Financial Awareness-December(11-20) 2016

  1. Demonetisation bolsters sluggish govt-backed UPI payment system (Source: MINT)
  • The chaos caused by India’s ban on high-denomination rupee notes has provided a boost to a national cashless payment platform that has struggled to gain traction.
  • Usage of the government-backed Unified Payments Interface has surged, with more than 250,000 transactions in the first week of December, close to November’s total of 287,000, central bank data show, as some Indians seek to circumvent the cash shortage that followed the government’s surprise graft-busting move on 8 November.

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Financial Awareness-December(1-10) 2016

  1. RBI eases cash balance requirements for banks (Source: Mint)
  • The Reserve Bank of India (RBI) will allow banks to use all their cash to meet the central bank’s new cash reserve ratio requirements, not just a certain amount of the money, in a technical but important move that could provide relief to the country’s banks.
  • The RBI on had ordered banks to put all the deposits they accumulated between mid-September and mid-November under the central bank’s cash reserve ratio. The banks had been flooded with deposits after the government banned larger bank notes.
  • That created problems for banks. Under India’s complicated rules for cash holdings, only a certain amount of the cash they hold in their vaults is eligible to be placed under cash reserve requirements.
  • Those issues should now be resolved. The RBI in a statement widened the criteria for cash that can be included, including all the Rs500 and Rs1,000 banknotes the government abolished this month.
  • “In the wake of deposits of specified bank notes in massive quantity and accumulations thereof, the above instructions have been revisited,” the RBI said.

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Critical Analysis on Demonetisation

On November 8, in an urgent move, Prime Minister Narendra Modi announced the ‘Demonetisation’ of Rs. 500 and Rs. 1000 currency notes. The swiftness of execution was such that these currency bills were effectively rendered useless within a couple of hours of the announcement. The reasoning behind such a move has been summed up in the official statement. A striking observation to be made out here is the lack of data numbers provided for by the Government and the connection made to national security. Let’s think about this policy action to analyse it to a certain extent. Continue reading “Critical Analysis on Demonetisation”

Demonetisation – Absorbing the Excess Liquidity

The decision to raise the limit for issue of bonds under MSS (Market Stabilization Scheme) is a prudent move and brings this innovative scheme in focus again. The arrangement also shifts the burden of holding cash from the Banks and RBI on to the government and would help stabilise the money market. A look at the scheme and how money is flowing after it is being deposited in the banks as a result of demonetization. Continue reading “Demonetisation – Absorbing the Excess Liquidity”

Financial Awareness-November(21-30) 2016

  1. Lenders allowed more time to classify defaults as NPAs (Source: MINT)
  • The Reserve Bank of India (RBI) on November 21st said it would allow lenders more time to classify defaults as sub-standard owing to the government’s decision to scrap high-value banknotes.
  • Scheduled commercial banks, state cooperative banks, district central cooperative banks, non-banking financial companies (NBFCs) and microfinance companies will get an additional 60-day window for classifying stressed standard accounts as nonperforming assets (NPAs), if the payments are due between 1 November and 31 December.
  • “The additional time given shall only apply to defer the classification of an existing standard asset as substandard and not for delaying the migration of an account across sub-categories of NPA,” the statement said.
  • In its statement, RBI said the exemptions will be available to any running working capital limits available with banks where the sanctioned limit is Rs1 crore or less. Term loans of up to Rs. 1 crore, whether business or personal, secured or otherwise, on the books of any bank or any NBFC, including microfinance companies, would be covered under by this one-time scheme. This would also be applicable on home loans and agriculture loans up to that limit.
  • The move by RBI is likely to help over a third of the banking system loans. According to RBI data, 35% of the banking system’s loans were given to customers where the individual outstanding loan is Rs1 crore or below.
  • In its guidelines, the regulator said that this is a short-term deferment and will not count as restructuring. Typically, when an account goes from standard to NPA in a bank’s book, the lender has to set aside up to 15% of the outstanding amount as a provision.

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Financial Awareness-November(11-20) 2016

  1. Bad loan troubles continue at banks (Source:Mint)
  • Bad loan woes for banks continued on Wednesday, with three of the five banks that reported quarterly earnings on the day mentioning a deterioration in asset quality.
  • Uco Bank, the biggest of the three, reported a dismal performance in the fiscal second quarter although accumulation of its gross non-performing assets (NPAs) saw a slight drop. Its gross NPA stood at 16.51% at the end of the September quarter, compared with 17.19% a quarter ago.
  • Three banks reported a worsening of asset quality: Oriental Bank of Commerce’s gross NPA increased to 12.36% at the end of fiscal second quarter, compared with 11.45% a quarter ago. Indian Bank saw its gross NPA jumping to 7.28%, compared with 6.97% in the June quarter, while Punjab and Sind Bank’s gross NPA increased to 8.63% for the second quarter against 7.23% in June. Karnataka Bank’s gross NPA decreased to 3.64% at the end of September quarter compared to 3.92% a quarter ago.
  • Provisions for all the five banks increased by a substantial amount from last year. Oriental Bank’s provision increased to Rs774.54 crore for the second quarter, compared with Rs569.42 crore a year ago. Indian Bank’s provision more than doubled to Rs478.27 crore. Punjab and Sind Bank’s provision almost doubled to Rs225.46 crore for the September quarter. Karnataka Bank’s provision increased to Rs130.55 crore in the second quarter, compared with Rs35.07 crore in the year earlier. Uco Bank saw its provision increase by close to 40% to Rs1,488.34 crore for the September quarter.
  • Provision coverage ratio for Oriental Bank of Commerce, Indian bank, Punjab and Sind Bank and Uco Bank stood at 48.47%, 55.11%, 46.01% and 58.29%, respectively, at the end of the September quarter.

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