RBI’s proposal for regulation of the Microfinance sector- Explained, pointwise

Introduction Recently, the Reserve Bank of India has released a Consultative Document on Regulation of Microfinance sector. The document aimed to address the concerns related to the over-indebtedness of microfinance borrowers and empowering them. The document proposes that there should be no prepayment penalty and collateral for all microfinance loans. The introduction of regulation is… Continue reading RBI’s proposal for regulation of the Microfinance sector- Explained, pointwise

Significance of SC Ruling on Personal Guarantors for Corporate Loans

Synopsis – The Apex Court has dismissed all challenges to the liability of personal guarantors for corporate loans under the insolvency code. Introduction The Supreme Court upheld a government notification of 2019 issued under the Indian Insolvency and Bankruptcy Code (IBC). This allows banks to initiate insolvency proceedings against personal guarantors who are usually promoters… Continue reading Significance of SC Ruling on Personal Guarantors for Corporate Loans

SC Ruling on Personal Guarantor’s Liability for Corporate Debt

What is the News? The Supreme Court has upheld the government’s move to allow lenders to initiate insolvency proceedings against personal guarantors. Who is a personal guarantor? To showcase their intent to repay the bank loan on time, the promoters of some big business houses submit a personal guarantee to the lenders. It secures them… Continue reading SC Ruling on Personal Guarantor’s Liability for Corporate Debt

RBI to transfer Surplus Profit to Central Government

What is the News?  The RBI (Reserve Bank of India) Central Board has approved the transfer of Rs. 99,122 crore as surplus to the central government. RBI’s Transfer of Surplus to Government:  The Reserve Bank of India(RBI) transfers its surplus profits to the Government every year. It is according to the provisions of Section 47… Continue reading RBI to transfer Surplus Profit to Central Government

RBI’s Economic Measures to Tackle 2nd Wave of Covid-19

What is the News? The Reserve Bank of India(RBI) has announced measures to help India to tackle the unprecedented Covid-19 crisis during the second wave. Measures announced by the RBI: On-Tap Liquidity Facility: RBI has opened a Rs 50,000-crore on-tap liquidity window with a tenor of up to three years. Banks can borrow from this… Continue reading RBI’s Economic Measures to Tackle 2nd Wave of Covid-19

RBI Joins “Network for Greening the Financial System”

What is the News? Reserve Bank of India(RBI) has joined the Network for Greening the Financial System (NGFS) as a Member. About Network for Greening the Financial System(NGFS): Firstly, NGFS was launched at the Paris One Planet Summit in December 2017. Secondly, it is a group of Central banks and financial supervisors. The NGFS aims… Continue reading RBI Joins “Network for Greening the Financial System”

New Umbrella Entity for Payment System – Explained, Pointwise

Introduction The RBI in August last year released a framework for setting up New Umbrella Entity or entities. These Entities will carry out various payment services, similar to the ones being provided by the NPCI right now. Recently the Reserve Bank of India said that it is not in favour of having direct and supervisory… Continue reading New Umbrella Entity for Payment System – Explained, Pointwise

Introducing National Digital Currency in India – Explained, Pointwise

Introduction There is uncertainty over the legal status of digital currencies in India. An unofficial estimate mentions that Indian investors holding around $1.5 billion (Rs 10,000 crore) in digital currencies. The inter-ministerial committee (IMC) suggested a ban on private digital currencies, but it favors RBI-backed National Digital Currency or central bank digital currency (CBDC). The… Continue reading Introducing National Digital Currency in India – Explained, Pointwise

“Asset Reconstruction Companies” – Sudarshan Sen Committee Set-up

What is the News? The Reserve Bank of India(RBI) has set up the Sudarshan Sen committee to review the working of Asset Reconstruction Companies (ARCs) Comprehensively. It will recommend suitable measures for enabling them to meet the growing requirements. Headed by: The committee will be headed by Sudarshan Sen, the former executive director, Reserve Bank… Continue reading “Asset Reconstruction Companies” – Sudarshan Sen Committee Set-up

India on US’s “Currency Watch list”

What is the News?  The US treasury places India along with 10 other countries on its currency watch list. What is Currency Manipulator: Current Manipulators are countries engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar. The practice would mean that the country in question is artificially lowering the value of… Continue reading India on US’s “Currency Watch list”

A Balanced Approach Under IBC Amendment Ordinance 2021

Synopsis: The new Insolvency and Bankruptcy Code amendment ordinance 2021 shows a shift from a creditor-centric approach towards a more balanced approach. Under the new approach, both promoters and creditors are incentivized to reach a more acceptable solution.   Background: The President has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021. It marks a shift from… Continue reading A Balanced Approach Under IBC Amendment Ordinance 2021

RBI sets up “Regulations Review Authority 2.0”

What is the News? Recently, the Reserve Bank of India(RBI) announced the setting up of a new Regulations Review Authority(RRA 2.0). About Regulations Review Authority(RRA): The RBI earlier set up the first RRA for a period of one year from April 1, 1999. This is for reviewing the regulations, circulars, reporting systems, based on the… Continue reading RBI sets up “Regulations Review Authority 2.0”

Rupee depreciation and its management

Synopsis: Rupee depreciation and its impact and solutions to protect from currency volatility risks. Background of Rupee depreciation Recently, the rupee fell sharply by 105 paise. It is considered as one of the biggest single-session falls in 20 months. Currently, the rupee stands at 74.47 against the US dollar. What are the reasons for rupee… Continue reading Rupee depreciation and its management

New RBI Developmental and Regulatory Policies

What is the News? Recently RBI released a Statement on Developmental and Regulatory Policies. Under the new RBI policy, the RBI extended fresh support of ₹50,000 crores to the All India Financial Institutions for new lending in FY22. This will help to mitigate the impact of the pandemic and aid economic revival. RBI policy on… Continue reading New RBI Developmental and Regulatory Policies

Cut in rate on small saving schemes withdrawn by Finance Minister

Synopsis – The Union government rolls back interest cut on small saving schemes interest rates, blaming the decision on an oversight. Introduction – The finance ministry has reversed its decision to cut interest rates on small savings accounts, citing an error. Reversing a rate cut of up to 110 basis points (1.1 percentage points) announced… Continue reading Cut in rate on small saving schemes withdrawn by Finance Minister

Bad Bank for strengthening the banking sector

Synopsis: Indian banks have started to recover post the pandemic phase. Moreover, the banks will strengthen after the creation of a bad bank as promised in the budget. Background: During the pandemic, NPA(Non-Performing Assets) was expected to rise. Thus, Indian banks have written off their balance sheets. A write-off is an accounting term through which… Continue reading Bad Bank for strengthening the banking sector

Effectiveness of Inflation Targeting in India – Explained, Pointwise

Introduction: RBI adopted the Inflation Targeting on the recommendations of the Urjit Patel committee in 2016. Almost 5 years have passed since its adoption. The RBI has also announced a formal review of its inflation targeting method. Hence, there is a requirement for an elaborate review to examine the performance of this method. In this… Continue reading Effectiveness of Inflation Targeting in India – Explained, Pointwise

Why Nationalisation of Banks was a Right Step?

Synopsis: Privatisation of PSBs will not be a solution for India’s banking sector distresses. The Nationalisation of Banks proved to be fruitful at the time of need. But now, it requires reforms and not privatization.  Introduction  The Union government announced that they want to privatize the Public Sector Banks (PSBs) in the recent budget. The… Continue reading Why Nationalisation of Banks was a Right Step?

Privatization of PSBs – Explained, Pointwise

Introduction The Government has fast-paced the privatization of PSBs(Public Sector Banks).  Recently NITI Aayog released its last round of consolidation plans. In that, the NITI Aayog listed 6 banks for the privatization plan. On the other hand, the employee unions of Public Sector Banks have gone on a two-day strike against privatization. Further, A joint… Continue reading Privatization of PSBs – Explained, Pointwise

IDBI Bank out of “PCA framework”

What is the News? Reserve Bank of India(RBI) has taken out IDBI Bank from the prompt corrective action(PCA) framework. But it is still subject to certain conditions and continuous monitoring. What is Prompt corrective action(PCA) Framework? PCA is an RBI framework. Banks with weak financial metrics are put under the PCA framework by the Reserve… Continue reading IDBI Bank out of “PCA framework”

Cryptocurrencies in India

Source: The Hindu Syllabus: GS 3. Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment. Synopsis: The government should ensure a smart regulation of cryptocurrencies instead of shutting them out. Background The government has given a statement to bring a law on cryptocurrencies. It is a positive step. Considering the… Continue reading Cryptocurrencies in India

Privatisation of banking sector: Issues and analysis

Source: The Indian Express Syllabus: GS -3 Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Synopsis: The government has decided to privatise two public sector banks. The move will give the private sector a key role in the banking sector. Introduction  The government has announced the disinvestment policies for… Continue reading Privatisation of banking sector: Issues and analysis

Why RBI kept interest rates Unchanged?

Source- The Hindu Syllabus- GS 2 – Government policies and interventions for development in various sectors and issues arising out of their design and implementation. Synopsis- Monetary Policy Committee [MPC] has kept the benchmark interest rates unchanged. It is proceeding with an accommodative stance of monetary policy. Introduction MPC is keeping the rates unchanged to… Continue reading Why RBI kept interest rates Unchanged?

Bad Banks – pros and cons

Source: The Hindu Syllabus: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Synopsis: The centre is proposing to set up Bad Banks or Asset Reconstruction Company to acquire bad loans from banks. Introduction There is a persisting issue of bad loans in the Indian banking sector… Continue reading Bad Banks – pros and cons

Govt. releases new guidelines for banks under “Foreign Contribution (Regulation) Act”

What is the News? Union Home Ministry has announced new guidelines for banks, under the Foreign Contribution (Regulation) Act. These guidelines are related to the donations received by non-governmental organizations (NGOs) and associations. What are the new FCRA guidelines? The donations received in Indian rupees by the NGOs and associations from any foreign source should… Continue reading Govt. releases new guidelines for banks under “Foreign Contribution (Regulation) Act”

Need for New 4-tier Regulations for NBFCs

Source: click here Syllabus: GS 3 Synopsis: The RBI’s plan to tighten regulations on large NBFCs is critical for financial stability. Introduction  The RBI has planned an important change in its regulatory approach towards India’s non-banking financial companies (NBFCs). It plans to monitor larger NBFCs almost as closely as it monitors banks. Read – 4-tier… Continue reading Need for New 4-tier Regulations for NBFCs

4-tier structure for regulation of NBFCs

Why in News? Reserve Bank of India (RBI) has proposed a tighter regulatory framework for non-banking financial companies (NBFCs) by creating a four-tier structure. The intensity of regulations will be greatest at the top layer and lowest at the base layer. Objective: It is to keep the big NBFCs in good financial health. It has… Continue reading 4-tier structure for regulation of NBFCs

 Too Big To Fail: Domestic Systemically Important Banks (D-SIBs) 

Why in News?   Reserve Bank of India(RBI) has retained SBI, ICICI and HDFC Bank in Domestic Systemically Important Banks (D-SIBs) list or banks that are considered as “Too Big To Fail”.   Facts:  Domestic Systemically Important Banks(D-SIBs): D-SIBs are banks that are Too Big To Fail(TBTF). According to RBI, banks become D-SIBs due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks, whose assets exceed 2% of GDP are considered part of this group.   Significance of… Continue reading  Too Big To Fail: Domestic Systemically Important Banks (D-SIBs) 

Establishment of Bad Banks – associated Issues and Significance

As a result of the Covid-19 pandemic induced economic slowdown, the commercial banks are about to witness the spike in NPAs, or bad loans. To deal with it, Reserve Bank of India (RBI) Governor is considering the proposal for the creation of a bad bank.   What is a Bad Bank?  A bad bank is an asset reconstruction company (ARC), involved in management and recovery of bad loans or NPAs of other banks.   Generally, these Banks are initially funded… Continue reading Establishment of Bad Banks – associated Issues and Significance

RBI constituted Jayant Kumar Dash committee to study Digital lending activities  

News: Reserve Bank of India(RBI) has constituted a working group on digital lending — including online platforms and mobile apps. Facts: Objective: The working group will study digital lending activities in the regulated and unregulated financial sector so that an appropriate regulatory approach can be put in place. Composition: The working group comprises six members–four… Continue reading RBI constituted Jayant Kumar Dash committee to study Digital lending activities  

RBI unveils guidelines for Payment Infrastructure Development Fund

News: Reserve Bank of India(RBI) has announced operational guidelines for the Payments Infrastructure Development Fund (PIDF) scheme. Facts: Objectives of the Fund: To increase the number of acceptance devices multi-fold in the country. To benefit the acquiring banks / non-banks and merchants by lowering overall acceptance infrastructure cost. To increase payments acceptance infrastructure by adding… Continue reading RBI unveils guidelines for Payment Infrastructure Development Fund

Digital technology worsen financial exclusion in rural India

Synopsis- Internet Services’ base payment system is worsening the financial exclusion prevalent in rural India.  Introduction Financial Exclusion in rural India Internet services have provided much comfort to the user. But for the majority of the rural population digital technology has become troublesome due to a lack of technical knowledge and nexus of service providers, middlemen, government officials, and… Continue reading Digital technology worsen financial exclusion in rural India

Report on Trend and Progress of Banking in India 2019-20

News: Reserve Bank of India has released the Report on Trend and Progress of Banking in India 2019-20. Facts: About the report: The report is a statutory publication in compliance with Section 36 (2) of the Banking Regulation Act, 1949. Purpose: It presents the performance of the banking sector, including co-operative banks, and non-banking financial institutions during 2019-20… Continue reading Report on Trend and Progress of Banking in India 2019-20

RBI launches Digital payments index to track transactions

News: Reserve Bank of India(RBI) has launched a composite Digital Payments Index(DPI). Facts: Objective: To capture the extent of digitisation of payments across the country given the sharp pick-up in digital transactions seen in the recent past. Parameters: The index comprises five broad parameters with varying weights to measure the penetration of digital payments.The five key parameters include:… Continue reading RBI launches Digital payments index to track transactions

What is Positive Pay Mechanism?

Source: The Indian Express News: From January 1, 2021, the Reserve Bank of India (RBI) will introduce the ‘Positive Pay System’ for cheque transactions above Rs 50,000 in a bid to enhance safety and eliminate frauds. Facts: Positive Pay Mechanism: It involves a process of reconfirming key details of large-value cheques. Process: Under this, the issuer of the… Continue reading What is Positive Pay Mechanism?

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RBI allows RRBs to access LAF, MSF windows

Source: Click here News: Reserve Bank of India(RBI) has allowed regional rural banks (RRBs) to access the liquidity adjustment facility(LAF), marginal standing facility(MSF) and call or notice money markets with the aim to facilitate better liquidity management for these lenders. Facts: Liquidity Adjustment Facility(LAF): It is a facility extended by the Reserve Bank of India to the banks… Continue reading RBI allows RRBs to access LAF, MSF windows

India Post Payments Bank launches its digital payments services ‘DakPay’

Source: Click here News: Department of Posts (DoP) and India Post Payments Bank(IPPB) has unveiled a new digital payment app ‘DakPay’. Facts: DakPay: To facilitate easy digital transactions and other banking services through the trusted Postal (‘Dak’) network across the nation to cater to the financial needs(‘Pay’) of various sections of the society. Significance: The App is launched as… Continue reading India Post Payments Bank launches its digital payments services ‘DakPay’

Farm and Banking Reform

Context: There is some risk necessary to reform Banking and Agriculture sectors. What are the recently announced reforms in Farming and Banking sector? The three farm bills legislated by the government recently, which are in the early stages of implementation. The second is a proposal by RBI to let corporates/industry own banks. Can MSP ensure… Continue reading Farm and Banking Reform

India and UN-Based Better Than Cash Alliance organizes learning on fintech solutions

Source: Click here News: India and UN-Based Better Than Cash Alliance organized a joint Peer learning exchange on fintech solutions for responsible digital payments at the last mile. Facts: Better Than Cash Alliance: It was created in 2012 as a partnership of governments, companies and international organizations that accelerates the transition from cash to responsible digital payments. Launched… Continue reading India and UN-Based Better Than Cash Alliance organizes learning on fintech solutions

Why Corporate houses should not own banks?

Context: Granting license to corporates to promote banks will be disastrous to the economy as a whole. Background Recently, the RBI constituted an Internal Working Group to determine if large corporate houses can be given licence to promote banks. The Internal Working Group recommended to allow corporate houses to operate banks. What are the concerns… Continue reading Why Corporate houses should not own banks?

Permitting industrial houses to own banks

Context: Permitting industrial houses to own banks could undermine economic growth and democracy. Background Recently, an internal working group of the RBI has made a far-reaching recommendation to permit industrial houses to own and control banks. According to the report, the reason for permitting industrial houses to own and control banks is that industry-owned banks would… Continue reading Permitting industrial houses to own banks

Corporates as Bankers: Bane or boon for economy?

A recent report by an Internal Working Group (IWG) of the Reserve Bank of India has attracted a lot of attention as well as criticism for its recommendations including the one that suggests corporate houses be given bank licences. Rationale to constitute IWG by RBI: The IWG was constituted to “review extant ownership guidelines and… Continue reading Corporates as Bankers: Bane or boon for economy?

corporate houses in Indian banking

Context: Recently, an Internal Working Group of the Reserve Bank of India (RBI) has recommended that corporate houses be given bank licences. Background Earlier, in 2013, the RBI had issued similar guidelines permitting corporate and industrial houses to apply for a banking licence. However, no corporate was given a bank licence as none of the… Continue reading corporate houses in Indian banking

Banking reforms

Context- RBI committee has recommended a series of changes that could transform the banking landscape by paving the way for large industrial conglomerates to set up banks. What are Non-Banking Financial Companies NBFCs? These are establishments that provide financial services and banking facilities without meeting the legal definition of a Bank. Hence they are frequently referred… Continue reading Banking reforms

Lakshmi Vilas Bank (LVB) merger with DBS bank

Context: Lakshmi Vilas Bank (LVB) merger with DBS bank is justified Why RBI decided for merger of Lakshmi Vilas Bank (LVB) amalgamation with DBS bank? Erosion of trust in financial institutions: India, over the past two years has seen the collapse of four financial firms: IL&FS, Dewan Housing Finance, Punjab and Maharashtra Cooperative Bank and Yes… Continue reading Lakshmi Vilas Bank (LVB) merger with DBS bank

lakshmi vilas bank crisis

What are the reason of RBI to put LVB under moratorium and amalgamated with DBS Bank? The RBI has now decided to impose a 30-day moratorium on Lakshmi Vilas Bank Ltd (LVB) due to the following reasons- Continuous Losses: The RBI said the financial position was declining steadily, with continuous losses over the last three… Continue reading lakshmi vilas bank crisis

Issue of Lakshmi Vilas Bank | 19th November

News: Reserve Bank of India imposed a 30-day moratorium on Chennai based Lakshmi Vilas Bank Ltd (LVB) and put in place a draft scheme for its amalgamation since its financial position underwent steady decline and posted loss for the last 3 consecutive years. Under these developments, RBI has imposed the following conditions: RBI has put… Continue reading Issue of Lakshmi Vilas Bank | 19th November

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Moratorium on Lakshmi Vilas Bank

Context: RBI has imposed a moratorium on Lakshmi Vilas Bank and drafted a scheme for a merger. Why it is a concern? Already, India’s banking system is distressed due to the failures of IL&FS, Punjab & Maharashtra Cooperative Bank and DHFL, followed by the bailout of Yes Bank. Now, the Reserve Bank of India decision to… Continue reading Moratorium on Lakshmi Vilas Bank

Priority Sector Lending (PSL) guidelines

Reserve Bank of India (RBI) released revised priority sector lending (PSL) guidelines to augment funding for COVID-19 impacted companies. Facts: Aim: To align Priority Sector lending with emerging national priorities and bring sharper focus on inclusive development. Key Revised PSL Guidelines: Bank finance for start-ups (up to ₹50 crore), loans to farmers for installation of… Continue reading Priority Sector Lending (PSL) guidelines

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