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.

2. Govt sets up 13-member panel to draw roadmap for digital payment systems (Source: BL)

  • The government set up a 13-member committee to formulate a roadmap to implement measures that promote digital payment systems and move towards a healthy financial ecosystem. Chandrababu Naidu, Chief Minister of Andhra Pradesh, will be the convener of the committee which includes five other Chief Ministers.
  • The committee will identify the global best practices for implementing an economy primarily based on digital payment and examine the possibility of adoption of these global standards in the Indian context. · It will also outline measures for rapid adoption of digital payments system through cards, digital wallets, internet banking and Unified Payments Interface among others and will set a roadmap for implementation of these measures in the next one year.

3.  India’s domestic investors stock up despite shock from cash crunch (Source: FE)

  • Indian domestic institutional investors bought about $2.6 billion in equities this month, their biggest net purchases since at least 2007, showing faith in Indian markets despite fears about a cash crunch.
  • The net purchases were not enough to prevent the NSE share index from falling 4.8 percent in November, as Donald Trump’s election as US president sparked heavy selling in emerging markets by foreign investors.
  • In India, they sold a net $2.67 billion, the biggest since at least 2002, according to clearing data. Foreign investors tend to hold larger blue chips, which have a stronger impact on indexes. But the buying by domestic investors, including mutual funds and insurers, is raising hope they are not too spooked by the abolition of higher-valued bank notes on Nov. 8.

4. RBI to issue new Rs 20 and 50 notes; old currency notes still valid (Source: BS)

  • The Reserve Bank of India will shortly issue new Rs 20 and Rs 50 notes in the Mahatma Gandhi Series-2005, without inset letter in both the number panels in Rs. 50 note and with inset letter ‘L’ in both the number panels on the Rs 20 note.
  • These notes will bear the signature of RBI Governor Urjit R Patel.Old banknotes of the two denominations will continue to be legal tender. The year ‘2016’ will be printed on the reverse of the banknotes.

5. Govt must up public expenditure to push consumption: Assocham (Source: BL)

  • Arguing that private consumption will take a “significant hit” at least in the next two quarters following demonetisation, Assocham said the government should jack up its public expenditure in 2016-17.
  • The chamber said focus should be on sectors like roads and highways, ports, railway, telecom infrastructure, irrigation, flood control and rural upliftment programmes. It wants the government to devise ways to ensure construction of projects does not suffer on account of cash shortage.
  • The private final consumption expenditure (PFCE) accounts for close to 60 per cent of the country’s gross domestic product (GDP) at current prices and 55 per cent at constant prices. With 86 per cent of the cash out of circulation, PFCE in the third quarter is expected to see a sizeable reduction to the extent of at least 35—40 per cent and slightly lower in the fourth quarter.

6. Black money estimates overshot as 82% of cash deposited in banks (Source: Mint)

  • Indians have validated 82 percent of bank notes rendered worthless by Prime Minister Narendra Modi’s surprise move last month, according to people with knowledge of the matter, undermining the government’s estimate of black money in the economy.
  • About 12.6 trillion rupees ($185 billion) had been deposited into bank accounts as of Dec. 3, the people said, asking not to be identified citing rules for speaking with the media. The government had estimated that about 5 trillion rupees of the 15.3 trillion rupees sucked out by Modi’s move would stay undeclared, implying that this was cash stashed away to evade taxes, known locally as black money.
  • Lack of a meaningful cancellation could be a double blow for Modi as the measure was being used as a political and economic gauge of the success of his Nov. 8 move. One of Modi’s biggest campaign pledges was to expose black money in Asia’s No. 3 economy, and economists were viewing the cash as a potential windfall for the government.
  • Private indicators published over the past week signal that the $2 trillion economy will be hurt by the cash clampdown. Economists have also slashed India’s growth forecast for October-December, imperiling the nation’s status as the world’s fastest-growing big economy.

7. Demonetisation: India services PMI contracts in November (Source: MINT)

  • Indian services activity dived into contraction in November after Prime Minister Narendra Modi’s surprise move to withdraw high denomination banknotes led to a sharp decline in demand.
  • The Nikkei/Markit Services Purchasing Managers’ Index sank to 46.7 in November from October’s 54.5, the first time since June 2015 that the index has gone below the 50 mark that separates growth from contraction.
  • It was also the biggest one-month drop since November 2008, just after the collapse of Lehman Brothers triggered the global financial crisis.
  • IHS Markit said the cash-driven economy saw financial services, hotels, restaurants, renting and business activities suffer the most as consumers curbed discretionary spending.
  • India’s services sector makes up over 60% of gross domestic product, so a contraction there is likely to drastically weaken the growth outlook. A slowdown could rob India of its fastest growing major economy tag.

8. India can add value to growth by adopting circular economy: UNCTAD (Source: FE)

  • India can add value to its growth by resorting to a circular economy essentiating maximum utility of products, components and materials, a study by a United Nations body said.
  • Circular economy refers to a continuous cycle preserving and enhancing natural capital, optimising resource yields, while minimising risks by managing infinite stocks and renewable flows.
  • “A circular economy development path in India could create annual value of Rs 14 lakh crore (#218 billion) in 2030 and Rs 40 lakh crore ($624 billion) in 2050 compared with the current development scenario,” said the report.

9. RBI to banks: Follow due diligence for activating dormant accounts (Source: Mint)

  • With people thronging banks for depositing old notes in dormant accounts, the Reserve Bank of India (RBI) on 06.12.2016 asked banks to strictly follow customer due diligence guidelines while allowing operations in such accounts.
  • RBI asked the banks to ensure compliance of its instructions on activation of dormant accounts, customer due diligence and record management, “scrupulously”.
  • As part of the customer due diligence procedure, certified copies of officially valid documents for proof of identity and address are to be obtained while establishing an account based relationship.
  • Banks have to take steps for preserving the customer account information including preservation of records pertaining to the identification of the customers and their addresses obtained while opening the account, for at least five years after the business relationship is ended.

10. Govt asks banks to install additional 10 lakh PoS terminals within 4 months (Source: MINT)

  • In order to promote digital transactions across the country, government has asked banks to install 10 lakh additional point of sale (PoS) terminals within four months.
  • Towards this end, banks have already placed orders for 6 lakh PoS machines and another 4 lakh are likely to be ordered in the next few days, a finance ministry statement said.
  • There are about 15 lakh PoS terminals currently across different merchants to facilitate card based payments.
  • To encourage purchase of PoS machines, the excise duty payable on acquisition of PoS machine which was earlier 16.5% has been waived till 31 March.

11. PNB partners with Ola to deploy mobile ATMs (Source: BS)

  • Punjab National Bank (PNB) on 06.12.2016 announced a partnership with cab aggregator Ola to aid cash withdrawals for the citizens of Delhi and the National Capital Region (NCR).
  • PNB ATM machine equipped Ola cabs have been stationed in Gurgaon, Laxminagar, Janakpuri, Civil Lines, AIIMS, Netaji Subhash Place, Manesar, Nehru Place, Bhikaji Cama Place, Mayur Vihar, Faridabad, Tilak Nagar, Rajouri Garden and Greater Kailash, with Ola volunteers and PNB executives, to assist people in withdrawing cash without any hassle.
  • Earlier this week, Ola rolled out similar activity for the citizens of Mumbai, Bengaluru, Chennai, Pune, Kolkata, Chandigarh, Ahmedabad, Hyderabad and Jaipur, in partnership with Yes Bank.
  • “Through this activity, Ola has increased touch points to PNB’s existing network by creating more avenues for withdrawing money through micro ATMs/point of sales machines,” added Rajesh Yaduvanshi, Zonal Manager, Delhi and NCR, Punjab National Bank.

12. Bad loan targets collateral damage amid cash crunch (Source: ET)

  • Banks are so busy trying to cope with the cash crunch caused by demonetisation that the critical task of going after bad loans is falling by the wayside. Not only that, lenders are worried that the concomitant slump in asset values means that collateral is depreciating, making things worse.
  • Earnings in December quarter could therefore look even worse than they’ve been in the past few quarters, not due to a rise in defaults but because decisions are pending on debt restructuring and the conversion of loans into equity. Balance sheets have suffered ever since the Reserve Bank of India last year started pushing banks to recognise bad loans, provision for them and set their house in order.
  • Lenders have to decide on debt recasts to the tune of more than Rs 1 lakh crore, including those of Essar Steel, Bhushan Steel, ABG Shipyard and scores of others as officials struggle to meet customers’ need for cash, said three people with knowledge of the matter. The lack of cash has led to a drop in demand, thereby causing the value of assets used as collateral to fall, some experts said. An unintended consequence is that some small traders and those running mid and small-sized companies are repaying loans with old currency. The reason being that these borrowers are getting their arrears from other parties in old currency to clear debt





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