Important point from RBI Annual Report

Transcription

1 On the production side, agriculture and allied activities rebounded sharply in Record foodgrains and horticulture production, facilitated by the normal monsoon as well as considerable hike in pulses Minimum Support Prices (MSPs), augmented the sector s growth during the year. During the year, there was the highest ever awarding and construction of national highway projects. The resolution of stalled projects, development of roads under Bharat Mala project, steps taken to streamline land acquisition, inter alia, helped to speed up road construction. The asset quality of the banking sector continued to be a concern during In the aftermath of the asset quality review (AQR) undertaken by the Reserve Bank beginning July 2015 and concomitantly with better recognition of non-performing assets (NPAs), the asset quality of banks, particularly the PSBs, deteriorated sharply. As of end-march 2017, 12.1 per cent of the advances of the banking system were stressed (sum of gross NPAs and restructured standard advances). 1 All ixambee Mock tests are FREE at

2 The surge in deposits led to excess liquidity in the banking system which was absorbed through an array of liquidity management measures, viz., reverse repo under the Liquidity Adjustment Facility (LAF), incremental Cash Reserve Ratio (CRR), and issuance of Cash Management Bills (CMBs) under the Market Stabilisation Scheme (MSS). The institutional architecture for the conduct of monetary policy underwent a fundamental shift, with the formal transition to a flexible inflation targeting framework and the constitution of a six member monetary policy committee (MPC) for setting the policy rate. These reforms marked the culmination of efforts made since early 2014 to strengthen the transparency, credibility and independence of monetary policy formulation. The conduct of monetary policy during was guided by an inflation objective of 5.0 per cent for Q4 of Keeping this in view, the stance of monetary policy was changed from accommodative to neutral in February Post demonetisation, the pace of monetary transmission from the policy repo rate to banks lending rates accelerated significantly, aided by the increase in the share of low cost current account and saving account (CASA) deposits in bank funding. However, the transmission to actual lending rates was uneven across sectors. In recent years, GDP growth in India has been consumption led, more so during and (Chart 1a). In such a phase of growth, consumption grows faster than GDP, either in nominal or real terms, so that the consumption to- GDP ratio increases over time or alternatively, real consumption growth exceeds real GDP growth. 2 All ixambee Mock tests are FREE at

3 CPI inflation has declined sharply in recent years. However, excluding food and fuel, inflation remained sticky at around 4.8 per cent in (Chart 1), until recently, when the fall during April-June 2017 brought it down to around 4 per cent. Conceptually, inflation can be decomposed into two components: core and non-core. For the year as a whole, RM contracted by around 13 per cent for the first time after , as against a similar order of expansion in CIC declined by Rs.3.3 trillion, while bankers balances with the Reserve Bank increased by Rs.423 billion. As at end-march 2017, the net Reserve Bank credit to banks and commercial sector declined by Rs.6.1 trillion visàvis an increase of Rs.1 trillion in the previous year. The value of banknotes in circulation declined by 20.2 per cent over the year to Rs.13,102 billion as at end-march The volume of banknotes, however, increased by 11.1 per cent, mainly due to higher infusion of banknotes of lower denomination in circulation following the demonetisation. In value terms, the share of Rs.500 and above banknotes, which had together accounted for 86.4 per cent of the total value of banknotes in circulation at end-march 2016, stood at 73.4 per cent at end-march The share of newly introduced Rs.2000 banknotes in the total value of banknotes in circulation was 50.2 per cent at end-march All ixambee Mock tests are FREE at

4 India s external sector parameters have improved over the last few years drawing strength primarily from a lower current account deficit (CAD). In general, a lower current account deficit augurs well for lower external financing requirements, buildup of reserves and a stable currency, albeit there could be other factors at play impacting each indicator separately. Fundamental institutional changes impacted monetary policy in India following the amendment to the Reserve Bank of India (RBI) Act, 1934, effected on June 27, The policy rate was reduced by 50 bps during and the policy stance shifted from accommodative to neutral in February Even as inflation undershot the target of 5 per cent set for Q4 of , monetary policy operations had to contend with massive surplus liquidity conditions, necessitating a mix of conventional and unconventional instruments of liquidity management. In spite of faster transmission of policy rate changes to marginal cost of funds based lending rates (MCLRs), pass-through to actual lending rates remained incomplete. 4 All ixambee Mock tests are FREE at

5 Monetary Instruments Advantage Disadvantage CRR Most effective in absorbing liquidity without being constrained by collateral MSS Market based instrument suitable for absorbing liquidity for longer period compared to Reverse Repo in LAF. Market participant prefers it over RR b/c of liquidity of the underlying instrument Cost to banking system Not marked based instrument Requires consent of GOI Can increase market yield if repeated often OMO Sales Most effect indirect instrument Requires stock of securities. Large scale sale influence yield Term Reverse Repo auction Flexibility on daily basis as per need rollover auction, simultaneous auction of multiple tenure, Inadequate appetite for LT auctions Fine tuning overnight RR auctions Robust market appetite because of ease of rollover. Idea for frictional surplus liquidity Not suitable for large durable surplus Fixed Rate Rev Repo (Floor of LAF corridor) Certainty to market that surplus liquidity is parked overnight at a known rate. There is no limit of the amount that could be parked, it prevents WACR falling below the lower bound of the corridor Extensive use can lead to excessive easing of the WACR The screenshot of the table in the report is given below: 5 All ixambee Mock tests are FREE at

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7 The Reserve Bank placed greater emphasis on effective credit delivery during the year by intensifying its ongoing efforts under the financial inclusion plans as well as adopting innovative approaches in expanding credit and spreading financial literacy. The major thrust was on operationalising a market mechanism for enhancing priority sector credit, strengthening the business correspondent (BC) model through BC registry and certification to promote financial inclusion, and enhancing financial literacy through a digital focus in literacy camps, experimenting with ground level camps, capacity building of financial literacy counsellors and observation of a financial literacy week. Work is also underway for the formulation of a National Strategy for Financial Inclusion. The Reserve Bank had set up the Financial Inclusion Advisory Committee (FIAC) in 2012 to review financial inclusion policies on an on-going basis and to provide expert advice to the Reserve Bank in this matter. Given the renewed focus on financial inclusion by the Government of India, the on-going implementation of the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and the need for convergence of the financial inclusion efforts of various stakeholders, FIAC was reconstituted in June Apart from continuous reviewing of the financial inclusion policy, monitoring the progress of financial inclusion and financial literacy, and assessing their impact, the reconstituted FIAC has been actively involved in the process of formulating the National Strategy for Financial Inclusion (NSFI), a public document. 7 All ixambee Mock tests are FREE at

8 Observe the Progress in Financial Inclusion 8 All ixambee Mock tests are FREE at

9 The Reserve Bank of India undertook a pan-india Financial Literacy and Inclusion Survey based on the OECD/INFE (International Network on Financial Education) Toolkit. The survey was conducted in 29 states and 5 union territories (excluding Andaman & Nicobar Islands and Lakshadweep Islands). Quotas for age, gender and socio economic classes were fixed across the locations to achieve a representative sample. The total sample size for the survey was 20,573 respondents. The percentage of Indian population scoring above the minimum required threshold score is 32 per cent for financial knowledge, 28 per cent for financial attitude, and 56 per cent for financial behaviour. The results of the survey are presented in the chart below 9 All ixambee Mock tests are FREE at

10 MCLR and deposit rates in Banks Please observe the movement in the deposit rates of banks along with the MCLR. (Just observe the trend) 10 All ixambee Mock tests are FREE at

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14 During , the Reserve Bank undertook a number of measures for developing various segments of the financial markets. In the money market, the Reserve Bank undertook proactive liquidity management operations, with a view to aligning money market rates with the policy rate for better transmission of monetary policy. Orderly conditions were maintained in the spot, forward and futures segments of the forex market, alongside further liberalisation of the capital account and rationalisation of the reporting requirements to promote ease of doing business. During , the Indian banking sector had to cope with the concerns about deteriorating asset quality, on the one hand, and a sharp decline in credit growth, on the other, while supporting the government in its initiatives to further reach out to the public and in promoting digitalisation of the modes of payments in the economy. The branch authorisation policy was revised to harmonise the treatment of different forms of bank presence for the purpose of opening banking outlets in under-served areas. Empowered by requisite legislative provisions put in place by the government, the Reserve Bank focused on strengthening the institutional framework to address asset quality concerns by improving the recovery process and the early response mechanism. Having gained experience with the licensing of small finance and payments banks, the Reserve Bank explored the scope of introducing more differentiated banks such as wholesale and long-term finance banks and also examined the regulatory challenges posed by innovations by Fin Tech entities in the financial landscape. Apart from focusing on the supervision of financial conglomerates and early response to asset quality deterioration, the Reserve Bank formalised a framework for taking enforcement action against banks for non-compliance with guidelines and instructions issued by it. For ensuring timely and effective redressal of 14 All ixambee Mock tests are FREE at

15 customer grievances in non-banking financial companies (NBFCs), the Reserve Bank proposes to formulate an appropriate Ombudsman Scheme for NBFCs. Banking outlet: A banking outlet includes a branch as well as business correspondent (BC) outlet, among others. For a domestic scheduled commercial bank (DSCB), a small finance bank (SFB) and a payment bank (PB), it is a fixed point service delivery unit, manned by either bank s staff or its BC where services of acceptance of deposits, encashment of cheques/ cash withdrawal or lending of money are provided for a minimum of four hours per day or at least five days a week. If it provides services for less number of hours per day and days in a week, it is considered a part-time banking outlet. Unbanked rural centre (URC): It is a rural (Tier 5 and 6) centre that does not have a core banking solution (CBS) enabled banking outlet of an SCB, a PB, an SFB or an RRB nor a branch of a local area bank or a licensed co-operative bank for carrying out customer based banking transactions. Thus, the role of technological advances in banking services is recognised as against the earlier definition based on a brick and mortar structure. Conditions for opening banking outlets: At least 25 per cent of banking outlets opened during a financial year must be opened in unbanked rural centres. Pro-rata benefit for part-time banking outlets will also be extended. The opening of a banking outlet/part-time banking outlet in a Tier 3 to 6 centre of north-eastern states, Sikkim and left wing extremism affected districts, notified by the Government of India, will be considered as equivalent to opening a banking outlet/part time banking outlet in a URC. A bank opening a brick and mortar branch in a rural (Tier 5 and 6) centre which owing to the presence of a BC outlet of another bank is not defined as a URC, will also be eligible for the same incentive. Similar treatment will be given for opening a banking outlet in a rural centre which is served only by a banking outlet of a PB. 15 All ixambee Mock tests are FREE at

16 Micro Finance Institution (MFI) structure of SFBs: Towards preserving the advantages of the MFI/NBFC structure of SFBs to promote financial inclusion, they have been allowed three years from the commencement date, to align their banking network with the extant guidelines. Till such time, the existing structure may continue and the existing branches will be treated as banking outlets though not immediately reckoning for the 25 per cent norm. Nevertheless, during this period of three years, the 25 per cent norm will be applicable for all the banking outlets opened or converted from the existing MFI branches in a year. Role of board of directors: Financial inclusion being the overarching objective of the revised framework and given the operational flexibility being provided to banks, the boards of banks have been accorded overall responsibility to ensure that all the guidelines are complied with, in letter and spirit. Two-tier Rural Cooperative Structure in Jharkhand Across India, there are more than 93,000 PACS having a membership base of 120 million. The structure of STCCS is not uniform across the states with a 3-tier structure in 16 states and 2-tier structure in 13 smaller states and union territories where PACS are directly affiliated to StCBs. There is a mixed structure in three states 2-tier in some districts and 3-tier in others. In 2013, the Jharkhand State Cooperative Bank (JStCB) took a path breaking initiative and approached the Reserve Bank to approve establishment of a 2-tier rural cooperative structure in the state to replace the age-old 3-tier structure. The state proposed to merge all the DCCBs with JStCB. Considering the merits of the request, in-principle approval was given for the amalgamation of all eight DCCBs with JStCB. 16 All ixambee Mock tests are FREE at

17 Asset Reconstruction Companies: Progress and the Way Forward SARFAESI Act (the Act) 2002 envisaged the formation of asset reconstruction companies (ARCs) ARC s primary goal is to acquire, manage and recover the financial assets which have been classified as NPAs by the banks/fis. Presently, there are 24 ARCs in the country. The Reserve Bank has been assigned powers under the Act to regulate and supervise ARCs. ARC can acquire and keep the financial asset NPAs in its own balance sheet or transfer it to one or more trust(s) at a price at which the asset was acquired from the originator (secured lender). Most of the deals are structured with a 15 per cent upfront payment to the seller banks/ FIs and issue of security receipts (SRs) for the remaining amount with a defined cash-flow waterfall. Management fee, a primary source of income for ARCs, has priority (after netting the expenses) over redemption of SRs. The trusteeship of such trusts vests with the ARC. The net owned fund requirement for ARCs was raised from Rs.20 million to Rs.1 billion effective April 28, 2017 to attract serious players. It is also allowed to have 100 per cent foreign direct investment (FDI) under the automatic route. 17 All ixambee Mock tests are FREE at

18 Asset Quality Review was extensively based on off-site data from the Central Repository for Information on Large Credits (CRILC). Supervisory returns- Off-site monitoring and surveillance (OSMOS) returns extensible business reporting language (XBRL) The Reserve Bank launched a mobile friendly portal Sachet (sachet.rbi.org.in) on August 4, 2016 to help the public as well as regulators to ensure that only regulated entities accept deposits from the public. The portal can be used by the public to share information including through uploading photographs of advertisements/publicity material, raise queries on any fund raising/investment schemes that they come across and lodge and track complaints. Deposit Insurance and Credit Guarantee Corporation (DICGC) Deposit insurance contributes to the stability of the financial system and protects depositors interests. DICGC is a wholly owned subsidiary of the Reserve Bank. It provides insurance cover to deposits in all commercial banks including LABs, payment banks, small finance banks, RRBs and cooperative banks. With the present limit of Rs.1 lakh, the number of fully protected accounts (1,737 million) as on March 31, 2017 constituted 92.1 per cent of the total number of accounts (1,885 million) as against the international benchmark of 80 per cent. In terms of amount, the total insured deposits at Rs.30.5 trillion at end-march 2017 constituted 29.5 per cent of the assessable deposits at Rs trillion as compared with the international benchmark of per cent. 18 All ixambee Mock tests are FREE at

19 The Financial Resolution and Deposit Insurance Bill, 2017, which was introduced in the Lok Sabha on August 10, 2017, prescribes setting up of a Resolution Corporation (RC) to ensure observance of the Financial Stability Board s Key Attributes on resolution of financial firms by addressing the gaps in the current resolution mechanism in India. National Housing Bank (NHB) NHB the apex institution for housing finance is to register, regulate and supervise housing finance companies (HFCs). It also provides refinance to HFCs, SCBs, RRBs and cooperative sector institutions for housing loans and directly lends (project finance) to borrowers in the public and private sectors for extending financial support to the housing programmes for the unserved and under-served segments of the population. The entire capital of Rs.14.5 billion of NHB is subscribed by the Reserve Bank. As on June 30, 2017, 85 HFCs were registered with NHB, out of which 18 HFCs were eligible for accepting public deposits. Sovereign Gold Bond Scheme The Reserve Bank successfully managed the issuances of SGBs during Four tranches of SGBs for an aggregate amount of Rs billion (11.44 ton) were issued during the year. Since the inception of the scheme in November 2015, a total of `60.29 billion (20.73 ton) has been mobilised and SGBs have been allotted to approximately 1.4 million retail investors including the issuances of two tranches in (May and July) All ixambee Mock tests are FREE at

20 BHARATIYA RESERVE BANK NOTE MUDRAN PRIVATE LIMITED (BRBNMPL) BRBNMPL is a wholly owned subsidiary of the Reserve Bank, which is playing a crucial role in the indigenisation of security features of banknotes in India. 20 All ixambee Mock tests are FREE at

21 Measures to Encourage Digitisation Unified Payments Interface (UPI) National Unified USSD Platform Unstructured Supplementary Service Data BHIM-Aadhaar Pay Mechanism for Merchant Payments Inter-operability of ATMs - Department of Post (DoP) was granted approval for enabling two-way interoperability of ATMs installed by it with ATMs connected to the National Financial Switch Tokenised Contactless Card Payments - Approval was given to the authorised card networks to introduce tokenised contactless card payments such as Samsung Pay The inter-operable QR code (Bharat QR) was launched in February Distributed Ledger Technology (DLT) DLT is viewed by many as having the potential to disrupt payment, clearing, settlement and related activities. DLT, including block chain technology, draws upon both well established and newer technologies to operate a set of synchronised ledgers managed by one or more entities. DLT may provide an alternative to the traditional centralisation of database management. 21 All ixambee Mock tests are FREE at

22 Reserve Bank Information Technology Pvt. Ltd. (ReBIT) ReBIT will commence its full-fledged operations and assist the Reserve Bank in cyber security related areas during The balance sheet size of the Reserve Bank increased marginally by 1.88 per cent for the year ended June 30, While income for the year decreased by per cent, the expenditure increased by per cent. The year ended with an overall surplus of Rs billion as against Rs billion in the previous year, representing a decline of per cent. 22 All ixambee Mock tests are FREE at

23 Questions i. SARFAESI Act (the Act) 2002 envisaged the formation of asset reconstruction companies ARCs (True/False) ii. iii. iv. DICGC provides insurance cover to deposits in RRBs and cooperative banks (True/False) The entire capital of Rs.14.5 billion of NHB is subscribed by the Reserve Bank. (True/False) OSMOS stands for Off-site monitoring and surveillance (True/False) v. More than 90% of the deposit accounts in India are insured by DICGC. (True/False) vi. vii. viii. ix. Banking outlet includes both Banking outlet and BC outlet (True/False) Service contributes maximum to the Current Account Deficit of India (True/False) Fuel is the maximum contributor to inflation (True/False) In a bank as MCLR increases the deposit rate also increases (True/False) 23 All ixambee Mock tests are FREE at

24 x. At least 25 per cent of banking outlets opened during a financial year must be opened in unbanked rural centres. (True/False) xi. xii. xiii. xiv. Rural Cooperative Structure is Two-tier in few states (True/False) ARCs are regulated by Ministry of Finance (True/False) ARC can acquire and keep the financial asset NPAs in its own balance sheet (True/False) BHARATIYA RESERVE BANK NOTE MUDRAN PRIVATE LIMITED (BRBNMPL) is a wholly owned subsidiary of the Reserve Bank (True/False) xv. DICGC is a wholly owned subsidiary of the Reserve Bank. (True/False) For answers and explanations to these questions please watch the video on RBI Annual report on 24 All ixambee Mock tests are FREE at