Financial Awareness for RBI Grade B-17 July 2017

Financial Awareness for RBI Grade B-17 July 2017

  1. Number of public sector banks may go down to 12 as govt mulls consolidation (Source: MINT/ BL)

  • The government is working on a consolidation agenda with a view to creating 3-4 global-sized banks and reduce the number of state-owned lenders to about 12.
  • Some region-centric banks like Punjab and Sind Bank and Andhra Bank will continue as independent entities while some mid-size lenders would also co-exist.
  • One of the possibilities is that large public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition. Factors like regional balance, geographical reach, financial burden and smooth human resource transition have to be looked into while taking a merger decision.

2. Govt working on a simpler insolvency and bankruptcy code for SMEs (Source: MINT)

  • After dealing firmly with large corporate loan defaulters, the government has started drawing up a simpler version of the insolvency and bankruptcy code for partnership and proprietorship firms, the legal form that most small and medium enterprises (SMEs) take.
  • Though the loans are smaller in value, SME borrowers far out number companies, resulting in their borrowings exerting a significant influence on the financial sector’s stability. The insolvency and bankruptcy code that is currently in place deals only with companies, not other forms of organised economic activity.
  • The Insolvency and Bankruptcy Board of India (IBBI) has started working on a blueprint for the SME bankruptcy code, the framework of which is expected to be drawn up by the end of this month.

3. RBI may push for resolution of bad loans worth Rs 8 trillion by March 2019: study (Source: MINT/ BL)

  • Emboldened by the Banking Regulation (Amendment) Ordinance, the Reserve Bank of India (RBI) is expected to push for resolution of bad loans worth around Rs8 trillion by March 2019, a move that could bring down the non performing assets (NPAs) and improve the financial health of banks, a study by Assocham said.
  • Although entire NPAs could be put on the altar of Insolvency and Bankruptcy Code (IBC) resolution mechanism, it has to be seen how much and how fast they actually go out from the balance sheets of banks which at this point of time seem very stressed, it said. If balance sheet numbers are anything to go by, it simply brings home the fact that banks have no capacity to do fresh corporate lending that is necessary for pushing subdued private sector investment, the study said.

4. Only 7% rise in transactions through cards post demonetisation (Source: BL/ ET)

  • Transactions through debit and credit cards rose by merely seven per cent post demonetisation, as against a surge of over 23 per cent in overall digital transactions, top government officials told a parliamentary panel. The digital transactions in all modes increased by 23 per cent to 27.5 million in May 2017 from 22.4 million in November 2016, according to the presentation.
  • The highest jump was witnessed in transactions through UPI, from one million per day in November 2016 to 30 million in May 2017. The least rise in digital transactions was witnessed in the case of plastic cards, as the rise was only seven per cent — from 6.8 million in November 2016 to 7.3 million in May this year.

5. Pressure mounts on RBI to cut policy rate, say experts (Source: BL)

  • With inflation falling to record low levels and industrial growth slipping to below 2 per cent, bankers and economists feel the pressure has increased on the Reserve Bank to cut the benchmark interest rate next month.
  • Private sector Kotak Bank is of the opinion that since the RBI has revised down its inflation trajectory sharply in the June policy, and given that inflation reading, the central bank has some room to be accommodative and expects the MPC to cut repo rate by 25 bps in the August meeting. BofA Merrill Lynch Global Research too, expects the MPC to cut rates by 25 basis points. CII said it “strongly recommends” a rate cut of 50 basis points in the forthcoming monetary policy to provide a fillip to demand.

6. PBOC to play bigger role in managing financial risks: Xi Jinping (Source: BS)

  • China’s central bank will take on a bigger role in the macro-prudential management and in averting systemic risk in the financial system, President Xi Jinping said. Fragmented oversight of China’s financial sector has led authorities to worry about “giant crocodiles”, a term that regulators have started using to describe law-breaking tycoons who circumvent regulations to grab control of other companies. As a result, funds are illegally spent on buyouts and acquisitions and are not being used by companies to spur growth in the real economy.

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