Concession Authority has been capped at0.05% per annum, of outstanding debt financed by the IDF NBFCs

(NonBankingFinancial Companies) for the first 3 years of operation of the IDF NBFC.

IDFs will be given the status of Public Financial Institutions (PFI). Infrastructure DebtFunds are allowed to file Shelf Prospectus under Section 60 A of the Companies Act,

1956 and access to provisions of the SARFAESI Act, including to the adjudicatoryprocess through Debt Recovery Tribunals.

Post-successful COD PPP (Commercial Operation Declaration) projects shall now beeligible for investment by Insurance Companies, Provident Funds (PFs), EPFO,MutualFunds(MFs), etc.

What are Infrastructure Debt Funds (IDF)?

As per Reserve Bank ofIndia,IDFs are investment vehicles which can be sponsored bycommercial banks and NBFCs in India in which domestic/offshore institutional investors,

specially insurance and pension funds can invest through units and bonds issued by the

IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructurecompanies, thereby creating fresh space for banks to lend to fresh infrastructure

projects.

IDF-NBFCs would take over loans extended to infrastructure projects which are created

through the Public Private Partnership (PPP) route and have successfully completed 1

year of commercial production. Such take-over of loans from banks would be covered by

a Tripartite Agreement between the IDF, Concessionaire and the Project Authority for

ensuring a compulsory buyout with termination payment in the event of default in

repayment by the Concessionaire.

What legal forms can IDF be set up as and who will be the regulators?

Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A

trust based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a

company based IDF would normally be a NBFC regulated by the Reserve Bank.

Do the NBFCs/IFCs need prior permission from Reserve Bank for sponsoring IDFs?

Yes NBFCs and NBFC-IFCs need to take prior approval from the Reserve Bank for

sponsoring IDFs.

How do IDF- NBFCs and IDF-MFs (Mutual Funds) raise resources?

IDF-NBFCs will raise resources through issue of either Rupee or Dollar denominated

bonds of minimum 5 year maturity. IDF-MFs will raise resources through issue of units of

MFs.

What does sponsorship mean?

Sponsorship means equity participation by the NBFC between30 to 49%of the IDF.

Who can invest in the bonds of IDF-NBFCs and Units of IDF-MFs?

Domestic/offshore institutional investors, especially insurance and pension funds can

invest through units and bonds issued by the IDFs.

IDBI Bank launches Own Your NPA campaign
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September 27th, 2013

In a bid to speedily recover Non-Performing Assets (NPA), theIDBI Bankhas launcheda campaign named Own Your NPA.

What is Own Your NPA campaign?

It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its

managers at the zonal, regional and branch levels to focus their on making

recoveries from thetop 20 bad loan accounts in their jurisdiction. As part of the

campaign, each zonal, regional and branch manager will personally go and meet the

customers. The bank has identified 1522 cases, involving an aggregate principal

outstanding of Rs 5,805 crore which is approximately 73% of its total NPAs of Rs 7,959

crore as on June-end 2013.

What is Non-Performing Assets (NPA)?

In simple words, the assets of the Banks which dont perform (means dont bring anyreturn) are called Non Performing Assets. In more general sense they are bad Loans.

Any asset, including a leased asset, becomes non performing when it ceases togenerate income for the bank.

However, there is a prescribed definition by the RBI which defines the NPAs as:

Terms Loans on which interest and / or installment of principal remain overdue for aparticular quarter for a period of more than 90 daysfrom the end of that particular

quarter.

The Bills those remain overdue for a period of More than 90 Days from the end of aquarter.

Any amount to be received remains overdue for a period of more than 90 days. The Cash Credit account remains out of order for a period of more than 90 days. Out

of order means over the sanctioned limit.

Note: This period of 90 Days for the above categories was 180 days prior to 2004.

So 90 Days is the thumb rule in the deciding the NPAs. However, there is an exception to

this. Go through the following case:

A farmer has taken a loan for a paddy crop in the beginning of the Rabi Seasonand has not made a repayment. In which of the following situations, if

Installment or interest is not paid for this loan, it would become a NPA (Non

Performing Asset)?

1. 90 Days from the due date2. 90 Days from the end of the Rabi Season3. 1 crop season from the due date4. 2 crop seasons from the due date

The answer of the above question is (4) i.e. 2 crop seasons from the due date. Please

note the following:
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For short duration cropagricultureloans such as paddy, Jowar, Bajra etc. if theloan (installment / interest) is NOT paid for 2 crop seasons (means Kharif, and next

Rabi in the above question), it would be termed as a NPA.

For long durationcrops, the above would be 1 Crop season from the due date.

Investment through P-Notes hits 3-month high of $26 billionSeptember 26th, 2013

As per share market regulator SEBI, investments into Indian shares through

participatory notes (P-Notes), hit a three-month high of Rs 1.65 lakh crore (about $26

billion) in August 2013.

What are Participatory Notes?

Participatory Notes or P-notes are derivative instruments, used by Foreign

Institutional Investors (FIIs) who are NOT registered with SEBI. The major

characteristics of P-notes are:

1. They are derivative instruments2. They are used by Foreign Institutional Investors (FIIs) who are NOT registered with

SEBI.

3. They are used on Indian shares, but at a location outside ofIndia.This means that the FIIs who are not registered with SEBIbut wish to take exposure in

the Indian securities marketscan use P-notes. P-Notes, mostly used by overseas HNIs

(High Networth Individuals), hedge funds and other foreign institutions, allow them to

invest in Indian markets through registered Foreign Institutional Investors (FIIs), while

saving on time and costs associated with direct registrations. Brokers buy or sell

securities on behalf of their clients on their proprietary account and issue such notes in

favor of such foreign investors.

Moodys lowers SBIs debt and local currency rating to junkSeptember 26th, 2013

Global rating firm, Moodys Investors Service, has downgraded State Bank ofIndiassenior unsecured debt and local currency deposit ratings to Baa3 or lowest

investment grade ratingfrom Baa2 and altered the outlook on SBIs financial

strength rating to negativefrom stable as the economic slowdown impacts banks credit

quality.

Why did Moodys downgrade SBIs rating?

As per rating agency, the combination of mounting pressure on credit fundamentals and

the ongoing dependence on the fiscally constrained Indian government to maintain

Capital Adequacy Ratio (CAR) are key players behind the rating downgrade at a level no

higher than the sovereign.

Grameen Bank (Bangladesh) to be brought under Central Bank jurisdiction

in BangladeshSeptember 26th, 2013
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The Grameen Bank, theNobelPeace Prize winning microcreditorganization ofBangladesh,will be brought under the control of countrys central bankto give the authorities more powers over the organization.

The decision by the government follows the recommendations of government-sponsored

Grameen Bank Commission, which suggested bringing the bank under the regulatory

control of either the Bangladesh Bank or the Microcredit Regulatory Authority to better

monitor its activities.

Currently, the Grameen bank is being run by Grameen Bank Ordinance 1983 and it does

not directly fall under the jurisdiction of theBankingCompanies Act.

In 2011, the central bank of Bangladesh, the Bangladesh Bank, removed Nobel Laureate

Dr. Muhammad Yunus as the Managing Director of Grameen Bank citing age limit.

About Grameen Bank:

The Grameen Bankis a Nobel Peace Prize-winning microfinance organization

and community development bank founded inBangladesh. It makes small loans (known

as microcredit or grameencredit) to the impoverished without

requiring collateral. Grameen Bank originated in 1976, in the work of

Professor Muhammad Yunus, Professor at University of Chittagong, who launched

a research project to study how to design a credit delivery system to provide banking

services to the rural poor. In 2006, the bank and its founder, Muhammad Yunus, werejointly awarded the Nobel Peace Prize.

Impasse over RBIs 80:20 gold import scheme endsSeptember 24th, 2013

The government cleared the confusion that was going between the Customs Department

and gold importers regarding the RBIs 80:20 scheme which was introduced in July

2013.

What is 80:20 scheme of RBI?

Under this scheme, the importers are directed to export back 20% of the total goldimports. It prohibits further imports if this 20% norm is not met by importers. The step

was aimed at curbing rising gold import which led to high Current Account Deficit.

Why there was a deadlock over 80:20 scheme of RBI?

The RBI 80:20 norm left many confused, leading to imports being held up at customs. It

was wrongly interpreted that an importer could not export more than 20%. Whereas, the

case was otherwise as it means that at least 20% is give for exports and one can export

more than 20% of total imports. Due to this confusion the customs officials had stopped

stocks from entering the country. With this clarification, gold imports are likely to

resume.

Fitch slashed Indias growth projection
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September 23rd, 2013

Global rating agency Fitch has scaled down its projections onIndias growth to 4.8% forthe current fiscal from the earlier estimate of 5.7% made in June, 2013.

Why did Fitch scaled down Indias growth prospects?

The following are the key reasons behind the cut in growth projections:

Weak Indian currency against dollar Expanding Current Account Deficit (CAD) on account of rising crude prices and falling

rupee

Weak demandRBI confident of financing CAD without drawing much from reservesSeptember 23rd, 2013

RBI Governor Raghuram Rajan evinced confidence that the country would be able to

finance the Current Account Deficit (CAD) without drawing down much from the forex

reserves.

RBI is of the view that CAD could be brought down to $70 billion or even below that. In

fiscal 2012-13, CAD stood at a historic high of 4.8%, or $88 billion, of the GDP. The

government has set a target of 3.7% CAD, or $70 billion, this fiscal.

The efforts of the RBI through FCNR-B and swap facility have yielded a total of nearly

$1.4 billion. The market has also recuperated considerably afterthe USfederal bankpostponed the tapering of stimulus. Mr. Rajan stressed on improving countrys economic

parameters regardless of the actions that the U.S. took.

RBI slashes MSF rate to 9.50%September 23rd, 2013

The Reserve Bank ofIndiaslashed the Marginal Standing Facility rate (MSF) by 75 basispoints from 10. 25% to 9.50%. The central bank also rolled back minimum daily

maintenance of the Cash Reserve Ratio (CRR) from 99% to 95% keeping the CRR

unchanged at 4%.

RBI has assured that it will reduce the difference between the MSF and repo rate to 100

basis points. RBI raised the repo rate by 25 basis points to 7.50%.

What is MSF?

Marginal Standing Facility (MSF) was introduced by the ReserveBank of Indiain2011-12 as part of its monetary policy. Under this facility, banks can borrow funds from

RBI at 8.25%, which is, generally, 1% or 100 basis points above the Liquidity

Adjustment Facility-repo rate against pledging government securities.

Banks can borrow funds through MSF when there is a considerable shortfall of liquidity.

This measure was introduced by RBI to regulate short-term asset liability mismatches

more effectively.
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What is the difference between Liquidity Adjustment Facility-repo rate (LAF) and

Marginal Standing Facility (MSF) rate?

Banks can borrow from the RBI under LAF-repo rate, which stands at 7.50%, by

pledging government securities over and above the Statutory Liquidity Requirement of

24% (SLR). Banks cannot sell government securities to RBI that is part of its SLR quotawhile availing LAF on the other hand they can do so while availing MSF.

MSF is open to the banks that want to borrow from the RBI even if the credit is costlier

by a percentage point or so. Through MSF banks can borrow funds up to 2% of their Net

Demand and Time Liabilities (NDTL), at current 9.50%. However, it can be availed with

securities above the SLR of 24% and even below.

RBI relaxes for opening new bank branches in Tier I citiesSeptember 22nd, 2013

Now banks will have freedom to open branches in tier-I cities (those with population

over 1 lakh) without seeking RBIs approval in each case.

However, as per RBI guidelines, there are some conditions on opening

branches, these are stipulated below:

Banks should open 25% of their branches in a financial year in Un-banked tier-V andtier-VI centres as earlier.

Total number of branches in tier I centres cant exceed the number of branchesopened in tier-2 to tier-6 centres during a year.

If the banks are unable to open all tier 1 branches during that year, they can carry itover for next 2 years.

If the banks unable to open requisite branches in tier- II to tier- VI centres for somereason, it should necessary correct the shortfall in the next financial year.

Bharatiya Mahila Bank to recruit POsSeptember 22nd, 2013

Indias first all-women bank, Bharatiya Mahila Bank,which expected to beoperational from November 2013, has invited online applications from female candidates

for the 115 Probationary Officer posts. The last date for online application is till

September 30, 2013.

About Bharatiya Mahila Bank:

Bharatiya Mahila Bank is Indias first all-women public sector bank. The bank proposes to

complete the first six branches at Mumbai,Delhi, Kolkata, Chennai, Indore andGuwahatiby October 2013. The Government has already approved Rs 1,000-crore seed

capital for the bank as announced by Finance Minister P. Chidambaram in Budget 2013-

14. The bank was already given in-principal approval by the RBI and

thebankingcompany is being set up.

Headquarterof Bharatiya Mahila Bank will be inDelhi. Objective: One of the key objectives of Bhartiya Mahila Bank is to focus on the

banking needs of the women and promote economic empowerment. It will alsoaddresses the gender related issues and will be helpful in financial inclusion.
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Draft norms on new Company Law make companies to disclose

managements paySeptember 22nd, 2013

As per norms stipulated in the second set draft rules for the new company law, listed

firms have been mandated to disclose in the boards report the ratio of theremuneration of each director to the median remuneration of employees.

The new company law seeks to improve the regulatory framework around disclosure of

managerial remuneration.

The new rules also prohibit companies from issuing shares with differentiated rights as to

voting, dividend or otherwise unless certain conditions are fulfilled. A key condition is

that shares with differential rights should not exceed 25% of the post issue paid up

capital.

It has also been stipulated that the company should have a 10% dividend payment trackrecord for the last 3 financial years immediately preceding the financial year in which

such shares are to be issued.

US puts Prudential Financial into too big to fail listSeptember 22nd, 2013

The USFinancial Stability Oversight Councils (FSOC) designated insurance companyPrudential Financial to its list of too big to fail institutions. The company has become

the third non-bank firm placed under a tighter regulatory regime to reduce risks to the

financial system.

What are too big to fail institution?

This is a popular term used in the US for the firms which are so large and so

interconnected that their failure would be disastrous to theeconomy. As per USFederal Bank Chief Ben Bernanke A too-big-to-fail firm is one whose size, complexity,

interconnectedness, and critical functions are such that, should the firm go unexpectedly

into liquidation, the rest of the financial system and the economy would face severe

adverse consequences. The idea proposes that in a crisis situation these too-big-to-fail

firms should be given government assistance not out of favoritism or particular concern

for the management, owners, or creditors of the firm, but because they recognize that

the consequences for the broader economy of allowing a disorderly failure greatly

outweigh the costs of avoiding the failure in some way. Common means of avoidingfailure include facilitating a merger, providing credit, or injecting government capital, all

of which protect at least some creditors who otherwise would have suffered losses.

As per FSOC naming financial institutions too big to fail companies is an important tool

to mitigate risks posed by those companies, fill gaps in their overall supervision, tighter

control, and provide enhanced capital standards under which they must operate.

Which are the three non-bank financial companies designated as too big to fail

institutions?

The three companies designated as too big to fail are:
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1. Prudential Financial2. AmericanInternationalGroup3. General Electric Capital Corp.

What is Financial Stability Oversight Council (FSOC)?

The FSOC is a United States federal government organization, which operates under the

US Treasury. It was established under the DoddFrank Wall Street Reform and

Consumer Protection Act, which came up in response to 2008 financial crisis and was

signed into law in 2010. FSOC has broad authorities to identify and monitor excessive

risks to the U.S. financial system arising from the distress or failure of large,

interconnected bank holding companies or non-bank financial companies, or from risks

that could arise outside the financial system; to eliminate expectations that any

American financial firm is too big to fail; and to respond to emerging threats to U.S.

financial stability.

RBI hikes repo rate by 25 basis points to 7.5%September 22nd, 2013

In a surprising move, the Reserve Bank ofIndiaGovernor Raghuram Rajan, in hismaiden mid-quarter monetary policy review, hiked theshort-term lending (repo) rate

to 7.5%, seeking to control inflation. The Cash Reserve Ratio (CRR)was left

untouched at 4%.

To ease liquidity, the Marginal Standing Facility (MSF)rate, at which banks borrow

from the RBI, was reduced to 9.5%from 10.25% and the minimum daily maintenance

of the CRR was lowered to 95%.

In reaction to RBIs decision the rupee slipped 46 paise to close at 62.23 against the

dollar in line with a sharp decline in local stocks.

However, RBI Governor Raghuram Rajan has made his stance clear that RBI wants

lower inflation and aims to curb it to 5% mark.

China launches its first direct bankSeptember 22nd, 2013

Chinalaunched its first direct bank, a new mode of providing onlinebankingserviceswithout any entity outlets. The direct bank has been launched by the Bank of Beijing in

co-operation with theNetherlands-based ING Group.

What is a Direct Bank?

A direct bankis a bank without any branch network that offers its services remotely via

online banking and telephone banking and may also provide access via ATMs (often

through interbank network alliances), mail and mobile. By eliminating the costs

associated with bank branches, direct banks can make substantial savings which they

may pass on to clients via higher interest rates or lower service charges.

RBI tightens norms for companies lending against goldSeptember 21st, 2013
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As per the notification by the RBI, the central bank has tightened rules for finance

companies which lend against gold, in line with the suggestions of an internal panel. As

per the new rules:

The lenders need to value the pledged gold at the average closing price of 22-caratgold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, toarrive at the loan-to-value ratio. The ratio would remain at 60% for loans against

jewellery.

At present, there is no standard method for arriving at the value of gold accepted ascollateral and valuation is arbitrary.

The process by which lenders auction gold when a borrower defaults has also beenstreamlined by the RBI. Lenders will now need to declare a reserve price for the

pledged ornaments.

Lenders would also need RBI clearance to open branches exceeding 1,000. New branches would not be allowed without sufficient storage facility for gold.

RBI invites bids to implement global Legal Entity Identifier systemSeptember 16th, 2013

In order to have a better control on financial transactions, such as equity and currency

derivatives, the Reserve Bank ofIndiahas invited limited bids from about six entities,including depositories, depository participants and custodians, to issue unique

identification codesto market participants.

The RBI will select one or two entities to assign them the responsibility of implementing

a globalLegalEntity Identifier (LEI) system that will uniquely identify parties tofinancial transactions.

What is Legal Entity Identifier (LEI) system?

LEI is a unique global identifier for each legal entity operating in the financial markets.

The need to have such a system was felt after the global financial crisis of 2008. The

system will work under the supervision of the RBI. LEI will aid in identification of

participants in different trading, clearing and settlement systems, thus enabling

aggregation of exposures and identification of linkages across markets as well as

institutions, both domestic as well as global.

What are the objectives of LEI system?

The key objectives of Legal Entity Identifier (LEI) system are:

Improved risk management in firms Better assessment of micro- and macro-prudential risks Facilitation of orderly resolution Containing market abuse and curbing financial fraud Enabling higher quality and accuracy of financial data overall

How would the LEI system help?

As per Financial Stability Board, the LEI system would cut operational risks within

firms by extenuating the need for tailored systems to reconcile the identification of
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entities and support aggregation of risk positions and financial data, which inflict

substantial burdensome costs across theeconomy. It would also facilitate easyprocessing.

What is Financial Stability Board (FSB)?

FSB is aninternationalbody which was established after the 2009 G-20 Londonsummit in April 2009 as a successor to the Financial Stability Forum. FSB work is to

coordinate at the international level the work of national financial authorities and

international standard-setting bodies and to develop and promote the implementation of

effective regulatory, supervisory and other financial sector policies. The Board includes

all G-20 major economies, FSF members, and the European Commission. It is

headquartered in Basel,Switzerland.

Who are the members of FSB form India?

The ReserveBank of India(RBI), the Securities and Exchange Board of India

(SEBI) and theMinistry of Financeare the members of FSB from India.

Definition of control in relation to FDI notified by RBISeptember 16th, 2013

The Reserve Bank ofIndianotified the definition of term control in the contextof Foreign Direct Investment (FDI) and revised the list of states where FDI is allowed

in multi-brand retail.

What is Control as per RBI notification?

Controlshall include the right to appoint a majority of the directors or to control the

management or policy decisions including by virtue of their shareholding or management

rights or shareholders agreements or voting agreements. The tighter definition is to

ensure foreign investors do not acquire indirect control in sectors where FDI is prohibited

or capped at 49%.

States ready to implement FDI in Multi-Brand Trading:

The list of states which have given consent to implement FDI in Multi-Brand trading has

been modified with the addition ofHimachal PradeshandKarnataka.With this, the

number of states and Union Territories which have given consent to implement the FDIpolicy on multi-brand retail has increased to 12.

Latest in FDI:

Norms for multi-brand retail trading have been relaxed and the mandatory 30% localsourcing norms for companies have also been eased.

FDI in insurance stands at 26%.The cap in telecom enhanced to 100% with automatic route allowed for FDI of up to

49%.

Union Cabinets nod to RBI for buying $4.3 bn World Bank bonds September 16th, 2013
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The Reserve Bank ofIndia(RBI) was given nod by the Union Cabinet to invest $4.3billion in special bonds of theWorld Bankas it would help in securing extra fundingfrom the multilateral lending agency forinfrastructuredevelopment projects.

How would this move benefit?

With this decision, RBI will be able to sign a special private placement bond agreement

with theInternationalBank for Reconstruction and Development,the WorldBanks lending arm, which will provide additional borrowing space.

ATMs, PoS machines to scan UID biometricsSeptember 14th, 2013

The RBI is understood to be preparing a directive for banks to introduce additional

facilities in all new credit card swipe (Point of Sales, or PoS) machines and Automated

Teller Machines (ATMs) for providing a mechanism for Aadhaar authentication using

biometrics.

The central bank intends to have an Aadhaar-based authentication to provide additional

security for card transactions. Although RBI seems to have accommodated to a

combination of chip and PIN authentication for existing customers and biometric checks

for hitherto unbanked cardholders, the challenge is in the acceptance devices.

Banks are of the view that the additional facilities would significantly increase investment

costs. The other challenge is that conventional phone lines may not work to transmit

scanned fingerprint images for verification. As per banks, the new machines will require

the equivalent of 3G data speeds to transmit biometric data.

RBI asks banks to consider using business correspondents to distributecurrencySeptember 12th, 2013

In the backdrop of growing currency demands, the RBI, in a notification, asked banks to

explore the possibility of distributing banknotes and coins

throughbusinesscorrespondents.

Earlier, RBI, in its Monetary Policy Statement 2013-14, had acknowledged the need to

identify alternative distribution possibilities to effectively meet the rising demand for

banknotes and coins.

What role the business correspondents are currently playing?

Currently, business correspondents are in the activities which include identification of

borrowers, collection and preliminary processing of loan applications, creating awareness

about savings and other products and processing and submission of applications to

banks.

What did the RBI suggest banks to enhance currency distribution?

RBI has said that services of business correspondents could be used for distributing

banknotes and coins. Their services could also be used by banks for follow-up for

recovery, disbursal of small value credit and collection of small value deposits. As per the
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notification by RBI, NGOs, micro-finance institutions, section 25 companies and post

offices, among others, could act as business correspondents.

RBI notifies norms for banks to swap overseas borrowingsSeptember 12th, 2013

The Reserve Bank ofIndia, in a notification, said that banks can raise funds overseasabove 50% of their Tier I capital with a minimum maturity of 3 years and swap these

borrowings with the RBI at a concessional rate of a 100 basis point below the market

rate with a minimum tenor for 1 to a maximum of 3 years. Bank can use this swap

facility to sell dollars in multiples of a million to RBI. At the end of the swap period, the

bank would have to buy the same amount of dollars.

As per the new norms by the RBI for banks to swap overseas borrowings:

The swaps should be available at a concessional rate of a 100 basis points below themarket rate for all fresh borrowing with a minimum tenor of 1 year and a maximum

tenor of 3 years, irrespective of whether such borrowings are in excess of 50% of theirunimpaired Tier I capital or not.

While the swaps would be for the entire tenor of the borrowing, the rate would bereset after every 1 year from the date of the swap at 100 basis points lower than the

market rate prevailing on the date of reset.

Although the banks are permitted to borrow in any freely convertible currency, theswap will be available only for conversion of US dollar equivalent into rupees and the

American currency equivalent would be computed at the relevant cross rate prevailing

on the date of the swap.

Banks can now borrow funds from their Head Office, overseas branches andcorrespondents and overdrafts in nostro accounts up to a limit of 100% of their

unimpaired Tier I capital as at the close of the previous quarter or $10 million,whichever is higher, as against the existing limit of 50%.

Issue of corporate guarantee on behalf of second generation or subsequent level stepdown operating subsidiaries will be considered under the approval route for Overseas

Direct Investment, provided the Indian Party indirectly holds 51% or more stake in

the overseas subsidiary for which such guarantee is intended to be issued.

OMCs seek compensation in case of loss through RBIs currency swap

windowSeptember 11th, 2013

Oil Marketing Companies (OMCs) are not content with RBIs currency swap facilitythrough which it sells and buys dollars from OMCs as part of its measures to control the

rupee decline. Though the rupee has gained some stability but the OMCs are unhappy

with the hedging mechanisms as they feel that with RBIs swap window, there is

uncertainty of being compensated if they incur loss in the swap transactions.

Why OMCs are unhappy with RBIs currency swap window facility?

RBI has recently started a currency swap window to sell dollars to oil companies in

exchange for rupees on condition that they reverse the transaction at a future date. The

swap window is for fresh Foreign Currency Non-Resident (banks)(FCNRB) dollar

funds, mobilised for a minimum tenor of three years and over. This is similar to RBI

lending dollars to oil companies. Since OMCs are the biggest buyers of foreign currency

which they use to buy petroleum/oil, RBI selling dollars directly to them will keep them
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away from FOREX market thereby helping the rupee to recuperate. Under the swap

arrangement, the RBI will sell dollars to OMCs on condition that OMCs will repay the

same amount of dollars.

However, the OMCs are unhappy over the facility as they feel insecure about the future

adverse changes in the rates of dollar which could cause loss to them. There areapprehensions that if something bad- US strike onSyriaimpacting oil supply andfurther tightening of dollar (expensive dollar)- happens then there will be losses to OMCs

who will have to pay the dollars they bought under swap arrangement. Although, in such

a situation, RBI has the option to roll over the transactions until the rupee stabilizes,

OMCs seek compensation for any future losses.

RBI notifies norms for currency swap windowSeptember 9th, 2013

RBI has notified norms for currency swap window. As per the notification, the swap

facility will be available to scheduled commercial banks for freshForeign Currency Non-

Resident Bank FCNR(B) deposits mobilized for a minimum period of 3 years. It

further says that the deposits raised may be in any permitted currency, but the swap

would be available only in dollars. Although the swap window will be operated on a daily

basis on all working days in Mumbai, a particular bank can avail of the swap facility only

once in a week.

What is Currency Swap?

A currency swapis a foreign-exchange agreement between two institutions to

exchange aspects (namely the principal and/or interest payments) of a loan in one

currency for equivalent aspects of an equal in net present value loan in another

currency.

Currency swaps are over-the-counter derivatives, and are closely related to interest rate

swaps. However, unlike interest rate swaps, currency swaps can involvethe exchange

of the principal.

What are the main uses of Currency Swap?

Currency swaps have two main uses:

To secure cheaper debt (by borrowing at the best available rate regardless of currencyand then swapping for debt in desired currency using a back-to-back-loan).

To hedge against (reduce exposure to) exchange rate fluctuations.ECB keeps key rate unchanged at 0.5%September 6th, 2013

The 23-member governing council of European Central Bankhas left its benchmark

interest rate unaltered at a record low of 0.5%. The council said that the slowly

recuperating eurozoneeconomydidnt need a further stimulus.

The 17 European Union member countries that used the euro came out of

recession in the second quarter when the economy posted 0.3% growth from the quarter

before, discontinuing a series of 18 months of falling output.
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About European Central Bank

Established in 1998 through Treaty of Amsterdam in 1998. It is one of the

seven institutions of the European Union (EU) listed in the Treaty on European

Union(TEU).

Headquarters:Frankfurt,Germany.

Current President:Mario Draghi

It is centralbank for the euro and administers the monetary policy of the17 EU

member stateswhich constitute the Eurozone. However, capital stock of the bank is

owned by the central banks of all 28 EU member states.

Primary Objective: To maintain price stability within the Eurozone. It has this single ill-

defined primary objective, with other objectives subordinated to it.

Basic Tasks of ECB:

To define and implement the monetary policy for the Eurozone To conduct foreign exchange operations To take care of the foreign reserves of the European System of Central Banks To promote smooth operation of the financial marketinfrastructureunder

the TARGET2 payments system and the technical platform (currently being developed)

for settlement of securities inEurope(TARGET2 Securities). Exclusive right to authorize the issuance of euro banknotes.

RBI allows companies to use ECB for general corporate purposesSeptember 5th, 2013

In a bid to attract capital flows, the RBIrelaxed the External Commercial Borrowing

(ECB)norms by permitting companies to use funds raised from their foreign equity

holder company with minimum average maturity of 7 years for general corporate

purposes. Till now borrowings in the form of ECB were not allowed to be used

for general corporate purpose.

Nevertheless, the RBI has put certain conditions. As per the conditions, the minimum

paid-up equity of 25% should be held directly by the lender (overseas partner) and the

repayment of the principal will commence only after completion of minimum averagematurity of seven years and no prepayment will be allowed before maturity.

What is External Commercial Borrowing (ECB)?

Any money that has been borrowed from foreign sources for financing the commercialactivities inIndiaare called External Commercial Borrowings.

The Government of India permits ECBs as a source of finance for Indian Corporates forexpansion of existing capacity as well as for fresh investment.

The ECBs are defined as money borrowed from foreign resources including the

following:

Commercial bank loans
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Buyers credit and suppliers credit Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private

sector window of Multilateral Financial Institutions such asInternationalFinanceCorporation (Washington), ADB, AFIC, CDC, etc.

Objective of External Commercial Borrowing (ECB):

Government permits the ECBs as an additional source of financing for expanding theexisting capacity as well as for fresh investments. The ECB policy of the Government

seeks to emphasize the priority of investing in theinfrastructureand core sectorssuch as Power, telecom,Railways,Roads, Urban infrastructure etc.

There is also emphasis on the need of capital for Small and Medium scale enterprises.How ECB is different from FDI?

It must be noted that ECB means any kind of funding other than Equity. If the foreignmoney is used to finance the Equity Capital, it would be termed as Foreign Direct

Investment.

The ECB should satisfy the ECB regulations stipulated by the Government or itsagencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage

Backed Securities or anything of that nature are included in ECB.

The following are not included in the ECBs

Any Investment made towards core capital of an organization such as equity shares,convertible preference shares or convertible debentures. We should note here that

those instruments which can be converted into equity are called convertible. The

convertible instruments are covered under the FDI Policy.

Any other direct capital is not allowed in ECB.Lok Sabha passes PFRDA Bill 2011September 5th, 2013

The Pension Fund Regulatory and Development Authority Bill (PFRDA),

2011which aims to regulate the New Pension System (NPS)has been passed in

theLok Sabhawith official amendments. The bill was introduced in the lower house inMarch 2011 to provide for a statutory regulatory body. Currently the PFRDA has a non-

statutory status. The legislation seeks to empower PFRDA to regulate the New Pension

System (NPS).

Some highlights of PFRDA Bill 2011:

It provides subscribers a wide choice to invest their funds for assured returns byopting for government bonds as well as in other funds depending on their capacity for

risk.

It allows for withdrawals from the individual pension account subject to the conditions,such as, purpose, frequency and limits, as may be specified by the regulations.

It makes the Pension Fund Regulatory and Development Authority a statutoryauthority. Presently, it has non-statutory status.
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What is the main reason behind providing PFRDA a statutory status?

NPS which is compulsory for government employees (exceptdefence)has beenlaunched for all citizens of the country including un-orgnised sector workers, on

voluntary basis, with effect from May 1, 2009. Further, the Government has launched

the co-contributory pension scheme titled Swavalamban Scheme in the Budget of2010-11. Currently, the number of subscribers under NPS is 52.83 Lakh with a corpus of

Rs. 34, 965 crore. In order to effectively invest and manage huge funds belonging to a

large number of subscribers and to ensure the integrity of NPS, establishment of a

statutory PFRDA with well defined powers, duties and responsibilities is considered

absolutely necessary and would benefit all NPS subscribers.

RBI asks banks to consider e-KYC a valid processSeptember 5th, 2013

In a notification issued by the Reserve Bank ofIndia,banks have been asked to avail

the electronic Know Your Customer, e-KYC service, launched by the Unique IdentificationAuthority of India,UIDAI.The notification directed banks to revise their KYC policy byaccepting the e-KYC as a valid process for KYC verification under the Prevention

ofMoney Laundering(Maintenance of Records) Rules, 2005.As per thenotification, the information containing demographic details and photographs made

available from UIDAI as a result of e-KYC process may be treated as an Officially Valid

Documentunder PML Rules.

What is e-KYC?

The e-KYC servicewas launched by the UIDAI to help people link their existing records,

like ration cards, pension accounts, license and certificates, to their Aadhaar numbers in

a safe and easy manner.

Current Affairs: Top Headlines for September 1, 2013September 1st, 2013

Curiosity to take pictures of solar eclipse

Mars rover Curiosity took pictures of the planets moon, Phobos, eclipsing the sun.

NASAs Curiosity rover landed on the red planet in August 2012 for a 2-year mission to

study if the planet similar to Earth in the solar system ever had the chemical ingredients

for supporting life.

RBI forbids overseas buying, plus point for Indian realty

In a bid to curb the outflow of capital from the country, the RBI has cut down the annual

cap on automatic outflows from $2,00,000 to $75,000 per individual. In addition to this,

the central bank has also imposed a ban on overseas real estate purchases with

immediate effect. The move expected to benefit the domestic real estate as the capital

which otherwise would have been diverted overseas will now remain in the country.

Indias foreign exchange reserves deplete by $1.08 billion

As per RBIs data,Indias foreign exchange(forex) reserves reduced by $1.08 billion to$277.72 billion for the week ended Aug 23, 2013. The Special Drawing Rights (SDRs)

decreased by $4.5 million to $4.38 billion for the same period. Gold reserves remainedat the same level at $20.74 billion.
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Decline in Rupee may not impact agriculture sector: NABARD

According to National Bank forAgricultureand Rural Development (Nabard)head Prakash Bakshithe continuing depreciation of rupee against the dollar is unlikely

to make any negative impact on the agriculture sector. In the event rupee decline

impacts the prices of fertilizers or diesel it would be compensated either by the way ofsubsidy or by hiking the minimum support price.

Delhis tops in per capita income in India

As perDelhiDevelopment Report 2013, Delhis average per capita income stands atmore than Rs 2 lakh per year in 2012-13 which makes it the highest in India. It is

around 3 times more than the national average per capita income.

India approaching IMF for foreign exchange not imminent: Planning Commission

Planning commissiondeputy chairman Montek Singh Ahluwalia has assured that

India has adequate forex reserves to manage the current situation and ruled outapproaching theInternationalMonetary Fund(IMF) for help, saying the economicsituation has not reached a point where outside aid is warranted. Indias foreign

exchange reserves were up at 278.602 billion $ as of August 9, 2013.

Pakistan unable to qualify for the Hockey World Cup for the first time

Pakistanis aggrieved as the country lost berth for theHockeyWorld Cup 2014tournament. It is for the first time in Pakistanssporting history that it has been unable

to qualify for the World Cup Hockey tournament as it lost toSouth Koreain thesemifinal of the Asia Cup being held inMalaysia,a match they needed to win to qualify.

Pakistan not considering granting MFN status to India

Pakistans Finance Minister has communicated that, at present, it is not in talks to grant

of Most Favoured Nation (MFN) status to India. The remarks came within days ofWorldBanksuggesting in a report that Pakistan will benefit from granting the MFN status toIndia. Pakistan already enjoys the MFN status which India extended to it in 1996. The

bilateral trade between the countries was at $2.35 billion in 2012-13, as against $1.93

billion in fiscal 2011-12.

RBI not considering to convert idle gold into bullion

Responding to the reports that ReserveBank of India(RBI) is mulling over multiplemeasures, including using thousands of tone of idle gold jewellery in temples, to replace

for import, the central bank said it did not have any proposal to convert idle gold from

temples and individual trusts into bullion.

President confers Khel Ratna on Ronjan Sodhi, Arjuna Award on Virat Kohli

President Pranab Mukherjee conferred countrys highest sporting honor-Rajiv Gandhi

Khel Ratna Awardon the topnotch shooter Ronjon Sodhi. Cricketing star Virat

Kohliwas among the 15sportspersons honored with Arjuna Award. Among the otherArjuna Awardees wereKavita Chahal, for boxing, Gaganjit Bhullar for Golf, Saba

Anjum, for hockey, Rajkumari Rathore, for shooting, PV Sindhu,forbadmintonand Neha Rathi, forwrestling.
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A total of 5 coaches were honoured with Dronacharyaawards.KP Thomaswashonoured with the Award for their life time contribution to coaching in Athletics and Raj

Singh in Wrestling.

Current Affairs: Top Headlines for August 31, 2013August 31st, 2013

Pakistan and Russia initiate Strategic Dialogue

Pakistanand theRussiaheld their first ever Foreign Secretary level interaction on theStrategic Dialogue in Moscow. Foreign Secretary of Pakistan Jalil Abbas Jilani and First

Deputy Minister Vladimir Gennadievich Titov of the Russia participated in the talks. The

discussion focused on regional andinternationalissues, besides expanding trade andinvestment relations and cooperation in the field of energy and power generation.

Nobel laureate Seamus Heaney passed away

Legendary Irish poet and winner ofNobelPrize in literature 1995, Seamus Heaney (74)passed away. Heaneys award winning work focused on themes including his rural

nurturing, the problems in NorthernIrelandand the sense of community in his nativeIreland. His notable works includeDeath of a Naturalist, District and Circle, the

Spirit Level, and Beowulf.

Government to bar its employees from using Gmail

The government plans to release a notification to nearly 5 lakh employees prohibiting

them from using email services such as Gmail that have their servers inthe US,andinstead directing them to use the official email service provided byIndiasNational

Informatics Centre. The step comes in the wake of revelation of widespread electronicsurveillance programmes for spying being run by various countries including the US.

Former NIA contractor and whistleblower Edward Snowden recently revealed that

through the surveillance programme PRISM the US government had been directly

accessing vast amounts of personal data on the Internet such as emails and chat

messages from companies likeGoogle,Facebook and Apple.

Indias fiscal deficit is around 63% of target

As per government data, Indias fiscal deficit during the April-July period was Rs 3.41

trillion ($50.91 billion), or 62.8% of the full-year target. Net tax receipts for the first 4

months of the current fiscal year to March 2014 touched Rs 1.45 trillion, while total

expenditure was Rs 5.21 trillion. Indias fiscal deficit during the 2012-13 fiscal year

ending March decreased to 4.9% of the countrys GDP, compared to 5.8% in 2011-

12. The fiscal deficit target is 4.8% of GDP for the current fiscal year.

India registers 4.4% GDP growth in Q1 slowest in 4 years

The first quarter of the current fiscal has been slowest in over 4 years with GDP growth

of 4.4%. The decline implies a deepening slowdown and aggravating the widespread

negative sentiment brought on by the sharp depreciation of rupee depreciation and

plunging stock markets.

Exclusive satellite for Indian Navy GSAT-7 launched
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The European Ariane 5 rocket put it space Indias first military communication satellite

GSAT-7 which was launched from the Kourou space port of French Guiana space in

South America. The satellite will serve exclusively to Indian Navy. The satellite is

expected to enhance the countrys maritime security and intelligence collection by

covering a wide region on either coasts of the Indian Ocean region.

7000 tickets/min will be the booking speed of IRCTC website

The Centre for Railway Information System is developing next generation e-ticketing

system for IRCTCs website which will have an efficiency to book 7200 tickets e-tickets

per minute. It will render the website to perform faster and hassle free access even at

peak time and have high availability andbusinesscontinuity, scalability to meet theneeds of future growth and security to prevent frauds and unauthorized access.

Mars One: 8,000 Indians register for one-way trip to the Red Planet

So far 8,107 Indians have registered for the one-way trip to Mars and to live on the red

planet, as Mars One project is planning to set up a colony there inthe next 10 years. Anot-for-profit initiative, Mars One, intends to establish a permanent human settlement

on Mars in 2023 and is signing up those inclined to fly there. India has fourth highest

number of participants among other nations of the world.

The top 10 nations to register are the USA (37,852),China(13,124),Brazil(8,686),India (8,107), Russia (7,138), Britain

(6,999),Mexico(6,771),Canada(6,593),Spain(3,621) andPhilippines(3,516).

RBI permits premature encashment of 8% Savings (Taxable) Bonds

As per a atetment released by the ReserveBank of India,individual investors who are60 years are allowed to avail premature encashment of 8% Savings (Taxable) Bonds.This facility is available after a minimum lock-in period of 3 years from the date of issue.

Those desiring to avail of the facility will have to submit documentary evidence in

support of his/her date of birth to satisfaction of the agency bank.

Saudi Arabia makes domestic violence a criminal offence

The cabinet ofSaudi Arabiaapproved a new law that criminalizes domestic violence,usually targeting women and children. The Protection from Abuse law is meant for

protecting people from all forms of abuse and providing them shelter as well as social,

psychological, and medical help.

Current Affairs: Top Headlines for August 30, 2013August 30th, 2013

Melbourne tops the list of liveable cities in world

According to a survey conducted by the Economist Intelligence Unit, theAustraliancity

of Melbourne is the most liveable city in the world while

conflict batteredSyriascapital Damascusis the least liveable city. The survey alsolists Karachi and Dhaka among the least liveable cities.

HDFC Bank expands its rural business
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HDFC Bankfurther expanded its rural presence by announcing the launch of 18 newrural branches inHaryana,taking its total network to 200 branches in the state. Of the18 new branches 14 are in unbanked places which will bring formalbankingservices toaround 90,000 people in the state. At the national level, the bank has 53% of its

branches in semi-urban and rural areas supporting the idea of inclusive growth.

Rupee could depreciate to 75, more measures needed: BofA-ML

According to a report by Bank of America Merrill Lynch (BofA-ML), if the current stance

towards declining rupee is maintained then the scenario could be worse, rupee could

touch 75 per US dollar by the end of 2014. It suggested the Reserve Bank

ofIndia(RBI) to take more pro-active measures to rebuild forex reserves. It alsosuggested the RBI to launch a scheme to attract significant forex inflows where the INR

risk would be borne by the RBI to comfort investor confidence like issue of NRI or

sovereign bonds or reviving FCNRA deposits.

National Sports Day celebrated across India

August 29 was celebrated as NationalSportsDay across the country to commemoratethe birth anniversary ofthe Wizard ofHockey,Major Dhyan Chand. Varioussporing events were organized across the nation to mark the day. It was 118thbirth

anniversary of Dhyan Chand, the legend who helped India win three Olympic gold

medals in 1928, 1932, and 1936.

Scientists discover Suns twin

An 8.2-billion-year-old twin of the Sun has been discovered by the astronomers.

Astronomers inBrazilused ESOs Very Large Telescope to locate the star HIP 102152

located 250 light-years away. It is very similar to the Sun- except that it is nearly fourbillion years older. Studying the ancient star allows researchers to predict what may

happen to our own Sun when it reaches that age.

Rupee registers biggest single-day gain in 15 years with RBIs intervention

Banking Awareness 2013

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