Banking and Financial Awareness – 87

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10 Apr, 2015

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NPAs-April-2015

1) The Securities and Exchange Board of India (SEBI) on 22 March 2015 gave what relaxation primarily to PSU banks on non-performing assets? – It relaxed the norms for conversion of the distressed loans of listed companies into equity by banks and financial institutions

Explanation: The SEBI on 22 March decided to adopt a fair price mechanism for conversion of distressed loans in place of the current market pricing formula. SEBI will prescribe how the fair value will be decided. The new rule will be applied only when banks acquire at least 51% of the equity. Bad debts or non-performing assets of all public sector banks rose to 5.64% of advances at the end of December 2014, which is the highest after the 5.73% recorded in 2004-05.


2) The Reserve Bank of India (RBI) on 30 March 2015 relaxed provisioning rules against bad loans by allowing banks to set aside up to 50% of floating provisions. What was the present rule for the same? – Till now RBI allowed up to 33% of floating provisions against bad loans

Explanation: These provisioning rules broadly refer to the specific amount that banks need to set aside in good times above the mandatory provisioning requirement as prescribed by RBI. Banks have started building such reserves since 2010. In February 2014, RBI had allowed to utilise up to 33% of countercyclical provisioning buffer/floating provisions held by them as on 31 March 2013. Mounting bad loans have been a concern for the RBI and this relaxation may help banks provide for such loans thereby reducing the hit banks may face on their profitability due to the bad loans.


3) Indian Railways on 23 March 2015 launched its RuPay pre-paid debit card service for the benefit of railway passengers. Passengers would be able to book railway tickets and make online payments through this debit card launched by the IRCTC. Which PSU bank is collaborating with the National Payment Corporation of India (NPCI) and IRCTC in this service? – Union Bank of India (UBI)

Explanation: The RuPay pre-paid debit card of railway will be made available from the branches of Union Bank of India (UBI) or through IRCTC for free. This card is the first of its kind in the market where both virtual as well as physical cards are being issued to the customer in two variants – Partial KYC with a loading limit of Rs.10,000 and full KYC with a loading limit of Rs.50,000. The first 5 transactions per card every month done on IRCTC for purchase of railways tickets will be FREE (no transaction charges) to the customer for the first 6 months only. For every subsequent transaction post the free usage, customer will be charged Rs.10/- per transaction.


4) Who was appointed as the Chairman of the Empowered Committee of State Finance Ministers on the Goods and Services Tax (GST) as announced by the government on 25 March 2015? – K.M. Mani (Finance Minister of Kerala)

Explanation: The post of the Chairman of the Empowered Committee of State Finance Ministers on the GST fell vacant when Abdul Rahim Rather quit following defeat of National Conference in the Jammu and Kashmir elections. Kerala Finance Minister K.M. Mani was appointed for this post as announced by the Finance Ministry on 25 March. The chairman of the committee has generally been from an opposition ruled state. Mani represents the Kerala Congress (M). His appointment could help the government garner support from the opposition when Parliament takes up the Constitution amendment bill for GST. The GST, a much-awaited reform to replace multiple indirect taxes with one levy, is proposed to be rolled out from April 2016.


5) Which entity became the first-ever public sector undertaking (PSU) to issue bonus debentures as done by it on 26 March 2015? – NTPC Ltd.

Explanation: NTPC on 26 March issued bonus debentures amounting to Rs. 7725.76 crore to Government of India by virtue of its 74.96% shareholding in NTPC. In addition to the bonus debentures, the Government of India has also received Rs. 2060.75 crore as dividend distribution tax on the debentures. This thus became the first-ever instance of a PSU issuing bonus debenture issues. Under this bonus issue, NTPC issued one fully paid-up, secured debenture of Rs. 12.50 each, for every one fully paid-up equity share of Rs. 10 each held by its members. The issue size of the bonus debenture thus stood at Rs. 10306.83 crore which is the biggest issue of its kind in the country and also the first ever by any PSU.


6) The SEBI on 22 March 2015 approved guidelines to govern international financial services centres (IFSC). Which centre is expected to be India’s first such IFSC? – Gujarat International Finance Tec-City (GIFT City)

Explanation: The GIFT City is being established near Ahmedabad in Gujarat. The new norms for IFSCs approved by SEBI on 22 March aims to ease the setting up of stock exchanges and capital market infrastructure in such centres. A stock exchange can be set up with Rs. 25 crore capital, against the normal requirement of Rs. 100 crore. However, this will have to be raised to Rs. 100 crore within three years. For a clearing corporation, the initial capital requirement will be Rs. 50 crore, against the norm of Rs. 300 crore, which will have to be achieved in three years.


7) The Securities and Exchange Board of India (SEBI) on 22 March 2015 came up with guidelines for which category of bonds which will help the Union Govt. in its “Smart Cities” plan? – Municipal Bonds

Explanation: The SEBI on 22 March approved a new set of norms for listing and trading of municipal bonds on stock exchanges. Municipal bonds, also to be known as “Muni Bonds”, would allow authorities to raise funds including for setting up of smart cities, by raising funds from the public and from the institutional investors. The municipal authorities, desiring of issuing these bonds, would need to have a strong financial track record and such bonds would be listed on the stock exchanges. In December 2014, SEBI had floated draft norms for ‘Issue and Listing of Debt Securities by Municipality’ and had sought public comments till 30 January 2015. These bonds products are very popular among investors in many developed nations, especially the United States, where they have attracted investments totalling over $500 billion and are among preferred avenues for household savings.


8) The Union Govt. on 18 March 2015 launched a Rs. 200 crore scheme to set up a network of technology and incubation centres to accelerate entrepreneurship and promote start-ups for innovation and entrepreneurship in agro-industry. Which entity would provide financial aid under this scheme? – Small Industries Development Bank of India (SIDBI)

Explanation: This scheme was launched by the Micro, Small and Medium Enterprises (MSME) Ministry. In order to ensure that credit is available for start-ups, the MSME Ministry has created a fund of Rs. 60 crore which will be channelised through SIDBI. The scheme is designed to provide necessary skill set for setting up business enterprises in the agro sector. The primary focus of the scheme is to provide a platform on which multiple stakeholders can work together and address the employment needs of rural areas. For successful commercialisation and mentoring, a grant of Rs. 1 lakh per year for three years subject to a maximum of Rs. 3 lakh would be given.


9) The Union Govt. during March 2015 established a fund with a corpus of Rs. 500 crore which seeks to keep prices of perishable farm commodities under control through suitable market interventions. What is the name of this fund? – ‘Price Stabilization Fund’ (PSF)

Explanation: The ‘Price Stabilization Fund (PSF) will be used to advance interest free loans to state governments and central agencies to support their working capital and other expenses on “procurement and distribution” interventions for such commodities. It has initially been proposed for onion and potato. The fund has been set up as a follow-up of a budget announcement made by finance minister Arun Jaitley on 28 February 2015. According to operational details of the fund, the states will set up a “revolving fund” for adequate market interventions. The Centre and state will contribute equally (50:50) for the revolving fund. The ratio of Centre-state contribution to the state level corpus in respect of north-east states will be 75:25. Apart from this an eight-member price stabilization fund management committee has been set up under the chairmanship of additional secretary in agriculture ministry to manage the fund at the Centre and monitor revolving funds in each state.


10) The sale of mobile phone airwaves (spectrum auction) ended on 25 March 2015 after 19 days of fierce bidding between telecom operators. What amount was raised by the Union Govt. through this auction as announced by Union Telecommunications Minister Ravi Shankar Prasad on 26 March 2015? – Rs. 109,874 crore

Explanation: The details pertaining to the spectrum auction were revealed after the Supreme Court, which is hearing a host of petitions on the issue of spectrum, allowed the government on 26 March to go ahead and finalise the bids and name the winners, but take a decision only after its order on that matter. This sale was the largest-ever spectrum auction in India. The numbers revealed by the communications minister suggest that the latest tranch of auction has come as a windfall for the government, surpassing the previous high of Rs. 106,200 crore that the government had received in the 2010 auction, spread over 34 days with 183 rounds of bidding.


 


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