Financial Awareness-January(11-20) 2017

  1. RBI chief Urjit Patel urges govt to be mindful of debt levels (Source: BS)
  • Reserve Bank of India (RBI) governor Urjit Patel urged the government to make progress in reducing high federal and state government borrowing. Patel said the government debt to gross domestic product (GDP) ratio was also constraining the country’s sovereign ratings.
  • India’s total fiscal deficit, which is targeted at 6.4% of GDP in 2016/17 when combining the levels of the federal and state governments, is among the highest in G20 countries, Patel said.

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Financial Awareness-January(1-10) 2017

  1. Public sector banks: Government to soon finalise 2nd tranche of capital infusion (Source: MINT)
  • Finance ministry is likely to finalise the second tranche of capital infusion in public sector banks (PSBs) in the next three weeks. The decision on the second round of capital infusion is slated to be crystallised before the Budget.
  • The government has already announced fund infusion of Rs22,915 crore, out of the Rs25,000 crore earmarked for 13 PSBs for the current fiscal. The first tranche was announced with the objective of enhancing their lending operations and enabling them to raise more money from the market.
  • The capital infusion exercise for the current fiscal is based on an assessment of the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and an objective assessment of the potential for growth of each PSB.

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Financial Awareness-December(21-31) 2016

  1. PSU banks seek higher capital infusion from govt (Source: Mint)
  • Facing temporary disruption in business due to demonetisation, state owned banks have sought higher capital support from the government. Reserve Bank of India (RBI) too has endorsed their view of higher capital infusion, sources said.
  • Under the Indradhanush roadmap announced last year, the government will infuse Rs25,000 crore in public sector undertaking (PSU) banks during the current fiscal. The government in July had announced the first round of capital infusion of Rs22,915 crore for 13 PSU banks. Of this, 75% has already been released to these banks.

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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”