RBI and Bank of England Sign MoU for Cooperation on CCIL

Recently, the Reserve Bank of India (RBI) and the Bank of England (BoE) inked a Memorandum of Understanding (MoU) on Friday to enhance cooperation and information exchange pertaining to the Clearing Corporation of India Limited (CCIL).

Key Points

  • Framework for Regulatory Reliance: The MoU establishes a framework allowing the Bank of England to rely on the regulatory and supervisory activities of RBI, ensuring the safeguarding of the UK's financial stability.
  • Cross-Border Cooperation: The RBI emphasized the significance of cross-border cooperation for facilitating international clearing activities.
  • The MoU reflects the commitment of the Bank of England to respect the regulatory regimes of other authorities.
  • Assessment for Recognition: The agreement enables the Bank of England to assess CCIL's application for recognition as a third-country Central Counterparty (CCP). This recognition is crucial for UK-based banks to conduct transactions through CCIL.
  • Confirmation of Mutual Interests: The MoU reaffirms the shared interests of both authorities in enhancing cooperation in alignment with their respective laws and regulations.

Finance Ministry Directs State-Owned Banks to Strengthen Digital Systems

Recently, the Finance Ministry has urged state-owned banks to conduct a thorough review of their digital operations, prompted by the recent UCO Bank incident.

  • In response, banks have been advised to assess their cybersecurity measures and implement enhancements to fortify their systems.

Key Points

  • Cybersecurity Assessment: State-owned banks are instructed to scrutinize their systems and processes related to digital operations to ensure robust cybersecurity measures are in place.
  • Vigilance and Preparedness: Banks are advised to maintain a vigilant stance and prepare for potential future cyber threats, emphasizing the importance of proactive measures.
  • Sensitization by Authorities: The Finance Ministry and RBI have consistently sensitized banks about cybersecurity in light of the increasing digitization within the financial sector.
  • UCO Bank Incident: UCO Bank, based in Kolkata, reported an erroneous credit of Rs 820 crore to account holders via the Immediate Payment Service (IMPS). Technical issues during November 10-13 resulted in certain transactions crediting UCO Bank accounts without actual funds from other banks.
  • Recovery Efforts: The bank promptly blocked the recipients' accounts and has successfully recovered Rs 649 crore, equivalent to 79% of the erroneously credited amount.

Financial Action Task Force (FATF)

Recently, a Financial Action Task Force (FATF) team arrived in India to evaluate the implementation of the required legal framework against money-laundering and terrorist financing.

Key Points

  • The Financial Action Task Force (FATF) is an intergovernmental organization which leads global action to tackle money laundering, terrorist and proliferation financing.
  • FATF was established in 1989 by the G7 to examine and develop measures to combat money laundering. It originally included the G7 countries, the European Commission and eight other countries. In 2001, the FATF expanded its mandate to also combat terrorist financing.
  • FATF has 40 members including India. Indonesia has become a recent member of FATF.
  • It has the authority to issue warnings and sanctions against countries that fail to comply with its standards, such as suspension of membership and blacklisting.
  • FATF Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put on the Blacklist. These countries support terror funding and money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.
  • As of October 2023 North Korea,Iran and Myanmar are in the Blacklist.
  • FATF Grey List: Countries that are considered a safe haven for supporting terror funding and money laundering are put in the FATF Grey list. This inclusion serves as a warning to the country that it may enter the blacklist.
  • As of October 2023 there are 23 countries in the list including Türkiye, United Arab Emirates and South Africa.

NHAI Accepts First Insurance Surety Bond

Recently, State-owned National Highways Authority of India (NHAI) accepted first insurance surety bond for the monetization program of the upcoming bid of Toll Operate Transfer (TOT) Bundle 14 to boost liquidity and capacity of bidders.

  • It is the first time this innovative instrument (Insurance Surety Bond) is being utilized as a Bank Guarantee (BG) in the road infrastructure sector for monetization of bids.
  • NHAI has been working closely with Highway Operators Association of India (HOAI), SBI General Insurance and AON India Insurance to implement this initiative.

Key Points

  • These bonds can be defined in their simplest form as a written agreement to guarantee compliance, payment, or performance of an act.
  • These are instruments where insurance companies act as ‘Surety’and provide the financial guarantee that the contractor will fulfil its obligation as per the agreed terms.
  • Surety is a unique type of insurance because it involves a three-party agreement.
  • The three parties in a surety agreement are:
    1. Principal: The party that purchases the bond and undertakes an obligation to perform an act as promised.
    2. Surety: The insurance company or surety company that guarantees the obligation will be performed. If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained.
    3. Obligee: The party who requires and often receives the benefit of the surety For most surety bonds, the obligee is a local, state or federal government organisation.

IRDAI Forms Taskforce to Enhance Bancassurance Framework

Recently, the Insurance Regulatory and Development Authority of India (IRDAI) has established a taskforce aimed at reviewing the current bancassurance framework and enhancing its efficiency in response to complaints of policy mis-selling and forced selling.

Key Points

  • Underutilization of Bancassurance: IRDAI noted that despite the extensive branch networks of banks across India, their role as corporate agents contributed to only 5.93% of non-life premium and 17.44% of new business premium for life insurance in the 2022-23 fiscal year.
  • Additionally, banks have the option to establish a separate legal entity to distribute insurance products as insurance brokers but have not utilized this opportunity.
  • Enhancing Insurance Penetration: IRDAI seeks to leverage the extensive bank branch network to make insurance products accessible throughout the country.
  • This initiative aligns with the regulator's goal of ensuring insurance coverage for all by 2047.
  • Regulatory Stipulations and Market Conduct: The taskforce's primary focus is to recommend regulatory stipulations related to the market conduct requirements of bancassurance partners, particularly in response to the increasing complaints of policy mis-selling and forced selling by customers.
  • Efficiency and International Best Practices: In addition to addressing mis-selling, the committee will evaluate the effectiveness of existing bancassurance models and propose measures to enhance their efficiency.
  • It will also examine international best practices and suggest suitable modifications that can be incorporated into domestic regulations.
  • Recommendations Deadline: The taskforce is expected to submit its recommendations within two months of the directive.


It means selling insurance product through banks. Banks and insurance company come up in a partnership wherein the bank sells the tied insurance company's insurance products to its clients.

RBI Progresses on CBDC Pilot and Public Tech Platform for Credit

Recently, the Reserve Bank of India (RBI) has reported advancements in its Central Bank Digital Currency (CBDC) pilot, with a focus on wholesale and retail CBDC usage.

  • Additionally, the public tech platform for credit, launched by the RBI, has seen significant lender response.

Key Points

  • Wholesale and Retail CBDC Pilot Progress: The RBI's wholesale CBDC pilot commenced in November 2022, primarily for settlements in the secondary government securities market.
  • Retail CBDC pilot, designed for peer-to-peer (P2P) and peer-to-merchant (P2M) transactions, began in December 2022.
  • The RBI is working on enhancing the infrastructure to reach the target of 10 lakh (1 million) transactions per day by December 2023.
  • The central bank is focused on interoperability and other crucial aspects to boost transaction volumes, with expectations of significant growth from the current rate of 18,000-20,000 daily transactions.
  • Objective of CBDC Pilot: The primary goal of the pilot is to study user behavioral patterns, influencing design choices, policy decisions, and incentives.
  • This aligns with the objective of facilitating financial transactions while maintaining system integrity.
  • Public Tech Platform for Credit: The RBI launched a public tech platform for frictionless credit on August 17, 2023.
  • The platform has garnered positive responses from lenders and is expected to enhance cost optimization and speed up loan sanction and disbursement processes.
  • Fintech Regulations and Self-Regulatory Organizations (SROs): While fintech regulations are expected to take time to develop, SRO norms are anticipated to be introduced within the year.

IRDAI Issues Guidelines for Women-Centric Distribution Channel 'Bima Vahaks'

On 9th October, 2023, the Insurance Regulatory and Development Authority of India (IRDAI) released guidelines for 'Bima Vahaks,' a dedicated distribution channel focused on women, with the aim of improving insurance inclusion, especially in rural areas.

Key Points

  • Insurance for All Goal: Bima Vahaks are part of IRDAI's strategy to achieve the 'Insurance for All' goal.
  • They are expected to play a vital role in promoting 'Bima Vistaar,' affordable and comprehensive insurance coverage.
  • Effective Date: The guidelines will come into effect when 'Bima Vistaar,' a comprehensive insurance product, is launched in the future.
  • Role of Bima Vahaks: Both individual and corporate Bima Vahaks will be equipped with handheld electronic communication devices integrated into insurers' electronic platforms.
  • They will sell and service 'Bima Vistaar' and other specified insurance products.
  • Bima Vahaks are not allowed to collect fees or charges from policyholders, except for insurance premiums.
  • Operational Standards: The Life Insurance Council and General Insurance Council will jointly establish operational and conduct standards for Bima Vahaks.
  • These standards will cover educational requirements, commission structures, training, appointment terms, database maintenance, data confidentiality, and compliance.
  • Coverage Expansion: Insurers will need to align with the standards set by the councils and have a Board-approved policy on Bima Vahaks.
  • They must engage individual and corporate Bima Vahaks with a focus on gradually covering every Gram Panchayat (village administrative unit).
  • Bima Vahaks should be deployed in each Gram Panchayat by December 31, 2024.
  • Outreach and Responsibilities: Bima Vahaks will contribute to raising insurance awareness in villages.
  • Their responsibilities may include assisting with proposal forms, facilitating KYC processes, issuing insurance policies, providing support for policy and claims-related services, and aiding in claims settlements.

Women & Financial Inclusion Linkage

Building Financial Resilience

  • Women often serve as primary decision-makers for spending and savings in low-income households.
  • Their commitment and discipline in saving are typically higher than that of men.
  • Research indicates that women, when given the opportunity, save and thereby build financial resilience.
  • Targeting women economically benefits banks and contributes to social welfare.

Increasing Social Capital

  • Women's engagement with financial institutions and their access to work and credit can enhance their social capital.
  • Empowering 230 million women Jan Dhan customers financially has the potential to uplift 920 million lives within average-sized families.

Women’s Empowerment and Poverty Reduction

  • Providing low-income women with effective and affordable financial tools for saving, borrowing, payments, and risk management is crucial for women's empowerment and poverty reduction.

Gender Gap in Financial Inclusion

  • According to the 2017 Global Findex database, 83% of males above 15 years of age in India held accounts at financial institutions in 2017, compared to 77% of females.
  • Socio-economic factors, such as greater availability of mobile handsets and internet data among men, contribute to this gap.

Gender-Based Barriers to Financial Inclusion

  • Demand Side Barriers:
    • Lack of bargaining power within the household.
    • Reduced mobility due to time constraints or social norms.
    • Account opening requirements disadvantaging women.
    • Concentration in lower-paying economic activities.
    • Absence of gender-specific policies and practices in product design and marketing.
    • Competing demands on women's time related to unpaid domestic work.
  • Supply Side Barriers:
    • Inappropriate distribution channels.
    • Legal barriers to owning and inheriting property and other collateral.
    • Lack of assets for collateral.
    • Lower rates of digital inclusion.
    • Absence of gender-inclusive credit reporting systems.
  • Legal & Regulatory Barriers:
    • Legal and regulatory obstacles related to property ownership and inheritance.
    • Lack of gender-inclusive policies and practices.
    • Challenges in obtaining formal identification.

Schemes for Financial Inclusion of Women in India

  • Pradhan Mantri Jan Dhan Yojana (PMJDY): Launched in 2014, this is one of the largest financial inclusion programs globally. It aims to provide universal access to banking facilities with a special focus on women. Under this scheme, women can open zero-balance savings accounts and get access to various financial services.
  • Stand-Up India: This scheme, launched in 2016, promotes entrepreneurship among women and marginalized communities by providing loans for starting greenfield enterprises in manufacturing, trading, or the services sector.
  • MUDRA Yojana: Under the Micro Units Development and Refinance Agency (MUDRA) Yojana, women can avail loans up to a certain limit for starting or expanding small businesses. MUDRA offers three categories of loans: Shishu (up to Rs. 50,000), Kishore (Rs. 50,000 to Rs. 5 lakh), and Tarun (Rs. 5 lakh to Rs. 10 lakh).
  • Beti Bachao, Beti Padhao (BBBP): While not directly a financial inclusion scheme, BBBP promotes the importance of educating and empowering girls, which indirectly contributes to their financial inclusion and economic empowerment.
  • Sukanya Samriddhi Yojana: This savings scheme, launched under the "Beti Bachao, Beti Padhao" campaign, allows parents to save money for the future education and marriage expenses of their girl child. It offers tax benefits and an attractive interest rate.
  • Mahila e-Haat: It is an online marketing platform for women entrepreneurs, where they can showcase their products and reach a wider audience. This initiative encourages women's economic empowerment and financial inclusion.
  • National Rural Livelihoods Mission (NRLM): NRLM, also known as Aajeevika, aims to mobilize women into self-help groups (SHGs) and provides them with access to micro-credit and livelihood opportunities.
  • Stree Shakti Package: Offered by various banks, this package includes benefits such as lower interest rates on loans, special credit facilities, and fee concessions for women entrepreneurs.
  • Rashtriya Mahila Kosh (RMK): RMK provides micro-credit to poor women for income-generating activities. It focuses on promoting self-employment and entrepreneurship among women.
  • STEP (Support to Training and Employment Program for Women): This program by the Ministry of Women and Child Development aims to provide skills training and employment opportunities to women, thus enhancing their financial independence.

RBI Proposes Issuer-Bank Level Card-on-File Tokenisation (CoFT) Facility

Recently, Reserve Bank of India (RBI) Governor has put forth a proposal to introduce card-on-file tokenisation (CoFT) at the issuer-bank level, emphasizing the growing acceptance and advantages of card data tokenisation.

Key Points

  • Introduction of CoFT Facility: Governor announced the proposal for the introduction of card-on-file tokenisation (CoFT) at the issuer-bank level.
  • RBI's CoFT Channels: RBI had previously introduced new channels for card-on-file tokenisation in September 2021, with implementation beginning on October 1, 2022.
  • These channels allow credit/debit card users to generate card tokens on their bank's website or app, eliminating the need to do so on e-commerce platforms during online shopping.
  • Data Security Benefits: The proposal aims to address data security concerns related to token generation on e-commerce or merchant portals.
  • It offers consumers greater control over managing their card tokens.
  • RBI's Card Tokenisation Impact: Since the introduction of Card-on-File Tokenisation (CoFT), over 56 crore tokens have reportedly been created, facilitating transactions worth over Rs 5 lakh crore.
  • Streamlined Token Creation: Previously, cardholders had to generate different tokens through each merchant's application or website, which required time and effort.
  • With the new approach, tokens will be created at the issuer bank level and linked to users' existing accounts with various e-commerce applications.
  • This eliminates the need for duplication of the tokenisation process at each app or website, enhancing transaction security and reducing card-data-related fraud.
  • Understanding Tokenisation: Tokenisation replaces a debit or credit card's 16-digit number with a unique token specific to the user's card and a particular merchant for a single transaction.
  • This token conceals the card's actual details, safeguarding it in case of data leaks from merchant websites. Tokens contain no personal information and change with each use.
  • Customers can choose whether to opt for card tokenisation, applicable to both debit and credit cards, for future online purchases.

RBI's Consideration of Open Market Operation (OMO) Sale Shakes Bond Market

On 7th October, 2023, the Reserve Bank of India (RBI) took the bond market by surprise with its recent announcement on considering an Open Market Operation (OMO) sale of government securities to manage liquidity.

Key Points

  • Market Surprise: Although no specific schedule was provided, the market now anticipates that OMOs can be announced at any time.
  • This uncertainty is due to the understanding that liquidity conditions might tighten over the October-December quarter, making it crucial to address the risk of additional supply near-term.
  • Background and Inflation: The retail inflation rate stood at 6.83% in August, and the market was not expecting such a measure from the RBI to withdraw excess liquidity, signaling a somewhat hawkish approach to monetary policy.
  • The forthcoming festival season is expected to lead to cash withdrawals from the banking system, further contributing to liquidity tightening.
  • Open Market Operation (OMO): OMOs are used by the RBI to adjust rupee liquidity conditions on a durable basis. When there is excess liquidity, the RBI sells government securities to absorb rupee liquidity.
  • Conversely, when liquidity is tight, the central bank purchases securities, injecting liquidity into the market.
  • OMOs are employed to manage inflation and money supply. However, when liquidity is absorbed, it can lead to higher bond yields.
  • RBI's Liquidity Management: The RBI has indicated intent for "active liquidity management" in the future.
  • This reflects the central bank's focus on both inflation risks and financial stability.
  • The RBI aims to anchor inflation at 4%, emphasizing a proactive approach to achieve this target.

Singapore, France and Switzerland Successfully Test Cross-Border CBDC Trading

Recently, the central banks of Singapore, France and Switzerland, in partnership with the Bank for International Settlements (BIS), have achieved a significant milestone by conducting successful trials of cross-border trading and settlement involving wholesale central bank digital currencies (wCBDCs).

Key Points:

  • Decentralized Finance Technology Utilized: Innovative decentralized finance (DeFi) technology concepts were employed in the process, leveraging a public blockchain.
  • Proof of Concept for Cross-Border Trading: The project's proof of concept effectively examined cross-border trading and settlement involving hypothetical euro, Singapore dollar, and Swiss franc wholesale CBDCs, engaging simulated financial institutions.
  • The protocols developed through this project are expected to facilitate cross-border trading and settlement among financial institutions in the future.
  • Experimental Nature of Project Mariana: Project Mariana is purely experimental and should not be interpreted as an indication that the partner central banks intend to issue wCBDCs or endorse specific technological solutions or DeFi.
  • CBDC Launch in India: In a separate development, the Reserve Bank of India initiated the launch of the digital rupee, known as Central Bank Digital Currency (CBDC), on a pilot basis on December 1, 2022, offering an electronic form of the sovereign currency.

India's Current Account Deficit Narrows to $9.2 Billion in 2023-24 Q1

India's current account deficit (CAD) in the first quarter of 2023-24 has decreased to $9.2 billion, equivalent to 1.1% of GDP, as recently reported by the Reserve Bank of India (RBI).

Key Points

  • CAD Overview: The current account deficit (CAD) occurs when the value of imports of goods, services, and investment incomes exceeds the value of exports.
  • In Q1 2023-24, the CAD narrowed to $9.2 billion, although it remained higher than the $1.3 billion recorded in the preceding quarter.
  • Factors Contributing to CAD Change: The quarter-on-quarter widening of CAD was primarily attributed to an increased trade deficit, coupled with a decrease in net services surplus and private transfer receipts.
  • Trade Deficit Impact: The lower trade deficit of $56.6 billion, compared to $63 billion in the previous year, significantly contributed to the improvement in CAD.
  • This improvement was attributed to declining global commodity prices in the current fiscal year.
  • Future Trends and Projections: Economists anticipate potential changes in CAD trends due to factors such as fluctuating crude oil prices, foreign portfolio investments (FPI) inflows, external commercial borrowings (ECBs), and foreign direct investments (FDI).

RBI Mandates Disclosure of Borrowers for Increased Transparency

Recently, the Reserve Bank of India (RBI) has instructed regulated entities, including commercial banks and Non-Banking Finance Companies (NBFCs), to publicly display information about borrowers whose secured assets have been seized under the SARFAESI Act, 2002, following a prescribed format.

Key Points

  • Enhancing Transparency: The RBI has taken steps to improve transparency in the lending sector by requiring regulated entities (REs) to share specific borrower information.
  • Display on Websites: REs are mandated to upload this information on their websites, adhering to the prescribed format.
  • Timely Disclosure: The first list of borrowers in this category should be accessible on the websites of REs within six months from the date of the circular's issuance.
  • Regular Updates: REs must consistently update this list on a monthly basis to reflect the latest developments and changes.
  • Compliance with RBI Directive: The circular issued by the RBI serves as a directive to REs, ensuring they follow these disclosure requirements to promote transparency and accountability in the lending industry.

New Rules for Valuation of Investments in Startups

The Income Tax department has recently announced rules governing the valuation of equity and compulsorily convertible preference shares (CCPS) issued by startups to both resident and non-resident investors.

Key Points

  • Amendments to Rule 11UA of I-T Rules: Rule 11UA of the Indian Income Tax Act has been amended, coming into effect on September 25.
  • Under these changes, the Central Board of Direct Taxes (CBDT) allows the valuation of CCPS to be based on the fair market value of unquoted equity shares.
  • Retention of Valuation Methods: The amended rules retain five valuation methods proposed in the draft rules for consideration received from non-resident investors, including Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method, and Replacement Cost Method.
  • Positive Changes and Flexibility: The changes simplify the valuation date consideration, incentivize venture capital investments, facilitate investments from notified entities, and provide clarity on CCPS.
  • Tolerance thresholds for minor valuation discrepancies enhance efficiency and fairness in tax assessments.

RBI Proposes Timely Classification of "Wilful Defaulters" Amidst Norm Revisions

The Reserve Bank of India (RBI) has recently introduced a proposal suggesting that borrowers be categorized as "wilful defaulters" within six months of their accounts being designated as non-performing assets (NPAs).

Key Points

  • Review and Consideration: The RBI's revision of norms follows a comprehensive review of instructions and a consideration of Supreme Court and High Court judgments, in addition to feedback and suggestions received from banks and stakeholders.
  • Defining Wilful Defaulters: The RBI identifies wilful defaulters as individuals who possess the means to repay a bank's dues but deliberately fail to do so or divert bank funds.
  • While a large defaulter is one with an outstanding amount of Rs 1 crore or more, classified as doubtful or loss, a wilful defaulter refers to a borrower or guarantor who commits wilful default with an outstanding amount of Rs 25 lakh or more.
  • Timely Classification: The proposed norms dictate that lenders examine the "wilful default" aspect in all accounts with outstanding amounts of Rs 25 lakh and above, or as notified by the RBI.
  • The classification process to label a borrower as a wilful defaulter must be completed within six months of the account being declared an NPA.
  • Identification Committee: To ascertain evidence of wilful default, an Identification Committee will be established by lenders.
  • Publication of Defaulters' Photographs: In cases where lenders intend to publish photographs of wilful defaulters, they must formulate a non-discriminatory, board-approved policy outlining the criteria for publishing photographs of individuals classified as wilful defaulters.
  • Restrictions on Credit Facility: The RBI also proposes that no additional credit facility should be extended by any lender to a wilful defaulter or any entity associated with a wilful defaulter.
  • Exclusion from Credit Restructuring: As per the proposed norms, wilful defaulters will not be eligible for credit facility restructuring.

SEBI Amends Rules for Listing Non-Convertible Debt Securities Issuance

The Securities and Exchange Board of India (SEBI) has recently made amendments to regulations, mandating that listed entities with outstanding non-convertible debt securities must list subsequent issuances of such securities on stock exchanges.

This regulatory change will be effective from January 1, 2024, according to a notification published by SEBI.

Key Points

  • Enhancing Transparency: SEBI's move aims to enhance transparency in the price discovery process for non-convertible debt securities.
  • It also seeks to provide investors and the market with improved disclosures, thereby reducing confusion related to International Securities Identification Numbers (ISINs) and the potential mis-selling of unlisted bonds.
  • Exemptions from Requirement: These exemptions include debt securities subject to capital gains tax under Section 54EC of the Income Tax Act, 1961; Non-Convertible Debentures (NCDs) where parties have agreed to hold the securities until maturity, ensuring they remain unencumbered; and NCDs issued in compliance with orders from courts, tribunals, or regulatory requirements set by financial sector regulators, such as SEBI, RBI, IRDA, PFRDA, or IBBI.
  • Lock-in for Investors: SEBI clarified that securities issued by listed entities will be locked in and held by investors until maturity, thus encumbering them.

IRDAI Forms Steering Committee for Bima Sugam

Recently, the Insurance Regulatory and Development Authority of India (IRDAI) has established a steering committee to oversee the development of its ambitious Bima Sugam platform, signalling the forthcoming appointment of a project consultant through an issued Request for Proposal (RFP).

Key Points

  • Bima Sugam Platform Overview: The Bima Sugam platform, once implemented, will enable individuals to purchase life, health, motor, or property insurance policies online.
  • It aims to provide a centralized hub for insurance companies, agents, brokers, banks, and aggregators, streamlining access to insurance-related services.
  • Centralized Database for Queries: Bima Sugam will serve as a centralized database to assist consumers with various insurance-related inquiries.
  • Revised Implementation Deadline: The platform is described as a "game-changing" initiative and will serve as a comprehensive marketplace for insurance-related activities, including policy purchase, claims processing, insurance advice, and grievance resolution.
  • Extensive Range of Insurance Offerings: The platform aims to support personal and commercial/business insurance requirements, offering a wide range of insurance products.
  • End-to-End Digital Onboarding: The Bima Sugam platform is expected to provide a seamless end-to-end digital onboarding process for all insurance products, eliminating manual interventions.

US Tops List of Foreign Direct Investors in India in FY23

Recently, a census conducted by the Reserve Bank of India (RBI) revealed that the United States emerged as the leading source of foreign direct investment (FDI) in India during FY23.

Key Points

  • US Leads FDI Inflow: According to RBI data, the US brought in Rs 8.58 lakh crore ($103 billion) in FDI in FY23, representing 17.2% of the share. This marked an increase from the previous fiscal year's Rs 8.05 lakh crore.
  • Other Major Contributors: FDI from Mauritius was Rs 7.43 lakh crore, accounting for a share of 14.9%, while the UK contributed Rs 7.08 lakh crore, making up 14.2% of the total.
  • Data Source: The census data was based on foreign liabilities and assets (FLA), encompassing cross-border liabilities and assets of various entities, including companies, limited liability partnerships, alternative investment funds, and partnership firms, with inward/outward direct investment (DI).
  • Outward Direct Investment (ODI): Singapore, the US, the UK, and the Netherlands were among the top destinations for ODI by Indian entities, collectively receiving 60% of the Rs 9.1 lakh crore invested by Indian firms in FY23. Total ODI by Indian firms increased by 19.46% to Rs 9.11 lakh crore ($109 billion) in FY23.
  • Market Value Growth: The census highlighted a 6.9% increase in the market value of FDI in India in FY23, primarily attributed to the rise in FDI in unlisted companies.
  • Sector-wise Attraction: The manufacturing sector continued to attract the largest share of FDI equity, both at market value and face value.
  • In the services sector, "Information & Communication" and "financial & insurance activities" were the primary recipients of FDI.
  • Ownership: Non-financial companies retained the majority of FDI equity at face value, with the market value of FDI in unlisted firms surpassing that in listed companies.

NPCI Introduces Innovative Payment Options on UPI Platform

On 6th Sept, the National Payments Corporation of India (NPCI) has unveiled a range of new payment features on the United Payments Interface (UPI) platform, including conversational transactions.

Key Points:

  • Inclusive Digital Ecosystem: The newly introduced services, including credit lines on UPI, UPI LITE X, Tap and Pay, Hello! UPI, and conversational bill payments, are designed to foster an inclusive, robust, and sustainable digital payments environment.
  • BillPay Connect for Bill Payments: Bharat BillPay has introduced a nationalized bill payment number across India, allowing customers to conveniently fetch and pay their bills by simply sending a 'Hi' on messaging apps.
  • Voice-Assisted Bill Payments: BillPay Connect offers a voice-assisted bill payment feature. Users can retrieve and settle bills through voice commands on their smart home devices, receiving instant voice confirmation.
  • Credit Line on UPI: NPCI has launched a credit line on UPI to broaden access to credit and promote financial inclusion and innovation.
  • This feature facilitates pre-sanctioned credit lines from banks through UPI, simplifying customer access to credit and promoting a streamlined digital banking ecosystem.
  • Key Features of Credit Line on UPI: The credit line on UPI includes several essential features, such as linking pre-sanctioned credit lines, developing digital credit products, offering interest-free credit periods, defining schedule of charges, enabling customer engagement channels for credit sanction requests, and allowing the linking of various pre-sanctioned credit lines via UPI-enabled apps for transactions.
  • Interoperability and Offline Transactions: To ensure seamless interoperability, all UPI apps, including those from banks and third-party providers, will be empowered to discover and link credit lines on UPI.

Single QR Code for Digital Rupee Payments

Recently, banks in India have introduced interoperability between Unified Payments Interface (UPI) QR codes and central bank digital currency (CBDC) applications, enabling users of the retail digital rupee to make transactions by scanning any UPI QR code at merchant outlets.

This integration simplifies the process of using digital rupees for everyday transactions.

Key Points:

  • Definition: Interoperability is the technical compatibility that allows a payment system to work seamlessly with other payment systems, as defined by the Reserve Bank of India (RBI).
  • Benefits: Interoperability facilitates payment transactions across systems without requiring users to engage with multiple platforms. It enhances adoption, coexistence, innovation, and efficiency for users.
  • Integration: The interoperability of UPI and CBDC means that all UPI QR codes are compatible with CBDC applications.
  • Previous Process: Initially, retail digital rupee users needed to scan a specific QR code for transactions. Now, they can use a single QR code for payments.

Benefits to Merchants

  • Seamless Transactions: UPI and CBDC interoperability ensures smooth transactions between customers and merchants without the need to switch between multiple digital platforms.
  • Daily Needs Payments: Users can make payments for daily necessities like groceries and medicines by scanning any UPI QR code at merchant outlets.
  • Merchant Convenience: Merchants do not need a separate QR code to accept digital rupee payments; they can accept CBDC payments using their existing QR code.

Increasing CBDC Adoption

  • Current UPI Usage: UPI is a widely used payment method in India, with over 70 mobile apps and more than 50 million merchants accepting UPI payments.
  • Retail Digital Rupee Adoption: In July, RBI Deputy Governor mentioned that there were 1.3 million customers and 0.3 million merchants using the retail digital rupee.
  • Game Changer: The integration of CBDC with UPI is expected to boost the acceptance and use of digital currencies in everyday transactions, making it a game changer for the digital currency ecosystem.

What is a QR Code?

  • Description: A QR code is a pattern of black squares on a white background, readable by imaging devices like cameras. It contains information related to the item it represents.
  • Contactless Payments: QR codes enable contactless payments, allowing businesses to accept payments directly into their bank accounts.

Digital Rupee Overview

  • The digital rupee represents a form of currency similar to traditional banknotes but exists solely in virtual form, lacking physical tangible characteristics.
  • Its primary purpose is to enhance the efficiency, cost-effectiveness, and speed of the payment system by facilitating seamless digital transactions.
  • Users can make direct payments using digital rupees, reducing transaction costs and streamlining electronic transactions.

Central Bank Digital Currency (CBDC) Definition

  • The Reserve Bank of India (RBI) defines CBDC as a digital representation of legal tender issued by a central bank. It holds the same value as fiat currency and can be exchanged on a one-to-one basis with physical currency.
  • Transactions involving CBDC are executed using blockchain-backed wallets, ensuring the finality of payments and minimizing settlement risk.
  • CBDC is freely convertible to physical currency, allowing the exchange of digital currency for cash, akin to paper notes.
  • Unlike UPI (Unified Payments Interface), e-rupees transactions do not necessitate a bank account.

Regulation and Decentralization

  • The e-Rupee, unlike cryptocurrencies, will have legal status and will not operate in a decentralized manner. It will be subject to regulatory oversight by the RBI.
  • On the central bank's balance sheet, the digital rupee will be recorded as a liability under the category of currency in circulation.
  • The digital rupee system will complement existing financial transaction methods, providing users with an additional payment alternative.

Benefits of Digital Rupee

  • Strengthening India's Digital Economy: The RBI anticipates that the digital rupee will enhance India's digital economy, foster financial inclusion, and improve the efficiency of monetary and payment systems.
  • Cost Reduction: By minimizing the need for physical cash management, the digital rupee will lower associated costs. It is expected to streamline cross-border transactions, simplifying bank cash management and operations.
  • Sustainability: The digital currency's virtual nature eliminates physical damage and loss risks, offering an unlimited lifeline. Additionally, it helps mitigate the volatility associated with cryptocurrencies like Bitcoin.
  • Environmental Impact: Reduced reliance on paper currency translates to lower printing, distribution, and storage costs. The e-rupee can contribute significantly to environmental conservation by advancing a cashless economy.

India's First UPI-ATM, "Hitachi Money Spot UPI ATM"

Recently, Hitachi Payment Services, a subsidiary of Japan's Hitachi Ltd, unveiled India's inaugural UPI-ATM, called the Hitachi Money Spot UPI ATM, in collaboration with the National Payments Corporation of India (NPCI).

  • UPI-ATM Functionality: The UPI-ATM enables cash withdrawals from multiple accounts using the United Payments Interface (UPI) app.
  • Non-Banking Entity Operation: White Label ATMs (WLAs), like the Hitachi Money Spot UPI ATM, are operated by non-banking entities.
  • Enhanced Access to Banking Services: The UPI-ATM aims to boost financial inclusion by offering convenient access to banking services in regions with limited traditional banking infrastructure and card usage.
  • NPCI's Perspective: NPCI stated that the UPI ATM integration into traditional ATMs represents a significant advancement in banking services, providing quick cash access even in remote areas without physical cards.
  • Unique Offering by Hitachi Payment Services: Hitachi Payment Services is the sole White Label ATM operator offering cash deposit services, available at 3,000 locations in India.

CVC Reconstitutes Advisory Board on Banking and Financial Frauds

Recently, the Central Vigilance Commission (CVC) took steps to reconstitute the advisory board responsible for conducting preliminary examinations of bank frauds, before passing on recommendations to investigative agencies like the Central Bureau of Investigation (CBI).

Key Points:

  • Reconstitution of ABBFF: The reconstituted Advisory Board on Banking and Financial Frauds (ABBFF) will now be led by Suresh N Patel, former Central Vigilance Commissioner.
  • Alongside the Chairman, there are four Members, all serving a two-year tenure starting from August 21, as stated in the CVC's official order.
  • Mandatory Referral to ABBFF: All matters of fraud involving Rs. 3 crore and above must be referred to the advisory board for advice by public sector banks, public sector insurance companies, and public sector financial institutions.
  • This is to be done before initiating criminal investigation, and the advice provided by ABBFF should be considered by the competent authority.
  • Additional Referral Authority: CVC or CBI can also seek advice from ABBFF for any case or technical matter related to fraud.
  • Frauds Analysis and Policy Input: ABBFF is empowered to conduct periodic analysis of frauds within the financial system and provide inputs for policy formulation regarding frauds to RBI and CVC.
  • Location and Timelines: Headquartered in New Delhi, ABBFF is expected to provide requested advice within a month of receiving the initial reference from the Ministry/Department/CVC or the investigation agency, including the Delhi Special Police Establishment.
  • Sunset Clause Not Implemented: CVC did not implement the Indian Banks Association's (IBA) suggestion of a sunset clause, which would have limited action against bankers for credit decisions after a certain period.

RBI Revises Guidelines for Infrastructure Debt Funds (IDF-NBFCs)

On 18th August, 2023, the Reserve Bank of India (RBI) introduced new requirements for Infrastructure Debt Fund-NBFCs (IDF-NBFCs), including a minimum net owned fund (NOF) of Rs 300 crore and a capital-to-risk weighted assets ratio (CRAR) of at least 15%, with a minimum Tier 1 capital of 10%.

Key Points

  • New Requirements for IDF-NBFCs: RBI has issued revised guidelines for Infrastructure Debt Funds - Non-Banking Financial Companies (IDF-NBFCs).
  • IDF-NBFCs are now required to maintain a minimum Net Owned Fund of Rs 300 crore and a CRAR of at least 15%, with a minimum Tier 1 capital of 10%.
  • Definition of IDF-NBFC Revised: The revised definition of an IDF-NBFC specifies that it is a non-deposit-taking NBFC authorized to refinance infrastructure projects that have completed at least one year of satisfactory commercial operations.
  • Additionally, IDF-NBFCs can directly finance toll-operate-transfer (TOT) projects.
  • Fundraising and ALM: IDF-NBFCs are permitted to raise funds through rupee or dollar-denominated bonds with a minimum maturity of five years.
  • They can also use shorter tenor bonds and commercial papers (CPs) up to 10% of their total outstanding borrowings for better asset-liability management (ALM).
  • External commercial borrowings (ECBs) with a minimum tenure of five years, not sourced from foreign branches of Indian banks, can also be utilized.
  • Exposure Limits and Risk Weights: IDF-NBFCs are subject to exposure limits, allowing up to 30% of their Tier 1 capital for a single borrower or party and up to 50% for a single group of borrowers or parties.
  • Changes in Sponsorship Requirements: The requirement for sponsorship of IDF-NBFCs by banks or NBFC-Infrastructure Finance Companies (NBFC-IFCs) has been removed.
  • The need for a tripartite agreement with concessionaires and project authorities for investments in Public-Private Partnership (PPP) infrastructure projects is now optional.
  • Eligibility Criteria for NBFCs to Sponsor IDF-MFs: RBI has outlined eligibility criteria for NBFCs to sponsor Infrastructure Debt Funds-Mutual Funds (IDF-MFs).
  • These criteria include factors such as net owned funds, net NPAs, years of existence, profitability, and other supervisory concerns.

RBI Offers Flexibility in Personal Loan Interest Rate Reset

On 18th August, The Reserve Bank of India (RBI) introduced a significant policy shift by directing all regulated entities, including banks and NBFCs, to provide personal loan borrowers with the option to switch from floating interest rates to fixed rates during interest rate resets.

Key Points:

  • Borrower-Centric Regulations: This initiative, outlined in a circular titled 'Reset of floating interest rate on equated monthly instalments (EMI) based personal loans,' aims to empower borrowers with greater control over their loan structures.
  • Change of Tenure: Additionally, borrowers can opt for EMI enhancements or tenor elongation, further customizing their loan experience.
  • Switch to Fixed Rates: At interest rate resets, borrowers now have the choice to switch to fixed interest rates in accordance with the lender's board-approved policy.
  • Disclosure of Charges: Lenders are mandated to disclose all applicable charges for switching loans from floating to fixed rates, as well as any service charges or administrative costs.
  • These details must be presented in the sanction letter and communicated when changes in charges occur.
  • Enhanced Transparency: To enhance transparency, lenders are required to provide borrowers with quarterly statements through appropriate channels.
  • These statements will include information on principal and interest payments, EMI amounts, remaining EMIs, and annualized interest rates.
  • Implementation Deadline: The RBI has mandated that these instructions must be extended to both existing and new loans by December 31, 2023.
  • Rationale behind RBI's Move: The RBI's decision to implement these regulations stems from supervisory reviews and feedback from the public, which highlighted instances of lenders significantly elongating tenors for floating rate loans without proper consent.

RBI Launches UDGAM Portal for Locating Unclaimed Deposits

On 17th August, 2023, the Reserve Bank of India (RBI) introduced the UDGAM (Unclaimed Deposits – Gateway to Access inforMation) portal, simplifying the process for citizens to locate their unclaimed deposits across multiple banks.

Key Points:

  • Addressing the Issue of Unclaimed Deposits: Minister of State for Finance disclosed that as of February 2023, unclaimed deposits worth Rs. 35,012 crores from public sector banks (PSBs), inactive for a decade or more, have been transferred to RBI.
  • UDGAM Portal Overview: The UDGAM portal, conceptualized by RBI, aims to create an accessible way for the public to identify and recover their unclaimed deposits from various banks.
  • Response to the Rise in Unclaimed Deposits: This initiative is a response to the concerning increase in unclaimed deposits, accompanied by RBI's efforts to raise awareness through public campaigns.
  • How the UDGAM Portal Functions: The portal empowers users to identify their own unclaimed deposit accounts or those of their parents that may have been neglected and forgotten. It allows users to reclaim the funds or reactivate dormant deposit accounts with their respective banks.
  • Collaborative Development and Initial Bank Inclusions: The portal's development has been a collaborative effort involving Reserve Bank Information Technology Pvt Ltd (ReBIT), Indian Financial Technology & Allied Services (IFTAS), and participating banks. Currently, the UDGAM portal covers seven banks, including State Bank of India, Punjab National Bank, South Indian Bank, Central Bank of India, Dhanlaxmi Bank, DBS Bank India, and CitiBank N.A.
  • Future Expansion and Accessibility: The UDGAM portal's accessibility is set to expand further, with additional banks to be included in the search facility by October 15, 2023.

"Vivad se Vishwas 2" Scheme

On 2nd August, 2023, the Ministry of Finance's Department of Expenditure introduced the "Vivad se Vishwas 2" scheme, a strategic move to accelerate the resolution of contractual conflicts involving government entities.

Key Points

  • Scope and Coverage: The scheme's scope extends to disputes arising until September 30, 2022, emphasizing its applicability to a wide range of cases involving government entities.
  • Graded Settlement Approach: The scheme embraces a graded approach to settlement, considering the degree of dispute pendency.
  • Applicability: The scheme's ambit encompasses all domestic contractual disputes involving either the Government of India or organizations operating under its jurisdiction.
  • Settlement Amounts: Under the scheme, contractors dealing with court awards issued on or before April 30, 2023, could receive settlement amounts up to 85% of the net award upheld by the court.
  • Similarly, for arbitral awards passed on or before January 31, 2023, a settlement offer of up to 65% of the net awarded sum is extended.
  • Streamlined Process: To facilitate a transparent and efficient process, the government e-marketplace (GeM) has launched a dedicated web page for the scheme's implementation.
  • Eligible claims will undergo processing solely through the GeM platform, ensuring a streamlined resolution process.
  • Enhancing Dispute Resolution: The scheme is designed to provide a significant boost to the timely settlement of contractual disputes between the government and government undertakings.

Centre Exempts Regional Rural Banks from CCI's Merger Control Regime

In a move perceived as a prelude to the next round of consolidation among regional rural banks (RRBs), the Centre has exempted RRBs from the purview of Competition Commission of India's (CCI) merger control regime.

This exemption allows RRBs to proceed with mergers without prior scrutiny and approval from CCI for a period of five years, paving the way for smooth consolidation within the sector.

Key Points:

  • Tenure of exemption: The exemption will be available for five years.
  • Facilitating RRB Mergers: This move enables RRBs to merge without prior scrutiny and approval from CCI, which examines whether mergers will affect competition or consumer interests.
  • Status of RRBs: Currently, there are around 43 RRBs in India, regulated by the Reserve Bank of India (RBI).
  • Finance Minister's Review Meetings: Union Finance Minister is set to hold review meetings across the country on the functioning of RRBs along with their sponsor banks.
  • History of RRBs: India's RRB journey began in 1975, conceptualized as hybrid micro-banking institutions to serve the credit needs of small and marginal farmers, agricultural laborers, and the socio-economically weaker sections of the population.
  • Stake in RRBs: The Centre holds a 50% stake in each RRB, sponsor banks hold 35%, and the remaining 15% is with the State government.

Mobilization of Global Sustainable Capital Flows into India

Recently, the International Financial Services Centres Authority (IFSCA) and Climate Policy Initiative - India (CPI) have signed a Memorandum of Understanding (MoU) to cooperate and increase the mobilization of global sustainable capital flows into India.

The key points are:

  • Mobilization of Sustainable Capital Flows: The primary objective of the agreement is to increase the mobilization of global sustainable capital flows into India.
  • Both IFSCA and CPI recognize the importance of sustainable finance in achieving the transition to green and resilient economies.
  • Conducive Regulatory Environment: IFSCA has taken significant steps to create a regulatory environment that is conducive to sustainable finance.
  • The organization has implemented international best practices in its regulatory framework to support the needs of India and other developing countries.
  • Research Collaboration: The MoU includes provisions for research collaboration between IFSCA and CPI.
  • The organizations will work together to conduct research in the field of sustainable finance, aiming to generate valuable insights and contribute to the development of sustainable finance practices in India.
  • Support for Climate Investments: The collaboration between IFSCA and CPI recognizes the need for greater international capital flows to support climate investments in India.
  • IFSCA, as the regulatory authority for IFSCs, can play a critical role in enabling climate investments from international sources through the capital markets route.
  • Achievement of Sustainable Development Goals: The partnership aligns with the objectives of the Sustainable Development Goals (SDGs) by promoting sustainable finance and facilitating the mobilization of global capital towards sustainable projects.
  • It supports India's efforts to achieve its SDG targets and contribute to global sustainable development.

Internationalization of the Indian Rupee

On 5th July, 2023, a working group appointed by the Reserve Bank of India (RBI) put forward several recommendations to expedite the internationalization of the Indian rupee. The recommendations aim to increase the use of the Indian currency in cross-border transactions.

The key recommendations are:

  • Adoption of a Standardized Approach: Implementing a standardized approach for examining proposals on bilateral and multilateral trade arrangements for invoicing, settlement, and payment in the rupee and local currencies will streamline cross-border transactions and promote the use of the rupee in international trade.
  • Opening of Rupee Accounts for Non-Residents: Encouraging the opening of rupee accounts for non-residents, both within India and outside the country, will facilitate easier access and usage of the rupee by foreign entities, promoting its internationalization.
  • Integration of Payment Systems: Integrating Indian payment systems with those of other countries will enable seamless cross-border transactions, enhancing the efficiency and convenience of using the rupee for international payments.
  • Development of a Global Rupee Market: Fostering the development of a global rupee market will ensure liquidity and accessibility of the currency across different time zones, facilitating round-the-clock trading and investment in rupee-denominated instruments.
  • Recalibration of the Foreign Portfolio Investor (FPI) Regime: Reviewing and recalibrating the FPI regime will attract greater foreign investment in Indian markets and instruments denominated in rupees, deepening the rupee market and increasing its attractiveness to global investors.
  • Review of Taxes on Masala Bonds: Evaluating and potentially revising taxes on masala bonds, which are rupee-denominated bonds issued outside India by Indian entities, will encourage their issuance and utilization, contributing to the internationalization of the rupee.
  • Real-Time Gross Settlement (RTGS) for Cross-Border Trade: Exploring the international use of Real-Time Gross Settlement for cross-border trade transactions will ensure faster and more secure settlement of international payments in rupees.
  • Inclusion of Indian Government Bonds in Global Indices: Working towards the inclusion of Indian Government Bonds in global bond indices will increase their visibility and attractiveness to international investors, enhancing the internationalization of the rupee.
  • Efforts for Rupee Inclusion in IMF's SDR: Making efforts to include the rupee in the International Monetary Fund's Special Drawing Rights (SDR) basket will enhance the global recognition and acceptance of the rupee as an international reserve currency.

Tax Devolution

Recently, the Union government released the 3rd Installment of Tax Devolution to state governments amounting to Rs 1,18,280 crore in June 2023, as against the normal monthly devolution of Rs 59,140 crore.

  • Uttar Pradesh received the highest (Rs 21,218 crore) followed by Bihar (Rs 11,897 crore), Madhya Pradesh, West Bengal and Rajasthan.

About Tax Devolution

  • It refers to the distribution of tax revenues between the central government and the state governments. It is a constitutional mechanism established to allocate the proceeds of certain taxes among the Union and the states in a fair and equitable manner.
  • Article 280(3) (a) of the Constitution of India mandates that the Finance Commission (FC) has the responsibility to make recommendations regarding the division of the net proceeds of taxes between the Union and the states.

Recommendations of 15th Finance Commission on Tax Devolution

Share of States in Central Taxes (Vertical Devolution)

  • The share of states in the central taxes for the 2021-26 period is recommended to be 41%, same as that for 2020-21.
  • This is less than the 42% share recommended by the 14th Finance Commission for 2015-20 period.
  • The adjustment of 1% is to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the centre.

Horizontal Devolution (Allocation between the States)

  • For horizontal devolution, it has suggested 12.5% weightage to demographic performance, 45% to income, 15% each to population and area, 10% to forest and ecology and 2.5% to tax and fiscal efforts.PM inaugurates first-ever National Training Conclave

Draft Cybersecurity Norms for PSOs

On 2nd June, 2023, the Reserve Bank of India (RBI) released draft cybersecurity directions for payment system operators (PSOs) and digital payments under the title- Draft Master Directions on Cyber Resilience and Digital Payment Security Controls for Payment System Operators.

  • These directions are being issued under the Payment and Settlement Systems Act, 2007.


  • To improve safety and security of the payment systems operated by PSOs by providing a framework for overall information security preparedness with an emphasis on cyber resilience.

About the Directions


  • The Directions apply to all RBI-authorized non-bank payment system operators (PSOs).

Timelines for Implementation

Large non-bank PSOs: April 1, 2024

  • Payment Aggregators (PAs), card payment networks, large pepaid payment instrument (PPI) issuers, non-bank ATM networks, White Label ATM Operators, Clearing Corporation of India Limited (CCIL), National Payments Corporation of India (NPCI), NPCI Bharat Bill Pay Limited, TReDS, and Bharat Bill Payment Operating Units fall under this category.

Medium non-bank PSOs: April 1, 2026

  • Cross-border (in-bound) money transfer operators under Money Transfer Service Scheme (MTSS) and Medium PPI Issuers fall under this category.

Small non-bank PSOs: April 1, 2028

  • Small PPI Issuers and Instant Money Transfer Operators fall under this category.

Board of Directors (Board) of the PSO

  • The Board of Directors (Board) of the PSO shall be responsible for ensuring adequate oversight over information security risks, including cyber risk and cyber resilience.

Cyber Crisis Management Plan (CCMP)

  • PSOs will be required to develop an approved Cyber Crisis Management Plan (CCMP) to detect, contain, respond to, and recover from cyber threats and attacks.

Prevention of Money Laundering Act Amended

The Indian Finance Ministry has made amendments to the Prevention of Money Laundering Act (PMLA) rules on March 10, 2023.

  • More Disclosures for NGOs: The amendments require reporting entities such as banks, financial institutions, and intermediaries to provide more disclosures related to transactions involving NGOs.
  • This increased scrutiny is aimed at preventing money laundering and terrorist financing through NGOs.
  • Greater Clarity on Politically Exposed Persons (PEPs): The amendments define PEPs under the PMLA in line with the recommendations of the Financial Action Task Force (FATF).
  • This will help reporting entities to better identify and monitor PEPs, who are considered higher risk individuals due to their potential involvement in corrupt activities.
  • Enhanced Due Diligence: Reporting entities will be required to undertake enhanced due diligence measures for customers who are PEPs, or for transactions involving high-risk countries or activities.
  • This will help to identify and mitigate the risks of money laundering and terrorist financing.
  • Increased Compliance Costs: The amendments may result in increased compliance costs for reporting entities, as they will need to invest in new systems and processes to comply with the enhanced requirements.
  • This may also impact NGOs, who may face additional reporting requirements and scrutiny from reporting entities.

The new clause in the PMLA compliance rules defines PEPs as individuals who have been “entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”

Social Stock Exchange

On February 22, the Securities and Exchange Board of India (SEBI) has given the National Stock Exchange of India (NSE) the green light to establish a Social Stock Exchange (SSE).

  • It is a new segment within the existing stock exchange that helps social enterprises raise funds from the public through its mechanism.
  • The SSE provides a medium for social enterprises to seek finance for their social initiatives and acquire visibility.
  • The SSE offers increased transparency about fund mobilisation and utilisation, providing retail investors with an opportunity to invest in securities offered by for-profit social enterprises under the Main Board.
  • Institutional investors and non-institutional investors can invest in securities issued by SEs in all other cases.

Eligibility to be listed on the SSE:

  • Establish the primacy of social intent
  • Fall under either non-profit organizations (NPO) or for-profit social enterprises (FPSEs)
  • Establish the primacy of social intent
  • Fall under either non-profit organizations (NPO) or for-profit social enterprises (FPSEs)
  • Work towards eradicating hunger, poverty, malnutrition, and inequality; promoting education, employability, equality, empowerment of women and LGBTQIA+ communities; environmental sustainability; protection of national heritage and art; or bridging the digital divide
  • Direct at least 67% of its activities towards achieving the stated objective, as evidenced by either revenue, expenditure, or the target population.

Zero coupon zero principal instrument means an instrument issued by a Not for Profit Organisation (NPO) which will be registered with the social stock exchange segment of a recognised stock exchange

Framework on Currency Swap revised for SAARC

The Reserve Bank of India (RBI) has signed a Currency Swap Agreement with the Maldives Monetary Authority (MMA) under the SAARC Currency Swap Framework.

  • This is to provide swap support as a backstop line of funding for short term foreign exchange liquidity requirements.
  • This agreement will enable the MMA to make drawals in multiple tranches up to a maximum of USD 200 million from the RBI.

Highlights of the SAARC Currency Swap Agreement

  • The SAARC currency swap facility came into operation on 15th November, 2012.
  • The RBI can offer a swap arrangement within the overall corpus of USD 2 billion.
    • The swap drawals can be made in US dollar, euro or Indian rupee.
    • The framework provides certain concessions for swap drawals in Indian rupee.
  • The facility will be available to all SAARC member countries, subject to their signing the bilateral swap agreements.
  • In 2020, the RBI signed a currency swap agreement for extending up to a USD 400 million to Sri Lanka.

What is Currency Swap?

  • Swap is short for exchange. A contract or agreement to exchange currencies between two nations under predetermined terms and conditions is known as a currency swap.
  • In the present context, the facility's role in the current situation is to offer swap support as a substitute source of funding for short-term foreign exchange liquidity needs.
  • Central banks (or Governments) engage in currency swaps with foreign counterparts to meet short-term foreign exchange liquidity requirements or to ensure adequate foreign currency to avoid the Balance of Payments (BOP) crisis till longer arrangements can be made.
    • These swap operations carry no exchange rate or other market risks as transaction terms are set in advance.
  • At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.
  • At the end of the swap, the principal amounts are swapped back at either the prevailing spot rate, or at a pre-agreed rate such as the rate of the original exchange of principals. Using the original rate would remove transaction risk on the swap.

SAARC (South Asian Association for Regional Cooperation)

  • On December 8, 1985, in Dhaka, Bangladesh, the SAARC Charter was formally signed, establishing SAARC.
  • Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka are members of the group.
  • Kathmandu is the Secretariat (Nepal)
  • The objectives and goals include, among other things, promoting South Asia's people's welfare, enhancing their quality of life, and accelerating economic growth.

Economic Nobel 2022: An Insight to avoid both Serious Crises and Expensive Bailouts

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022 was awarded to Ben S. Bernanke, Douglas W. Diamond, Philip H. Dybvig (all from the USA) “for research on banks and financial crises”.

  • Together, the work for which Bernanke, Dybvig and Diamond have been recognised has also laid the foundation for modern bank regulations. Their work has been “crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed”.
  • They have demonstrated the importance of preventing widespread bank collapses that also gives an insight to avoid both serious crises and expensive bailouts.

(Image Source: WSJ)

Diamond and Dybvig’s Analysis

Since the Global Financial Crisis of 2008, banks have lost their sheen in the public eye. They are often seen as money-grabbing institutions that exist to profit off borrowers as well as depositors.

But in a world without banks, it would be impossible to make any long-term investment. That’s because, as Diamond and Dybvig’s 1983 paper showed, there are “fundamental conflicts between the needs of savers and investors”.

Savers-Investors Conflict

  • Savers always want access to at least some part of their savings for unexpected use; this is also called the need for liquidity. They want the ability to pull out money when they need it.
  • Borrowers, especially those taking out a loan for building a home or building a road, need the money for a much longer time. Borrowers cannot function if the money can be demanded back at a short notice.

Resolving this Mismatch

  • Diamond and Dybvig showed that these mismatches can best be solved by institutions constructed exactly like banks.
  • They developed a theoretical model that explains how banks create liquidity for savers, while borrowers can access long-term financing.

Maturity Transformation

Diamond and Dybvig explained that banks are able to resolve Savers-Investors conflict through the process of maturity transformation.

Role of Maturity Transformation

  • Whenever the volume of loans does not match the volume of deposits, the bank resorts to the short-term money market to close the gap (i.e., to finance loans exceeding the amount of deposits or to invest deposits in excess) thereby bearing a refinancing or reinvestment risk.

Role of Assets & Liability

  • The bank’s assets have a long maturity, because it promises borrowers that they will not need to pay back their loans early. The bank’s liabilities have a short maturity; depositors can access their money whenever they want.
  • The bank is an intermediary that transforms assets with long maturity into bank accounts with short maturity. This is usually called maturity transformation.

Banks as an Intermediaries in Crisis

  • Their analysis also showed how the combination of these two activities (savings and lending) makes banks vulnerable to rumours about their imminent collapse.
  • If a large number of savers simultaneously run to the bank to withdraw their money, the rumour may become a self-fulfilling prophecy – a bank run occurs and the bank collapses.

Scrutinizing Investments

  • Diamond demonstrated how banks perform another societally important function. As intermediaries between many savers and borrowers, banks are better suited to assessing borrowers’ creditworthiness and ensuring that loans are used for good investments.

Ben Bernanke’ Analysis: Bank Run

Ben Bernanke analysed the Great Depression of the 1930s, the worst economic crisis in modern history. Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged.

What is Bank Run?

  • Bank runs happen when depositors become worried about the bank’s survival, and rush to withdraw their savings.

Effects of Bank Run

  • Bankruptcy: If enough people withdraw their money simultaneously, the bank’s reserves cannot cover all the withdrawals, and it is driven to bankruptcy.
  • Productive Investments are hampered: When the banks collapsed, valuable information about borrowers was lost and could not be recreated quickly. Society’s ability to channel savings to productive investments was thus severely diminished.

Finally Financial Crisis Decoded

  • Until Bernanke’s paper, bank failures were seen as a “consequence” of the financial crisis. But Bernanke’s 1983 paper proved it was exactly the opposite— bank failures were the “cause” of the financial crisis.
  • Using a combination of historical sources and statistical methods, his analysis showed which factors were important in the drop in GDP. He found that factors that were directly linked to failing banks accounted for the lion’s share of the downturn.

Remedy Options

  • Bernanke demonstrated that the economy did not start to recover until the state finally implemented powerful measures to prevent additional bank panics.
  • The deposit insurance provisions — where a certain amount of one’s deposits in a bank are insured — is a critical tool towards building trust and preventing bank runs.

How Reserve Bank of India addresses the Issue of Bank Failure

  • Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of Reserve Bank of India which is under the jurisdiction of Ministry of Finance, Government of India.
  • It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities.
  • Each depositor in a bank is insured upto a maximum of Rs. 5,00,000 (Rupees Five Lakhs) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Recent Govt. Interventions towards Bank Deposit Insurance Programme

  • 98% Insurance coverage to Bank Accounts: Till December 2021, deposits worth Rs 76 lakh crore were insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act providing full coverage to around 98 per cent of bank accounts.
  • Access to Fund within 90 Days: The Centre had in August, 2021 passed an amendment to the Deposit Insurance and Credit Guarantee Corporation Act to ensure that account holders can access their insured deposit amount within 90 days of such a liability arising in the event of a bank coming under the moratorium imposed by the Reserve Bank of India (RBI).

India's First International Bullion Exchange

On 29th July 2022, India International Bullion Exchange (IIBX) was launched at Gujarat International Finance Tec-City (GIFT City) - India’s maiden International Financial Services Centre (IFSC).

Operator of the IIBX

  • A holding company India International Bullion Holding IFSC will operate the International Bullion Exchange.
  • It has been established by the National Stock Exchange, Multi Commodity Exchange, India INX International Exchange, National Securities Depository and Central Depository Services Ltd.

Some Criteria for Trading in IIBX

  • To become a qualified jeweller, one must have a minimum net worth of Rs 25 crore and 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals.
  • Apart from qualified jewellers, non-resident Indians and institutions will also be able to participate on the exchange after registering with the IFSCA.

Some other Facts

  • The exchange will have three vaults – one operated by Sequel Global (ready and approved), the second one to be operated by Brinks India is ready and awaiting final approval and the third under construction.

Working Procedure

  • Once gold is imported, it will be stored at the IFSC Authority-approved vault.
  • Following this, a bullion depository receipt will be made and the gold will be ready for trading.
  • Being a spot exchange, all the open positions will be marked for delivery at the end of the day.


  • The IIBX will be a gateway for bullion imports into India, where all bullion imports for domestic consumption shall be channelised through the exchange.
  • In addition to providing a trading avenue to various participants, a bullion exchange will also offer the advantages of price discovery, transparency in disclosures, guaranteed centralised clearing and assurance of quality.
  • A bullion exchange, apart from providing standardisation and transparent mechanism, will also be an important step towards financialisation of bullion-based products.


  • Bullion refers to physical gold and silver of high purity often kept in the form of bars, ingots, or coins.
  • It can be considered legal tender and is often held as reserves by central banks or held by institutional investors.

Bullion Exchange

  • A bullion exchange allows buyers and sellers to trade gold and silver as well as associated derivatives.

Primary Bullion Trading Platform in the World

  • Though there are several bullion markets around the world, the London Bullion Market, which allows trading 24 hours a day and facilitates futures and options trading, is the primary global market trading platform for gold and silver.
  • These bullion markets are typically over-the-counter (OTC) markets, that is to say, they deal in physical gold and silver.

Asset Monetisation exceeds FY22 Target

The government garnered Rs. 96,000 crore under the National Monetisation Pipeline in FY22, surpassing the target of Rs. 88,000 crore.

  • The figure could touch Rs.1 lakh crore as data was still trickling in and was yet to be finalised.
  • The roads and highways sector monetised assets worth Rs. 23,000 crore, power sector garnered Rs.9,500 crore, coal mining generated Rs. 40,000 crore and mining of minerals fetched Rs. 18,700 crore, and railways added Rs. 900 crore.

Targets for Monetization

  • FY23: Rs 1.62 trillion
  • FY24: Rs 1.79 trillion
  • FY25: Rs 1.67 trillion

What is Asset Monetisation?

  • Asset Monetisation involves creation of new sources of revenue by unlocking of value of hitherto unutilized or underutilized public assets. Internationally, it is recognized that public assets are a significant resource for all economies.

About National Monetisation Pipeline

  • The National Monetisation Pipeline was launched in August 2021.
  • It aims to unlock value in brownfield projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects, and using the funds generated for infrastructure creation across the country.
  • The National Monetisation Pipeline (NMP) estimates an aggregate monetisation potential of Rs 6 lakh crores through core assets of the Central Government, over a period of four years from FY 2022 to FY 2025.

Ratings Agency

Recently, Finance Secretary accused ratings agencies of “double standards” when assessing emerging markets and developing economies.

  • Fitch, a rating agency, had stated that higher deficits and continued lack of clarity on medium-term consolidation plans in the recent Union Budget was its rationale for projecting of a downward trajectory in the country’s debt/GDP.
  • Another agency, Moody’s, said the Union Budget was growth-oriented, credit positive for many issuers but the budgetary provisions posed fiscal challenges.

About Rating Agency

  • Ratings agencies assess the credit worthiness or potential of an equity, debt or country. Their reports are read by investors to make an informed decision on whether or not to invest in a particular country or companies in that geography.
  • They assess if a country, equity or debt is financially stable and whether it at a low/high default risk.
  • In simpler terms, these reports help investors gauge if they would get a return on their investment.
  • The agencies periodically re-evaluate a previously assigned ratings after new developments (example, Coronavirus pandemic or a geography-specific climate change), geo-political events or a significant economic announcement by the concerned entity.
  • Their reports are sold and published in financial and daily newspapers.

Grading Pattern

The three prominent ratings agencies, viz., Standard & Poor’s, Moody’s and Fitch subscribe to largely similar grading patterns.

  • Standard & Poor’s accord their highest grade, that is, AAA, to countries, equity or debt with the exceedingly high capacity to meet their financial commitments. Its lowest grade is ‘D’, accorded to entities with high probability of payment default or breach of an imputed promise.
  • This is particularly accorded in case the concerned entity has filed for bankruptcy.
  • Its grading slab includes letters A, B and C with an addition a single or double letter denoting a higher grade.
  • Moody’s separates ratings into short and long-term definitions.
  • The former involves obligations maturing in thirteen months or less whereas the latter involves obligations maturing in eleven months or more. Its longer-term grading ranges from Aaa to C, with Aaa being the highest.
  • The succession pattern is similar to S&P. The short-term ratings scale ranges from P-1 to NP, with P-1 being the highest.
  • Fitch, too, rates from AAA to D, with D being the lowest. It follows the same succession scheme as Moody’s and Fitch.

Impact of Ratings


  • At the country level, investors rely on the ratings given by the credit rating agencies to make investment decisions.
  • Many countries sell their securities in the international market, and a good credit rating can help them access high-value investors.
  • A favorable rating may also attract other forms of investments like foreign direct investments to a country.


  • Lowered rating of a country can potentially cause panic selling or offloading of investment by a foreign investor.


  • Popular ratings agencies publicly reveal their methodology, which is based on macroeconomic data publicly made available by a country, to lend credibility to their inferences.
  • However, credit rating agencies were subjected to severe criticism for allegedly spurring the financial crisis in the United States, which began in 2017.
  • Rating agencies were also criticized for possible conflict of interest between them and issuers of securities.

Urjit Patel appointed as Vice-President of AIIB

Former Reserve Bank of India (RBI) governor Urjit Patel has been appointed as a vice-president of the Asian Infrastructure Investment Bank (AIIB), a Beijing based multilateral development bank.

  • He will succeed outgoing Vice President D J Pandian.
  • He will be one of the five Vice Presidents of the AIIB with a three-year tenure.
  • Urjit Patel was the 24th Governor of the Reserve Bank of India (RBI) succeeding Raghuram Rajan in September 2016 and was with RBI till December 2018.
  • Jin Liqun is a Chinese politician, banker, and professor is the current President of AIIB.

AIIB & India

  • India is a founding member of the Asian Infrastructure Investment Bank (AIIB) with the 2nd highest voting share after China.
  • India has emerged as AIIB’s biggest beneficiary by obtaining $6.8 billion funding for 29 projects.
  • AIIB has funded projects across sectors in India especially in transport and energy sectors. In December, AIIB approved the $150 million “Chennai City Partnership: Sustainable Urban Service Program” aiming to strengthen institutions and improve the quality and financial sustainability of selected urban services in Chennai.
  • Also, the AIIB and the Asian Development Bank (ADB) in Manila are processing a $2 billion loan request from India to purchase 667 million Covid-19 jabs.

Members of AIIB

  • Except the US and Japan, most of the developed and developing countries have joined the bank. In late December, the AIIB approved the application of Iraq to join, becoming the bank’s 51st regional member to bring its membership to 105.

Airtel Payments Bank has been categorised as Scheduled Bank

Airtel Payments Bank has been categorised as a scheduled bank by the Reserve Bank of India (RBI).

Meaning of Scheduled Bank

  • The banks in the Indian banking system are sub categorized as Scheduled Banks, Non-Schedule Banks, Private Banks and Public Banks.
  • Scheduled banks are those banks that are listed under Schedule II of the Reserve Bank of India Act, 1934.
  • The bank's paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as a scheduled bank. These banks are liable for low interest loans from the RBI.
  • They also have membership in clearing houses.
  • They also have numerous obligations to fulfil such as maintaining an average daily Cash Reserve Ratio with the central bank.

Types of Scheduled Banks in India

  • The banks listed in Schedule II are further classified as –
  • Scheduled Commercial Public Sector Banks
  • SBI and its associates
  • Scheduled Commercial Private Sector Banks
  • Old Private Banks
  • New Private Sector Banks
  • Scheduled Foreign Banks in India

Main Functions of Scheduled Banks

  • Acceptance of deposits from the public
  • Provide demand withdrawal facility
  • Lending facility
  • Transfer of funds
  • Issue of drafts
  • Provide customers with locker facilities
  • Dealing with foreign exchange

Differences between a Scheduled Bank and Non-Scheduled Bank

Scheduled Bank

Non-Scheduled Bank

  • They are listed in the second schedule of the RBI Act.

  • They are not listed in the second schedule of the RBI Act.
  • These have a paid up capital of Rs. 5 lakhs or more and comply with all the requirements of the RBI.

  • There is no such condition that needs to be fulfilled for it to be considered a non-scheduled bank.

  • They maintain a cash reserve ratio with RBI.

  • They maintain the CRR amount with themselves.

  • They are authorized to borrow funds from the Reserve Bank of India.

  • They are not allowed to.

  • They are comparatively more financially stable.

  • They are volatile.

SEBI Proposes Rules for Retail Algo Trading

On 9th December, 2021, Capital markets regulator Securities and Exchange Board of India (SEBI) proposed a regulatory framework for algorithmic trading (algo trading) by retail investors to make such trading safe and prevent market manipulations.


  • At present, though the broker can identify the orders emanating from an Application Programming Interface (API), they are unable to differentiate between an algo and non-algo order emanating from an API.
  • This kind of unregulated algos pose a risk to the market and can be mis-used for systematic market manipulation as well as to lure the retail investors by guaranteeing them higher returns.

Image Source: Business Standard

About Algorithmic Trading (Algo Trading)

  • In market parlance, algo trading refers to any order that is generated using automated execution logic.
  • The algo trading system automatically monitors the live stock prices and initiates an order when the given criteria are met.
  • It is also known as automated or programmed trading since pre-programmed computer strategies execute buy and sell trades depending on set parameters, instructions or market pattern and conditions.

Benefits of Algorithmic Trading

  • Trades are executed at the best possible prices.
  • Trade order placement is instant and accurate (there is a high chance of execution at the desired levels).
  • Trades are timed correctly and instantly to avoid significant price changes.
  • Reduced transaction costs.
  • Simultaneous automated checks on multiple market conditions.
  • Reduced risk of manual errors when placing trades.
  • Reduced the possibility of mistakes by human traders based on emotional and psychological factors.

RBI opens Govt. Bond Market to Individual Investors

On 12th November 2021, Prime Minister Narendra Modi virtually launched two innovative customer centric initiatives of RBI: ‘Retail Direct Scheme’ and ‘Reserve Bank - Integrated Ombudsman Scheme, 2021’.

(Image Source:news.bitcoin.com)

Retail Direct Scheme

  • RBI’s Retail Direct scheme will enable small investors to participate in the government’s bond market for their financial security.


  • Easy Access for Small Investors: The Retail Direct Scheme will ensure easier and safer access for smaller investors in government securities. The provision of guaranteed settlement for government securities gives assurance of safety to citizens to invest their small savings.
  • Direct Access: Small investors will now have direct access to government securities and will no longer be reliant on indirect investment agencies like banks, insurance companies or mutual funds. Investors just need to open a Retail Direct Gilt Account by logging on to the RBI Retail Direct’s official website.
  • Relief from Fund Managers: One does not need any fund manager to handle the account and investors can operate it on their own from their smartphones.
  • Link to Investor Account: The account can also be linked to the investor’s savings bank account.
  • No Charges: It may be noted that there will be no charges for opening the Retail Direct Gilt Account.

About Reserve Bank - Integrated Ombudsman Scheme, 2021

  • To make the alternate dispute redress mechanism simpler and more responsive to the customers of entities regulated by it, it has integrated three Ombudsman schemes – (i) the Banking Ombudsman Scheme, 2006, as amended up to July 01, 2017; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019 into the Reserve Bank - Integrated Ombudsman Scheme, 2021 (the Scheme).

Entities that will be regulated under this Scheme:

  • All Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks and Non-Scheduled Primary (Urban) Co-operative Banks with deposits size of Rupees 50 crore and above as on the date of the audited balance sheet of the previous financial year;
  • All Non-Banking Financial Companies (excluding Housing Finance Companies) which (a) are authorised to accept deposits; or (b) have customer interface, with an assets size of Rupees 100 crore and above as on the date of the audited balance sheet of the previous financial year;
  • All System Participants as defined under the Scheme.


  • These schemes will expand the scope of investment in the country and make access to capital markets easier and more secure for investors.
  • Given low rates on bank fixed deposits and perception of low risk on government bonds, retail investors may be inclined to venture into direct investing in gilts.

What are government securities?

  • G-Secs are low-risk, sovereign-guaranteed bonds with assured interest paid every six months. Trading makes them liquid.
  • Compare with stocks, FDs I Stocks are high-risk, volatile assets, in which returns can fluctuate. FDs have assured returns, but don't have guarantee over Rs 5 lakh.

Global Practice

  • India is the first in Asia to allow retail investors in G-Secs. Other countries that allow include the US, the UK and Brazil.

RBI grants a Banking Licence to Unity Small Finance Bank

The Reserve Bank of India (RBI) has issued a Small Finance Bank (SFB) licence to ‘Unity Small Finance Bank’ - a consortium of Centrum Financial Services Limited (CFSL), the small business lending arm of the Centrum Group, and Resilient Innovations Private Limited (BharatPe), a fintech company.

  • This new bank license has been issued by the RBI after a gap of nearly 6 years.
  • RBI had accorded “in-principle” approval to CFSL, a wholly owned subsidiary of Centrum Capital, on June 18 to set up a small finance bank (SFB).
  • The grant of banking licence to USFBL sets the stage for RBI to place in the public domain a draft scheme of amalgamation of PMC Bank with the SFB.
  • With the establishment of USFBL, the number of SFBs in the country goes up to 12.
  • Rajnish Kumar, former Chairman of State Bank of India, has been appointed on its Board. He will also be the Chairman of the Board.

Other Small Finance Banks

  1. Au Small Finance Bank Ltd.
  2. Capital Small Finance Bank Ltd
  3. Fincare Small Finance Bank Ltd.
  4. Equitas Small Finance Bank Ltd
  5. ESAF Small Finance Bank Ltd.
  6. Suryoday Small Finance Bank Ltd.
  7. Ujjivan Small Finance Bank Ltd.
  8. Utkarsh Small Finance Bank Ltd.
  9. North East Small finance Bank Ltd
  10. Jana Small Finance Bank Ltd
  11. Shivalik Small Finance Bank Ltd

e-RUPI: A Digital Payment Solution

e-RUPI, a person and purpose specific digital payment solution was launched on 2nd August 2021.

  • It has been developed by National Payments Corporation of India on its UPI platform, in collaboration with the Department of Financial Services, Ministry of Health & Family Welfare and National Health Authority.


  • e-RUPI is a cashless and contactless instrument for digital payment.
  • It is a QR code or SMS string-based e-Voucher, which is delivered to the mobile of the beneficiaries.
  • The users of this seamless one-time payment mechanism will be able to redeem the voucher without a card, digital payments app or internet banking access, at the service provider.
  • e-RUPI connects the sponsors of the services with the beneficiaries and service providers in a digital manner without any physical interface. It also ensures that the payment to the service provider is made only after the transaction is completed. Being pre-paid in nature, it assures timely payment to the service provider without involvement of any intermediary.

Expected Benefits

  • It is expected to be a revolutionary initiative in the direction of ensuring a leak-proof delivery of welfare services.
  • It can also be used for delivering services under schemes meant for providing drugs and nutritional support under Mother and Child welfare schemes, TB eradication programmes, drugs & diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertilizer subsidies etc.
  • Even the private sector can leverage these digital vouchers as part of their employee welfare and corporate social responsibility programmes.

Lic to have MD and CEO, Chairman Post Abolished

  • Life Insurance Corporation of India (LIC), which is gearing up to launch a mega initial public offering (IPO), will now have a Managing Director and Chief Executive Officer instead of an Executive Chairman on the pattern of public sector banking industry.
  • The changes have been made by the Department of Financial Services under the Finance Ministry by amending Life Insurance Corporation of India (Employees) Pension (Amendment) Rules. Various rules have been amended in the LIC Act to replace the post of chairman and create the position of CEO.
  • Both CEO and MD will be appointed by the central government.
  • Presently, MR Kumar is the LIC chairman, whose tenure was extended by another two years recently. Currently, LIC has four MDs.

Development Council for Cement Industry (DCCI)

The Department for Promotion of Industry and Internal Trade has established a 25 member Development Council for Cement Industry (DCCI) headed by Dalmia Bharat Group CMD Puneet Dalmia.

Mandate of the Council

  • It will suggest ways to eliminate waste, obtain maximum production, improve quality, reduce costs and promote standardization of products.
  • It will recommending measures for securing the full utilization of the installed capacity and for improving the working of the industry, particularly of the less efficient units; promote training of persons; and promoting or undertaking scientific and industrial research.
  • It would also work for standardization of accounting and costing methods and practice; and promoting the adoption of measures for increasing the productivity of labour, including measures for securing safer and better working conditions.
  • The council's functions also include promoting or undertaking inquiry as to materials and equipment and as to methods of production, management and labour utilization, including the discovery and development of new materials, equipment and methods.

Post Devolution Revenue Deficit Grant released to States

The Department of Expenditure, Ministry of Finance, has released the 4th monthly installment of Post Devolution Revenue Deficit (PDRD) Grant of Rs. 9,871.00 crore to the States on 7th July 2021.

About Post Devolution Revenue Deficit Grant

  • The Post Devolution Revenue Deficit Grant is provided to the States under Article 275 of the Constitution.
  • The grants are released as per the recommendations of the Fifteenth Finance Commission in monthly installments to meet the gap in Revenue Accounts of the States post devolution.
  • The Commission has recommended PDRD grants to 17 States during 2021-22.

Eligibility Criteria for States

  • The eligibility of States to receive this grant and the quantum of grant was decided by the Commission based on the gap between assessment of revenue and expenditure of the State after taking into account the assessed devolution for the financial year 2021-22.

States recommended for PDRD Grant

  • The states recommended for the PDRP Grant by the Fifteenth Finance Commission are - Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Karnataka, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand and West Bengal.

Exports of GI Certified Bhalia Wheat from Gujarat

  • The first shipment of Geographical Indication (GI) certified Bhalia variety of wheat was exported on 7th July to Kenya and Sri Lanka from Gujarat.
  • The GI certified wheat has high protein content and is sweet in taste.
  • The crop is grown mostly across Bhal region of Gujarat which includes Ahmadabad, Anand, Kheda, Bhavanagar, Surendranagar, Bharuch districts.
  • The unique characteristic of the wheat variety is that grown in the rainfed condition without irrigation and cultivated in around two lakh hectares of agricultural land in Gujarat.

Department of Public Enterprises comes under Finance Ministry

  • The government has brought Department of Public Enterprises (DPE) under the Finance Ministry in a bid facilitate its ambitious disinvestment programme.
  • As per the gazette notification, these rules may be called the Government of India (Allocation of Business) Three Hundred and Sixty First Amendment Rules, 2021.
  • Earlier, DPE was part of Ministry of Heavy Industries and Public Enterprises.
  • With the addition, this will be the sixth department under the Finance Ministry. Others being
    • Department of Economic Affairs
    • Department of Expenditure
    • Department of Revenue
    • Department of Financial Services
    • Department of Investment and Public Asset Management

Retail and Wholesale Trades come under MSMEs

On 2nd July 2021, the Minister of MSME and Road Transport and Highways Shri Nitin Gadkari has announced revised guidelines for MSMEs with inclusion of Retail and Wholesale trades as MSMEs.

  • This will strengthen MSMEs and make them engines for economic growth.

Benefits for the Retail and Wholesale Traders

  • Currently, 95 per cent of the retail industry in the country is MSMEs, and this move is set to benefit 13-14 million retailers in India.
  • Retail and wholesale trade will get benefit of priority sector lending under RBI guidelines.
  • They will be now allowed to register on Udyam Registration Portal.

Action Plan to make India Aatmanirbhar in Rock Phosphate

  • The Department of Fertilisers is expediating an action plan to make India Aatmanirbhar in Rock Phosphate.
  • Rock Phosphate is the key raw material for DAP and NPK fertilisers and India is 90 per cent dependent on imports. Volatility in international prices affects domestic prices of fertilisers and hinders the progress and development of agriculture sector in the country.
  • In view of this, the Department of Fertilisers has asked stakeholders to expedite the exploration and mining of available rock phosphate reserves in India.
  • Phosphorite deposits are available in Rajasthan, central part of peninsular India, Hirapur, Lalitpur, Mussoorie syncline and Cuddapah basin.
  • Further, discussion and planning with Department of Mining and Geological Survey of India is going on to expedite the exploration in the potential potassic ore resources in different parts of the country.

HFCs above Rs 100 cr can use SARFAESI Law

  • The Ministry of Finance has allowed Housing Finance Companies (HFCs) with asset sizes of more than Rs. 100 crore to recover the dues using SARFAESI law.
  • Prior to this, Finance Ministry allowed HFCs with assets over Rs. 500 crore to use SARFAESI law to recover dues.
  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) allows banks and other financial institution to auction residential or commercial properties to recover loans.

IFFCO To Launch Nano Urea

  • Indian Farmers Fertiliser Cooperative (IFFCO) will launch Nano Urea in the market shortly.
  • 500-ml Nano Urea, which costs 240 rupees, is equivalent to 45kg of normal urea.
  • Nano Urea is environment friendly and cuts the input cost of the farmers by 15 percent.
  • Apart from enriching the soil, this new product will increase yield by 15 to 20 percent.
  • The country needs 350 lakh metric tonnes of urea every year. Introduction of Nano urea is said to reduce the usage of ordinary urea used now, thereby saving 600 crore rupees subsidy given by the Government. The country’s dependence on import of urea will also come down.

RBI Appoints Rajesh Bansal As CEO Of RBIH

  • The Reserve Bank of India has appointed Rajesh Bansal, an expert in electronic cash transfers and digital financial services, as the Chief Executive Officer of the Reserve Bank Innovation Hub with effect from May 17.
  • Reserve Bank Innovation Hub (RBIH) has been set up to test potential new capabilities, opportunities in technology and leverage on the same to create viable products or services and enable their adoption for wider reach and greater impact across the country.
  • The Hub would develop internal infrastructure to promote fintech research and facilitate engagement with innovators and start-ups.
  • RBIH is managed by an independent board consisting of industry and academic stalwarts as its members.

RBI Amends India’s Inflation-forecasting Model

  • The Reserve Bank of India (RBI) has revised its inflation-forecasting model to better capture how fiscal and monetary policy, interact with real-economy elements.
  • The adjustments incorporate fiscal-monetary dynamics, India’s unique and often chaotic fuel pricing regime, and exchange-rate fluctuations and their impact on balance of payments.
  • Dubbed as the Quarterly Projection Model 2.0, the RBI’s economists describe the framework as a forward-looking, open economy, calibrated, new-Keynesian gap model. The previous version had often been criticized for over-estimating upside risks to inflation.

The new model is broken into three blocks:

  • Fiscal Block: The first, or fiscal block, decomposes the government’s primary deficit into structural and cyclical components. A shock to the former impacts inflation through aggregate demand and country risk premia; for instance, a structural increase in the deficit would create a positive output gap and the higher debt makes borrowings costlier and depreciates the currency, leading to higher inflation. A cyclical shock is negligible.
  • Fuel Block: The second, or fuel block, takes into account India’s complex system of pricing. Items like petrol and diesel are priced on the basis of international oil prices, exchange rates, and local taxes, while liquefied petroleum gas and kerosene prices are market-determined but with lagged pass-through. Electricity costs are administered by state governments. Headline inflation goes up by 25 basis points in response to a fuel tax increase of 10 rupees per liter and inflation expectations edge higher and remains entrenched if tax reversals do not happen.
  • Balance of Payments Block: The balance of payments block recognizes the costs associated with spurts in volatility in the exchange rate. In case of a capital outflow shock of 1% of GDP, and assuming the RBI intervenes and sterilizes 70% of this outflow, reserves will deplete by 0.7% of GDP and the exchange rate will depreciate, inducing inflationary pressure.

DFI Will Be Set Up For Long-term Infra Funds

  • The Union Cabinet has approved a bill to set up Development Finance Institution (DFI) with an initial capital infusion of 20 thousand crore rupees.
  • The bill will be tabled in Parliament during the current Budget Session.
  • DFI is expected to raise long-term funds for infrastructure development projects in the country.
  • The initial grant to the DFI will be 5 thousand crore rupees and additional increments of grants will be made within the limit of 5 thousand crore rupees.

First Export Consignments Of ‘Red Rice’ From Assam To The USA

  • In a major boost to India’s rice exports potential, the first consignment of ‘red rice’ was flagged off on 4th March 2021 to the USA.
  • Iron rich ‘red rice’ is grown in Brahmaputra valley of Assam, without the use of any chemical fertilizer.
  • The rice variety is referred as ‘Bao-dhaan’, which is an integral part of the Assamese food.
  • APEDA is promoting rice exports through collaborations with various stakeholders in the value chains. The government had set up the Rice Export Promotion Forum (REPF), under the aegis of the APEDA.

Economic Survey 2020-21 Introduced Bare Necessities Index

  • To assess equity, Economic Survey 2020-21 has introduced a bare necessities index.
  • The Survey has underlined the need to focus on reducing variations in the access to bare necessities across states, between rural and urban areas, and between income groups.
  • Inequalities in access to bare necessities like drinking water, sanitation, hygiene and housing conditions continue to exist between urban and rural India despite “widespread” improvements in each of these aspects, the Economic Survey for 2020-21 has shown.
  • The BNI builds on the idea of Thalinomics in the Economic Survey for 2019-20, through which it had sought to examine the access to food in the country.
  • The BNI summarises 26 indicators on five dimensions — water, sanitation, housing, micro-environment, and other facilities — and has been created for all states for 2012 and 2018 using NSO data. The index classifies areas on three levels of access — high, medium, low — to bare necessities.
  • Government schemes such as the Jal Jeevan Mission, SBM-G (Swachh Bharat Mission-Gramin), PMAY-G (Pradhan Mantri Awaas Yojana), may design appropriate strategy to address these gaps to enable India to achieve the SDG (UN Sustainable Development Goals) goals of reducing poverty, improving access to drinking water, sanitation and housing by 2030.

EDISON Alliance to Ensure Equitable Access to Digital Economy

  • At the Davos Summit 2021, the World Economic Forum (WEF) has launched Essential Digital Infrastructure and Services Network, or EDISON Alliance.
  • The aim of this alliance is to ensure global and equitable access to the digital economy.
  • The EDISON Alliance will prioritize digital inclusion as a platform of partners with a common purpose for achieving the Sustainable Development Goals. In 2021, the Alliance will focus on increasing digital inclusion in healthcare, education and financial services.

Global AI Action Alliance (GAIA)

  • At the Davos Summit 2021, the World Economic Forum (WEF) has launched the Global AI Action Alliance (GAIA), an initiative to accelerate the adoption of inclusive, transparent and trusted artificial intelligence.
  • The GAIA is a multi-stakeholder collaboration platform designed to accelerate the development and adoption of such tools globally and in industry sectors.
  • It brings together over 100 leading companies, governments, international organisations, non-profits and academics united in their commitment to maximising AI's societal benefits while minimising its risks.

Ministry Of Corporate Affairs Brings Amended CSR Rules Into Effect

The Ministry of Corporate Affairs has released a new order notifying the amendments in the CSR rules for companies.

  • The provisions of the 2019 Amendment to the Companies Act, 2013 pertaining to Corporate Social Responsibility (CSR) came into force on January 22.
  • These rules may be called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.

New Provisions

  • Every entity that intends to undertake any CSR activity will have to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar of Companies, with effect from April 1, 2021.
  • Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally.
  • On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.

Besides this, companies undertaking CSR activities will have to share:

  • Impact Assessment for big CSR projects.
  • Carry forward and set off of CSR expenditure Annual action plan for CSR by Board every year in addition to CSR policy.
  • Tweaks in reporting formats of Board Report.
  • Mandatory disclosure of CSR projects and activities on company website.
  • Capital Asset acquisition and its holding restricted to three bodies broadly.
  • In the event of the company failing to spend the earmarked two percent of net profits towards CSR, it will "have to specify the reasons for not spending the amount" and, unless the unspent amount relates to any ongoing project, transfer it to a government notified fund.

“Liberalised MSME AEO Package” For MSMEs

The Central Board of Indirect Taxes & Customs (CBIC) has taken a new initiative to introduce its flagship “Liberalised MSME AEO Package” for micro, small and medium enterprises (MSMEs).

  • Through this package, CBIC encourages all eligible MSMEs to avail advantages of faster Customs clearances for accredited stakeholders in the global supply chain viz. importers, exporters, logistic service providers, custodians, etc.
  • To attract MSMEs to become Authorised Economic Operators (AEOs) and avail the various benefits, the CBIC has relaxed the compliance criteria provided the MSMEs have a valid certificate from their line-Ministry.
  • The relaxed requirements allow MSMEs who have filed minimum 10 Customs clearance documents in one year and who have a clean compliance record over two years to apply for the scheme. The documentary requirements have also been appreciably simplified.

Benefits for AEOs

  • The approved AEOs derive various benefits including the facility of Direct Port Delivery (DPD) of imported containers, Direct Port Entry (DPE) of their Export Containers, high level of facilitation in customs clearance of their consignments thereby ensuring shorter cargo release time, exemption from bank guarantees, as well as a Client Relationship Manager at the customs port as a single point of interaction.

RBI Fully Operationalizes ‘College Of Supervisors’

The Reserve Bank of India (RBI) is now fully operationalising a College of Supervisors (CoS) to further strengthen supervision over regulated entities.

Objective of CoS

  • To augment and reinforce supervisory skills among its regulatory and supervisory staff both at entry level and on a continuous basis.
  • To facilitate the development of unified and focused supervision by providing training and other developmental inputs to the concerned staff.

Composition of the CoS

  • The CoS will be headed by former deputy governor of RBI, N S Viswanathan and will have five other members.
  • The CoS will have a full-time Director supported by an Academic Advisory Council (AAC).Rabi Narayan Mishra, former Executive Director, RBI, has been appointed as the Director of CoS.

Function of AAC

  • The AAC will identify areas where skill building/up-skilling is required, plan and develop curricula of all programmes, benchmark the programmes with international standards/best practices, develop appropriate teaching methods, etc.

RBI Introduces Legal Entity Identifier

The Reserve Bank of India on December 5, 2021 introduced the Legal Entity Identifier (LEI) for large value transactions over Rs 50 Crore in Centralised Payment Systems, which will be effective from April 1, 2021.

  • The 20-digit LEI number is used to uniquely identify parties to financial transactions worldwide while improving the quality and accuracy of financial data systems for better risk management post the global financial crisis.
  • Those seeking to obtain an LEI can reach out to any Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). In India, RBI has given the permit to Legal Entity Identifier India Ltd. (LEIL) to issue LEI under the Payment and Settlement Systems Act, 2007.

RBI Operationalizes PIDF Scheme to Boost Digital Payments

  • The Reserve Bank has operationalised Payments Infrastructure Development Fund to create 30 lakh new touch points every year for digital payments in Tier-3 to Tier-6 centres.
  • In June last year, the RBI had announced the creation of Payments Infrastructure Development Fund (PIDF).
  • The fund intended to subsidise deployment of payment acceptance infrastructure in Tier-3 to Tier-6 centres, with special focus on the north-eastern states.
  • An Advisory Council (AC), under the Chairmanship of RBI Deputy Governor BP Kanungo, has been constituted for managing the PIDF.
  • It will be operational for a period of three years from January 01, 2021, and may be extended for two more years, depending upon the progress.
  • The objective of PIDF is to increase the number of acceptance devices multi-fold in the country.
  • The Scheme is expected to benefit the acquiring banks/non-banks and merchants by lowering overall acceptance infrastructure cost.

Govt. Extends Benefit Of RoDTEP Scheme To All Export Goods

  • Government has decided to extend the benefit of the scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all export goods with effect from 1 January 2021 to boost export.
  • The scheme will refund to exporters the embedded Central, State and local taxes that were so far not being given rebate or refunded.
  • The refund will be credited in the exporter's ledger account with Customs and used to pay Basic Customs duty on imported goods. The credits can also be transferred to other importers.
  • The RoDTEP rates will be notified shortly by the Department of Commerce, based on the recommendation of a Committee chaired by former Commerce and Home Secretary Dr. G.K. Pillai.
  • The final Report of the Committee is expected shortly.
  • An exporter desirous of availing the benefit of the RoDTEP scheme will have to declare his intention for each export item in the shipping bill or bill of export.
  • The notified rates, irrespective of the date of notification, shall apply with effect from 1st January, 2021 to all eligible exports of goods.

Initiatives Towards Controlling GST Frauds

  • Various measures have been taken by the GST Council Secretariat towards the rising menace of GST fake invoice frauds.
  • oMandatory Physical Verification:The government has introduced mandatory in-person physical verification of business premises for the purposes of obtaining GST registration.
  • oBiometric-Based Aadhaar Authentication: In case an applicant opts for Aadhaar authentication, he will undergo biometric-based Aadhaar authentication at one of the facilitation Centres notified by the Commissioner.
  • o‘Pay 1% in Cash’: Separately, a new rule has been introduced by the Central Board of Indirect Taxes and Customs that mandates businesses with monthly turnover of over Rs. 50 lakh to pay at least 1% of their GST liability in cash instead of using input tax credits to discharge their entire liability.
  • oChanges in Validity of e-Way Bills: The validity of e-way bills has also been tweaked, doubling the distance to be covered for each day of validity, effective January 1. Till now, an e-way bill for transporting goods under GST allowed transporters to cover 100 km in one day. Now, that distance for each day of validity has been increased to 200 km. While four days were granted in terms of e-way bill validity to cover 400 km, going forward, only two days will be granted for the same distance.

First ‘International Day Of Banks’

  • The United Nations (UN) celebrated the first ever International Day of Banks across the globe on 4th December 2020.
  • The United Nations General Assembly (UNGA) adopted the resolution on 19th December 2019.
  • The day is observed to recognise the important potential of multilateral development banks and other international development banks in financing sustainable development.
  • This reaffirms the importance of achieving the targets of Sustainable Development Goals (SDG) by 2030.

Technology Vision For Cyber Security For Urban Co-operative Banks – 2020-2023

  • On 24th September, 2020, the Reserve Bank of India(RBI) released Cyber Security Vision Framework for Urban Cooperative Banks (UCBs).


  • In recent time, the number, frequency and impact of cyber incidents/attacks have increased manifold in the financial sector including Urban Co-operative Banks (UCBs).
  • Therefore, it has, become essential to enhance the security posture of UCBs so as to prevent, detect, respond to and recover from cyber-attacks.


The framework aims at enhancing the cyber security posture of the UCB sector through a five-pillared strategic approach –GUARD

  • Governance Oversight
  • Utile Technology Investment
  • Appropriate Regulation and Supervision
  • Robust Collaboration
  • Developing IT and Cyber Security Skills Set

Mission – Specific Action Points

Governance Oversight

Focus on Board Oversight

  • The Board of Directors shall be ultimately responsible for the information security of the UCBs and shall play a proactive role in ensuring an effective IT (Information Technology) and IS (Information Security) governance.

IT Vision Document

  • UCBs could play a crucial role in strengthening financial inclusion.
  • Therefore, UCBs need to develop their own technology vision document outlining their plans to incorporate IT solutions into their business in a secure manner.

Utile Technology Investment

Creation of Fund for Implementation of Cyber Security Projects

  • Fund for cyber security projects may be created out of UCBs’ annual net profits over a period of time.

Management of Business IT Assets

  • In order to have proper monitoring of life cycle of its IT assets, both hardware and software, UCBs shall venture to invest and upgrade their IT infrastructure.
  • Furthermore, a comprehensive process for Software License Management (SLM) shall be implemented by the UCBs.

Banking Services Availability

  • In order to avoid major operational disruptions, UCBs shall have a Business Continuity Plan (BCP).
  • The focus may be on prioritizing systems and processes in order to keep business operating smoothly and safely.

Appropriate Regulation and Supervision

Supervisory Reporting Framework

  • Considering the large number of UCBs, an effective supervision of UCBs will be setup to monitor compliance of UCBs with respect to cyber security guidelines.

Appropriate Guidance in Implementing Secure Practices

  • A uniform Cyber Security Hygiene document for all the cooperative banks shall be issued.
  • It shall cover various best practices such as Privilege access management, network segmentation,secure configuration and security incident.

Robust Collaboration

Forum to Share Best Practices

  • UCBs may explore the possibility of setting up a forum at State/regional level with stakeholders from various banks.

Adoption of Cloud Services

  • Cost effective technologies such as cloud based services may be used for implementing IT solutions and cyber security controls after taking appropriate risk assessment.

Developing IT and Cyber Security Skills Set

Imparting Technical Skills to manage IT and Cyber Security

  • Targeted skill-oriented training and certification programmes would be designed to impart technical skills to personnel for managing the risk of cyber security.
  • Steps would be taken to tap expertise available in various institutes/ universities across the country to provide such training in regional languages.

Providing Training for all UCBs on Cyber Security

  • Awareness training programmes would be imparted to all UCBs through various training institutes of the RBI and other such institutes approved by RBI.
  • The main objective is to communicate the cyber security challenges and regulatory expectations to the UCBs in local language for better understanding of the cyber security.


  • The implementation of the approach outlined in Technology Vision document will strengthen the cyber resilience ecosystem of the Urban Co-operative Banks.

Fin CEN Files

FinCEN Files is a cross-border investigation based on secret documents that exposes how banks and regulators have failed the public by allowing dirty money to flow unchecked around the globe. It shows how politicians, crooks, and tycoons profit at the expense of governments and ordinary people.

  • The FinCEN Files are leaked documents from the Financial Crimes Enforcement Network (FinCEN), investigated by International Consortium of Investigative Journalists (ICIJ), and globally publicised on 20 September 2020.
  • The reports describe over 200,000 suspicious financial transactions valued at over US$2 trillion that occurred from 1999 to 2017 across multiple global financial institutions.
  • The documents appear to show that while both the banks and the United States Government had this financial intelligence, they did little to stop activities such as money laundering.
  • The information implicates financial institutions in more than 170 countries who played a role in the facilitation of money laundering and other fraudulent crimes.

What is FinCEN?

  • It is a bureau of the United States Department of the Treasury that collects and analyses information to combat money laundering, terrorism financing, evasion of economic sanctions and other financial crimes.
  • FinCEN collates suspicious activity reports (SARs), reports required to be filed by financial institutions when they suspect their clients are engaging in financial crime.
  • Unauthorized disclosure of a SAR is a US Federal criminal offense, as it could undermine or hamper ongoing investigations, and threaten the safety of financial institutions and those who file the SARs.
  • SARs are not evidence of a crime, but the FinCEN claims they provide vital information to the investigate crimes.

Who worked on the FinCEN Files investigation?

  • ICIJ, BuzzFeed News and 108 other media partners in 88 countries spent 16 months organizing and analyzing leaked documents, and obtaining hundreds of other confidential documents, court records, archives, public records, and interviews.

What is ICIJ?

  • The International Consortium of Investigative Journalists (ICIJ) is an independent, Washington, D.C.-based international network of more than 200 investigative journalists and 100 media organizations in over 70 countries.

‘Aatmanirbhar Bharat ARISE-Atal New India Challenges’Programme

  • The Centre on September 9 launched the Aatmanirbhar Bharat ARISE-Atal New India Challenges programme to support MSMEs and start-ups for making India innovative, resilient, tech-driven, and research and development (R&D)-oriented.
  • The NitiAayog's Atal Innovation Mission (AIM), in collaboration with ISRO and four ministries (defence, health and family welfare, housing and urban affairs, and food processing industries), will focus on challenges in 15 sectors through the programme.
  • The programme provides a great opportunity for the government to become the first buyer of indigenous Made in India technology solutions.
  • A grant-in-aid of up to Rs 50 lakh for 9-12 months have been earmarked for start-ups to develop a minimum usable prototype.
  • The AIM is a flagship initiative of the NitiAayog to promote innovation and entrepreneurship in the country, based on detailed study and deliberations on innovation and entrepreneurial needs of India in the years ahead.

K V Kamath Committee Report On ‘Resolution Framework For Covid-19 Related Stress’

  • On 7th September, 2020,the Reserve Bank of India (RBI) released a report by the K V Kamath Committee which was formed to make recommendations on the required financial parameters to be factored in the resolution plans under the ‘Resolution Framework for Covid-related Stress’, along with sector specific benchmark ranges for such parameters.

Key Highlights

  • The Committee recognizes that:
    • The Covid-19 pandemic has affected the best of companies.
    • These businesses were otherwise viable under pre-Covid-19 scenario.
    • Impact is pervasive across several sectors but with varying severity – mild, moderate and severe.
  • The committee has recommended financial parameters including aspects related to leverage, liquidity and debt serviceability.
  • It selected five parameters based on their relevance while considering the resolution plan(RP).These ratios would provide the requisite assessment framework for the RP. These include:
    • Total Outside Liability/Adjusted Tangible Net Worth (TOL/Adjusted TNW)
    • Total Debt/EBIDTA
    • Current Ratio
    • Debt Service Coverage Ratio (DSCR)
    • Average Debt Service Coverage Ratio (ADSCR)
  • It suggested financial ratios for 26 sectors which could be factored by lending institutions while finalising a resolution plan for a borrower. These sectors include aviation, hospitality, real estate which are some of the most stressed sectors in the economy due to the impact of Covid-19 pandemic.

Source: Business Standard

  • Considering the large volume and the fact that only Standard assets are eligible under the proposed scheme, a segmented approach of bucketing these accounts under mild, moderate and severe stress, may ensure quick turnaround.
  • To complete this task simplified restructuring for mild and moderate stress may be prescribed. Severe stress cases would require comprehensive restructuring.

Key Recommendations on Sector Specific Parameters

  • The sector specific parameters may be considered as guidance for preparation of RP for a borrower in the specified sector.
  • The RP may be prepared based on the pre-Covid-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21 / FY22 and subsequent years. In these financial projections, the threshold TOL/Adjusted TNW and Debt/ EBIDTA ratios should be metby FY23.
  • The other three threshold ratios should be met for each year of the projections starting from FY22. The base case financial projections need to be prepared as part of RP.
  • In respect of those sectors where the threshold parameters have not been specified by the Committee, lenders can make their own internal assessments for the solvency ratios i.e. TOL/Adjusted TNW and Total Debt/EBIDTA. However, the current ratio and DSCR shall be 1.0 and above, and ADSCR shall be 1.2 and above.
  • The Committee has uniformly proposed thresholds for current ratio, DSCR and ADSCR in most of the sectors.
  • The borrowers eligible under the current Framework are Standard Accounts and as such, they may require some time to restore their position to pre-Covid-19 levels.
  • As per the recommendations, the resolution process should be treated as invoked once lenders representing 75 percent by value and 60 percent of lenders agree to do so.


  • According to the experts, the K V Kamath panel's loan recast recommendations are better than the erstwhile corporate debt restructuring (CDR) mechanism, but these may result in banks postponing recognition of stress through short-term relief.
  • The CDR was extensively used to suppress non-performing assets and had a success rate of as low as 15 percent.
  • The framework is for a limited time-period and stresses upon upfront heavy provisioning, stringent financial thresholds for eligibility and supervisory mechanism.
  • In the absence of an economic revival and sector-specific packages to be introduced by the government, the new mechanism will be "challenging" and may also end up induce uncertainty in the credit markets as banks focus on working out the recast plans in the limited window.
  • Stressed borrowers in real estate, traders, hotels/restaurants segments will be helped, but resolving stress in lumpy power and infrastructure sectors through this mechanism will be challenging without economic revival and sector-specific packages or initiatives by the government.
  • It is feared a "good portion" of the accounts which will be restructured will eventually turn non-performing and added that it gives a ""short-term relief" alone.
  • The framework is much broader than anticipated but leaves some scope for subjectivity as thresholds are to be met 2021-22 onwards based on base-case financial projections.

Shapes Of Economic Recovery

The shapes of economic recovery is determined by both the speed and direction of GDP prints. This depends on multiple factors including fiscal and monetary measures, consumer incomes and sentiment.

  • Z-shaped recovery: It is the most-optimistic scenario in which the economy quickly rises like a phoenix after a crash. It more than makes up for lost ground (think revenge-buying after the lockdowns are lifted) before settling back to the normal trend-line, thus forming a Z-shaped chart.
  • V-shaped recovery: It isthe next-best scenario in which the economy quickly recoups lost ground and gets back to the normal growth trend-line.
  • U-shaped recovery: It is a scenario in which the economy, after falling, struggles and muddles around a low growth rate for some time, before rising gradually to usual levels.
  • W-shaped recovery: It is a serious situation - growth falls and rises, but falls again before recovering yet again, thus forming a W-like chart.
  • L-shaped recovery: Itis the worst-case scenario, in which growth after falling, stagnates at low levels and does not recover for a long, long time.
  • J-shaped recovery: It is a somewhat unrealistic scenario, in which growth rises sharply from the lows much higher than the trend-line and stays there.
  • Swoosh shaped recovery:It is similar to the Nike logo — in between the V-shape and the U-shape. Here, after falling, growth starts recovering quickly but then, slowed down by obstacles, moves gradually back to the trend-line.
  • Inverted square root shaped recovery: In this, there could a rebound from the bottom, the growth slows and settles a step down.

K Shaped Economic Recovery

  • As the economy struggles to shake off the pandemic effects, worries are growing that the recovery could look like a ‘K’.
  • Essentially, the concept rests on the idea that while the fortunes of some in the economy have nearly or fully recovered (broadly defined), the fortunes of many are still declining, or at least failing to recover nearly as quickly.
  • K is reflective of the performance of the stock market — a sharp decline followed by sharply divergent pathways.
  • The rolling lockdowns due to Covid 19 have sent the economy into a tailspin. Growth in India, and indeed much of the world, is set to fall off a cliff in FY21.
  • That would be one where growth continues but is uneven, split between sectors and income groups.
  • K-shaped recovery means the growing gap between ‘winners and losers’. An example in India is the stock market being healthy while millions have lost their jobs.

Why is it important?

  • The Indian economy was slowing down even before Covid hit, and the trouble has now been amplified manifold because of the lockdowns.
  • Experts predict a fall of up to 5 per cent in the GDP in FY-21. This is clearly a crisis situation, and our getting out of the hole will depend a great deal on the shape of the economic recovery that will hopefully follow.

Which Shape of Recovery is Favourable?

  • A Z- or at least V-shaped recovery would be the most preferable. If not, we should at least have a U-shaped recovery or a Swoosh to get back on our feet in a couple of years.
  • A W-shape will bring in much pain before the eventual gain, while an L-shape or the Inverted-square root will make a wreck of the growth train.

Andhra Pradesh Top State In Ease Of Doing Business

  • Andhra Pradesh has topped the country in the latest ease of doing business rankings, according to the State Business Reform Action Plan 2020 (State BRAP) ranks released on 5th September 2020.
  • Andhra Pradesh is followed by U.P. and Telangana at the second and third spots, respectively.
  • Ease of Doing Business (EODB) is a joint initiative by the Department for Promotion of Industries and Internal Trade (DPIIT) and the World Bank to improve the overall business environment in the States.
  • The State has stood first in the overall ranking of the State business process reforms undertaken during 2019.
  • The Business Reform Action Plan 2019 released by DPIIT contains a list of 80 reforms (187 reform action points) to be implemented by 19 State departments and Andhra Pradesh had achieved 100% compliance.

Force Majeure Clause

  • A glimpse of the magnitude of the economic destruction wreaked was revealed at the 41st meeting of the Goods and Services Tax(GST) Council, where the shortfall in compensation cess for this year was estimated at around Rs 2.35 lakh crore.
  • The Finance Ministry revealed that the Centre would not be able to make good the shortfall.
  • Now, the businesses are looking towards a legal provision -the Force Majeure or “Act of God” clause that has its origins in the Napoleonic Code - to cut losses.
  • Back in February, 2020, the Ministry had issued an official memorandum clarifying that the pandemic “should be considered a case of natural calamity and FMC may be invoked, wherever considered appropriate”.

About Force Majeure Clause

  • The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’.
  • It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.

Indian Jurisprudence on the Concept of Force Majeure

  • The concept has neither been defined nor specifically dealt with under the Indian statutes.
  • However, some reference can be found in Section 32 of the Indian Contract Act, 1872 (the "Contract Act")
  • It isalso mentioned in the 2017 Manual for Procurement of Goods issued by the Department of Expenditure.

Difference between an “Act of God” and “Force Majeure”

  • Generally, an “Act of God” is understood to include only natural unforeseen circumstances, whereas force majeure is wider in its ambit and includes both naturally occurring events and events that occur due to human intervention.

Situations Legally Qualify for Use of Force Majeure

  • War, riots, natural disasters or acts of God, strikes, introduction of new government policy imposing an embargo, boycotts, outbreak of epidemics and such situations are generally listed.
  • If an event is not described, then it is interpreted in a way that it falls in the same category of events that are described.

Incase Force Majeure Clause is Triggered

  • When the clause is triggered, parties can decide to break from their obligations temporarily or permanently without necessarily breaching the contract.
  • Companies in such situations use the clause as a safe exit route, sometimes in opportunistic ways, without having to incur the penalty of breaching the contract.
  • If a party to a contract believes that the other party has invoked the FMC in an unjustified situation, it can move court seeking performance of the contract.

Incase of Absence of FMC in Contract

  • In case a contract does not have a force majeure clause, there are some protections in common law that can be invoked by parties.
  • For example, the Indian Contract Act, 1872 provides that a contract becomes void if it becomes impossible due to an event after the contract was signed that the party could not prevent.

Court’s View on FMC

  • Court rulings have established that force majeure cannot be invoked when performance of the contract has become difficult, but only when it has become impossible.
  • It looks into whether the party arguing impossibility of performance has tried all other avenues to fulfil its liabilities before invoking force majeure.
  • The court would look into specifics like whether a lockdown imposed to contain the pandemic locally prevented performance of the contract.
  • The court would also look into how unforeseen the cited circumstance really is when catalogued in the contract specifically.
  • In April, 2020, the Bombay High Court did not accept the force majeure argument in a case where the petitioner argued that Covid-19-related lockdowns had frustrated a contract for supply of steel.

Importance of FMC for Businesses

  • It can usually be found in various contracts such as power purchase agreements, supply contracts, manufacturing contracts, distribution agreements, project finance agreements, agreements between real estate developers and home buyers, etc.
  • This provision is important for businesses as it relieves the parties from performing their respective obligations and which are to be undertaken under the contract and consequential liabilities, during the period that force majeure events continue provided that the conditions for clause to become applicable (which have been discussed above) are met.

Global Examples of Invoking FMC

  • In China, where the Covid-19 outbreak originated, the Council for Promotion of International Trade is issuing force majeure certificates to businesses.
  • Also, it had recognised the 2002 SARS outbreak as a force majeure event.
  • Singapore enacted the Covid-19 (Temporary Measures) Act in April, 2020, to provide relief to businesses that could not perform their contractual obligations due to the pandemic.
  • TheParis Commercial Court in July, 2020, ruled that the pandemic could be equated to a force majeure event.

Model Code on FMC

  • The International Chamber of Commerce has developed a Model Code on the force majeure clause reflecting current international practice.
  • It says that the impediment triggering the operation of the force majeure clause must be beyond the party’s reasonable control; and that it could not reasonably have been foreseen at the time of the conclusion of the contract; and that the effects of the impediment could not reasonably have been avoided or overcome by the affected party.

GIS-enabled National Land Bank Portal

  • The Ministry of Commerce and Industry has launched a first-of-its kind GIS-enabled national land bank portal on 27th August.It is a prototype only and will be developed further with inputs from states.
  • It will help investors zero in on land located in various states for potential projects.
  • Investors will also get access to details of logistics, land, rail & air connectivity, tax incentives, drainage system, power supply and raw material availability from the portal on various industrial belts.
  • To start with, extensive information about industrial belts in six states is available on the portal.

National Strategy For Financial Education

  • On 20th August, 2020, the Reserve Bank of India (RBI) released the National Strategy for Financial Education(NSFE): 2020-2025 document in order achieve the vision of creating a financially aware and empowered India.
  • This is the second national strategy; the first NSFE was launched in 2013.

Background and Rationale of NSFE

  • India has a large population of adults.This demographic advantage can beleveraged to ensure that India becomes one of the fastest growing economies, with emphasis on inclusive growth through a vibrant and stable financial system.
  • Over the last few years, there has been rapid progress towards digitalization which has brought newer opportunities to the forefront like never before.
  • There is a paradigm shift in digital transactions and Payment Infrastructure in the country (Goal of Less Cash Economy). Due to all these developments, it has become imperative to revise the existing National Strategy for Financial Education (NSFE) and to adopt innovative measures to implement the same.
  • Towards this objective, the National Centre for Financial Education (NCFE) has been set up by all the Financial Sector Regulators as a Section (8) company under Companies Act, 2013 to undertake basic financial education and to develop suitable content for increasing financial literacy among the masses in the country.

Strategic Objectives of NFSE

  • Inculcate financial literacy concepts among the various sections of the population through financial education to make it an important life skill.
  • Encourage participation in financial markets to meet financial goals and objectives.
  • Develop credit discipline and encourage availing credit from formal financial institutions as per requirement.
  • Improve usage of digital financial services in a safe and secure manner.
  • Manage risk at various life stages through relevant and suitable insurance cover.
  • Knowledge about rights, duties and avenues for grievance redressal.

Major Highlights

  • This NSFE has been prepared by the National Centre for Financial Education (NCFE) in consultation with all the Financial Sector Regulators viz. RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), etc. under the aegis of the Technical Group on Financial Inclusion and Financial Literacy (TGFIFL).
  • To prepare a comprehensive Strategy based on people’s needs and the country’savailable resources, the following process has been adopted in the Indian context:
  • Assessing and evaluating gaps in financial literacy.
  • Comparison of NSFE with the OECD International Network on Financial Education(OECD-INFE) Policy Handbook on National Strategies for Financial Education.
  • It focuses on advancement of skills of financial service providers and other intermediaries involved in dissemination of financial literacy.
  • It intends to support the vision of the Government of India and the Financial Sector Regulators by empowering various sections of the population to develop adequate knowledge, skills, attitudes and behaviour which are needed to manage their money better and to plan for the future.
  • The Strategic Objectives are envisaged to be achieved through the following dimensions-


Key Recommendations

  • In order to achieve the Strategic Objectives laid down, the document recommends adoption of a ‘5 C’ approach-


  • Financial Literacy content for school children (including curriculum and co-scholastic), teachers, young adults, women, new entrants at workplace/ entrepreneurs (MSMEs), senior citizens, persons with disabilities, illiteratepeople, etc.


  • Develop the capacity of various intermediaries who can be involved in providing financial literacy.
  • Develop a ‘Code of Conduct’ for financial education providers.


  • Evolve community led approaches for disseminating financial literacy in asustainable manner.


  • Use technology, mass media channels and innovative ways of communicationfor dissemination of financial education messages.
  • Identify a specific period in the year to disseminate financial literacy messageson a large/ focused scale.
  • Leverage on Public Places with greater visibility (e.g. Bus Stands, RailwayStations, etc.) for meaningful dissemination of financial literacy messages.


  • Preparation of an Information Dashboard.
  • Streamline efforts of other stakeholders for financial literacy.
  • The Strategy also suggests adoption of a robust ‘Monitoring and Evaluation Framework’ to assess the progress made under the Strategy.

Expected Impact

  • The strategy will develop credit discipline and encourage availing credit from formal financial institutions as per requirement. It will improve usage of digital financial services in a safe and secure manner.
  • Besides encouraging active savings behavior, it will encourage participation in financial markets to meet financial goals and objectives.
  • It will help improve research and evaluation methods to assess progress in financial education.

OECD/INFE Policy Handbook on National Strategies for Financial Education

  • It support policy makers and public authorities to design and implement national strategies for financial education and individual financial education programmes, while also proposing innovative methods for enhancing financial literacy among the populations of partner countries.
  • The Policy Handbook was developed at the OECD/INFE technical meeting in Istanbul, Turkey, in May 2014.

Four Key Policy Areas Related to Financial Education

  • Standard setting, implementation and evaluation
  • Financial education and the impact of digitalisation
  • Financial Education in the workplace
  • The impact of ageing populations and the needs of older consumers

 About Financial Education

  • Financial Education is defined as the process by which financial consumers/investors improve their understanding of financial products, concepts and risks and through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help and to take other effective actions to improve their financial well-being.
  • While, Financial Literacy is defined as a combination of financial awareness, knowledge, skills, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.

OECD-INFE Definition of Components of Financial Literacy

  • Financial literacy encompasses aspects of knowledge, attitude and behaviour coveringthe range of context such as money management, planning for short and long termfinancial goals and awareness and choice of financial products.Financial Knowledge involves understanding of key financial concepts and ability toevaluate benefit in real life financial situations. The concept of simple interest, compoundinterest, time value of money, inflation, diversification, division, risk-return and interestpaid on loan are tested to determine the financial knowledge of an individual.
  • Financial Behaviour involves study of day-to-day money management, financialplanning, spending, savings, investment, reliance on credit to meet daily requirement andbuilding a safety net for future well-being.
  • Financial Attitude aims at studying people’s response towards savings, prioritization ofshort-term wants over long-term security, inclination towards risk for future wellbeing.

Components of Financial Education

Basic Financial Education

  • The basic financial education consists of fundamental tenets of financial well-being.With the introduction of Government’s Pradhan Mantri Jan DhanYojana (PMJDY) scheme along with APY, PMJJBY &PMSBY besides MUDRA Yojana, many people have already been included. They alsorequire financial education so that they can take full benefits from these schemes.
  • These basic concepts need to be communicated to everyone by adopting different modes ofdelivery, suitable to the target audience.
  • Special emphasis shall be laid on the financially excluded and those newly included but not operating their accounts.
  • The basic financialeducation acts as a foundation for sector-specific and process education.

Sector Specific Financial Education

  • Sector specific financial education is being imparted by the Financial Sector Regulators and focuses on “What” of the financial services and the contents cover awareness on ‘Do’s & Don’ts’, ‘Rights & Responsibilities’, ‘Safe usage of digital financial services’ and approaching ‘Grievance Redressal’ Authority.

Process Education

  • Process education is crucial to ensure that the knowledge translates into behavior.

Way Forward

  • Financial education plays a vital role in creating demand side response to the initiatives of the supply side interventions.
  • Incidentally, financial education also supports achievement of Sustainable Development Goal (SDG) No. 4 on Education which aims to ensure inclusive and equitable quality education and promote life-long learning opportunities for all (SDG Target 4.6 on Literacy and SDG Target 4.4 on Life Skills under SDG 4 on Education).
  • Financial education initiatives by concerned stakeholders will help people achieve financial well-being by accessing appropriate financial products and services through regulated entities.
  • There is a need to increase the size of banking as well as other financial sectors to ensure that the benefits of these developments reach the common masses.
  • Keeping in view the vast and rapid changes taking place in the financial sector, all the stakeholders need to appreciate the dynamic nature of evolution of financial services and the concomitant changes that are required towards financial literacy.
  • Arobust and scientific assessment method would go a long way in helping Policy makers identify priorities and assess the impact of their interventions.
  • Some of the broad issues that need to be considered in this regard are as under:
  • National Strategy evaluation to include an assessment of the governance, co-ordination and monitoring mechanisms of the implementation methods, the role of stakeholders and the effects of any communication or publicity plans/ initiatives.
  • Each stakeholder needs to clearly plan and articulate their role in the design, development and implementation of the Strategy which shall be monitored through qualitative and quantitative indicators.
  • A scientifically designed template for gathering feedback through various channels, from both the beneficiaries of financial literacy programmes and the intermediaries involved in disseminating the same, needs to be prepared and periodically reviewed keeping in view the vast changes in the financial sector.
  • Selection of appropriate evaluation methods need to be finalized in view of the challenges involved in evaluation.

RBI’s New Loan Recast Scheme

  • On 6th August, 2020, the Reserve Bankof India(RBI) gave the green signal to a loan restructuring scheme for stressed borrowers.
  • The so called ‘Resolution Framework for Covid19-related Stress’, has been announced as a special window under the Prudential Framework on Resolution of Stressed Assets issued on June 7, 2019.


  • Only those companies and individuals whose loans accounts are in default for not more than 30 days as on March 1, 2020, are eligible for one-time restructuring.
  • For corporate borrowers, banks can invoke a resolution plan till December 31, 2020 and implement it till June 30, 2021.
  • For personal loans, the resolution plan can be invoked till December 31, 2020 and will be implemented within 90 days thereafter.


  • The RBI has set up a five-member expert committee headed by K V Kamath, former Chairman of ICICI Bank, which will make recommendations on the financial parameters required.

How it is Differentfrom Previous Recast Schemes

  • Entry Barriers:The earlier restructuring schemes did not have any entry barrier, unlike the current scheme that is available only for companies facing Covid-related stress, as identified by the cut-off date of March 1, 2020.
  • Defined Timeline:Strict timelines for invocation of resolution plan and its implementation have been defined in the scheme, unlike in the past when this was largely open-ended.
  • ICA Signing Mandatory:The structuring of the scheme makes signing of theInter-Creditor Agreements (ICA) largely mandatory for all lenders once the resolution plans has been majority-voted for, otherwise they face twice the amount of provisioning required.
  • Independent Validation:Loans above Rs 100 crore will require only one credit agency’s validation.Large loans above Rs 1,500 crore will also require to be vetted by Kamath committee.
  • Penalties for Delays: Earlier schemes had no disincentives for lenders delaying an agreement for restructuring. The present scheme provides a for a 20% penal provision for lenders not signing the ICA.
  • Post-Monitoring Performance: In this scheme a default with any of the lenders will automatically lead to a 30-day review period. Loans will be classified as NPAs if 10% repayment is not done during this period.


  • Key sectors, such as micro, small and medium enterprises (MSMEs), hospitality, aviation, retail, real estate and auto, which are facing liquidity crunch, will benefit from the move.
  • This restructuring plan will also enable lenders to implement a resolution plan in respect of eligible corporate debtors without a change in ownership, while classifying such exposures as standard, if they meet certain conditions.
  • The central bank’s move will also incentivise banks to lend more to corporates through bonds, something that had stalled in the wake of covid-19.
  • The biggest impact will be that banks will be able to check the rise in non-performing assets (NPAs) to a great extent.
  • However, it will not bring down the NPAs from the present levels; legacy bad loans of close to Rs 9 lakh crore will remain within the system.
  • Banks will have to maintain additional 10% provisions against post-resolution debt, and lenders that do not sign the ICA within 30 days of invocation of the plan will have to create a 20% provision.

Misuse of Earlier Restructuring Scheme by  Banks and Corporates

Corporate Debt Restructuring (CDR)

  • The RBI discontinued the CDR scheme from April 1, 2015.
  • For several years, corporates were misusing the debt recast plans with the regulator turning a blind eye to manipulations by shady promoters in connivance with some banks.
  • The promoters of many big corporates siphoned off bank funds while their units suffered. They approached the CDR Cell and to get their loans recast, some of them more than once.
  • These promoters managed to get fresh loans and they used liberal loan recasts to evergreen their accounts and keep out of the NPA books.

Strategic Debt Restructuring (SDR)

  • Under the SDR scheme, banks were given an opportunity to convert the loan amount into 51% of equity which was to be sold to the highest bidder, once the firm became viable.
  • This was unable to help banks resolve their bad loan problem as only two sales have taken place through this measure due to viability issues.

Sustainable Structuring of Stressed Assets (S4A) Scheme

  • Under this, banks were unwilling to grant write-downs as there were no incentives to do so, and write-downs of large debtors could exhaust banks’ capital cushions.


  • The 5/25 scheme was derailed because refinancing was done at a higher rate of interest so that banks could preserve the net present value of the loan amount.
  • There was a perception that this was one of the tools deployed to cover NPAs by banks.

Asset Reconstruction Scheme(ARC)

  • In the ARC, the major problem was that asset reconstruction companies (ARCs) were finding it difficult to resolve assets they had bought from banks. Therefore, they wanted to purchase the loans only on low prices.
  •  Consequently, banks were reluctant to sell them loans on a large scale.

 Provisions against Misuse

  • The RBI has built in safeguards in the resolution framework to ensure it does not lead to ever-greening of bad loans as in the past.
  • Restructuring of large exposures will require independent credit evaluation done by rating agencies and a process validation by the Kamath-led expert committee.
  • Unlike in the case of restructuring of larger corporate exposures, for personal loans there will be no requirement for third party validation by the expert committee, or by credit rating agencies.
  • The RBI has said that the term of loans under resolution cannot be extended by more than two years.
  • To mitigate the impact of expected loan losses, banks need to make a 10% provision against such accounts under resolution.

KV Kamath Committee

  • On 7th August, 2020, the RBI constituted an expert panel headed by K V Kamath, to give recommendations on the required financial parameters, along with the sector specific benchmark ranges which need to be factored into the resolution plans.
  • Other Members:Diwakar Gupta (effective September 1, 2020, after the completion of his term as Vice President, ADB);T.N. Manoharan (effective August 14, 2020, after the completion of his term as Chairman, Canara Bank);Ashvin Parekh, Strategy AdvisorCEO, Indian Banks’ Association, as the Member Secretary.
  • The expert committee shall undertake the process validation for the resolution plans to be implemented under this framework, without going into the commercial aspects, in respect of all accounts with aggregate exposure of Rs1,500 crore and above at the time of invocation.
  • The Indian Banks’ Association (IBA) will function as the secretariat to the committee and the committee will be fully empowered to consult or invite any person it deems fit.
  • The Committee shall submit its recommendations on the financial parameters to the Reserve Bank which, in turn, shall notify the same along with modifications, if any, in 30 days.

Pre-Packaged Deals In Insolvency And Bankruptcy Code

  • The Ministry of Corporate Affairs (MCA) has set up a committee to look into the possibility of including what are called “pre-packs” to offer faster insolvency resolution under the Insolvency and Bankruptcy Code (IBC).


  • Since the start of the year 2019, the Government has been planning to introduce the concept of Pre-Package Insolvency Schemes in the Indian Insolvency & Bankruptcy Code (IBC).
  • Now due to COVID-19, the businesses all over the country are worst hit since the global economic slowdown of 2008-2009 and it is imperative that the Government would chalk out a more concrete plan for the implementation of this system.


  • Slow progress in the resolution of distressed companies has been one of the key issues raised by creditors regarding the Corporate Insolvency Resolution Process (CIRP) under the IBC.
  • Under the IBC, stakeholders are required to complete the CIRP within 330 days of the initiation of insolvency proceedings.

About ‘Pre-Packs’

It is an agreement for the resolution of the debt of a distressed company through an agreement between secured creditors and investors instead of a public bidding process.

A pre-pack process is carried out by the debtors who try to keep their entity afloat and try to negotiate with the creditors for a resolution of the debt. Therefore, if such a process fails, it can always lead to a creditor filing an application under Section 7 or 9 of the IBC and triggering insolvency.

The objectives are -

  • To obtain a better return to creditors than would be possible if the company were to be sold through an insolvency process (through the preservation of value that could otherwise be eroded because of a formal insolvency process);
  • To reduce professional costs associated with an insolvency process by streamlining the process;
  • To provide certainty of outcome to stakeholders (including creditors and the purchaser).
  • These objectives are aligned to the objectives of the corporate insolvency resolution process (CIRP).


  • Retaining Business in the Hands of Existing Management: It can incentivise the existing management and promoters of the company to initiate the pre-pack proceedings before the occurrence of a default or at an earlier stage of default. It can help the business to retain its current management and would be agreed by the creditors as they generally agree to hold on to the existing management.
  • Better Return: In most cases it would provide a better return to the creditors. In a pre-pack scheme, the value would be determined beforehand which would yield better returns to the creditors.
  • Speedy & Cheaper Resolution: Pre-packs are usually a cheaper and less time-consuming method than the proper insolvency and bankruptcy proceedings. It reduces the legal cost involved in the formal procedure and also the insolvency professional cost.
  • Certainty of Outcomes: There is a surety of the outcome since the resolution plan has been discussed and finalized beforehand.This gives a lot of confidence to the creditors since they are assured of their money and helps put more faith in the Corporation Insolvency Resolution Process (CIRP).
  • Reducing Burden: If implemented in India, the pre-pack schemes will reduce the already burdened NCLT’s as already there will exist a resolution plan.

Issues with Pre-pack

  • Reduced Transparency:The key issue of a pre-packaged insolvency resolution is the reduced transparency compared to the CIRP as financial creditors would reach an agreement with a potential investor privately and not through an open bidding process. This could lead to stakeholders such as operational creditors raising issues of fair treatment when financial creditors reach agreements to reduce the liabilities of the distressed company.
  • No Shield of Moratorium: Another major concern that may arise during the pre-pack scheme implementation is that it would not have the shield of moratorium like it is there when a case is admitted under Section 7 or 9 of IBC.
  • Biased towards Secured Creditors:One major criticism of pre-pack schemes is that it is more in the favour of secured creditors and neither do the operational creditors have much say in the negotiation nor they are given a fair share. This challenge has to be overcome if pre-pack schemes are to be implemented in India.

Way Forward

  • With the current Pandemic creating havoc in almost every industry, it is almost certain that a lot of companies would be pushed into insolvency in the coming times and there this scheme of pre-packaged deals, if introduced, may act as a catalyst in helping those companies survive.
  • It is expected and emphasized that if the pre-pack system is implemented well, it would lead to smoother implementation of resolution plans, would promote growth and keep the company as a going concern while retaining jobs and ensuring creditors receive the funds due to them.
  • Especially during these difficult financial times, it is imperative that such a system would only yield fruitful results and would have more pros than cons.

15th India-EU Summit

  • The 15th India-European Union Summit was held virtually.
  • It was co-chaired by Prime Minister Narendra Modi, President of European Council Charles Michel and President of European Commission Ursula von der Leyen. 
  • India and the European Union signed a civil nuclear agreement before the India-EU virtual summit.
  • Though India-EU summits discuss several topics, the major thrust has been working on a Broad-based Trade and Investment Agreement (BTIA) since 2007, but India's trade regime and regulatory environment remains comparatively restrictive that is why after several rounds of negotiations still there is no consensus on Free Trade Agreement.
  • Differences related to matters such as the level of FDI & market access, manufacture of generic drugs, greenhouse gas emissions, civil nuclear energy, farming subsidies, regulation & safeguards of the financial sector, cooperation on tax evasion, overseas financing of NGOs in India, trade controls, technology transfer restrictions and cooperation on embargoes (Russia) are the hurdles.

India-EU Economic Relations

  • The EU is India's largest trading partner, whilst India is the EU's 9th largest partner. The EU is the second-largest destination for Indian exports after the USA.
  • The EU's share in foreign investment inflows to India has more than doubled from 8% to 18% in the last decade, making the EU the first foreign investor in India. The EU’s foreign direct investment stocks in India is also significant but way below to EU foreign investment stocks in China (€175 billion) or Brazil (€312 billion).
  • Some 6,000 European companies are present in India, providing directly 1.7 million jobs and indirectly 5 million jobs in a broad range of sectors. Indian companies invested over €50 billion in Europe since 2000. 

India Digitization Fund

  • Technology giant Google will invest $10 billion (₹75,000 crore) in India over the next five-seven years with a focus on digitising the economy and building India-first products and services.
  • The investment will focus on four areas important to digitization including:
  1. Enabling affordable access and information for every Indian in their own language,
  2. Building products and services that are deeply relevant to India’s unique needs,
  3. Empowering businesses in their digital transformation journey, and
  4. Leveraging technology and AI for social good, in areas like health, education, and agriculture.

US Remains India's Top Trading Partner

  • The US remained India's top trading partner for the second consecutive fiscal in 2019-20 according to the data of the Commerce Ministry.
  • The US is one of the few countries with which India has a trade surplus.
  • The trade gap between the countries has increased to $17.42 billion in 2019-20 from $16.86 billion in 2018-19.
  • In 2018-19, the US first surpassed China to become India's top trading partner.
  • The bilateral trade between India and China has dipped to $81.87 billion in 2019-20 from $87.08 billion in 2018-19. Trade deficit between the two neighbours have declined to $48.66 billion in 2019-20 from $53.57 billion in the previous fiscal.
  • The data also showed that China was India's top trading partner since 2013-14 till 2017-18. Before China, UAE was the country's largest trading nation.

India: Second-Largest Foreign Investor In UK

  • India has become the second largest Foreign Direct Investor in the United Kingdom (UK) after the United States in 2019, by investing in 120 projects and creating 5,429 new jobs in the UK.

Capital Infusion For Three Public Sector General Insurance Companies

  • The Union Cabinet has approved the capital infusion in the three Public Sector General Insurance Companies (PSGICs) namely Oriental Insurance Company Limited (OICL), National Insurance Company Limited (NICL) and United India Insurance Company Limited (UIICL).
  • The capital infusion will enable the three PSGICs to improve their financial and solvency position, meet the insurance needs of the economy, absorb changes and enhance the capacity to raise resources and improved risk management.

15th FC & Health Financing

  • The Fifteenth Finance Commission, for the first time, will devote an entire chapter on health financing.
  • The High Level Committee on Health sector constituted by Fifteenth Finance Commission and the World Bank will dove-tail their study and analysis to come up with suitable recommendations for health sector.
  • The Government of India’s spending on health through centrally sponsored schemes will also be studied in detail by the Commission before it gave its recommendations to the Union government.

WTO Dispute Settlement Body Sets Up Panel Against India’s ICT Duties

  • The World Trade Organization (WTO) Dispute Settlement Body (DBS) has established a panel after the European Union (EU) has dragged India into the Dispute Settlement System of WTO for the second time against import duties on ICT (information and communication technology) products, including mobile phones, cameras, headphones and earphones, imposed by the country.
  • India is levying a fee upto 20 % on them & these charges will affect the EU’s exports of 400 million euros annually.

Tamil Nadu Tops Market Borrowings Among States

  • According to data from the Reserve Bank of India (RBI), Tamil Nadu has raised ₹30,500 crores in the fiscal 2020-21 and has topped market borrowings among States in the country.
  • Tamil Nadu has been followed by Maharashtra ₹25,500 crores (14%), Andhra Pradesh ₹17,000 crores (9%) and Rajasthan ₹17,000 crores (9%).

Merger Of Banks

  • The merger of 10 public sector undertaking banks into four came into effect from 1st April, 2020.


  • In the biggest consolidation exercise in the banking space, the government in August 2019 had announced mergers of public sector banks, a move aimed at making state-owned lenders global sized banks.
  • The Cabinet Committee on Economic Affairs (CCEA) approved consolidation of 10 state-run banks into four on 4th march, 2020.
  • It is to be noted that in 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda.
  • Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the State Bank of India.

Key Points

  • The banks are being amalgamated with a larger bank, referred to as the anchor bank.
  • Account holders of merging banks will now be treated as customers of the anchor banks
  • Oriental Bank of Commerce (OBC) and United Bank of India will be merged into Punjab National Bank (PNB). After the merger, these together will form the second-largest public sector bank (PSB) in the country, after State Bank of India (SBI).
  • Syndicate Bank will be merged into Canara Bank, which will make it the fourth-largest public sector lender.
  • Indian Bank will be merged with Allahabad Bank.
  • Union Bank of India will be merged with Andhra Bank and Corporation Bank.
  • Customers, including depositors of merging banks will be treated as customers of the banks in which these banks have been merged with effect from 1st April, 2020.
  • For multiple bank accounts with both merging as well as anchor banks, there might be a single customer ID now
  • There will be no change in the existing interest rates and fixed deposits after the merger. It will just be transferred to the anchor bank.
  • New cheque books will be issued by the anchor banks and the existing ones will no longer be effective.
  • After the merger, there will be 12 PSUs - six merged banks and six independent public sector banks.

Six Merged Banks

  • SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank.

Six Independent Banks

  • Indian Overseas Bank, Uco Bank, Bank of Maharashtra, Punjab and Sind Bank, Bank of India, Central Bank of India.


Smooth Functioning & Better Delivery of Services

  • The mega consolidation would help create banks with scale comparable to global banks and capable of competing effectively in India and globally.
  • Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system.
  • In addition, consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity.

Boost to Financial Inclusion

  • The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach.

Competitive Advantage

  • Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape.

Associated Challenges

Integration Challenge

  • The main hurdle will be to the smooth process of integration. All banks have their own importance in terms of origin, growth, expansion and geographical , and have been contributing to economic development in their own way.
  • Merger of banks will take away their identity and customers will find it difficult to deal with the new bank.
  • It might create a lot of problems for employees in inter-se seniority, transfers to their place of choice, etc. This will pose a challenge to the unions dealing with these problems.

Loss of Job

  • Branch rationalisation and branch closures are bound to happen on account of mergers, which would lead to job losses and back room operations may reduce face to face interaction of the service providers with the customers.

Better Service Delivery Challenge

  • By merging branches in a certain locality, the number of customers to be taken care of by the merged branch will double or treble. Hence, customer attention and quality of customer service are bound to be affected adversely. When every customer wants better service, the branch will face a big hurdle in this regard.
  • Further, there are many welfare schemes, fringe benefits and other schemes that vary from bank to bank. Mergers will impact these benefits and schemes and unionists have to address these issues to harmonise these benefits.
  • Mergers will totally divert the attention of the banks from loan recovery and it is bound to take a back sea

High-Cost Model

  • The merged entity would not get any benefit of efficiencies. The PSBs have a very high-cost structure. The biggest challenge in PSB merger is to cut costs, bring efficiencies, improve profit per branch and profit per employee.

High Cost of Funds

  • The cost of funds plays a very important role in the competitive banking landscape. The weak entities that are merging tend to have a higher cost of funds.
  • While the private banks are using the digitisation and also digital modes to raise deposits and target new customers, the PSBs have this challenge of reducing the cost of the deposit.
  • At the same time, they have to deploy their resources to high yielding assets to earn high interest.

Way Forward

  • With the introduction of financial service convergence and competitions from outside and within, it is quite justifiable that to bring a sound transparent, efficient, and effective and culture friendly banking practices should be on the anvil of the government as well as policy makers.
  • The legal implications combined with the ethical and governance issues need to be redefined very soon so that the positive impact of mergers may be ensured.
  • Mergers strategies should be designed to improve the financial and operational soundness of existing small and capital needy banks and these should not be focused merely to gut the beautiful entities.

AT-1 Bonds

  • Recently, the private lender YES Bank additional tier 1 (AT1) bonds worth Rs. 8,415 crore have been written down to zero by the Reserve Bank of India(RBI) under the scheme of reconstruction of Yes Bank.

About AT-1 Bonds

  • AT-1 bonds are unsecured perpetual bondswith no maturity — issued by banks to shore up their capital base to meet Basel III requirements.The RBI is the regulator for these bonds.
  • The concept of Additional Tier-1 (AT1) Bonds was introduced by Basel III post the 2008 financial crisis, to protect depositors of a bank on a going concern basis. These bonds are also commonly known as Contingent convertible capital instruments (CoCos).
  • Under the Based III framework, bank’s regulatory capital is divided into Tier 1 and Tier 2 capital. Tier 1 capital is subdivided into Common Equity (CET) and Additional Capital (AT1).
  • In simple terms, equity and preference capital is classified as CET and perpetual bonds are classified as AT1. Together, CET and AT1 are called Common Equity.

Difference between Tier 1 and Tier 2 Capital

  • Tier 1 capital is a bank's core capital and includes disclosed reserves—that appears on the bank's financial statements—and equity capital. This money is the funds a bank uses to function on a regular basis and forms the basis of a financial institution's strength.
  • Tier 2 capital is a bank's supplementary capital. Undisclosed reserves, subordinated term debts, hybrid financial products, and other items make up these funds.
  • In India, banks are required to maintain capital at a minimum ratio of 11.5 per cent of their risk-weighted loans.
  • Of this, 9.5 percent needs to be in Tier-1 capital and 2 percent in Tier-2.


Features of AT-1 Bonds

  • AT1 are a special category of debt designed to absorb losses in case the bank’s equity capital dips below a certain threshold.
  • These are quasi-equity instruments. These are meant to be like equity, but are structured as bonds.
  • These bonds are listed and traded on the exchanges.So, if an AT1 bondholder needs money, he can sell it in the market.
  • Banks cannot use conversion or write down of AT1 instruments to support expansion of balance sheet.

Risk Involved

  • As these bonds are perpetual and carry no maturity date, they carry call options that allow banks to redeem them after five or 10 years.
  • Banks can stop paying interest on them and also write off their value.
  • In case, if the RBI feels that a bank is tottering on the brink and needs a rescue, it can simply ask the bank to cancel its outstanding AT-1 bonds without consulting its investors. This is what has happened to YES Bank’s AT-1 bond-holders.

RBI Guidelines Regarding AT-1 Bonds

  • According to the RBI’s Basel III capital regulations, if the relevant authorities decide to reconstitute a bank or amalgamate it with any other lender under Section 45 of Banking Regulation Act, 1949, the bank will be deemed as non-viable or approaching approaching non-viability.
  • The RBI has also added an additional trigger in Indian regulations, called the ‘Point of Non-Viability Trigger’ (PONV), which gives power to the RBI to decide if the bank has reached a situation wherein it is no longer viable.
  • The RBI can then activate a PONV trigger and assume executive powers and can do whatever is required to get the bank on track, including superseding the existing management, forcing the bank to raise additional capital and so on.
  • The PoNV condition requires all AT1 and Tier 2 instruments to be capable of being converted into common equity or written off.

Basel III

  • It is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector.
  • It was published in 2009, largely in response to the credit crisis associated with the Great Recession.


  • Improve the banking sector's ability to absorb ups and downs arising from financial and economic instability
  • Improve risk management ability and governance of banking sector
  • Strengthen banks' transparency and disclosures

Impact of Write Down

Impact on Investors

  • RBI’s write-down of Yes Bank AT1 bonds will not only be detrimental to the financial interests and may cause panic redemptions in situations where it is not warranted, it will severely affect investor’s confidence in debt markets and financial institutions.
  • This could also result in the contraction of the investor base in these bonds, as many would seek to avoid these bonds in future.

Impact on Banking and Financial System

  • Any write-down on existing AT1 bonds will set a wrong precedence as it may lead to drying up of the AT-1 market in India completely for all issuers, especially in light of the fact that the banking system seems to be under stress.
  • Any negative impact on these bonds could also increase the credit spreads across the assets classes and would have a detrimental impact on RBI’s objective of transmission of rate cuts to the larger economy.

Curbs On Cryptocurrency Trades Lifted

  • In a significant judgment, the Supreme Court on 4th March, 2020, lifted the curbs imposed by the Reserve Bank of India(RBI) on regulated entities such as banks and NBFCs from dealing with virtual currencies (VC) and from providing services to crypto businesses.
  • The court held that the ban did not pass the “proportionality” test.
  • The test of proportionality of any action by the government must pass the test of Article 19(1)(g), which states that all citizens of the country will have the right to practise any profession, or carry on any occupation or trade and business.


  • The circular issued on April 6, 2018 directed the entities regulated by RBI:
  1. Not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies.
  2. To exit the relationship with such persons or entities, if they were already providing such services to them.

While striking down the circular, the Court took note of three factors:

  • RBI, in the past 5 years or more, has not found any of the activities of Virtual Currency exchanges to have actually impacted adversely, the way the entities regulated by RBI function.
  • In its reply, dated 04-09-2019, RBI said that it has not prohibited Virtual Currencies in the country.
  • Even the Inter-Ministerial Committee constituted on 02-11-2017 was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures.

Reasons to Ban Virtual Currencies

  • Owing to the lack of any underlying fiat, episodes of excessive volatility in their value, and their anonymous nature which goes against global money-laundering rules, the RBI initially flagged its concerns on trade and use of the currency.
  • Risks and concerns about data security and consumer protection on the one hand, and far-reaching potential impact on the effectiveness of monetary policy itself on the other hand, forced RBI to impose the ban on trading of virtual currencies.
  • Further, owing to a significant spurt in the valuation of many virtual currencies and rapid growth in initial coin offerings, virtual currencies were not safe for use.

Petitioner’s Argument

  • The petitioner, Internet and Mobile Association of India (IMAI), had argued in the top court that the RBI had banned cryptocurrencies on "moral grounds" as no prior studies were conducted to analyse their effect on the economy.
  • It was also argued that cryptocurrencies were not "currency" in the strict sense, and that they could be termed as a medium of exchange or a store of value.
  • The RBI should have adopted a wait-and-watch approach, as taken by other regulators such as the Directorate of Enforcement or the Securities and Exchange Board of India.

Impact of SC Judgment

  • The order is likely to come as a big relief to VC proponents in the country.
  • It could lead RBI to reconsider its approach to cryptocurrency and come up with a new calibrated framework or regulation that deals with the reality of these technological advancements.

Digital Currencies

  • Digital currency is the blanket term used to describe all electronic money; that includes both virtual currency and cryptocurrency. It can be regulated or unregulated.
  • Digital currencies, which can only be owned and spent using electronic wallets or designated connected networks, are also commonly called digital money, or cyber cash.

Forms of Digital Currencies

Virtual Currencies

  • Virtual currencies are a type of digital currency, typically controlled by its creators and used and accepted among the members of a specific virtual community.
  • Cryptocurrencies such as Bitcoin and Ethereum are considered to be virtual currencies.
  • Satoshi Nakamoto, widely regarded as the founder of the modern virtual currency -Bitcoin


  • Cryptocurrencies are digital currencies because they exist online, but they are also virtual currencies created with cryptographic algorithms.
  • Most cryptocurrencies now operate on the blockchain or distributed ledger technology, which allows everyone on the network to keep track of the transactions occurring globally.

Risks Associated with Cryptocurrencies

Business Risk

  • Cryptocurrencies are not backed by a central bank, a national or international organization, or assets or other credit, and their value is strictly determined by the value that market participants place on them through their transactions, which means that loss of confidence may bring about a collapse of trading activities and an abrupt drop in value.

Cyber/Fraud Risk

  • Even with encryption to protect cryptocurrency transactions, there have been hacks resulting in substantial losses.
  • Passwords can be stolen or hacked. Hardware can be corrupted or taken.

Regulatory/Compliance Risk

  • Some countries may prevent the use of the currency or may state that transactions break anti-money laundering(AML) regulations, notwithstanding the global implications.
  • Due to the complexity and decentralized nature of the Bitcoin and the significant number of participants — senders, receivers (possibly launderers), processors (mining and trading platforms), currency exchanges, a single AML approach does not exist.

Market Risks

  • The market risks are idiosyncratic as the currency trades only on demand. There is a finite amount of the currency which means that it can suffer from liquidity concerns and limited ownership may make it susceptible to market manipulation.
  • Further more, given its limited acceptance and lack of alternatives, the currency can appear more volatile than other physical currencies, fueled by speculative demand and exacerbated by hoarding.

Share Swap Ratio

  • Recently, seven of the 10 public sector banks slated for merger have invited independent experts to determine their share swap ratios.
  • The valuer will adopt all market prevalent practices/principles for arriving at the valuation (including principles specified by the Reserve Bank of India and the Ministry of Finance).

Seven Banks

  • Allahabad Bank, United Bank of India, Oriental Bank of Commerce, Punjab National Bank, Union Bank of India, Canara Bank and Syndicate Bank.


  • Improving Investor Sentiment: The share swap ratio that the government would hammer out for the merger of the three public sector banks would go a long way in improving investor sentiment.

Share Swap Ratio

  • When a company pays for an acquisition by issuing its own shares to the shareholders of the target company, this is known as a share Swap.
  • The number of shares to be issued in lieu of their existing holdings in the target company is known as Swap Ratio.

Basis of Calculation

  • To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts and strategic reasons for the merger or acquisition.
  • If the target company is listed, the market value of its shares is often a key consideration to arrive at the right price to be paid.

How it Works?

  • Suppose, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired.
  • In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately.

Benefits of Share Swap

Risk Sharing Benefit:

  • As shareholders of the target company will also be shareholders of the merged entity, the risks and benefits of the expected synergy from the merger will be shared by both the parties.
  • In a cash deal, if the acquirer has paid a premium and the synergies don’t materialise, shareholders of the acquiring company alone bear the fallout.
  • Benefits would also flow as a result of wider reach and distribution network, and reduction in distribution costs for the products and services through sub-sidiaries.

Saving of Borrowing Costs:

  • In a share swap, there is no cash outgo involved for the acquirer, saving the acquirer borrowing costs.
  • The acquirer companies, in turn, can put their cash to use for investments in the business or for other buyouts.

No Capital Gains Tax:

  • In case of a share swap, when shareholders of the acquired company are given shares of the acquirer company as part of the deal, this is not considered a transfer of shares.
  • Hence, capital gains tax will not arise in the hands of the shareholders (including minority shareholders) of the acquired company. The tax liability will arise only when the shares of the merged entity are sold.

Way Forward

  • Share Swap is not always beneficial to shareholders. For ex- In the recently concluded merger of Bank of Baroda (BoB) with Dena Bank and Vijaya Bank, shareholders of Vijaya Bank and Dena Bank got 402 and 110 equity shares, respectively, of BoB for every 1,000 shares they held, hurting both the shareholders of Vijaya and Dena bank.
  • The share swap regime also entails certain practical challenges involving shareholders’ rights and governance issues concerning the incoming shareholders. Since both acquirer and target tend to have investors at different stages of lifecycle, friction may arise if incoming shareholders secure the same terms as are available to existing shareholders. Thus, balancing rights of various investors and finding the right leverage becomes crucial.
  • However, the share swap framework is becoming common as it facilitates acquisitions even when the transaction is unviable due to cash crunch.
  • A swap ratio also brings to lights many aspects of the Merger and Acquisition (M&A) transaction between two companies. Firstly, it shows the relative size and strength of both companies. In general, if more shares of the target company are exchanged for one share in the acquiring company, then the latter is likely to be bigger and stronger.
  • Secondly, it determines the control that each set of shareholders has on the combined company. For example, the acquiring company may have greater control over the firm if the swap ratio is high and, therefore, its Board of Directors could have a larger share in the new Board.

Sashakt Panel On Bad Loans

Why is it in News?

Sashakt committee has praised the mandatory norm of Inter Creditor Agreement (ICA) for its effectiveness in tackling bad loans.

Relevance of the News: It highlights the committee formed for addressing bad loans crisis and its observations.

More about the News:

  • Sashakt Committee has observed that the mandatory norm of ICA allows banks to decide resolution strategy outside the Insolvency and Bankruptcy Code (IBC) which will accelerate the resolution process.
  • The committee has recommended that the existing ICA, which is executed by 35 banks/ FI’s, must be adopted to incorporate the revised voting threshold and other changes in decision making that are stipulated by the RBI recently.
  • RBI has recently changed norms which state that if 75% of lenders by value of the loans or 60% by number agree to a resolution plan then the plan can be adopted.

Sashakt Committee:

Sashakt committee is a group consisting of chiefs of 5 Indian public sector banks pioneered by PNB chairman Sunil Mehta. This committee had forwarded ‘Project Sashakt’ last year, a five-pronged strategy to resolve bad loans, which has been accepted by the government, which aims at

Project Sashakt:

  • The five-pronged resolution route includes:
  • oOutlining an SME resolution approach
  • oBank-led resolution approach
    AMC/AIF led resolution approach
  • oNCLT/IBC approach
  • oAsset-trading platform
  • This 5 pronged approach will be applicable to smaller assets with exposure up to Rs 50 crore, mid-size assets between Rs. 50 crore and Rs. 500 crore, and large assets with exposure of Rs 500 crore and more which have a potential for turnaround.
  • Bad loans of up to Rs. 50 crore will be managed at the bank level, with a deadline of 90 days.
  • For bad loans of Rs. 50-500 crore, banks will enter an inter-creditor agreement, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to National Company Law Tribunal.
  • For loans above Rs. 500 crore, the panel recom­mended an independent asset management company (AMC), supported by institutional funding through the alternative investment fund (AIF). The idea is to help consolidate stressed assets.

Inter Creditor Agreement (ICA):

  • ICA is an agreement hashed out by public and private banks in July 2018 to deal with the bad loans crisis in Indian banking sector. It is a part of Project Sashakt.
  • ICA framework envisages effective communication among lenders and lays down some ground rules for multiple-banking arrangements and consortium lending.
  • Some large borrowers often take loans from multiple banks for a single project and in case of failure of the project all creditors face loss from that one common project’s failure. ICA allows all creditor banks to communicate with each other and commonly arrive at a resolution plan for the project.
  • ICA makes sure that there is effective, good communication amongst banks and if any bank has a difference with another bank, then they will resolve it among themselves.
  • ICA was earlier voluntary for banks but recent RBI guidelines have made ICA mandatory for banks.

New NPA Norms Of RBI

Why is it in News?

RBI released new norms on NPA management for banks on 7 June 2019.

Relevance of the News: It lists the changes made in the NPA norms by the RBI which would help in curbing the menace of bad loans in Indian banking sector.

Some Changes made by the RBI include:

  • Balanced between tight timelines and extreme delays:
  • oIn the earlier circular even a single day's default in debt servicing would have required reporting to the RBI and implementation of Resolution Plan (RP). If RP is not completed in 180 days the company would be subject to IBC mandatorily.
  • oIn the changed rules lenders have been given 30 days (in place of one day earlier) to decide upon a strategy. If RP is not implemented in 180 days banks will have to pay penalty rather than mandatory IBC referral.
  • Improved realizations to banks:
  • oDoing away with the mandatory referral to the IBC after 180 days can lead to improved realizations as intrinsic value of assets can be preserved.
  • oIn case of mandatory referral RBI has placed penalties on banks if they fail to deliver within 180 days.
  • oIf RP is not implemented in 180 days from the start of the review period, banks will have to make additional provision of 20% and another 15% if the plan is not implemented within 365 days.
  • Accelerated provisioning by RBI: The central bank would issue directions to banks for initiation of insolvency proceedings against borrowers for specific defaults. This will force lenders to refer some specific cases to IBC.
  • ICA has been made more practical: The Inter Creditor Agreement has been made more practical as approval percentage has been reduced from 100% to 75% by value of total outstanding credit facilities and 60% of lenders by number which is mandatory now.

Financial Intelligence Unit – India (FIU-IND)

Why is it in News?

FIU-IND is in news due to recent arrest and auction of the properties of fugitive jeweler Nirav Modi.

Why was FIU-IND set up?

  • Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.
  • FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.

What are the Functions of FIU-IND?

The primary responsibility of FIU-IND is to collect the data, analyse the data and disseminate that data to the regulators like RBI, SEBI, IRDAI etc. The functions of FIU-IND are:

  • Collection of Information: Acts as the central reception point for receiving Cash Transaction Reports (CTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable Property (IPRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
  • Analysis of Information: Analyze received information in order to uncover patterns of transactions suggesting suspicion of money laundering and related crimes.
  • Sharing of Information: Share information with national intelligence/ law enforcement agencies, national regulatory authorities and foreign financial intelligence units.
  • Act as Central Repository: Establish and maintain national data base on cash transactions and suspicious transactions on the basis of reports received from reporting entities.
  • Coordination: Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.
  • Research and Analysis: Monitor and identify strategic key areas on money laundering trends, typologies and developments.

Composition of FIU-IND:

  • The FIU-IND is a multidisciplinary body with members from various government departments. The members are inducted from organizations including Central Board of Direct Taxes (CBDT), Central Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Department of Legal Affairs and Intelligence agencies of the Government.

Whom does this Organization report to?

  • FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

Economic Intelligence Council (EIC):

  • EIC was formed in 1990 and is the apex forum overseeing government agencies responsible for economic intelligence and combating economic offences in India.
  • EIC is responsible for coordination, strategy and information-sharing amongst the government agencies responsible for intelligence and control of economic offences such as smuggling, money laundering tax evasion and fraud. The Council also advises the Finance Minister and the Union Council of Ministers on laws regulating the financial sector and fighting economic crimes.
  • EIC is headed by the Union Finance Minister.

Source: www.fiuindia.gov.in, TH, IE