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News in Short


Parliament Clears State Banks (Repeal And Amendment) Bill


The Rajya Sabha has passed the State Banks (Repeal and Amendment) Bill. The legislation, which was passed in the Lok Sabha during last year’s Monsoon Session, will remove provisions in the State Bank of India Act pertaining to its erstwhile associate banks: State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and the State Bank of Hyderabad. The Bill will repeal the SBI (Subsidiary Banks) Act, 1959, and the State Bank of Hyderabad Act, 1956.


FRDI Bill Dropped


The government has decided to drop the controversial Financial Resolution and Deposit Insurance (FRDI) Bill. There were two controversial clauses in the Bill: a bail-in provision and an insurance on deposits. The bail-in provision stipulated that if a bank fails, the depositors would have to bear part of the total liability. Deposits are currently insured up to Rs. 1 lakh. The Bill proposed to delete the legal provision and defined this protection in a new way.


Capital Infusion In Five PSBs


The Finance Ministry gave its nod for capital infusion of Rs. 11,336 crore in five weak public sector banks to help them tide over any situation of breach of regulatory capital requirements. The five banks that are to get capital support under this round are Punjab National Bank; Indian Overseas Bank; Andhra Bank; Corporation Bank and Allahabad Bank. Public sector banks are currently reeling under the pressure of the bad-loan mess, which is estimated to be over Rs. 9-lakh crore.


RBI Initiative To Curb Money Laundering


To curb money laundering using anonymous demand drafts (DDs), the RBI has made it mandatory to incorporate the name of the purchaser on the face of the financial instrument. It is also mandatory for pay orders, banker’s cheques and similar instruments. The order takes effect for such instruments issued on or after September 15, 2018.


SEBI Initiative For Paperless Trading


To promote paperless and cashless stock market trading, The Securities and Exchange Board of India (SEBI) has made it mandatory for stock brokers to accept client funds only by way of bank or electronic transfers such as cheques and mobile banking. Investors can no longer deposit cash in their broker’s account to trade in stocks.


RBI Report On State Finances


The Reserve Bank of India (RBI), in a report ‘State Finances: A Study of Budgets of 2017-18 and 2018-19,’ noted that f States are facing fiscal stress due to several factors including farm loan waivers.

The RBI’s Findings

States’ consolidated gross fiscal deficit (GFD) overshot the budget estimates in 2017-18 due to shortfalls in own tax revenues and higher revenue expenditure.

While States budgeted a gross fiscal deficit to gross domestic product (GFD-GDP) ratio of 2.7% in 2017-18, revised estimates reveal GFD-GDP ratio of 3.1%. “The deterioration was located in the revenue balance. In contrast, the capital account has helped to contain the GFD.”

Since the combined GFP to GDP was at 6.4% as compared with the Fiscal Responsibility and Budget Management Committee’s (FRBM) medium-term target of 5%, there is a risk that private investment gets crowded out of the finite pool of financial resources.

Risks are also likely to emanate from possible higher pre-election expenditure in more than 10 States and implementation of the balance pay commission awards, particularly to the extent that they are not fully provided for under the budgeted expenditure.

Capital expenditure may have to bear the brunt of the fiscal correction like the past two years.

While States together have projected a revenue surplus and a lower consolidated GFD of 2.6% of GDP in 2018-19, 11 States have budgeted for fiscal deficits above the threshold of 3% of GDP.


India Becomes EBRD’s Shareholder


India has become the 69th shareholder of the European Bank for Reconstruction and Development, paving the way for more joint investment with Indian companies across the bank's regions of operation.

London-headquartered EBRD is a multilateral development bank set up in 1991 after the fall of the Berlin Wall. It aims to promote private and entrepreneurial initiative in emerging Europe and invests in 38 emerging economies.


Bank Of China To Operate In India


The Reserve Bank of India has given license to Bank of China to operate in India. This will be the second Chinese bank to be operating in the country. Industrial & Commercial Bank of China Ltd (ICBC) already has operations in India along with 44 other foreign banks, according to the RBI.


Sunil Mehta Committee Recommendations


The Sunil Mehta Committee, that was formed to find ways to deal with stressed assets has submitted its recommendations to the Finance Ministry. It has recommended a five-pronged strategy under Project 'Sashakt' to deal with Non-performing Assets in the country's banking system. The five-pronged strategy includes SME resolution approach, bank-led resolution approach; AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform.

The report has recommended a categorisation of loans under Rs. 50 crore, Rs. 50-500 crore and loans above Rs. 500 crore.

SME Resolution Approach (SRA): Loans up to Rs. 50 crore would be dealt with using a template approach. The resolution will be completed in a timely manner within 90 days.

Bank-Led Resolution Approach (BLRA): For the loans between Rs. 50 and Rs. 500 crore, a Bank-Led Resolution Approach (BLRA) will be implemented. Under this approach, financial institutions will enter into an inter-creditor agreement to authorise the lead bank to implement a resolution plan in 180 days. The responsibility of the lead bank will be to then prepare a resolution plan including empaneling turnaround specialists, and other industry experts for the operational turnaround of the asset. In case the resolution process is not completed within 180 days, the asset would be resolved through Bankruptcy Code.

AMC/AIF led Resolution: Public sector Banks (PSBs) will constitute an asset management company (AMC) for resolution of loans above Rs. 500 crore. An alternative investment fund will also be created to raise capital and support the asset management company.

Asset Trading Platform: The committee has also proposed an asset trading platform for both performing and non-performing assets.

NCLT/IBC approach: Apart from resolution approaches for small, medium and large loans, assets that are not resolved within the RBI-stipulated 180-day deadline be sent to the National Company Law Tribunal for action under the IBC.


LIC To Get A Bank


The Insurance Regulatory and Development Authority of India (IRDAI) has agreed to the Life Insurance Corporation (LIC) of India’s proposal to hike its stake to 51 per cent in IDBI Bank from 10.8 per cent at present. The permission is subject to the corporation bringing down its holding to 15 per cent in future. It will now have to be cleared by the state-owned insurer’s board.

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