Banking and Finance News

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval for the proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015.The proposed amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act. Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency, etc., of funds in the drawer’s account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability. The object of the NI Act is to encourage the usage of cheques and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities can be ensured.The Bill provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment is situated. Further, where a complaint has been filed against the drawer of a cheque in the court having jurisdiction under the new scheme of jurisdiction, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court, irrespective of whether those cheques were presented for payment within the territorial jurisdiction of that court.

 

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its ex-post-facto approval to the capital infusion made in the Export Import Bank of India (EXIM Bank) of Rs. 800 crore, as approved in the Demands for Grants and consented to by the Finance Minister to support the future growth of the Bank.

 

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi, has given its ex-post facto approval to provide an additional 50 days of unskilled manual work in the financial year over and above the 100 days assured to job card holders under MGNREGS Scheme, in such rural areas where drought or natural calamities have been notified

The Prime Minister, Shri Narendra Modi, launched a significant financial inclusion initiative in Varanasi. A total of 101 e-rickshaws, 501 pedal rickshaws, and push-carts are being given as part of this initiative. The beneficiaries will also get bank accounts and RuPay cards under the Pradhan Mantri Jan Dhan Yojana. The e-rickshaws are equipped with digital gadgets including GPRS and cameras

RBI cuts Repo Rate by 50 bps.   New policy rates are :  Repo rate under the liquidity adjustment facility (LAF) to be 6.75%;  the Reverse repo rate to be 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75%.  CRR continues to be at 4%   as per RBI announcement on Fourth Bi-monthly Monetary Policy Statement for 2015-16 on 29th September 29, 2015

 

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, gave its approval for introduction of the 'Sovereign Gold Bonds Scheme', as announced in the Union Budget 2015-16.

 

The salient features of the scheme are:-
 

  • Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold.
  • Bonds will be issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee.
  • The issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.
  • The bond would be restricted for sale to resident Indian entities.
  • The Government will issue bonds with a rate of interest to be decided by the Government. The rate of interest will take into account the domestic and international market conditions and may vary from one tranche to another. This rate of interest will be calculated on the value of the gold at the time of investment. The rate could be a floating or a fixed rate, as decided.
  • The bonds will be available both in demat and paper form.
  • The bonds will be issued in denominations of 5,10,50,100 grams of gold or other denominations.
  • The price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption. This rate will be used for issuance, redemption and LTV purpose and disbursement of loans.
  • Banks/NBFCs/Post Offices/ National Saving Certificate (NSC) agents and others, as specified, may collect money / redeem bonds on behalf of the government (for a fee, the amount would be as decided).
  • The tenor of the bond could be for a minimum of 5 to 7 years, so that it would protect investors from medium term volatility in gold prices. Since the bond, will be a part of the sovereign borrowing, these would need to be within the fiscal deficit target for 2015-16 and onwards.
  • Bonds can be used as collateral for loans. The Loan to Value ratio is to be set equal to ordinary gold loan mandated by the RBI from time to time.
  • Bonds to be easily sold and traded on exchanges to allow early exits for investors who may so desire.
  • KYC norms will be the same as that for gold.
  • Capital gains tax treatment will be the same as for physical gold for an 'individual' investor. The Department of Revenue has agreed that amendments to the existing provisions of the Income Tax Act, for providing 'indexation benefits to long term capital gains arising on transfer of bond'; and for 'exemption for capital gains arising on redemption of SGB' will be considered in the next budget (Budget 2016-17).This will ensure that an investor is indifferent in terms of investing in these bonds and in physical gold- as far as tax treatment is concerned.
  • The amount received from the bonds will be used by Gol in lieu of government borrowing and the notional interest saved on this amount would be credited in an account "Gold Reserve Fund" which will be created. Savings in the costs of borrowing compared with the existing rate on government borrowings, will be deposited in the Gold Reserve Fund to take care of the risk of increase in gold price that will be borne by the government. Further, the Gold Reserve Fund will be continuously monitored for sustainability.
  • On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment. The principal amount of investment, which is denominated in grams of gold, will be redeemed at the price of gold at that time. If the price of gold has fallen from the time that the investment was made, or for any other reason, the depositor will be given an option to roll over the bond for three or more years.
  • The deposit will not be hedged and all risks associated with gold price and currency will be borne by Gol through the Gold Reserve Fund. The position may be reviewed in case 'Gold Reserve Fund' becomes unsustainable.
  •  Upside gains and downside risks will be with the investor and the investors will need to be aware of the volatility in gold prices.
  • In order to ensure wide availability, the bond will be marketed through post offices/banks/NBFCs and by various brokers/agents (including NSC agents) who will be paid a commission

 

  Latest Policy Decisions of RBI

In the past few months, there have been many investments and developments in the Indian banking sector

  • The RBI has given in-principle approval to 11 applicants to establish payment banks. These banks can accept deposits and remittances, but are not allowed to extend any loans.
  • The Bank of Tokyo-Mitsubishi (BTMU), a Japanese financial services group, aims to double its branch count in India to 10 over the next three years and also target a 10 per cent credit growth during FY16.
  • State Bank of India has tied up with e-commerce portal Snapdeal and payment gateway Paypal to finance MSME businesses.
  • The United Economic Forum (UEF), an organisation that works to improve socio-economic status of the minority community in India, has signed a memorandum of understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from backward communities to set up businesses in Tamil Nadu
  • The RBI has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and said white label ATMs can now tie up with any commercial bank for cash supply.
  • The RBI has allowed Indian alternative investment funds (AIFs), to invest abroad, in order to increase the investment opportunities for these funds.
  • In order to boost the infrastructure sector and the banks financing long gestation projects, the RBI has extended its flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs 500 crore (US$ 75.1 million).
  • RBI governor Mr Raghuram Rajan and European Central Bank President Mr Mario Draghi have signed an MoU on cooperation in central banking. “The memorandum of understanding provides a framework for regular exchange of information, policy dialogue and technical cooperation between the two institutions.
  • RBL Bank informed that it would be the anchor investor in Trifecta Capital’s Venture Debt Fund, the first alternative investment fund (AIF) in India with a commitment of Rs 50 crore (US$ 7.51 million). This move provides RBL Bank the opportunity to support the emerging venture debt market in India.
  • Bandhan Financial Services raised Rs 1,600 crore (US$ 240.2 million) from two international institutional investors to help convert its microfinance business into a full service bank. Bandhan, one of the two entities to get a banking licence along with IDFC, launched its banking operations in August 2015.
  • An MoU has been signed between the Yes Bank and the US government’s development finance institution Overseas Private Investment Corp (OPIC) to explore US$ 220 million of financing to lend to micro, small and medium enterprises (MSMEs) in India.
  • The RBI has allowed bonds issued by multilateral financial institutions like World Bank Group, the Asian Development Bank and the African Development Bank in India as eligible securities for interbank borrowing. The move is expected to further develop the corporate bonds market, RBI informed in a notification.

Recent Government Financial Sector Initiatives

There have been a lot of developments in the Indian banking sector.

  • The Government of India announced a capital infusion of Rs 6,990 crore (US$ 1.05 billion) in nine state run banks, including State Bank of India (SBI) and Punjab National Bank (PNB). However, the new efficiency parameters would include return on assets and return on equity. According to the finance ministry, “This year, the Government of India has adopted new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position."
  • To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities extended to MSEs upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was also established to refinance all Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities engaged in manufacturing, trading and services activities upto Rs 10 lakh (US$ 0.015 million).
  • The central government has come out with draft proposals to encourage electronic transactions, including income tax benefits for payments made through debit or credit cards.
  • The Union cabinet has approved the establishment of the US$ 100 billion New Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS “contingent reserve arrangement” (CRA).
  • The government has plans to set up a fund that will provide surety to banks against loans given to students for higher education.