Table of Contents
Important Banking appointments
Shri Pankaj Jain
Additional charge as Managing Director, IIFCL
Mr. Dilip Asbe – MD & CEO of National Payments Corporation of India (NPCI)
Mr. Vijay Kumar V – Managing Director & CEO, NCDEX
Dilip Chenoy – Secretary General of industry body Federation of Indian Chambers of Commerce and Industry (FICCI)
Usha Ananthasubramanian – first woman chairman of IBA , Indian Banks’ Association
Hardayal Prasad – SBI Card, Managing Director & CEO
National Payments Corporation of India (NPCI) appointed Biswamohan Mahapatra as nonexecutive chairman
Debashish Mukherjee – executive director with the Canara bank
Murali Ramaswami – executive director with the Vijay bank
China named Yi Gang as new central bank governor
Balesh Sharma – CEO, Vodafone-IDEA merged
company
Kumar Mangalam Birla – Non Executive Chairman, Vodafone-IDEA merged company
IDBI CEO M K Jain – RBI’s new Deputy Governor. (RBI’s 4 Deputy Governors are NS Vishwanathan, Viral V Acharya, BP Kanungo and newly appointed MK Jain)
SS MUNDHRA – Retired
As per the RBI Act, the central bank should have four deputy governors
Two from within the ranks, a commercial banker and an
economist
Sandeep Bakhshi as whole-time director and chief operating officer (COO) of ICICI Bank
S RAMESH – chairman of the Central Board of Indirect Taxes and Customs (CBIC)
Arijit Basu – SBI’s New Managing Director
Sudha Balakrishnan assumed charge as the first Chief Financial Officer (CFO) of
the Reserve Bank of India (RBI) on 15 May 2018
Bhanu Pratap Sharma – Chairman of Banks Board Bureau
Rakesh Bharti Mittal assumed office of the President of Confederation of Indian Industry (CII)
Rishad Premji – Chairman, Nasscom
Debjani Ghosh – President, Nasscom
Anubrata Biswas – MD/CEO of Airtel
Payments Bank
Radhakrishnan Nair – Independent director in ICICI bank
Subhash Chandra Khuntia – Chairman, IRDAI
(P J Joseph committee by IRDAI to review third party motor cover costs)
Harun Rashid Khan– non-executive, part time chairman of the bank, Bandhan Bank
Girish Chandra Chaturvedi – Non executive chairman in ICICI bank
Uma Shankar, took over as executive director (ED)
Y H Malegam committee
Reserve Bank of India (RBI) constituted this expert committee to look into issues relating to classification of bad loans, effectiveness of audits and rising incidents of frauds The committee will look into the reasons for factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such
divergence and frauds
Subhash Chandra Garg Committee
The Union Government has set up 8 member steering committee look into the development and regulation of the financial technology (fintech) sector in India
Economic Affairs Secretary – Subhash Garg
It will look into issues to make fintech-related regulations
more flexible and generate enhanced entrepreneurship in
area
Uday Kotak Committee
SEBI constituted the committee on corporate governance, under the chairmanship of Uday Kotak, to make recommendations to SEBI for improving standards of corporate governance of listed entities in India.
Manmohan Juneja Panel
Set up by the Corporate Affairs Ministry to review the enforcement of Corporate Social Responsibility provisions under the Companies Act 2013
Injeti Srinivas committee
10-member committee to review the penal provisions under the Companies Act, 2013 and examine de-criminalisation of certain offences Corporate Affairs Secretary Injeti Srinivas
Gold Monetisation Scheme
RBI amends Gold Monetisation Scheme to make it more attractive
In 2015, the government launched the Gold Monetisation Scheme with the objective of mobilising the gold held by households and institutions in the country.
Objective
• Make the idle gold productive, estimated 25 thousand Tonnes in Temples and Homes
• Reduce import bill (gold is the second-highest component of the imports bill after crude oil)
4 benefits
– Interest
– No fear of losing gold
– No carrying charges etc
– Tax benefits
“The short-term deposits should be treated as bank’s on-balance sheet liability” These deposits will be made with the designated banks for a short period of 1-3 years (with a facility of roll over). Deposits can also be allowed for broken periods e.g. 1 year 3 months 2 years 4 months 5 days “The Medium Term Government Deposit (MTGD) can be made for 5-7 years and Long Term Government Deposit (LTGD) for 12-15 years or for such period as may be decided by the Central Government from time to time. Deposits can also be allowed for broken periods (e.g. 5 years 7 months; 13 years 4 months 15 days; etc.) Investment limit per fiscal year
There is no maximum limit for this scheme.
Minimum Investment – 30g gold with 995 fineness
Minimum lock-in period
A Medium Term Government Deposit (MTGD) – 3 years
Long Term Government Deposit (LTGD) – 5 years
Interest Rate
(i) On medium term deposit – 2.25% p.a.
(ii) On long term deposit – 2.50% p.a.
Short Term Bank Deposit (STBD) – The interest rates are at the discretion of the banks.
Sovereign Gold Bond scheme
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of
India. Joint holding is allowed. Minimum investment in the Bond shall be one gram Maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor The maturity period of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue Payment can be made through cash (upto ₹ 20000) The Gold Monetisation Scheme (GMS), since its launch in November 2015, has been able to mobilise just over 6 tonnes of gold, that too mostly from temples and other non-household entities.
According to finance ministry data, total of 6,160 kg of gold have been mobilised (1,730 kg has come in under the medium term deposit scheme) (4,430 kgs were mobilised under the long-term deposit scheme
Sovereign Gold Bond (SGB) scheme
• Under the Sovereign Gold Bond (SGB) scheme, through which government securities are denominated in grams of gold, investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity
• The mobilisation has been an equivalent of 22,666 kg of gold.
• 22 tonnes mobilised under the SGB scheme over the last three years translates into just about 1 per cent of India’s demand for physical gold in the three years. The government launched the Scheme in November 2015 with an aim to reduce the demand for physical gold and shift a part of the gold imported every year for investment purposes into financial savings through Gold Bonds. Demand (The World Gold Council) India’s 5-year demand for gold averaged at around 800 tonnes per annum The demand in 2017 was estimated at 727 tonnes expects that the demand in 2018 to be in the range of 700-800 tonnes. there is a still a strong demand for physical gold, despite the launch of scheme such as the SGB and GMS.
• Strong demand for physical gold despite the imposition of additional measures such as high import duty of 10 per cent and an imposition of 3 per cent GST on gold jewellery
• Exemption from capital gains tax
•At maturity, investors will get the equivalent rupee value of the quantum of gold invested at the then prevailing price of gold
• NITI Ayog had also set up a Committee to transform India’s Gold Market under the chairmanship of Ratan P Watal
“The short-term deposits should be treated as bank’s on-balance sheet liability”
These deposits will be made with the designated banks for a short period of 1-3 years (with a facility of roll over). Deposits can also be allowed for broken periods e.g. 1 year 3 months
2 years 4 months 5 days
“The Medium Term Government Deposit (MTGD) can be made for 5-7 years and Long Term Government Deposit (LTGD) for 12-15 years or for such period as may be decided by the Central Government from time to time.
Deposits can also be allowed for broken periods (e.g. 5 years 7 months; 13 years 4 months 15 days; etc.)
Under PCA
banks face restrictions on distributing dividends, remitting profits and even on accepting certain
kinds of deposits. There are restrictions on the expansion of branch network, and the lenders need to maintain higher provisions, along with caps on management compensation and directors’ fees.
Prompt corrective action (PCA)
The gross non-performing assets (NPAs) of Indian banks stood at Rs 10.25 lakh crore in March 2018 Eleven banks are already under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India and six more are on the verge of being sent to the PCA. This makes it 17 of a total of 21 public sector banks, which control nearly 90 per cent of the country’s total lending.
The 11 banks under Prompt Corrective Action (PCA)
1. Dena Bank
2. Allahabad Bank
3. United Bank of India
4. Corporation Bank
5. IDBI Bank
6. UCO Bank
7. Bank of India
8. Central Bank of India
9. Indian Overseas Bank
10.Oriental Bank of Commerce
11.Bank of Maharashtra
The parameters that invite corrective action from the central bank are:
Capital to Risk weighted Asset Ratio (CRAR)
Net Non-Performing Assets (NPA)
Return on Assets (RoA)
CRAR
(i) CRAR less than 9%, but equal or more than 6%
(ii) CRAR less than 6%, but equal or more than 3%
(iii) CRAR less than 3%
NPAs
(i) Net NPAs over 10% but less than 15%
(ii) Net NPAs 15% and above
ROA below 0.25%
The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and FMIs.
Public sector banks (PSBs) – a clamour for their privatisation
Arvind Subramanian
Adi Godrej
Ficci
Assocham
At present, all senior appointments are made by a government-appointed panel. The government should allow banks’ boards to hire their own management and free them up to decide strategy. Once they have greater powers over management and decision making, PSBs should be able to tackle their bad loan issues more effectively and eventually tap the capital markets to strengthen their balance sheets. An analysis of the net non-performing assets (NNPA) ratios of PCA PSBs vis-a-vis non-PCA PSBs revealed that the NNPA ratio of PSBs under PCA was around 12 per cent in March 2018. The gap between the CRAR (capital to risk-weighted
assets ratio) of PCA PSBs and non-PCA PSBs has widened over the years.
• Although non-PCA PSBs are also loss-making currently, the extent of losses made by PCA PSBs has increased further over the years.
• Leverage ratio of PCA PSBs has been deteriorating steadily since September 2016 (RBI Financial Stability Report)
• RBI expects the capital adequacy ratio of the 11 banks under PCA to drop to 6.5% by the end of the current fiscal year from 10.8% at the end of 2017-18. (Assuming the absence of any capital infusion by the government) whereas for the non-PCA PSBs, the CRAR may decline from 12.0 per cent in March 2018 to 10.6 per cent by March 2019.
• RBI Financial Stability Report also states that gross bad loans of these banks will only worsen, rising to 22.3% of their loan book from the current 21%.
• The track record of these banks ever since they were put under PCA is proof enough that their return to normalcy is no easy task.
• two banks, namely United Bank of India and Indian Overseas Bank that have been under PCA for more than two years. These two banks have hardly shown improvement in their metrics.
The reason is simple. The PCA scheme of RBI puts various restrictions on activities generating income but there is hardly any reduction on the expenses side. With operating expenses remaining largely the same and income falling every quarter, it is very difficult for these banks’ financial performance to improve.
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