RBI Governor, PM signal reforms in trouble-prone urban co-operative banks

What is the news? Reserve Bank of India (RBI) Governor has indicated that the banking regulator will bring in sweeping regulatory changes to reform urban co-operative banks. The Prime Minister, the Union Finance Minister and the Governor were present at an event to mark the payment of nearly ₹1,300 crore to over 1 lakh depositors… Continue reading RBI Governor, PM signal reforms in trouble-prone urban co-operative banks

The good and not so good of new bank ownership norms

News: RBI’s internal working group, set up in June 2020, had made 33 recommendations on the ownership and corporate structure of private sector banks. The RBI has accepted 21 of them, with minor modifications in some cases. The rest, are under examination. What are the key recommendations made by the RBI’s IWG? Entry of corporate… Continue reading The good and not so good of new bank ownership norms

The curious case of India’s rising forex reserves and falling rupee

News: Further expansion of RBI’s balance sheet without normalizing credit offtake (demand for credit) will only raise economic risks. How RBI manages its balance sheet? RBI’s balance sheet consists of the asset side and the liability side. Reserve Money (RM) or base money – Asset side:  It consists of net domestic assets (NDA) and net… Continue reading The curious case of India’s rising forex reserves and falling rupee

Explained: Bank deposit insurance programme and norms to access funds

What is the news? The Prime Minister has addressed a programme titled ‘Depositors First: Guaranteed Time-bound Deposit Insurance Payment up to ₹5 Lakh’. What did the PM say on deposit insurance? Recently, Parliament passed the Deposit Insurance and Credit Guarantee Corporation (DICGC) Amendment Act, 2021. Under the Act, each depositor in a bank is insured… Continue reading Explained: Bank deposit insurance programme and norms to access funds

Summit for Democracy: PM moots social media, cryptocurrency norms

What is the news? The Prime Minister of India has virtually addressed the Summit for Democracy. What is the Summit for Democracy? The Summit for Democracy was a virtual summit hosted by the United States to renew democracy at home and confront autocracies abroad. Themes: The three themes of the summit are defending against authoritarianism,… Continue reading Summit for Democracy: PM moots social media, cryptocurrency norms

Despite risks, there’s great potential in cryptocurrencies

News: Reports indicate that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is to be introduced in this winter session of Parliament. While it is unclear what the Bill will contain, if India goes the China route and bans cryptocurrencies, it would be unfortunate. What is the way forward? – The underlying blockchain… Continue reading Despite risks, there’s great potential in cryptocurrencies

Explainer: Neo Banks vs Traditional Banking

What is the News? Neo-Banks bridge the gap between the services that traditional banks offer and the evolving expectations of customers in the digital age. They are changing the face of fintech and could one day eclipse traditional banks.  What are Neo Banks? Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or… Continue reading Explainer: Neo Banks vs Traditional Banking

A cautionary tale for banking in Reliance Capital’s collapse

News:  Recently, the RBI said that it had superseded the board of a financier controlled by Anil Ambani, appointed an administrator, and would soon be sending the firm to the bankruptcy tribunal. The Reliance Capital saga shows why RBI remains reluctant to allow big business groups into the banking sector, as recommended by its internal… Continue reading A cautionary tale for banking in Reliance Capital’s collapse

On Cryptocurrency regulation – Arguments against regulating Cryptocurrencies are very weak

News: Despite all the arguments being put forward for non-regulation of Cryptocurrency, government should push forward and regulate it. Why Cryptocurrencies need to be regulated? – Self-regulation is not the solution: Once one exchange puts out a misleading advertisement, making false claims of higher returns,  rival exchanges are left with no choice but to match… Continue reading On Cryptocurrency regulation – Arguments against regulating Cryptocurrencies are very weak

Rumblings of the coming central bank digital currency

News: A senior RBI official has said that the pilot launch of a new central bank currency could happen as early as the first quarter of next financial year. A lot of the ongoing debate on an Indian CBDC is focused on what RBI should do, and far less attention is paid to the equally… Continue reading Rumblings of the coming central bank digital currency

What is RBI’s stand on the use of cryptocurrency

News: RBI governor has raised his concern over the cryptocurrency investment in India. How the RBI has responded to the crypto business so far? Read here: Cryptocurrency in India – Lessons from other Countries The RBI has raised its concerns over the usage of a cryptocurrency over macroeconomic and financial stability points. It wants to explore… Continue reading What is RBI’s stand on the use of cryptocurrency

An RBI public interface that can recast banking

News: RBI has opened a retail window for bonds. Along with this, the launch of its digital rupee next could enable RBI to take over the bank depository function. Recently, RBI launched the Retail Direct scheme. Under this scheme, people can invest directly in government bonds. As these are virtually risk-free, people would be attracted… Continue reading An RBI public interface that can recast banking

PM launches 2 RBI schemes. All about the central bank initiatives

What is the News? Prime Minister has launched two innovative customer-centric initiatives of RBI, viz. Retail Direct Scheme and the Reserve Bank – Integrated Ombudsman Scheme. What is a Retail Direct Scheme? The Retail Direct Scheme allows retail investors to invest in government securities (G-Sec) by opening a gilt security account with the RBI. The… Continue reading PM launches 2 RBI schemes. All about the central bank initiatives

Managing Cryptocurrencies

News: Since March 2020, when the Supreme Court ruled it was legal to trade Cryptocurrencies, over Rs 50 crore in Crypto-assets is traded every day by resident Indians. On the other hand, RBI has often expressed its serious concerns regarding the dangers these instruments pose to macroeconomic and financial stability of the country. Hence, governments… Continue reading Managing Cryptocurrencies

PM to launch two innovative customer centric initiatives of RBI

What is the News? The Prime Minister has launched two innovative customer centric initiatives of the Reserve Bank of India. Which two customer centric initiatives of the RBI have been launched? RBI Retail Direct Scheme  Aim: To enhance access to the government securities market for retail investors. Under the scheme, retail investors will be able… Continue reading PM to launch two innovative customer centric initiatives of RBI

The case of demonetisation in India

News: Popular narratives play a much bigger role in economic policymaking than economists and policymakers acknowledge. For instance, the Weimar hyperinflation of 1921-24 is deeply embedded in the German consciousness. Even now, nearly 100 years after the event, German society trusts financial stability and distrusts public debt. Fiscal conservatism remains the dominant narrative and has… Continue reading The case of demonetisation in India

Will a bad bank fix India’s broken banking system?

Synopsis: Last month, the Union government set up the National Asset Reconstruction Company Limited (NARCL) under the Companies Act. Two experts, Ajit Ranade  and C.P. Chandrasekhar, discuss the bad bank proposal. We list out the key points. Must Read: NARCL: Need and Challenges – Explained, pointwise What is the need to bail out banks?  There… Continue reading Will a bad bank fix India’s broken banking system?

Srei’s fall and the sorrysaga of shadow lenders

What is the news? After the 2018 collapse of IL&FS and 2019 collapse of DHFL, the Reserve Bank of India (RBI) has added the Kolkata-based Srei Group to the country’s list of failed non-bank lenders. The regulator superseded the boards of two non-banking financial companies (NBFCs), Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd.… Continue reading Srei’s fall and the sorrysaga of shadow lenders

Recurring pain: On RBI’s decision on auto-debit transactions

Synopsis: RBI must re-examine its auto-debit restrictions Introduction Recently, the Reserve Bank of India’s (RBI’s) new rules controlling recurring payments on credit or debit cards came into force. The new rules mandate advanced notification by banks to customers for executing recurring payments which are of value of ₹ 5,000 and above. It is meant for… Continue reading Recurring pain: On RBI’s decision on auto-debit transactions

How loopholes in Aadhaar-enabled payments are putting poor people at risk of being swindled

Synopsis: Given the need for financial inclusion, resolving the issue in the AePS model is vital. Introduction The government of India launched Aadhaar enabled Payment System which is coupled with the Business correspondent model. It was supposed to revitalize financial inclusion in India. However, it faces many challenges. What is the Aadhaar enabled Payment System… Continue reading How loopholes in Aadhaar-enabled payments are putting poor people at risk of being swindled

El Salvador’s crypto foray offers a cautionary tale for other countries

Synopsis: The tiny Central American nation of El Salvador has embarked on an interesting experiment by recognizing bitcoin as legal tender. This is proving painful for many of its citizens, but it’s a useful “pilot” project for larger economies that are contemplating about this new asset class. Introduction El Salvador has a population of 6.5 million and… Continue reading El Salvador’s crypto foray offers a cautionary tale for other countries

PM highlights importance of fintech, warns against covid

What is the News? The Prime Minister has addressed the 81st edition of his monthly radio programme Mann ki Baat. What are the issues he has talked about? On Digital Inclusion Initiatives Around 355 crore Unified Payments Interface (UPI) transactions took place in August 2021. On average, digital payments of more than ₹2 trillion are… Continue reading PM highlights importance of fintech, warns against covid

RBI permits lenders to sell fraud loans to ARCs, paves way for resolution

What is the News? The Reserve Bank of India(RBI) has permitted lenders to transfer the loans that have been classified as fraud to asset reconstruction companies(ARCs). What is the current procedure? Currently, RBI norms require banks to make 100% provisions for the entire amount classified as fraud.  Note: As per RBI’s annual report, lenders have… Continue reading RBI permits lenders to sell fraud loans to ARCs, paves way for resolution

China says all crypto-related transactions are illegal

What is the News? China has said that all crypto currency transactions in China, including transactions using Bitcoin, will be deemed illegal.  China and Cryptocurrency China has been one of the world’s largest crypto-currency markets.This is despite the fact that trading in crypto-currency has officially been banned in China since 2019. However, the recent announcement… Continue reading China says all crypto-related transactions are illegal

An existential crisis for the banking sector?

Synopsis: The business model of banks is under threat. Hence, both banking and market regulators must take a close look at the evolving landscape. Introduction Corporate India has cut its debt burden. They are replacing high-cost debt with cheap money, raised from the market, and sale of assets. Since 2016, RBI has been insisting on… Continue reading An existential crisis for the banking sector?

Bad bank will help clean up balance sheets, but credit culture must change for healthier financial system

Synopsis: Issues and challenges that may impact the performance of the National Asset Reconstruction Company Ltd. Introduction The balance sheets of banks show stressed loans worth Rs 2 lakh crore. To address this problem the government had envisaged the formation of National Asset Reconstruction Company Ltd (NARCL) referred to as the bad bank within a… Continue reading Bad bank will help clean up balance sheets, but credit culture must change for healthier financial system

Government sets up ‘bad bank’ to clear the NPA mess

What is the News? Cabinet has cleared a ₹30,600-crore guarantee programme for securities to be issued by the National Asset Reconstruction Company Limited(NARCL) for taking over and resolving non-performing assets(NPAs). What is NARCL? NARCL is India’s first-ever “Bad Bank”. It has been incorporated as an Asset Reconstruction Company (ARC) under the Companies Act. Purpose: It… Continue reading Government sets up ‘bad bank’ to clear the NPA mess

Union Cabinet clears decks for National Asset Reconstruction Company

What is the News? The Union Government has approved a proposal that requires the government to guarantee Security Receipts(SR) issued by National Asset Reconstruction Company Ltd (NARCL) when buying non-performing assets (NPAs) from banks. This will clear the path for the launch of National Asset Reconstruction Company (NARCL).  Note: Security Receipts (SR) are issued by ARCs… Continue reading Union Cabinet clears decks for National Asset Reconstruction Company

There’s a major new risk in town and it’s called crypto

Synopsis: Retail investors are the ones who’ll most likely suffer in the high-yield, high-risk Crypto market. Government should come up with regulations before its too late. Introduction Crypto products are being mass marketed in India without the oversight needed for investor safety. The crypto marketing campaigns have now reached even tier-II and tier-III cities. How… Continue reading There’s a major new risk in town and it’s called crypto

El Salvador’s gamble on Bitcoin: Much too dicey

What is the news? El Salvador became the first country to adopt Bitcoin as legal tender. But the launch was marked by Chivo app (state-backed wallet app) glitches and crash in the Bitcoin price. This shows the volatility associated with Cryptocurrency is real and the adoption of Bitcoin as the official currency can turn out… Continue reading El Salvador’s gamble on Bitcoin: Much too dicey

Central banks must stop ignoring climate change

Synopsis: Ignoring climate risks will complicate macroeconomic management, just as overlooking financial risks eventually led to the global financial crisis. Introduction Economic activity, is strongly integrated with emissions that contribute to climate change. Output and Greenhouse gases (GHGs) go hand in hand, and will continue to do so. After a drop in 2020 due to… Continue reading Central banks must stop ignoring climate change

Politics vs governance: on Urban Cooperative Banks

Synopsis: The Madhya Pradesh High Court’s decision to stay the Reserve Bank of India’s circular may delay the shift towards better governance in Urban Cooperative Banks (UCBs). Introduction The RBI had in June this year said that Members of Parliament, Assemblies, municipal corporations, municipalities, or other local bodies could not hold the corner-room post, or be a… Continue reading Politics vs governance: on Urban Cooperative Banks

El Salvador becomes first nation to adopt bitcoin as legal currency

What is the News? El Salvador has become the first country in the world to adopt Bitcoin as legal tender. This means businesses should accept payment in bitcoin alongside the U.S. dollar, which has been El Salvador’s official currency since 2001. Benefits of making Bitcoin as Legal Tender by El Salvador: Reduce the cost of… Continue reading El Salvador becomes first nation to adopt bitcoin as legal currency

Our banks are mispricing capital and this is simply unsustainable

Source: This post is based on the article “Our banks are mispricing capital and this is simply unsustainable” published in Live Mint on 2nd September 2021.  Syllabus: GS3- Indian Economy Relevance: Monetary policy and Economic stability  Synopsis: Below-cost lending in India could have economic repercussions beyond the financial burden imposed on bank shareholders. Background We have a situation in India today where… Continue reading Our banks are mispricing capital and this is simply unsustainable

Gauging household income key for microfinance clients

Source: This post is based on the article “Gauging household income key for microfinance clients” published in The Hindu on 2nd September 2021. Syllabus: GS3– Mobilization of Resources, Growth, Development Relevance: Credit growth, Micro-Finance Synopsis: An accurate assessment of household-level incomes would avoid instances of over-indebtedness and ensure the long-term stability of the ecosystem. Introduction Recently released,… Continue reading Gauging household income key for microfinance clients

Banks could end up beholden to online platforms with reach

Source: This post is based on the article “Banks could end up beholden to online platforms with reach” published in Livemint on 30th August 2021. Relevance: Disruption in the banking sector by tech giants. Synopsis: Deposit mobilization through Big Tech apps might weaken banks. What has happened? According to a press release, Equitas Small Finance… Continue reading Banks could end up beholden to online platforms with reach

Adopting crypto assets as currency is a risky bet: IMF

Source: This post is based on the article “Adopting crypto assets as currency is a risky bet: IMF” published in Livemint on 31st August 2021. What is the news? The International Monetary Fund (IMF) has warned that adoption of crypto assets such as Bitcoin as national currency can impact a country’s macroeconomic stability. The warning came ahead… Continue reading Adopting crypto assets as currency is a risky bet: IMF

Time to bury Mudra ‘loan mela’ (On MUDRA loans)

Source: Business Standard Relevance: MUDRA loans, Loan mela Synopsis: Mudra loans have generated no jobs, resulting in misspending of trillions of taxpayers’ money. The loans were supposed to be for a three- to five-year period. The first cycle of the experiment is over, and the result has been disastrous. Context Recently, the Chairman of the… Continue reading Time to bury Mudra ‘loan mela’ (On MUDRA loans)

Finance Minister unveils 4th edition of Public Sector Bank Reforms Agenda – EASE 4.0

Source: PIB What is the News? The Union Minister of Finance and Corporate Affairs has unveiled the fourth edition of the Public Sector Bank (PSB) Reforms Agenda ‘EASE 4.0’ for 2021-22. About EASE: Enhanced Access and Service Excellence(EASE) is a common reform agenda for Public Sector Banks (PSBs). It is aimed at institutionalizing clean lending,… Continue reading Finance Minister unveils 4th edition of Public Sector Bank Reforms Agenda – EASE 4.0

RBI panel suggests umbrella body for helping smaller UCBs scale up

Source: Business Standard and Livemint What is the News? The Reserve Bank of India(RBI) has released the report of the Expert Committee on Primary Urban Co-operative Banks(UCBs).  About the Expert Committee on UCBs: The committee was set up under the chairmanship of former RBI deputy governor N.S. Vishwanathan. Mandate: To examine the issues and to… Continue reading RBI panel suggests umbrella body for helping smaller UCBs scale up

Reserves: The RARE model in India

Source: Business Standard Relevance: Foreign Exchange reserves in India and issues related to it Synopsis: India should do away with the prevailing RARE model of reserves in a phased manner. Context The foreign exchange reserves in India are close to $620 billion. Recently, a parliamentary panel and the Union Minister Nitin Gadkari observed that the Reserve Bank… Continue reading Reserves: The RARE model in India

The silent rise of Small Finance Banks (SFBs)

Source: Live Mint Relevance: Financial inclusion and measures taken by RBI Synopsis: Challenges faced by SFBs and Criticism against them Background SFBs have grown rapidly since RBI first carved out this category half a decade ago in Indian financial system. In Financial Year (FY) 2018 – 2020, SFBs registered a phenomenal growth by doubling the… Continue reading The silent rise of Small Finance Banks (SFBs)

New licensing regime for UCBs in the pipeline

Source: Business Standard What is the news? A brand-new licensing regime for urban co-operative banks (UCBs) is on the cards for financially sound and well-managed co-operative credit societies. This comes 17 years after the Reserve Bank of India (RBI) stopped issuing them.  Expected Reforms in UCBs Constituting a board of management (BoM) for UCBs with… Continue reading New licensing regime for UCBs in the pipeline

Everything you want to know about CBDC

Source: Business Standard Relevance: CBDC, its potential impact, relevant suggestions Synopsis: The central bank digital currency will neither substitute nor compete with cryptocurrency; it’s just a wallet. An analysis of its inherent problems and a way forward. Background The RBI has been working towards a phased implementation of a central bank digital currency (CBDC) with… Continue reading Everything you want to know about CBDC

A rupee wish for India@100

Source: Indian Express Relevance: An ambitious goal for India’s 100th year of Independence in 2047. Synopsis: Prosperity is possible and best accomplished by the goal of making the rupee a global reserve currency by 2047. Conditions are opportune. An analysis. Characteristics of Reserve currency A reserve currency has to serve as a medium of exchange,… Continue reading A rupee wish for India@100