Reserve Bank of India
08:19
Showing posts with label ministry of Finance. Show all posts
Showing posts with label ministry of Finance. Show all posts
Friday, 19 August 2022
Thursday, 10 September 2020
public sector banks
08:34
To Felicitate Best Performing Banks on EASE Banking Reforms Index -Award Ceremony on 09.09.2020
To Felicitate Best Performing Banks on EASE Banking Reforms Index -Award Ceremony on 09.09.2020
Union Minister of Finance & Corporate Affairs Smt. Nirmala Sitharaman today inaugurated Doorstep Banking Services by PSBs and participated in the awards ceremony to felicitate best performing banks on EASE Banking Reforms Index.
Secretary, Department of Financial Services Shri Debasish Panda and Chairman IBA, Shri Rajnish Kumar,were also present at the virtual event.
Doorstep Banking Services by PSBs
As part of the EASE Reforms, Doorstep Banking Services is envisaged to provide convenience of banking services to the customers at their door step through the universal touch points of Call Centre, Web Portal or Mobile App. Customers can also track their service request through these channels.
The services shall be rendered by the Doorstep Banking Agents deployed by the selected Service Providers at 100 centres across the country.
At present only non-financial services viz. Pick up of negotiable instruments (cheque / demand draft / pay order, etc.), Pick up new cheque book requisition slip, Pick up of 15G / 15H forms, Pick up of IT / GST challan, Issue request for standing instructions, Request for account statement, Delivery of non-personalised cheque book, demand draft, pay order, Delivery of term deposit receipt, acknowledgement, etc., Delivery of TDS / Form 16 certificate issuance, Delivery of pre-paid instrument / gift card are available to customers. Financial services shall be made available from October 2020.
The services can be availed by customers of Public Sector Banks at nominal charges. The services shall benefit all customers, particularly Senior Citizens and Divyangs who would find it at ease to avail these services.
Performance of PSB on EASE 2.0 Index
A common reform agenda for PSBs, EASE Agenda is aimed at institutionalizing clean and smart banking. It was launched in January 2018, and the subsequent edition of the program ― EASE 2.0 built on the foundation laid in EASE 1.0 and furthered the progress on reforms. Reform Action Points in EASE 2.0 aimed at making the reforms journey irreversible, strengthening processes and systems, and driving outcomes.
PSBs have shown a healthy trajectory in their performance over fourquarters since the launch of EASE 2.0 Reforms Agenda. The overall score of PSBs increased by 37% between March-2019 and March-2020, with the average EASE index score improving from 49.2 to 67.4 out of 100. Significant progress is seen across six themes of the Reforms Agenda, with the highest improvement seen in the themes of‘Responsible Banking’, ‘Governance and HR’, ‘PSBs as Udyamimitra for MSMEs’, and ‘Credit off-take’.
Saturday, 6 June 2020
ministry of Finance
07:03
Sovereign Gold Bond Scheme 2020-21 (Series III) – Issue Price
Sovereign Gold Bond Scheme 2020-21 (Series III) – Issue Price
Ministry of Finance
Sovereign Gold Bond Scheme 2020-21 (Series III) – Issue Price
Posted On: 05 JUN 2020 9:14PM by PIB Delhi
In terms of the Government of India Notification No. F.No. 4(4)-B/(W&M)/2020 dated April 13, 2019, Sovereign Gold Bonds 2020-21 (Series III) will be opened for the period June 08-12, 2020 with Settlement date June 16, 2020. The issue price of the Bond during the subscription period shall be Rs 4,677 (Rupees Four thousand Six hundred Seventy seven only) – per gram, as also published by RBI in their Press Release dated June 05, 2020.
The Government of India in consultation with the Reserve Bank of India has decided to allow discount of Rs 50 (Rupees Fifty only) per gram from the issue price to those investors who apply online and the payment is made through digital mode. For such investors the issue price of Gold Bond will be Rs 4,627 (Rupees Four thousand Six hundred twenty seven only) per gram of gold.
Source:PIBNEWS
Sunday, 12 January 2020
ministry of Finance
18:33
Memorandum to Hon'ble Finance Minister seeking exemption of entire Leave Encashment amount from deduction of Income Tax
Memorandum to Hon'ble Finance Minister seeking exemption of entire Leave Encashment amount from deduction of Income Tax
Circular No:5
Saturday, 6 July 2019
public sector banks
08:00
Highlights of Union Budget 2019-2020 -Banking and Financial Sector
Highlights of Union Budget 2019-2020 -Banking and Financial Sector
Banking and Financial Sector
NPAs of commercial banks reduced by over Rs. 1 lakh crore over the last year.
Record recovery of over Rs. 4 lakh crore effected over the last four years.
Provision coverage ratio at its highest in seven years.
Domestic credit growth increased to 13.8%.
Measures related to PSBs:
Rs. 70,000 crore proposed to be provided to PSBs to boost credit.
PSBs to leverage technology, offering online personal loans and doorstep banking, and enabling customers of one PSBs to access services across all PSBs.
Steps to be initiated to empower accountholders to have control over deposit of cash by others in their accounts.
Reforms to be undertaken to strengthen governance in PSBs.
Measures related to NBFCs:
Proposals for strengthening the regulatory authority of RBI over NBFCs to be placed in the Finance Bill.
Requirement of creating a Debenture Redemption Reserve will be done away with to allow NBFCs to raise funds in public issues.
Steps to allow all NBFCs to directly participate on the TReDS platform.
Return of regulatory authority from NHB to RBI proposed, over the housing finance sector.
Rs. 100 lakh crore investment in infrastructure intended over the next five years. Committee proposed to recommend the structure and required flow of funds through development finance institutions.
Steps to be taken to separate the NPS Trust from PFRDA.
Reduction in Net Owned Fund requirement from Rs. 5,000 crore to Rs. 1,000 crore proposed:
To facilitate on-shoring of international insurance transactions.
To enable opening of branches by foreign reinsurers in the International Financial Services Centre.
Measures related to CPSEs:
Target of Rs. 1, 05,000 crore of disinvestment receipts set for the FY 2019-20.
Government to reinitiate the process of strategic disinvestment of Air India, and to offer more CPSEs for strategic participation by the private sector.
Government to undertake strategic sale of PSUs and continue to consolidate PSUs in the non-financial space.
Government to consider going to an appropriate level below 51% in PSUs where the government control is still to be retained, on case to case basis.
Present policy of retaining 51% Government stake to be modified to retaining 51% stake inclusive of the stake of Government controlled institutions.
Retail participation in CPSEs to be encouraged.
To provide additional investment space:
Government to realign its holding in CPSEs
Banks to permit greater availability of its shares and to improve depth of its market.
Government to offer an investment option in ETFs on the lines of Equity Linked Savings Scheme (ELSS).
Government to meet public shareholding norms of 25% for all listed PSUs and raise the foreign shareholding limits to maximum permissible sector limits for all PSU companies which are part of Emerging Market Index.
Government to raise a part of its gross borrowing program in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market.
New series of coins of One Rupee, Two Rupees, Five Rupees, Ten Rupees and Twenty Rupees, easily identifiable to the visually impaired to be made available for public use shortly.
Digital Payments
TDS of 2% on cash withdrawal exceeding Rs. 1 crore in a year from a bank account
Business establishments with annual turnover more than Rs. 50 crore shall offer low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers as well as merchants.
Source:PIBNEWS
Saturday, 4 August 2018
Tuesday, 29 May 2018
Friday, 11 May 2018
Tuesday, 3 April 2018
Saturday, 31 March 2018
PAN NUMBER
22:46
No Last date Yet for Aadhar Link with PAN,Bank Accounts
No Last date Yet for Aadhar Link with PAN,Bank Accounts
New Delhi, Mar 31 (UNI) Government has extended the dates for indefinite period for linking Aadhar and Permanent Account number (PAN) with bank accounts of account holders.
The notification issued on Saturday said, “Whereas the Hon’ble Supreme Court, vide its interim order dated 13th March, 2018 in the case of Justice KS Puttaswamy (Retd.) & Anr. V. Union of India, W.P. (Civil) 494/2012 etc. (Aadhaar Cases), has extended the last date for linking Aadhaar with existing bank accounts from 31.03.2018 till the final judgement of the case.
Monday, 26 March 2018
Tuesday, 13 February 2018
small savings
18:53
Small Savings Act Amendments -Ministry of Finance
Small Savings Act Amendments -Ministry of Finance
Ministry of Finance
Government of India makes Amendments in Small Savings Act;
Proposes merger of Government Savings Certificates Act, 1959 and Public Provident Fund Act, 1968 with the Government Savings Banks Act, 1873;
All existing protections have been retained while consolidating PPF Act under the proposed Government Savings Promotion Act.
The Government gives highest priority to the interest of small savers, especially savings for the benefit of girl child, the senior citizens and the regular savers who form the backbone of our country’s savings architecture. In order to remove existing ambiguities due to multiple Acts and rules for Small Saving Schemes and further strengthen the objective of “Minimum Government, Maximum Governance”, Government of India has proposed merger of Government Savings Certificates Act, 1959 and Public Provident Fund Act, 1968 with the Government Savings Banks Act, 1873. With a single act, relevant provisions of the Government Savings Certificates (NSC) Act, 1959 and the Public Provident Fund Act, 1968 would stand subsumed in the new amended Act without compromising on any of the functional provision of the existing Act.
All existing protections have been retained while consolidating PPF Act under the proposed Government Savings Promotion Act. No existing benefits to depositors are proposed to be taken away through this process. The main objective in proposing a common Act is to make implementation easier for the depositors as they need not go through different rules and Acts for understanding the provision of various small saving schemes, and also to introduce certain flexibilities for the investors.
However, concerns have been raised from different corners and also by print and social media that the Government aims to bring down the protection against the attachment of Public Provident Fund Account under any decree or order of any court in respect of any debt or liability incurred by the depositors. It is made clear that there is no proposal to withdraw the said provision and the existing and future depositors will continue to enjoy protection from the attachment under the amended umbrella Act as well.
Apart from ensuring existing benefits, certain new benefits to the depositors have been proposed under the bill. These are:
As per PPF Act, the PPF account can’t be closed prematurely before completion of five financial years. If depositor wants to close PPF account before five years in exigencies, he can’t close the account. To make provisions for premature closure easier in respect of all schemes, provisions could now be made through specific scheme notification. The benefits of premature closure of Small Savings Schemes may now be introduced to deal with medical emergencies, higher education needs, etc.
Investment in Small Savings Schemes can be made by Guardian on behalf of minor(s) under the provisions made in the proposed bill Guardian may also be given associated rights and responsibilities.
There was no clear provision earlier regarding deposit by minors in the existing Acts. The provision has been made now to promote culture of savings among children.
There were no clear provisions in all the three Acts for the operation of accounts in the name of physically infirm and differently abled persons. Provisions in this regard have now been made.
As per existing provisions of the Acts, if depositor dies and nomination exists, the outstanding balances will be paid to nominee(s). Whereas, Hon’ble Supreme Court in its judgement stated that nominee(s) is merely empowered to collect the amounts as Trustee for the benefit of legal heirs. It was creating disputes between the provisions of the Acts and verdict of Supreme Court. Hence, right of nominees have now been more clearly defined.
In the existing Acts, there is no provision for nomination with regard to account opened in the name of minor. Further, existing Acts say that if account holder dies and there is no nomination and amount is more than prescribed limit, the amount shall be paid to legal heirs. In this case, the guardian has to obtain succession certificate. To remove this inconvenience, provisions for nomination with regard to account opened in the name of minors have been incorporated. Further the provision has been made that if the minor dies and there is no nomination, the balances shall be paid to guardian.
The existing Acts are silent about grievance redressal. The amended Act allows the Government to put in place mechanism for redressal of grievances and for amicable and expeditious settlement of disputes relating to Small Savings.
The above provisions which are proposed to be incorporated in the amended Act will add to the flexibility in operation of the Account under Small Savings Schemes.
Apart from offering higher interest rates compared to bank deposits, some of the small savings schemes also enjoy income tax benefits. No change in interest rate or tax policy on small savings scheme is being made through this amendment.
Apprehension that certain Small Savings Schemes would be closed is also without basis.
Source:PIBNEWS
Sunday, 1 October 2017
small savings
13:13
Small Savings Schemes Interest Rates for the Third Quarter of the Current Financial Year 2017-18 starting from 1st October, 2017 to remain unchanged.
Small Savings Schemes Interest Rates for the Third Quarter of the Current Financial Year 2017-18 starting from 1st October, 2017 to remain unchanged.
Rates of Interest on the various Small Savings Schemes for the Third Quarter of the Current Financial Year 2017-18 starting from 1st October, 2017 to remain unchanged.
The Government of India has decided that the rates of interest on the various Small Savings Schemes for the Third Quarter of the Financial Year 2017-18 starting from 1st October, 2017 shall remain unchanged from those notified for the Second Quarter of the sameFinancial Year 2017-18.This has the approval of the Union Finance Minister, Shri Arun Jaitley.
Earlier, on the basis of the decision of the Government of India, interest rates of Small Savings Schemes are notified on Quarterly basis since 1st April, 2016.
Source:PIBNEWS
Wednesday, 20 September 2017
Friday, 14 July 2017
small savings
19:07
REVISION OF INTEREST RATE FOR SMALL SAVINGS SCHEME
REVISION OF INTEREST RATE FOR SMALL SAVINGS SCHEME
RBI/2017-18/22
DGBA.GBD. 69/15.02.005/2017-18
July 13, 2017
The Chairman/Chief Executive Officer
Agency Banks handling Public Provident Fund, Kisan Vikas Patra- 2014,
Sukanya Samriddhi Account, Senior Citizen Savings Scheme-2004
Dear Sir
Interest rates for Small Savings Schemes
Please refer to our circular DGBA.GAD.2618/15.02.005/2016-17 dated April 6, 2017 on the above subject. The Government of India, had vide their Office Memorandum (OM) No.F.No.01/04/2016–NS dated June 30, 2017 advised the rate of interest on various small savings schemes for the second quarter of the financial year 2017-18 (copy enclosed).
2. The contents of this circular may be brought to the notice of the branches of your bank operating Government Small Saving Schemes for necessary action. These should also be displayed on the notice boards of your branches for information of the subscribers to these Schemes.
Yours faithfully
(V. S. Prajish)
Assistant General Manager
Source:Ministry Of Finance,RBI
Friday, 30 June 2017
ministry of Finance
07:44
GST: Bank and Insurance Companies
GST: Bank and Insurance Companies
From insurance premium to ATM transaction, banking will be expensive under GST
Ahead of the July 1 roll out of the Goods and Services Tax (GST), the government has repeatedly stated that the tax incidence on most goods and services will remain the same even if it does not come down. However, various sectors have raised concerns contrary to this claim.
One such area is of the financial services offered by banks and insurance companies, which are expected to pinch your pockets more under GST. Financial service charges include service charges on ATM transactions and Credit and Debit Cards, insurance premiums, EMI (Easy Monthly Installment) etc.
Under GST, financial services have been put under the 18 per cent slab, whereas currently customers pay 15 per cent service tax for them. Thus, a straight 3 per cent hike in your bills may be expected.
For example, if your annual premium for a Rs 1 crore term plan works out to Rs 25,000, GST will result in a tax burden of Rs 4,500, compared to Rs 3,750 currently.
Similarly, State Bank of India (SBI) charges Rs 50 plus service tax (15 per cent), for each withdrawal at banks beyond four free transactions. So, currently for withdrawing Rs 10,000, you need to pay a sum of Rs 1,550 ( Rs 1,500 as service charge plus Rs 50). Under GST, this transaction will attract a service charge of Rs 1,850.
Banks and insurance companies have already started to send out messages to its customers warning about the hike. SBI Card has sent SMS to its customers alerting about the higher incidence of tax.
"Important: The Government of India proposes to implement the GST which is likely to be effective from July 1, 2017. Consequently, the existing service tax rate of 15 per cent shall be replaced by a GST rate of 18 per cent," the SMS sent by SBI read.
An SBI official confirmed the same.
Banks like Standard Chartered and HDFC are also sending messages related to GST to their customers.
ICICI Prudential Life Insurance, in email messages to its customers, said premium payable on term policy and fund management charges on a Unit Linked Insurance Policy will attract 18 per cent GST post implementation of the new indirect tax regime.
GST is touted as the single biggest tax reform since India's independence in 1947 and is expected to add 2 per cent to India's GDP (gross domestic product). It aims to subsume the various central and state taxes that are currently levied on goods and services, bringing India under a uniform tax regime.
GST is set to be launched on the midnight of June 30 and July 1 by the President Pranab Mukherjee. Prime Minister Narendra Modi, Vice President Hamid Ansari, Lok Sabha speaker Sumitra Mahajan, members of Parliament and GST councils and chief ministers of all states have also been invited. Former Prime Ministers Manmohan Singh and H D Deve Gowda are also expected to grace the occasion.
Source:Times Of India
Wednesday, 12 April 2017
security
18:15
Virtual Currencies
Virtual Currencies
Reserve Bank of India, vide, its Press Release dated February 01, 2017 has advised that it has not given any license / authorization to any entity / company to operate schemes or to deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.
Reserve Bank of India had issued cautionary advice to the users, holders and traders of Virtual Currencies (VCs) including Bitcoins about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to , vide, its press release dated December 24, 2013.
The creation, trading or usage of VCs including Bitcoins, as a medium of payment is not authorized by any central bank or monetary authority. No regulatory approval, registration or authorisation have been obtained by the entities concerned for carrying on such activities.
The absence of counter parties in the usage of VCs including Bitcoins, for illicit and illegal activities in anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
This was stated by Shri Arjun Ram Meghwal, Minister of State in the Ministry of Finance in written reply to a question in Rajya Sabha on 11.04.2017
Source:PIBNEWS
Source:PIBNEWS
Sunday, 19 March 2017
trade unions
18:50
Central Government asks 10 banks to cut staff benefits for capital
Central Government asks 10 banks to cut staff benefits for capital
FinMin wants banks to get commitment from trade unions
The government has asked 10 public sector banks (PSBs) to curtail employee benefits, including industry-standard pay hikes, if these want to receive any capital. The Centre wants these banks to sign a memorandum of understanding (MoU) with the employees’ unions to get a commitment on this. If the unions agree, benefits such as leave travel concessions and perks could go for a few years till the banks returned to health.
All three Kolkata-based banks — United Bank of India, UCO Bank and Allahabad Bank — have got this diktat. The letter has also gone to Indian Overseas Bank, Vijaya Bank, Bank of India, Central Bank of India, Andhra Bank, Bank of Maharashtra and Dena Bank, sources said.
These banks had asked for capital from the government, some as little as ~500 crore. But the government is acting tough, as these have a huge bad-asset problem and their profits are dwindling.
According to sources, a letter, which the finance ministry has written to the banks, said capital allocation would be linked with measurable quarterly milestones on which all related parties — banks’ board of directors, management and employees — must commit.
Support in the form of capital would require a tripartite MoU between the government, the PSB concerned and its employees. The MoU would be a commitment to an agreement for a time-bound plan, starting with the financial year 201718. It would be monitored quarterly.
Temporary restructuring of employee benefits would be done only based on need. Any reduction or suspension in benefits could be reversed if the bank concerned successfully managed turnaround operations, said sources.
Senior bankers in some of these institutions confirmed they had received such a letter. A senior executive of a bank said the purpose of the proposed MoU was to have employees on board. “This is a commitment and not a legal provision to put blame on and basis for action against employees,” he added.
Sources said SBI Capital Markets, the investment banking arm of the State Bank of India (SBI), has been asked to advise on the terms of the MoU.
According to a senior union leader, they would explore the option of going on strikes if they were not satisfied with the terms of the MoU.
C H Venkatachalam, general secretary, All India Bank Employees’ Association, said employees were ready to cooperate for the effective turnaround of banks. However, unions and employees would not tolerate a vendetta or harassment. Banks have to be empowered to ensure effective recovery from defaulters, especially corporate borrowers, through legal means.
“The government wants the banks to sign the MoU with the unions to restrict economic benefits of employees. This is probably the government’s way of saying the employees of these banks deserve to be punished,” said a source.
Bank unions might find hurdles to their agitation plans. The P J Nayak committee has already suggested privatisation of PSBs. Union Finance Minister Arun Jaitley has expressed a desire to start privatisation with IDBI Bank. Besides, the government in July 2016 said it would capitalise only 13 banks, out of the 19 it owned, based on performance.
Bank unions were in a spot after the government gave a go-ahead to SBI to merge with its associate banks.
Such an MoU was not unprecedented. In 1998-99, the M S Verma committee report had suggested that banks with a return-on-asset ratio of less than one should be liquidated. Affected banks — Indian Overseas Bank, United Bank of India and Indian Bank — had to sign such an agreement with the unions. These banks had returned to health in three years. Then finance minister P Chidambaram used to preside over the board meetings of these banks and employee benefits were significantly curtailed.
The government is trying the same trick this time and the unions might have to oblige to save the banks from privatisation, sources said.
All three Kolkata-based banks — United Bank of India, UCO Bank and Allahabad Bank — have got this diktat. The letter has also gone to Indian Overseas Bank, Vijaya Bank, Bank of India, Central Bank of India, Andhra Bank, Bank of Maharashtra and Dena Bank, sources said.
These banks had asked for capital from the government, some as little as ~500 crore. But the government is acting tough, as these have a huge bad-asset problem and their profits are dwindling.
According to sources, a letter, which the finance ministry has written to the banks, said capital allocation would be linked with measurable quarterly milestones on which all related parties — banks’ board of directors, management and employees — must commit.
Support in the form of capital would require a tripartite MoU between the government, the PSB concerned and its employees. The MoU would be a commitment to an agreement for a time-bound plan, starting with the financial year 201718. It would be monitored quarterly.
Temporary restructuring of employee benefits would be done only based on need. Any reduction or suspension in benefits could be reversed if the bank concerned successfully managed turnaround operations, said sources.
Senior bankers in some of these institutions confirmed they had received such a letter. A senior executive of a bank said the purpose of the proposed MoU was to have employees on board. “This is a commitment and not a legal provision to put blame on and basis for action against employees,” he added.
Sources said SBI Capital Markets, the investment banking arm of the State Bank of India (SBI), has been asked to advise on the terms of the MoU.
According to a senior union leader, they would explore the option of going on strikes if they were not satisfied with the terms of the MoU.
C H Venkatachalam, general secretary, All India Bank Employees’ Association, said employees were ready to cooperate for the effective turnaround of banks. However, unions and employees would not tolerate a vendetta or harassment. Banks have to be empowered to ensure effective recovery from defaulters, especially corporate borrowers, through legal means.
“The government wants the banks to sign the MoU with the unions to restrict economic benefits of employees. This is probably the government’s way of saying the employees of these banks deserve to be punished,” said a source.
Bank unions might find hurdles to their agitation plans. The P J Nayak committee has already suggested privatisation of PSBs. Union Finance Minister Arun Jaitley has expressed a desire to start privatisation with IDBI Bank. Besides, the government in July 2016 said it would capitalise only 13 banks, out of the 19 it owned, based on performance.
Bank unions were in a spot after the government gave a go-ahead to SBI to merge with its associate banks.
Such an MoU was not unprecedented. In 1998-99, the M S Verma committee report had suggested that banks with a return-on-asset ratio of less than one should be liquidated. Affected banks — Indian Overseas Bank, United Bank of India and Indian Bank — had to sign such an agreement with the unions. These banks had returned to health in three years. Then finance minister P Chidambaram used to preside over the board meetings of these banks and employee benefits were significantly curtailed.
The government is trying the same trick this time and the unions might have to oblige to save the banks from privatisation, sources said.
Source:Indian Bank Kumar
Friday, 24 February 2017
XIth Bipartite
10:19
Ministry of Finance initiates XIth Bank Bipartite process
Ministry of Finance initiates XIth Bank Bipartite process
Before settling down the dust of tenth bank bipartite, Ministry of Finance initiated next wage revision process. This is as per the recent Govt. policy of effecting wage revision from current date to avoid any financial burden of payment of arrears. Recently we noticed this approach for Central Govt. employees where pay commission had been constituted well in advance, for the first time in history.
Finance Ministry vide its Letter No.F No 4/2/2/2015,IR dated 12th January 2016 directed,CEOs of all Public Sector Banks to initiate the process of negotiation /Next wage revision of the employees and conclude it prior to the effective date 1.11.2017.
The last Wage revision process due w.e.f 1.11.2012(10th Bipartite Settlement /Joint Note was completed on 25th May 2015 .
Source:SaPost
Monday, 20 February 2017
ministry of Finance
07:51
Government's time to bite the bullet on bad bank
Government's time to bite the bullet on bad bank
During the 2008 global financial crisis, Indian policy makers -from the government as well as the Reserve Bank of India -used to tom-tom how the domestic financial system escaped the carnage because of their prudent policies. Turns out it was a bluff.
Few looked through the Indian system at that point when analysts, regulators and investors were all intoxicated by 9% economic growth and they were intent on keeping it high irrespective of the global meltdown as if it was India’s birth right. In fact, the government and the RBI not only turned a Nelson’s eye to the banks’ efforts to paper over the simmering crisis, but also encouraged it. Here is how: Between 2009 and 2013, thousands of crores of loans were restructured without a thought on whether the projects involved were viable. As banks threw good money after bad, the government cheered and the regulator was just a spectator.
Fast forward to 2017. More than half the Indian banking system is technically insolvent because their stressed assets -loans ever-greened to avoid defaults and those where borrowers have defaulted -are more than the capital they own. There may be hundreds of reasons for defaults, but the truth is that depositors’ money is up in smoke. If people were to lose faith, it won’t be long before Indian banks start seeing long queues like those seen in Ireland or Greece during the crisis.
The share of stressed loans in Indian banks is estimated at 16.6% of total, while for state-run banks it stands at 20%. Eight years of kicking the can down the road led us to where we are today . To borrow Warren Buffet’s analogy Indian banks are swimming naked. To persist with the idea that recovery laws and asset reconstruction companies can solve the bad loans problem is foolish. The government alone can rescue the banks.
Bankers are largely blamed for the current mess. Executives from the RBI to bureaucrats have said that credit appraisal process at banks were wanting since they granted loans to leveraged companies with eyes shut. But the question is what was the government doing as a shareholder and why did the regulator bless loans restructuring with periodic easing of rules? It was indeed playing ball with banks till former RBI governor Raghuram Rajan put an end to it with an Asset Quality Review that exposed the true state of the Indian banking system.
After shutting the capital tap on banks, the government may say it is for bankers to put their houses in order. But they are failing as consensus is elusive in large loans because there are more than a dozen banks involved. Even if there is an agreement, it takes six months to get board approvals by which time the market dynamics change.
These agreements which have been few and far between have also come to a grinding halt, thanks to investigative agencies.The CBI arresting five IDBI BankBSE 0.31 % staff including its former chairman in the Kingfisher AirlinesBSE 3.03 % case has frozen the banking system. It is no one’s case that criminal activities and frauds at banks should go unpunished. But is the CBI distinguishing between malfeasance and poor decision-making? In IDBI’s case, the CBI seems to be making credit rating the cornerstone to seek conviction. If ratings alone determined loans, Citibank and Bank of America won’t have been on the verge of collapse in 2008.
Fear and indecision are crippling the banking system. No banker wants to price a bad loan for fear of interrogation five years into his retirement. The RBI needs to come up with a formula to price bad loans. For example, bad loan for one year will have a 20% hair-cut, and 40% for two years and so on. Once the bad loans are valued with the government’s blessings, they can be transferred to the bad bank capitalised with temporary shift of reserves from the RBI. Conservatives may argue that such a move is encroaching on central bank independence. They said it when US treasury secretary Hank Paulson came up with the $700-billion Troubled Assets Relief Programme.
If the government is averse to transfer all the stressed loans to the bad bank, it can shift a portion of it, say top 250 defaulters . Even then the benefits could be huge. On an average, about 50 companies owe `20,000 crore in debt, with 10 companies owing more than `40,000 crore each, the government data shows.
The government and the RBI have as much hand as the bankers have in this bad-loans mess. Banks and the regulator are exhausted. The government alone can save the day.
Source:Businessfortnight
