Indian Banking System

Recent Developments

RBI Prefers GDP over GVA Model

• The Reserve Bank has switched back to the gross domestic product (GDP)-based measure to offer its growth estimates from the gross value added (GVA) methodology, citing global best practices.
• Gross Value Added (GVA): It is a measure of total output and income in the economy (i.e. sector-specific picture like what is the growth in an area, industry or sector of an economy). It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
• Gross Domestic Product (GDP): It gives the economic output from the consumers’ side. It is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (difference between exports and imports).
• Difference: While GVA gives a picture of the state of economic activity from the ‘producers’ side or supply side’, the GDP gives the picture from the ‘consumers’ side or demand perspective’. Both measures need not match because of the difference in treatment of net taxes.

Amalgamation of RRBs

• The government has decided to start the consolidation process of Regional Rural Banks (RRBs) after a gap of 6 years and bring down the number of such entities to 38 from 56 now.
• Objectives: The amalgamation process is being done ostensibly to enable RRBs cut overheads, improve their capital and use technology, besides helping them draw better scale-efficiency, higher productivity, improved financial inclusion and greater credit flow to rural areas.

RBI Takes Steps to Ease Liquidity

The Reserve Bank of India (RBI) in October, 2018 incentivized bank lending to Non-Banking Financial Companies (NBFCs) by easing liquidity norms and increasing the ceiling for lending to a single NBFC until 31 December.

• The central bank has also announced that banks will be permitted to reckon Government Securities (G-Secs) held by them up to an amount equal to their incremental outstanding credit to NBFCs and HFCs, over and above the amount of credit to NBFCs and HFCs outstanding on their books, as Level 1 HQLA (high quality liquid asset).
• This has been permitted under FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) within the mandatory SLR (statutory liquidity ratio) requirement.
• This will be limited to 0.5% of the bank’s net demand and time liabilities (NDTL) or its total deposits.

Merger of Bank’s

• On September 17, 2018 the government announced plans to merge three public sector banks: Mumbai-based Dena Bank, Bengaluru’s Vijaya Bank, and Bank of Baroda (BoB) that has its head office in Vadodara, Gujarat. The merged entity, with total assets of over Rs 14 lakh crore ($190 billion), will be India’s third-largest lender behind the State Bank of India and HDFC Bank.
• In February, 2017 the Cabinet approved a proposal to merge the five subsidiaries of State Bank of India with the parent, kick-starting consolidation among public sector lenders.
• The merger will bring nearly a quarter of all outstanding loans in India’s banking sector to SBI’s books. The combined entity will have a mammoth network of nearly 23,000 branches, further increasing the dominance of the nation’s largest bank.

India Post Payments Bank Incorporated

The India Post Payments Bank Limited on August 17, 2016 received the Certificate of Incorporation from the Registrar of Companies, Ministry of Corporate Affairs under the Companies Act 2013.

• India Post Payments Bank Limited has become the first PSU under the Department of Posts.
• The incorporation of the IPPB Ltd. is a significant step forward as this also paves the way for the bank to begin hiring of banking professionals to set up the bank and begin its operations in 2017.
• The Department of Posts is expected to complete the roll out of its branches all over the country by September 2017. This could be the fastest roll out for a bank anywhere in the world.
• Coupled with the physical presence across 1.55 lakh post offices and the reach of “The Dakiya”, the India Post Payments Bank aims to become a powerful and effective vehicle of real financial inclusion in the country.