BANKING AWARENESS

1. Bank for Women, by the Women and to the Women:

i. India to have first public sector women’s Bank. An initial capital of Rs 1,000 crore has been committed in current Budget for the establishment of India’s first public sector Women’s Bank by the end of 2013

ii. The bank will run mostly by women and it would provide funds for the entrepreneurial initiatives by women.

iii. There is still not much clarity on what will be the specific features of this bank, how many branches, locations etc.

iv. On the whole, the first women’s bank is going to increase job opportunities for women and will help in the emergence of many women entrepreneurs in the country.

NOTE: i. As per RBI, the women’s bank would be set up as a PSB and would not require separate guidelines.

ii. Currently, there are all-women banks in the co-operative sector.

For example, the Self-Employed Women’s Association (SEWA) set up a women-only bank in 1974.

iii. The bank is owned by self-employed women as shareholders, and policies are formulated by their own elected board of women workers.

2.    RBI cuts interest rate by 0.25 per cent: 

i. Recently Reserve Bank of India (RBI) decided to reduce the key repo rate by 25 basis points from 7.75 per cent to 7.5 per cent with immediate effect.

ii. The RBI has left the cash reserve ratio (CRR) unchanged at 4 per cent.

iii. Consequently, the reverse repo rate stands adjusted to 6.5 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect. 

NOTE: This is the second policy rate cut by the RBI this calendar year to help revive a faltering economy, taking comfort from moderating core price pressures and the government's commitment to trim the fiscal deficit.

CURRENT RBI RATES:

1. CRR – 4%    (unchanged)                             
2. Repo Rate – 7.5%                Previously – 7.75%       
3. Reverse Repo Rate – 6.5%  Previously – 6.75%

4. MSF – 8.5%                          Previously – 8.75%
5. Bank Rate – 8.5%                 Previously – 8.75%    
6. SLR – 23%         (unchanged) 

                            

3.    Government  to Infuse Rs. 14,000 cr. in PSU Banks

i. In the Budget speech it has been announced that the government will infuse Rs 14,000 crore in public sector banks in next fiscal (2013-14).

Objective:

To ensure that PSU Banks meet the Basel III regulations regarding capital adequacy.

NOTE: i. Implementation of Basel III capital regulations envisages enhancing the requirement of core equity capital by banks due to higher capital ratios.The Basel III capital ratios will be fully phased in as on March 31, 2018.

ii. The RBI has extended the date for implementing Basel III regulations by 3 months to April 1, 2013.

iii. The Government had poured in about Rs 20,117 crore in public sector banks during 2010-11 and Rs 12,000 crore in 2011-12.

4.    United Bank ties up with Tata Power Solar

i. United Bank of India has entered into a memorandum of understanding (MoU) with Tata Power Solar to provide credit to the non-renewable energy sector.

ii. Under the MoU, Tata Power will leverage the bank’s branch network in the eastern region to make easy finance available to the purchaser of the off-grid solar home lighting or water heating system.

iii. The bank, in turn, will utilise the Tata Power outlets to increase its reach in the country.

iv. Deepak Narang, Executive director, United Bank. said: The arrangement will facilitate the bank to further increase its exposure to the micro sector.

5.    Banks can sell Insurance products of Multiple firms

i. As per Budget 2013-14, banks will also act as brokers for selling insurance products of multiple companies.

ii. Life insurers such as LIC and general insurers such as GIC will also be asked to open one branch each in towns with a population of over 10,000.

iii. The FM has also asked insurance companies to sell policies to people who have completed KYC obligations with banks.

iv. Insurance companies will be allowed to open branches in non-metropolitan cities without approval from the insurance regulator.

v. Insurance companies will be directly allowed to trade in debt market. It will mean some reduction in costs and may help deepen debt markets.

vi. According to Finance Minister P. Chidambaram, the know-your-customer (KYC) details gathered by banks will be sufficient to purchase an insurance policy, and group insurance products will now be offered to groups such as self-help groups, domestic workers' associations, among others.

NOTE:

i. Currently, banks can sell products of one life, one non-life and a standalone health insurer.

ii. The bancassurance guidelines are still under consideration of the Insurance Regulatory and Development Authority (IRDA).

iii. Reserve Bank of India (RBI) had recently shown concerns about banks becoming brokers.

6.    RBI extends deadline for issuance of new format cheques

i. The RBI has once again extended the deadline for issuance of new format cheque till July-end.

ii. It has asked the banks to issue new cheque books only under the new format and gave them time till July-end to withdraw the old format cheques.

iii. All cheques currently with customers in the old format (non-Cheque Truncation System) will continue to be valid for another four months (the earlier deadline was March 31), the apex bank said.

iv. The Reserve Bank also said the system of post dated cheques and payment via Equated Monthly Installment (EMI), in either the old or new format, will be banned from now wherever electronic debit facilities are available.

v. "All cheques issued by banks (including DDs/POs) with effect from the date of this circular shall necessarily conform to CTS-2010 standard," 

vi. The CTS-2010 eliminates the current practice of physically presenting a cheque to the payee bank, thereby substantially reducing the time for cheque clearance.

7.    Cheque signature mismatch may lead to criminal proceedings: Supreme Court

i. A person may face criminal proceedings if a cheque issued by him gets dishonoured on the ground that his signature does not match the specimen signature available with the bank.

ii. "Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138 of Negotiable Instrument Act, so also dishonour on the ground that the 'signatures do not match' or that the 'image is not found', which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act,"

8.    SEBI enables two-way fungibility of IDRs

i. The Securities and Exchange Board of India (SEBI) has issued detailed guidelines which will allow shareholders to convert their depository receipts into equity shares of the issuer company and vice-versa.

ii. The issuer could provide exchangeability to IDR holders by converting IDRs into underlying shares; or converting IDRs into underlying shares and selling the underlying shares in the foreign market where the shares of the issuer are listed and providing the sale proceeds to the IDR holders.

iii. Existing IDR issuers can follow the new framework, and have to provide the option of redemption/conversion within three months from the date of completing a year of listing.

About Indian Depository Receipts (IDRs)

IDRs are generally instruments denominated in rupees and allow overseas companies to raise funds from the Indian market.

How this step would help India’s capital market?

i. This move of allowing for two-way fungibility of IDRs will encourage greater foreign participation in the Indian capital market. 

ii. So far only the UK-based banking major Standard Chartered PLC was listed as an IDR.

9.    India Bhutan Sign Currency Swap Agreement

i. India and Bhutan have inked a currency swap agreement for up to $100 million to promote economic co-operation b/w the two nations.

ii. The pact was signed by the Reserve Bank of India and the RoyalMonetary Authority of Bhutan (RMAB).

iii. It enables RMAB to make withdrawals of US dollar, euro or Indian rupee in multiple tranches up to a maximum of $100 million or its equivalent.

NOTE: i. The agreement is in line with RBI announcement in May 2012 to offer swap facilities aggregating $2 billion, both in foreign currency and Indian rupee, to SAARC member nations — Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka.

ii. This pact will provide emergency funding for SAARC member countries to meet any balance of payments and liquidity crisis till longer term arrangements are made or if there is need for short-term liquidity due to market upheaval.

iii. The arrangement would be for a 3-year period and would help bring financial stability in the region.

10.  Direct Cash Transfer scheme from Govt: Aapka Paisa, Aapke Haath 

i. Government’s direct cash transfer programme- the Direct Benefit Transfer Scheme which began on January 1, 2013 which benefitted 11 lakh poor people throughout the country.

Main Objective:

i. As per Finance Minister, P.Chidambaram, it costs the government Rs 3 to transfer 1 rupee to the pockets of beneficiaries. The rest goes on administrative expenses, waste and corruption. Cash transfers will do away with mediators of all sorts, thus reducing corruption and administrative burdens.

ii. No delay in transfer of money to beneficiaries

iii. Elimination of falsification and duplication with regard to subsidies

iv. Beneficiaries can access it themselves or via banking correspondents who are being set up in all the areas

v. At present, beneficiaries have to furnish various paperwork for availing benefit.

vi. CTS has the potential to merge all paperwork, thus reducing red tape and improving efficiency.

Role of Banks:

i. Banks would be the distribution point for cash subsidy initially

ii. Subsidies would directly be electronically transferred to the bank accounts of the beneficiaries

iii. The electronic cash transfers will be based on Aadhaar platform

Target:

i. By January 1, 2013, 51 districts with high Aadhar penetration will be covered.

ii. By December 2013, the entire nation will be covered

Challenge regarding DCTs:

i. Most BPL families don’t have bank accounts

ii. Several villages don’t even have bank branches

iii. At present, only about 10% of population has Aadhar cards

iv. Politically difficult to withdraw benefits from once-poor folk who become better off.