Weekly Economic Round-up by Maggu Bhai

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1. RBI falls short of meeting Basel III requirements: Report

Total loss-absorbing capacity (TLAC)

 Total loss-absorbing capacity is an international standard, finalised by the

Financial Stability Board (FSB) in November 2015, intended to ensure that
global systemically important banks (G-Sibs) have enough equity and bail-in
debt to pass losses to investors and minimise the risk of a government bailout.
 From January 1, 2019, G-Sibs are required to hold a TLAC amount of 16% in
terms of risk-weighted assets (RWAs), or 6% of the leverage exposure
measure.
 This increases to 18% of RWAs, or 6.75% of leverage exposure by January 1,
2022.

Key points

 The Reserve Bank of India has fallen short of meeting tougher requirements
set by the Basel III norms, according to a report by the Basel Committee on
Bank Supervision (BCBS).
 The committee reports that India’s central bank is yet to publish the
securitisation framework and rules on total loss-absorbing capacity (TLAC)
requirements.
 Globally, the norms on securitisation exposures held in the banking book had
come into effect on 1 January, 2018.
 The RBI is also yet to come out with draft regulations on revised Pillar 3
disclosure requirements, which took effect from end-2016.
 India’s G-sibs are in the process of implementing rules on interest rate risk in
the banking book (IRRBB).
- These regulations refer to the current or prospective risk to the bank’s
capital and earnings arising from adverse movements in interest rates that
affect the bank’s book positions

Source

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2. RBI slaps Rs 10 lakh fine on South Indian Bank

Key points

 The RBI Wednesday said it has imposed a fine of Rs 10 lakh on South Indian
Bank for violating norms regarding bank guarantees.
 The penalty follows references from a government department and a private
party alleging non-payment of invoked bank guarantees by the lender.
 Headquarter of South Indian bank- Thrissur, kerala

3. Launch of Complaint Management System by RBI

Key points

 The Reserve Bank of India, on Monday, launched a ‘Complaint Management

System (CMS)’.
 This will enable members of the public to lodge their complaints on its website
against any of the regulated entities with public interface such as commercial
banks, urban co-operative banks, and non-banking financial companies,
among others.
 The system provides features such as acknowledgement through SMS/e-mail
notification(s), status tracking through unique registration number, receipt of
closure advises, and filing of appeals, where applicable.
 It also solicits voluntary feedback on the customer’s experience.
 The Reserve Bank also plans to introduce a dedicated Interactive Voice
Response (IVR) System for tracking the status of complaints.
 With the launch of the CMS, the processing of complaints received at the
offices of the Ombudsman and Consumer Education and Protection Cells
(CEPCs) of the RBI has been digitalised.

Source

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4. Settlement mechanism: Sebi sets grounds for confidentiality to applicants

Key points

 Sebi has set various grounds on the basis of which an applicant can be
assured confidentiality while filing a plea under the settlement mechanism
 To assure confidentiality to an applicant who provides assistance in
examination proceedings, the SEBI may assess the
information/assistance/cooperation rendered during such examination
proceedings.
 In a circular, the regulator also listed the factors that can adversely affect the
applicant's claim for confidentiality.
 For the confidentiality, the regulator will assess whether the co-operation was
provided before the applicant had knowledge of any pending proceedings.

Source

5. Forex retail trading platform ready for rollout on August 5, says RBI

Key points

 The Reserve Bank of India said electronic trading platform for buying/selling
foreign exchange by retail customers of banks, FX-Retail, is ready for rollout
by the Clearing Corporation of India (CCIL) on August 5.
 Banks may charge their retail customers a pre-agreed flat fee towards
administrative expenses, which should be publicly declared.
 The FX-Retail platform can be accessed by any customer of a bank who
needs to purchase or sell US Dollar against the Rupee for delivery on cash
basis -- same day, tomorrow basis - next day or spot basis -- two days after
the date of transaction.
 There is no cap on the number of transactions per customer during a day, and
the total amount of transactions of a customer shall be subject to the limit
assigned by its bank.
 The central bank prescribed that the size of a single transaction is not allowed
to exceed $5 million.
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  CCIL will not levy transaction charges if such transactions do not exceed
$50,000 per day.
 A transaction charge of 0.0004 per cent shall be charged by the CCIL for
transactions more than $50,000.

Source

6. IBA finalises new inter-creditor agreement

Key points

 the Indian Banks’ Association (IBA) has put together an inter-creditor

agreement (ICA) incorporating details relating to meetings of lenders, voting
matters, payment to dissenting lenders, and additional funding.
 A revised ICA was necessitated after the RBI put together its framework
'Prudential Framework for Resolution of Stressed Assets' as a replacement to
the defunct February 12 circular on the ‘Revised Framework for Resolution of
Stressed Assets’, which was struck down by the Supreme Court in April.
 As per the RBI framework, in cases where a resolution plan (RP) is to be
implemented, all lenders have to enter into an ICA during the 30-day review
period to set the ground rules for finalisation and implementation of the RP.

7. NHB tightens norms on HFCs’ leverage and capital adequacy ratios

Key points

 The National Housing Bank (NHB) has tightened its rules on leverage and
capital adequacy ratio for housing finance companies (HFCs).
 The regulator now mandates HFCs to bring down their total borrowings in a
phased manner to not more than 12 times their net-owned funds as on 31
March, 2022, compared to the existing 16 times.
 LIC Housing Finance is the only HFC to have the highest leverage ratio of 14
times of NOF.
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  NHB also said that capital adequacy ratiofor HFCs has been increased to 13%
by March 2020, 14% by March 2021 and 15% by March 2022.
 Tier I capital should not be less than 10% versus 6% currently.
 The National Housing Bank added that housing finance companies cannot
accept fixed deposits of not more than three times their NOF.

Source

8. Sebi panel proposes cut in liquid funds’ exposure to NBFCs, HFCs

Key points

 The Mutual Fund Advisory Committee (MFAC) of the Securities and Exchange
Board of India (Sebi) proposed that the exposure limits of liquid funds to non-
banking finance companies (NBFCs) and housing finance companies (NBFCs)
be reduced in a phased manner.
 Currently, liquid funds can have an aggregate 40% exposure to these lenders,
including 25% to NBFCs and 15% to housing finance companies.
 The committee has proposed to initially reduce NBFC and HFC exposure to
22.5% and 12.5%, respectively, and finally to 20% and 10%.

Source

9. RBI to ease lending limits for green energy sector

Key points

 In an attempt to boost renewable energy sector, the Ministry of New and

Renewable Energy (MNRE) would request the Reserve Bank of India (RBI) to
categorise renewable energy as a separate segment and remove priority
sector lending limit.
 The Ministry's recommendation to the RBI will ensure higher credit financing
availability and provide the much needed boost to the sector.
 This is absolutely in line with CleanMax Solar's recommendation earlier this
year to remove the cap of Rs 15 crore per year under priority sector lending for

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 rooftop projects or at least increase the credit limits significantly and remove it
in a phased manner.

Source

10. RBI lifts ban on fund transactions in Manipur

Key points

 The Reserve Bank of India (RBI) lifted the ban imposed on fund transactions
by the Manipur government due to an overdraft.
 On June 12, assistant general manager of RBI, Anita Kumari, had ordered the
State Bank of India to stop all payment to the Manipur government as the latter
had withdrawn funds in excess to pre-determined arrangements.
 The state government later put on hold the recruitment process undertaken by
any departments.

Source

11. Sebi asks clearing corps, bourses to deposit penalty levied on margin
money shortfall in Core SGF

Core Settlement Guarantee Fund (SGF)

 It is a fund which is available to meet settlement obligations of clearing

corporation in case clearing members fail to honour settlement obligation.

Key points

 To bring uniformity in depositing penalties levied on clients for short collection

or non-collection of margins in the commodity derivatives segment, Sebi asked
clearing corporations and exchanges to deposit such penalties in Core SGF.
 Earlier, the regulator had asked to deposit such penalties in Investor
Protection Fund (IPF) but Sebi noted that while a few clearing corporations
and exchanges are crediting the penalties to IPF, others are crediting the
same to Core SGF.

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12. Sebi board plans to tighten rules for pledged shares by promoters

What is a pledged share?

 Simply put, it is taking loan against the shares one holds. It can be done by
both investors and promoters.

Key points

 The Sebi board will widen the definition of encumbrance and heighten
disclosures on encumbered shares, said two people with direct knowledge of
the matter, requesting anonymity.
 Under the current takeover code, encumbrance includes a pledge of shares,
lien or any such transaction.
 These involve debt mutual funds investing in papers of little-known companies
on the backing of promoter shares.

13. Sebi tightens rules for usage of client funds by brokerages

Key points

 Securities and Exchange Board of India (Sebi) has tightened the rules for
usage of client funds by brokerages.
 As per the new rules, brokers have been asked to transfer the securities to
their client accounts within one day of receiving payment.
 In case if the client defaults on the payment, brokers have been asked to hold
the securities up to five days post which they can liquidate the securities in the
market and recover dues.

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14. U.K. Sinha-led RBI panel suggests ₹5,000 crore stressed asset fund for
MSMEs

Key points

 Reserve Bank of India (RBI) committee has suggested a ₹5,000 crore

stressed asset fund for domestic micro, small and medium enterprises
(MSMEs).
 The committee to study the problems faced by MSMEs was chaired by U.K.
Sinha, former chairman of the Securities and Exchange Board of India.
 The committee recommends for the creation of a distressed asset fund, with a
corpus of ₹5,000 crore, structured to assist units in clusters where a change in
the external environment, e.g. a ban on plastics or ‘dumping’ has led to a large
number of MSMEs becoming non-performing asset (NPA).
 The committee also suggested forming a government-sponsored Fund of
Funds of ₹10,000 crore to support venture capital and private equity firms
investing in MSMEs.

Source

15. Initiatives to improve the conditions of Government Banks

Over the last four Financial Years, the Government of India has taken comprehensive
steps to strengthen the Public Sector Banks (PSBs):-

Key points

 Change in credit culture with institution of Insolvency and Bankruptcy Code

(IBC) fundamentally changing the creditor-borrower relationship.
 Fugitive Economic Offenders Act, 2018 has been enacted to enable
confiscation of fugitive economic offenders’ property.
 Heads of PSBs have been empowered to request for issuance of look-out
circulars.
 National Financial Reporting Authority has been established as an
independent regulator for enforcing auditing standards and ensuring audit
quality.
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  For more details, click here

16. Current bank NPA status

Key points

 As per Reserve Bank of India (RBI) data on global operations, aggregate

gross advances of Public Sector Banks (PSBs) increased from Rs. 18,19,074
crore as on 31.3.2008 to Rs. 52,15,920 crore as on 31.3.2014.
 As per RBI provisional data on global operations, as on 31.3.2019, the
aggregate amount of gross NPAs of PSBs and Scheduled Commercial Banks
(SCBs) were Rs. 8,06,412 crore and Rs. 9,49,279 crore respectively.
 Source

17. Assistance by NABARD

Key points

 National Bank for Agriculture and Rural Development (NABARD) has reported
that it extends refinance to banks and provides loan assistance to the State
Governments for promotion and development of agriculture and other rural
activities.
 State-wise financial assistance provided by NABARD to State Governments
during the last three years under various Funds i.e. Rural Infrastructure
Development Fund (RIDF), Long Term Irrigation Fund (LTIF), Warehouse
Infrastructure Fund (WIF) and NABARD Infrastructure Development
Assistance (NIDA).
 Besides the above, NABARD has disbursed Rs.11.34 crore and Rs.11.33
crore under Food Processing Fund (FPF) during 2017-18 and 2018-19
respectively to the State of Kerala.
 Source

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