Current Developments in Indian Banking
Category : Banking
Current Developments in Indian Banking
The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks/ in addition to cooperative credit institutions.
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The Indian Banking industry is currently worth Rs. 81 trillion (US $ 1.31 trillion) and banks are now utilizing the latest technologies like internet and mobile devices to carry out transactions and communicate with the masses. |
BHIM (Bharat Interface for Money)
BHIM (Bharat Interface for Money) is a Mobile App developed by National Payments Corporation of India (NFCI), based on the Unified Payment Interface (UPI) intended to facilitate e-payments directly through banks. It was a part of the 2016 Indian bank note demonetisation and drive towards cashless transactions.
Government will also launch two new schemes to promote the use of the BHIM app. One will be referral payments for individuals, and the other will cashback for merchants who accept payments from BHIM. BHIM is currently being used by over 125 lakh Indian citizens.
Merger of five associate banks with SBI
The Union Cabinet approved the merger of five of State Bank of India subsidiaries with the SBI. They are: State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore. The merger proposal was announced in May 2016 and was scheduled for March 2017.
Asset Quality Review (AQR)
It aims to clean up the balance sheets of PSBs to ensure banks remain solvent and fully comply with global capital adequacy norms, Basel-III. Besides, revised programme of capitalisation will also be issued as part of it. It is likely to be completed by end of March 2017.
India's first international exchange at GIFT city
India's first international exchange India INX was inaugurated at the International Financial Service Centre (IFSC) of GIFT (Gujarat International Financial Tech) City Gandhinagar, Gujarat. India INX is a wholly- owned subsidiary of the Bombay Stock Exchange (BSE). It will enable Indian firms to compete on equal footing with offshore firms. EazyPay app for Merchants by ICICI Bank
ICICI Bank, India's largest private sector bank has launched EazyPay mobile application for merchants that allows all-in-one acceptance payments platform. This app consolidates all digital wallets, QR code. Unified Payments Interface (UPI), and credit & debit cards modes of payments. With this, ICICI Bank became first bank in the country to roll out all-in-one payments platform.
Committee on Digital Payments
It is 11-member committee notified in August 2016 by the Finance Ministry. It was tasked to review existing payment systems in the country and recommends appropriate measures for encouraging Digital Payments. It was having representatives from Reserve Bank of India (RBI), Unique Identification Authority of India (UIDAI), tax department and various industry bodies in the payments space.
Akodara becomes India's first Digital Village
Akodara village in Sabarkantha district of Gujarat has earned the coveted tag of becoming India's first digital village in India. The village with a total population of 1,191 people and 250 households uses various cashless systems for payments of goods and services. All transactions in the village are carried out through digital modes like SMS, net-banking or debit cards. The village was adopted by ICICI Bank under its Digital Village Project in 2015 and made cashless by adopting digital technology.
India's first banking robot Lakshmi by City Union Bank
India's first banking robot named Lakshmi was launched by the Kumbakonam-based City Union Bank (CUB) in Chennai, Tamil Nadu. Lakshmi will be first on-site humanoid (robot) in India.
SBI becomes first domestic bank to open branch in Myanmar
India's largest lender State Bank of India (SBI) has announced the opening up its foreign branch in Yangon, the capital city of Myanmar; With this, SBI became the first domestic bank of India to open a branch in Myanmar.
Monetary Policy Committee
The six member MFC has been entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. It will help in determining the Monetary Policy which in turn adds value and transparency to monetary policy decisions. The meetings of the MFC will be held at least 4 times a year and will publish its decisions after each such meeting.
Composition of MFC: As per the provisions of the RBI Act,, out of the six Members of MFC, three Members will be from the RBI and other three will be appointed by the Central Government. Governor of RBI (ex officio Chairperson), Deputy Governor of RBI, in charge of Monetary Policy (Member), One officer of RBI (Member) and three members are appointed by Central Government as members.
Current Composition of MPC
ICICI Bank: First bank to introduce Software Robotics for power banking operations
India's largest private sector bank ICICI Bank has successfully deployed 'Software Robotics' for power banking operations. With this, it becomes first bank in the country and among few globally to deploy 'Software Robotics'. ICICI Bank has deployed Software Robotics to over 200 business processes across various functions.
The software robots help to bring operational efficiency, higher accuracy and a massive reduction in processing time for customer services. It will help ICICI Bank to cut response time to customers by 60 per cent and increase accuracy to 100 per cent.
Cabinet approves proposal for Amendments to the NABARD Act, 1981
Amendments to National Bank for Agriculture and Rural Development Act, 1981 - The Amendments, include provisions that enable Central Government to increase the authorized capital of NABARD from Rs. 5,000 crore to Rs. 30,000 crore and to increase it beyond Rs. 30,000 crore in consultation with RBI, as deemed necessary from time to time. Transfer of 0.4 per cent. Equity of RBI in NABARD amounting to Rs. 20 crores to the Government of India.
The proposed amendments in NABARD Act, include certain other amendments including changes in long title and certain Sections to bring Medium Enterprises and Handlooms in NABARD's mabdate.
The proposed increase in the authorized capital would enable NABARD to respond to the commitments it has undertaken, particularly in respect of the Long Term Irrigation Fund and the recent Cabinet decision regarding on-lending to cooperative banks. Further, it will enable NABARD to augment its business and enhance its activities which would facilitate promotion of integrated rural development and securing prosperity of rural areas including generation of more employment.
The transfer of entire shareholding in NABARD held by RBI to the Central Government will remove the conflict in RBI's role as banking regulator and shareholder in NABARD.
RBI proposes 'Islamic window' in banks
The Reserve Bank of India (RBI) has proposed opening of "Islamic window" in conventional banks for "gradual" introduction of Sharia- compliant or interest-free banking in the country. Both the Centre and RBI are exploring the possibility of introduction of Islamic banking for long to ensure financial inclusion of those sections of the society that remain excluded due to religious reasons.
Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited in Islam.
Initially, RBI is planning to introduce a few simple products similar to conventional banking products through the Islamic window. But it will be after necessary notification issued by the Union Government. In later stage, full-fledged Islamic banking with profit-loss sharing complex products may be considered on the basis of experience gained in the course of time.
SARFAESI Act, 2002
It was enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest created in respect of Financial Assets to enable realization of such assets. It allows banks and financial institutions to auction residential or commercial properties to recover loans.
Inflation targeting
Inflation targeting is a monetary policy in which a central bank estimates and makes public a projected or "target" inflation rate. After declaration of target, the central bank attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools. The Union Government has set an inflation target of four per cent for the next five years i.e. till March 31, 2021.
Basel III (Third Basel Accord)
Basel III is a global/ voluntary regulatory framework on bank capital adequacy, market liquidity risk and stress testing. It was agreed by Basel Committee on Banking Supervision (BCBS) members in 2010-11. It focuses primarily on the risk of a run on the bank, requiring differing levels of reserves for different forms of bank deposits and other borrowings. It does not supersedes the guidelines known as Basel I and Basel II for the most part, rather works alongside' them. In March 2014, RBI had extended Basel III deadline up to March 31, 2019, instead of as on March 31, 2018.
Note: Basel series of norms are broad supervisory standards formulated by BCBS to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
Financial Stability and Development Council (FSDC)
The Government established Financial Stability and Development Council (FSDC) in December 2010 with the Finance Minister as its Chairman. The idea to create it was first mooted by the Raghuram Rajan Committee on Financial Sector Reforms in 2008.
It is a super regulatory body for regulating financial sector which is vital for bringing healthy and efficient financial system in the economy. The FSDC envisages to strengthen and institutionalise mechanism of
(i) maintaining financial stability,
(ii) Financial sector development,
(iii) inter-regulatory coordination along with monitoring macro-prudential regulation of economy.
Pradhan Manth Jan Dhan Yojana
Pradhan Mantri Jan DhanYojana is a scheme for comprehensive financial inclusion launched by the Prime Minister, Narendra Modi, in 2014. It was started to ensure access to Current Developments in Indian Banking financial services, namely. Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. Government aims to extend insurance, pension and credit facilities to those excluded from these benefits under the Pradhan Mantri Jan Dhan Yojana (PMJDY).
Under Fradhan Mantri Jan Dhan Yojana (PMJDY), 28 crore accounts have been opened and 22 crore RuPay debit cards have been issued as of March 29, 2017. These new accounts have garnered deposits worth almost Rs. 63000 crore.
Priority sector lending certificates (PSLCs)
The Reserve Bank of India (RBI) has issued guidelines for priority sector lending certificates (PSLCs), according to which banks can issue four different kinds of PSLCs- those for the shortfall in agriculture lending, lending to small and marginal farmers, lending to micro enterprises and for overall lending targets - to meet their priority sector lending targets.
Credit Guarantee Fund Scheme
To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities extended to Micro and Small Enterprises (MSEs) up to Rs. 2 Crore. This has facilitated easy access to credit from organized banking sector to first generation entrepreneurs in the Micro and Small Enterprises (MSE) sector.
Tarun Ramadorai committee
The Reserve Bank of India (RBI) has constituted Dr. Tarun Ramadorai committee to study various facets of household finance in India. The committee will be chaired by Tarun Ramadorai, Professor of Financial Economics at University of Oxford. It will also have representation from all financial sector regulators in India. The committee will benchmark the current depth of household financial markets in India vis-a-vis those in other major world markets and identify areas of priority for growth and change and characterise and evaluate households' demands in financial markets for assets such as pensions as well as liabilities such as home loans over the coming decade.
sachet, rbi.org.in
Reserve Bank of India (RBI) has launched a website (sachet.rbi.org.in) to curb illegal and unauthorised pooling of funds by unscrupulous firms. It will help people obtain information about entities allowed to collect deposits.
Micro Units Development & Refinance Agency (MUDRA) Bank
Micro Units Development & Refinance Agency (MUDRA) Bank was established to refinance all Micro-finance Institutions (MFIs), which are in the business of lending to micro/ small business entities engaged in manufacturing, trading and services activities up to Rs.10 lakh.
Domestic Systemically Important Banks (D-SIBs)
Reserve Bank of India has declared SBI and ICICI banks as Domestic Systemically Important Banks. D-SIBs are perceived as banks which are equivalent of too-big-to-fall in other countries. D-SIB category banks need to set aside more capital per loan than their peers to prevent a contagion effect, in case of financial crisis. The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August, starting from August 2015. This is in line to directions of Basel Committee on Banking Supervision, to all member countries to have a regulatory framework to deal with SIBs.
Bandhan and Infrastructure Development Finance Company (IDFC)
On April 2, 2014, RBIhad granted an in-principle approval to Bandhan and Infrastructure Development Finance Company (IDFC) to set up a bank. As a bank, Bandhan plans to focus on retail clients and will not focus on corporate clients for lending. In early 2014, an RBI committee headed by Bimal Jalan submitted its report on the criteria, business plans and corporate governance practices of applicants applying for New Bank Licenses.
Indradhanush
Mission Indradhanush is a 7 pronged plan launched by Government of India to resolve issues faced by Public Sector banks. It aims to revamp their functioning to enable them to compete with Private Sector banks.
The 7 parts include appointments. Banks board bureau, capitalisation, de-stressing, and empowerment, framework of accountability and governance reforms (ABCDEFG).
Strategic Debt Restructuring (SDR)
It is about the terms that banks can write into the loan agreements, which will kick in at the time of default. It aims at improving the working of banks faced with defaulters. It involves Transferring equity of the company by promoters to the lenders to compensate for their sacrifices.
Bank Board Bureau
P J Nayak committee was formed to review the governance of Board of Banks in India. The committee recommended bureau as an interim step till the government hands over key governance roles to Bank Investment Company. The bureau will have 3 ex-officio members and 3 expert members, in addition to the Chairman.
Its functions include giving recommendations for appointment of full-time Directors as well as non-Executive Chairman of PSBs and to give advice to PSBs in developing differentiated strategies for raising funds through innovative financial methods and instruments and to deal with issues of stressed assets.
Capitalisation of Banks
In July 2016, the government allocated Rs. 22,915 crore as capital infusion in 13 public sector banks, which is expected to improve their liquidity and lending operations, and shore up economic growth in the country.
Demonetisation of Rs. 500, Rs. 1,000 notes - no longer legal tender
The Union Government announced that Rs. 500, Rs. 1,000 notes will cease to be legal tender. Demonetisation is an act of stripping a currency unit of its status as legal tender. Demonetization is mandatory whenever there is a change of national currency. In this process, the new currency unit replaces the old unit of currency which is retired.
Demonetisation in India happened for the first time in January 1946, when Rs. 1, 000 and Rs. 10,000 banknotes were demonetised. However, these two denominations were reintroduced in 1954 along with currency notes of Rs. 5,000. But all these three denominations were again demonetised in January 1978. The RBI in 2014, had demonetised all banknotes printed before 2005.
Unified Payment Interface (UPI)
Unified Payments Interface (UPI) is a payment system launched by National Payments Corporation of India and regulated by Reserve Bank of India which facilitates the fund transfer between two bank accounts on the mobile platform instantly.
UPI allows a customer to pay directly from a bank account to different merchants, both online and offline, without the hassle of typing credit card details, IFSC code, or net banking/wallet passwords. This includes transactions such as Merchant payments, remittances, bill payments among others. The limit per transaction is Rs. 1 lakh.
National Payments Corporation of India (NPCI)
NPCI is the umbrella organisation for all retail payments system in India. It is being promoted by the Reserve Bank of India. It was founded in 2008 as a not-for-profit organisation registered under section 25 of the Companies Act, 2013. NPCI has successfully played pioneering role in the development of a domestic card payment network called RuPay, reducing the dependency on international card schemes. Futuristic Challenges for Indian Banking Industry
(i) Banks entering into greater specialized businesses like retail, housing, personal sector, corporate sector etc.
(ii) Banks have to look for more non-fund based businesses (NFBs), like advisory services, merchant banking advisory services, guarantee business, consultancy business services etc.
(iii) Creating a strong image of the organization (brand image); customer delight and excellence etc.
(iv) The concept of Universal Banking is catching up fast. (Universal bank means where a bank takes up both the functions of long term lending development financial institutions as well as that of commercial banks. In other words a universal bank lends both short term (working capital) as well as term loan (long tern finance).
(v) Banks have to tackle the 'twin deficit' problems with the increasing of Bad loans which have reduced their Profits and Balance Sheet. The Gross Non-Performing Assets of Banks stand at 9.1% and the stressed assets which include both Gross Non-Performing Assets and restructured loans are at 12.3%. As on September 30, 2016 gross NPAs of the PSBs in the country stood at Rs. 6,30,323 crore.
(vi) After Demonetisation of higher currency notes (Rs. 500 and Rs. 1000) on November 8,2016, the Deposits in Bank accounts have increased. This has reduced the cost of funds for banks. Hence the banks face the challenge of giving a fillip to credit growth which is at decadal low of 5.1% of loan disbursements.
(vii) Banks also face the Cyber Security risks as there is an increase in digital transactions after the demonetisation of currency was implemented. Hence upgrading the Digital Infrastructure to provide a secured platform for the customers remains a big challenge. In 2016, as many as 32.14 lakh debit cards were compromised in the cyber-attacks. It was the biggest-ever breach of debit card data in India. Of the debit cards affected, about 26.5 lakh were Visa and Master Card-enabled and 6 lakh were RuPay-enabled. To tackle the threat/ RBI had issued swift guidelines to banks, mandating cyber security preparedness for addressing cyber risks.
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