Banking and Financial Awareness – 99

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05 Sep, 2015

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Payments-Bank-2015

1) In an important step for India’s banking sector, the Reserve Bank of India (RBI) on 19 August 2015 granted its in-principle approval to setting up Payments Banks to 11 entities and individuals. The RBI had received 41 applications for payments banks by end of deadline in February this year. Which are these 11 entities and individuals to get approval for payments bank? – Aditya Birla Nuvo, Airtel M Commerce Services, Cholamandalam Distribution Services, Department of Posts,Fino PayTech,National Securities Depository Ltd (NSDL), Reliance Industries, Tech Mahindra, Vodafone m-pesa (Entities) and Dilip Shanghvi and Vijay S. Sharma (Individuals)

Explanation: The two individuals to get RBI’s approval – Dilip Shanghvi and Vijay S. Sharma, are associated with Sun Pharma and Paytm respectively. Payments banks will be the entities which will be mainly involved in remittance services and will be allowed to accept deposits up to Rs. 1 lakh but cannot lend. They will only have to deploy collected deposits in government paper and bank deposits.They can also issue debit cards and offer internet banking but will be not allowed to issue credit cards.The Guidelines for Licensing of Payments Banks were first issued on 27 November 2014 after the Union Budget 2014-2015 presented on 10 July 2014 announced setting up of differentiated banks.The process for selecting the applicants for payments banks was undertaken by an External Advisory Committee (EAC) under the Chairmanship of Dr. Nachiket Mor, Director, Central Board of the RBI. The recommendations of the EAC were an input to an Internal Screening Committee (ISC), consisting of the Governor and the four Deputy Governors.This Internal Screening Committee prepared a final list of recommendations for the Committee of the Central Board (CCB) of RBI, after independently scrutinising all the applications.


RBI-New-2015

2) The Reserve Bank of India on 31 August 2015 declared which two banks of the country as Domestic Systemically Important Banks (D-SIBs), which literally means that these banks are so integral to the national economy that their failure would have to be prevented at any cost? – SBI and ICICI Bank

Explanation: While State Bank of India (SBI) is the largest public sector bank and the largest banking entity in the country, ICICI Bank is the largest private sector bank in the country. The two banks were designated as Domestic Systemically Important Banks (D-SIBs) by the RBI, meaning their collapse could have a cascading impact on the entire financial system and the economy. SBI and ICICI have been so designated on the basis of a systemic importance score, arrived at after an analysis of the banks’ size as a percentage of annual Gross Domestic Product (GDP). Banks with assets that exceed 2% of GDP will be considered to be part of this class of lenders. As of 30 June 2015, SBI’s loan book was worth Rs.12.8 trillion and ICICI’s loan book was close to Rs.4 trillion. The RBI had issued the framework for dealing with Domestic Systemically Important Banks (D-SIBs) on 22 July 2014. The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August starting from August 2015. The framework requires that D-SIBs may be placed in four buckets depending upon their Systemic Importance Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it, as mentioned in the D-SIB framework. While SBI has been kept in Bucket -3 category, ICICI Bank has been placed in Bucket-1 category. In November 2011, the Basel committee of the Bank for International Settlements (BIS) announced a framework for identifying global systemically important banks and the additional buffers that such banks need to hold.


3) What is the name of the first dedicated portal for the benefit of students seeking educational loans that was launched during August 2015 by the Union Govt.? – “Vidya Lakshmi”

Explanation: “Vidya Lakshmi” portal was launched on 15 August 2015 on the occasion of 69thIndependence Day. It is the first of its kind portal providing single window for students to access information and make applications for educational loans provided by banks as also government scholarships. The portal has been developed and maintained by NSDL e-Governance Infrastructure Limited (NSDL e-Gov) under the guidance of Department of Financial Services in the finance ministry, department of higher education, ministry of human resource development and Indian Banks’ Association (IBA). While 5 PSU banks (SBI, IDBI Bank, Bank of India, Canara Bank and Union Bank of India) have integrated themselves on the “Vidya Lakshmi” portal initially, so far 13 banks have registered their 22 educational loan schemes on it.


Bandhan-Bank

4) Which private bank became the newest bank in India as it rolled out its services in on 23 August 2015? – Bandhan Bank

Explanation: Bandhan Bank had recently received its universal banking licence a year after getting a provisional licence from the Reserve Bank of India (RBI) in April last year along with IDFC. On 23 August 2013 Bandhan Bank unfurled its banking operations all over the country thus triggering a wave of financial inclusion. Union Finance Minister Arun Jaitley inaugurated the bank at a ceremony held at Kolkata’s Science City Auditorium. Bandhan Bank started its operations with a bang with 501 branches spread across 22 states in the country. This is possibly the highest number of branches of any private bank in India on the first day. Bandhan Bank is the part of the Bandhan Financial Services (BFS), India’s largest micro finance institution (MFI), which started its journey in 2001 when Chandra Sekhar Ghosh quit his job to set up an institution through which he hoped to help the poor.


5) Till opening of Bandhan Bank on 23 August 2015, which was the last entrant into India’s banking sector? – Yes Bank

Explanation: Yes Bank, which started its operations in 2004, was the last entrant in India’s banking sector till Bandhan Bank, which went into operations on 23 August. Yes Bank is presently the fifth-largest private sector bank in India after ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank


6) What is the major recommendation of the government-constituted committee on Minimum Alternate Tax (MAT) for foreign institutional investors (FIIs) led by Justice A.P. Shah as disclosed by Union Finance Minister Arun Jaitley on 21 August 2015? – FIIs should be granted relief on MAT for the period before 1 April 2015

Explanation: The government-constituted A.P. Shah Committee has recommended that FIIs be granted relief on Minimum Alternate Tax (MAT) for the period before 1 April 2015. This comes as a major relief for the FIIs. It is worth mentioning that in 2012, the Advance Authority Ruling (AAR), Delhi, directed Castleton to pay MAT in India on its book profits, when the company transferred shares from a Mauritius entity to one in Singapore. Pertaining to this, the income tax department had sent notices to 68 FIIs, demanding Rs. 602 crore as MAT dues for earlier years. To resolve the issue, the government had constituted a commission headed by Law Commission Chairman A P Shah. The crux of the issue was whether the government would waive MAT prior to April 2015. From the current financial year, MAT is anyway not applicable to foreign portfolio investors. It is expected the government will accept the committee’s suggestions and stop demanding MAT from FPIs for the period before 1 April.


Savings

7) What important trend in household financial savings during 2014-15 was seen in the country as disclosed by the Reserve Bank of India (RBI) on 1 September 2015? – Financial savings of households have successfully reversed a 5-year long dipping trend

Explanation: Financial savings stands for savings or investments done in deposits, stocks, insurance, mutual funds, pension funds and other such instruments. According to the preliminary estimates released by the RBI on 1 September, the household financial savings in the country have successfully broken a five year trend over which the share of financial savings was seen dipping. Household financial saving for 2014-15 placed at 7.5 % of India’s national income as against 7.3% in 2013-14. The gross domestic saving rate declined for the second consecutive year to 30% of national income. This largely reflected the reduction in the saving rate of households on account of a decline in physical assets as well as in valuables. On the other hand, household financial saving gained from returns turning attractive with the moderation in inflation as well as the pick-up in economic activity. An earlier RBI study had noted that households had to face persistently high inflation in the midst of a weakening outlook for employment and income growth, and their preference for inflation hedges in the form of gold and real estate led to a decline in financial savings.


8) Which private-sector bank on 26 August 2015 launched India’s first home loan backed by mortgage guarantee that will allow consumers to increase borrowing as well as the paying tenure? – ICICI Bank

Explanation: ICICI Bank launched country’s first-ever mortgage guarantee-backed home loan named “Extraa Home Loan”. This home loan product allows consumers to increase borrowing by 5-20% and the tenure up to 67 years of age. Typically, banks do not allow home loan tenures beyond 60 years of age. ICICI Bank is targeting the middle-aged salary customer, the first-time home loan borrower and the self-employed customer with this product. This loan scheme can help in meeting the shortfall in loan for a fee if there is a difference in the amount needed by customer and the amount sanctioned by the bank. Main benefit of this product will be that the customers can opt for higher loan amount or longer tenure while keeping the EMI same. Since the risk for the additional home loan would be borne by India Mortgage Guarantee Corporation (IMGC), it would not impact the bank’s books.


9) Who was appointed as the new Finance Secretary on 31 August 2015? – Ratan P. Watal

Explanation: Union Govt. on 31 August designated Revenue Secretary Ratan Watal as the new Finance Secretary. He is a 1978-batch IAS officer of the Andhra Pradesh cadre. On the other hand Shaktikanta Das took charge as the Secretary for Department of Economic Affairs after Rajiv Mehrishi on his last day in office was appointed Home Secretary for a two-year tenure. Financial Services Secretary Hasmukh Adhia was appointed as the new Revenue Secretary while Corporate Affairs Secretary Anjuly Chib Duggal took over from Adhia.


10) Global ratings agency Fitch, on 1 September 2015, downgraded which PSU bank’s Viability Rating by one notch to ‘bb’ on account of the growing risk to the bank’s capital position from mounting stock of stressed assets? – Punjab National Bank (PNB)

Explanation: PNB’s Viability Rating (VR) was downgraded by one notch to ‘bb’ to reflect the growing risk to the bank’s capital position from its mounting stock of stressed assets, which has risen at a faster rate than its capital replenishment. On the other hand, Fitch also warned IDBI Bank about vulnerability to a downgrade due to rise in the stressed asset ratio. Fitch affirmed the Long Term Issuer Default Rating (IDR) at “BBB-” for banks including State Bank of India (SBI), PNB, Canara Bank, IDBI Bank, ICICI Bank, Bank of Baroda and its subsidiary in New Zealand.


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