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Economy Current Affairs 2020 (March, April, May) Set-9 – Free PDF Download

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 Q) Which of the statement is correct regarding the SARFAESI Act?
1) SARFAESI Act is applicable to both secured and unsecured loans
2)Provision of SARFAESI is not applicable to any security interest created in agricultural land
Which of the above statements is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

WHY IN NEWS

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SARFAESI Act

  • A five-judge Constitution Bench of the Supreme Court (SC) recently held that cooperative banks can use the Securitisationand Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) for recovery of debts from its defaulters and can seize and sell their assets to recover dues.

More on news

  • SC Case pertained to applicability of SARFAESI Act, 2002 to co-operative banks (including multi-state cooperatives (MSC)) and Competency of Parliament to prescribe recovery proceduresfor cooperative banks governed by State laws.
  • Constitution Bench held that Cooperative banks established under a State law or multi-State level societies come within ambit of the Act.

Cooperative banks

  • They are customer owned financial entities established on a co-operative basis which provide a wide range of regular banking and financial services.
  • They are registered under the States Cooperative Societies Act or MSCS Act, 2002.
  • They also come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws
  • The Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.

Basic about SARFAESI ACT

  • The act was framed in order to address the problem of Non-Performing Assets (NPAs) or bad assets of banks/financial institutions through different mechanisms.
  • It allows only secured creditors (lenders whose loans are backed by a security such as mortgage) to take possession over a collateral security if the debtor defaults in repayment.
  • The act provides procedure for registration and regulation of asset reconstruction company (ARC)for asset reconstruction and securitization

Asset Reconstruction and Securitization

  • Asset reconstruction: It is the activity of converting a NPAs or bad assets into performing assets.
  • The ARCs can acquire financial assets (NPAs) from banks and try to recover dues through measures such as:
  1. the proper management of the business of the borrower, by changing or taking over the management
  2. the sale or lease of a part or whole of the business
  3. rescheduling of payment of debts payable etc.
  • Securitization: It is the process of conversion of existing loans into marketable securities by ARCs through issue of security receipts.

Points to remember for Prelims

  • Provisions of SARFAESI Act not applicable to:
  1. üAny security interest created in agricultural land
  2. üAny case in which the amount due is less than twenty per cent of the principal amount and interest
  3. üAny security interest for securing repayment of any financial asset less than one lakh rupees.
  • ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to

(a)develop national strategies for the conservation and sustainable use of biological diversity
(b) improve banking sector’s ability to deal with financial and economic stress and improve risk management
(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries
(d) transfer technology from developed Countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

WHY IN NEWS

 Economy Current Affairs 2020 (March, April, May) Set-9 – Free PDF Download_6.1

Basel III Norms

  • Implementation of Basel-III were deferred by a year to January 2023, due to Covid-19 pandemic.

Basel III accord

  • Basel III accord is a set of financial reforms that was developed by the Basel Committee on Banking Supervision (BCBS), with the aim of strengthening regulation, supervision, and risk management within the banking industry.
  • They were introduced due to the impact of the 2008 Global Financial Crisis on banks. Basel III norms were finalisedin 2017.
  • Its implementation date has been postponed several times.
  • The guidelines focus on four banking parameters: capital, leverage, funding and liquidity.

Basel III norms

  • Capital: Minimum capital requirements for banks is 4.5% of common equity, as a percentage of the bank’s risk-weighted assets. (Currently 2% under Basel II).
  • Leverage Ratio:It is ratio of Tier 1 capital by the average total consolidated assets of a bank.
  • Under this, banks are required to hold a leverage ratio in excess of 3%. It was introduced under Basel-III.
  • Basel III introduced two liquidity ratios:
  • Liquidity Coverage Ratio and the Net Stable Funding Ratio.
  • The Liquidity Coverage Ratio requires banks to hold sufficient highly liquid assets that can withstand a 30-day stressed funding scenario as specified by the supervisors.
  • Net Stable Funding Ratio (NSFR) requires banks to maintain stable funding above the required amount of stable funding for a period of one year of extended stress

Basel Committee

  • Basel, a city in Switzerland, is the headquarters of Bureau of International Settlement (BIS), which fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.
  • Currently there are 27 member nations in the committee.
  • Basel guidelines refer to broad supervisory standards formulated by this group of central banks called the Basel Committee on Banking Supervision (BCBS).

WHY IN NEWS

 Economy Current Affairs 2020 (March, April, May) Set-9 – Free PDF Download_7.1

Priority Sector Lending

  • Recently, RBI stated that bank credit to registered NBFCs towards agriculture, MSMEs and housing sector up to prescribed limits will be treated as priority sector for FY2020-21.

More about Priority Sector Lending

  • Under PSL norms, Domestic scheduled commercial banks and foreign banks with 20 branches and above have to lend 40% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to priority sectors as identified by RBI and Government.

Priority Sector Lending

  • Agriculture
  • Micro, Small and Medium Enterprises
  • Export Credit
  • Education
  • Housing
  • Social Infrastructure
  • Renewable Energy
  • Others

Other Important Facts

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