Indian Economy Quiz: Money & Banking | 14 July, 2021

The era of economic reforms had given the same option to the PSUs to tap new capital.

• As the AIFIs had more or less fixed rate of interest as compared to the banks which could mobilize cheaper deposits to lend cheaper—the AIFIs seemed to become irrelevant.
• The AIFIs witnessed a sharp decline in recent years. At this juncture the government decided to convert them into Development Banks (suggested by the Narasimhan Committee-I) to be known as the All-India Development Banks (AIDBs).

• In 2000, the government allowed ICICI to go for a reverse merger (when an elder enterprise is merged with a younger one) with the ICICI Bank—the first AIDB emerged with no obligation of project financing—such entities in coming times will be known as the universal banks.

Source: TMH Ramesh Singh

In 1996 it was decided to allow the establishment of local banks in the private sector.

• These banks were expected to bridge the gaps in credit availability and enhance the institutional credit framework in the rural and semi-urban areas and provide efficient and competitive financial intermediation services in their area of operation.
• The minimum start-up capital of a LAB was fixed at Rs.5crore.
• The promoters of these banks were required to bring in the entire minimum share capital up-front.

• It was also decided that a family among the promoter group could hold equity not exceeding 40% of the capital.
• The NRI contributions to the equity of the bank were not to exceed 40% of the paid-up capital.

Source: TMH Ramesh Singh

Differentiated Banks (niche banks) are banks that serve the needs of a certain demographic segment of the population.

• Small Finance Banks and Payment Banks are examples of differentiated banks in India.
• Small Finance Banks was recommended by the Nachiket Mor committee on financial inclusion.

Source: Sriram’s Economy

The Banks Board Bureau owes its genesis to the recommendations in the Report of The Committee set up by the Reserve Bank of India to Review Governance of Boards of Banks in India (Chair: Dr P J Nayak; May 2014), which envisaged the Bureau as a precursor to a Company which would eventually hold the Government’s investments in PSBs.

Source: Sriram’s Economy

Recently, the Reserve Bank of India released the Report on Trend and Progress of Banking in India 2018-19, a statutory publication in compliance with Section 36 (2) of the Banking Regulation Act, 1949.

Source: The Hindu

In June 2004, Basel II guidelines were published by BCBS. The guidelines were based on three parameters, which the committee calls it as pillars.

• Capital Adequacy Requirements: Banks should maintain a minimum capital adequacy requirement of 8% of risk assets

• Supervisory Review: According to this, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit, market and operational risks
• Market Discipline: This needs increased disclosure requirements. Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.

Source: TMH Ramesh Singh

The Reserve Bank of India (RBI) board finalized a three- year roadmap to improve regulation and supervision, among other functions of the central bank.

This medium-term strategy — named Utkarsh 2022 — is in line with the global central banks’ plan to strengthen the regulatory and supervisory mechanism.

Source: The Hindu

RBI allowed RRBs to access the liquidity adjustment facility (LAF), marginal standing facility (MSF) and call or notice money market.

At present, RRBs are not permitted to access the liquidity windows of the RBI as well as the call or notice market.

Source: The Hindu

The functions of the DICGC are governed by the provisions of ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961’ (DICGC Act) and ‘The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961’ framed by the Reserve Bank of India in exercise of the powers conferred by sub-section (3) of Section 50 of the said Act.

Banks covered by Deposit Insurance Scheme are:

• All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks.

• Co-operative Banks – All eligible co-operative banks as defined in Section 2(gg) of the DICGC Act are covered by the Deposit Insurance Scheme.
• All State, Central and Primary co-operative banks functioning in the States/Union Territories which have amended their Co-operative Societies Act as required under the DICGC Act, 1961, empowering RBI to order the Registrar of Co-operative Societies of the respective States/Union Territories to wind up a co-operative bank or to supersede its committee of management and requiring the Registrar not to take any action for winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the RBI, are treated as eligible banks.
• At present all Co-operative banks are covered by the Scheme. The Union Territories of Lakshadweep and Dadra and Nagar Haveli do not have Co-operative Banks.

Source: TMH Ramesh Singh

Bimal Jalan Committee was set up to review the economic capital framework of the RBI.

• Its mandate was to review global best practices followed by the central banks in making assessment and provisions.
• It has suggested that the framework may be periodically reviewed after every five years.
• The panel recommended aligning the central bank’s accounting year with the financial year which could reduce the need for paying interim dividend.

• The panel also suggested a clearer distinction between the two components of economic capital — realized equity and revaluation balances — mainly because of the volatile nature of the revaluation balances.

Source: Sriram’s Economy