FINANCE CURRENT AFFAIRS

NOVEMBER DAY 3
Q.1) Which of the following correctly states the position five years after demonetization in
India?

1. Five years after the demonetisation, currency notes in circulation continue to rise to
nearly 29.3 lakh crore in Oct 2021.
2. The ratio of currency in circulation as a proportion of GDPs touched a new low of 14.5%
for fiscal 2020-21.
3. The government’s efforts to digitise the economy have also borne fruit taking UPI
transactions to record high levels.

[a] Only 1
[b] 1 and 2
[c] 1 and 3
[d] 2 and 3
[e] All the three
 Cash with public rising, at all-time high after 5 years
And-c
of Demonetisation

Five years Earlier

 On November 8, 2016, Prime Minister Narendra
Modi had announced ‘demonetisation’ to weed
out black money from the country.
 The move, which saw the currency notes of Rs
500 and Rs 1,000 denominations getting banned,
wiped out 86% of India’s currency overnight.
 The currency with the public, which stood at Rs
17.97 trillion at the time, declined sharply to Rs
7.8 trillion in January 2017, soon
after demonetisation.
 A few months later more than 99% of the
demonetised currency notes were returned to the
banking system.
 What is the status five years later?

 Cash still rules: Circulation touched all-time high

 Five years after the demonetisation, currency

notes in circulation continue to rise albeit at a
slower pace even as digital payments surge with
more and more people embracing cashless
payment modes.

 According to the latest Reserve Bank data, the

notes in circulation in value terms soared from Rs
17.74 lakh crore in November 2016 to Rs 29.3
lakh crore in October 2021.

The ratio of currency in circulation as a proportion of

GDP s touched a new high of 14.5% for fiscal 2020-21.
The surge came as the pandemic increased the
demand for cash and shrunk the GDP.
 Primarily, banknotes in circulation went up in the last financial year as many people opted for the
precautionary holding of cash amid the COVID-19 pandemic disrupting normal lives and economic
activities in varying degrees.

[As per the RBI’s definition, currency with public is arrived at after deducting cash with banks from total
currency in circulation (CIC). CIC refers to cash or currency within a country that is physically used to conduct
transactions between consumers and businesses.]
 Digital transactions: These including UPI,
have also touched an all-time high

 The government’s efforts to digitise the

economy have also borne fruit.
 No. of UPI transactions: Up from just 0.29
million in Nov 2016 to 4.2 billion now
 The value of UPI transactions touched a
record high of $103 billion last month.
 While cash usage has declined, it still
dominates in transactions like purchase of
property, to pay for groceries, eating out and
food delivery, paying in cash for services like
house-help, home repairs or beauty/haircut,
etc.
 Black Money still there

 Five years later, the impact of demonetisation on the economy still lingers while experts
argue that black money is back in circulation. This was most noticeable during the two waves
of Covid as people rushed to get scarce life-saving drugs and oxygen for their dear ones.

 Income tax raids in recent months have also uncovered fraudulent transactions and
unaccounted incomes from many businesses.
Q.2) Which of the following are incorrectly related to the fresh set of norms issued by the
Finance Ministry to guide state-owned banks for staff accountability ?

1. The new norms have a two-tiered structure that is based on the value of the loan
2. For loans up to ₹50 lakh, staff accountability will not be examined
3. A uniform staff accountability framework for non-performing assets (NPAs) up to Rs 50
crore needs to be adopted
4. It would protect the bank staff taking bonafide business decisions from unnecessary
harassment.

[a] Only 1
[b] 1 and 2
[c] 1,3 and 4
[d] 2, 3 and 4
[e] None of the above
 Finance ministry issues uniform And-b
bank staff norms for accountability

 The Finance Ministry has issued a fresh set of norms to guide

state-owned banks in adopting a uniform staff accountability
framework for non-performing assets (NPAs) up to Rs 50 crore.

 The guidelines will be implemented with effect from April 1,

2022, for accounts that turn NPAs beginning the next financial
year.
What is the new framework?
A loan can turn bad for reasons beyond the control of the promoter
and could thus be a genuine business failure, but some have also
turned bad because of the lack of proper due diligence before
sanctioning.

 Effective 1 April 2022, the government has proposed a four-tier

structure, based on the loan value, for loans of up to ₹50 crore
and asked banks to revise their accountability policies and
follow uniform staff accountability framework for non-
performing assets (NPAs) up to Rs 50 crore.

 The new norms have a four-tiered structure that is based on the

value of the loan, up to ₹10 lakh, more than ₹10 lakh and up
to ₹1 crore, more than ₹1 crore and up to ₹50 crore, and
above ₹50 crore.
 For loans up to ₹10 lakh, staff accountability will not be examined unless it has been tagged fraudulent.

Examining staff accountability in such low-value accounts involves disproportionate costs and
using up of management bandwidth.

Most loans up to Rs 10 lakh do not constitute a major percentage of the NPA portfolio by amount.
Such accounts can turn into NPA even due to a slight change in circumstances including a family
health crisis or a shutdown, leading to disruption in cash flows.

 The proposed framework is meant to address NPAs up to ₹50 crore, provided that the chief vigilance
officer of banks can revise the threshold for scrutiny of accountability based on the business size of the
banks.

 Banks will have to complete a staff accountability exercise

within six months from the date of classification of an account as NPA.

 Past track record of officials in appraisal or sanction/monitoring

will be given due weightage.
Q.3) Which of the following measures have been taken by RBI for better governance and
supervision of banks?

1. Strengthening the assurance function by the use of audits.

2. Early Warning Systems and supervisory Stress Testing have been made an integral part of
prudential supervision.
3. Banning the banks from supporting cryptocurrencies

[a] Only 1
[b] 1 and 2
[c] 1 and 3
[d] 2 and 3
[e] All the three
 Governance and Prudential Supervision of
And-b
Financial Institutions: Recent Initiatives
(Address by Shri M K Jain, Deputy Governor, Reserve Bank of India - November 2, 2021 - at
the Business Standard BFSI Summit)

Banks are special in terms of services they render. By providing financial intermediation and maturity
transformation, payment and settlement services, and engaging in deposit mobilisation, banks act as
catalysts in growth of the economy.

The negative externalities of banks and NBFCs are also much higher than those for any non-financial entity
due to their inter-connectedness. That’s why, globally, banks are regulated and supervised very closely.
 Steps taken for better governance and supervision

 Governance reforms have been an area of continued focus for the Reserve Bank. The various regulatory
measures to improve the corporate governance and internal controls in banks include:

 the mandatory listing of private sector banks

 composition of the Board and its Committees
 guidance on “fit and proper” criteria and on remuneration, separation of chairperson from managing
director / chief executive officer supervisory initiatives taken by Reserve Bank.
 Unification of Supervisory Approach, Building Capacity and Skills in Supervision

 In order to ensure a unified and systemic approach, a unified Department of Supervision (DoS) was created
bringing all supervised entities -SEs, namely, Scheduled Commercial Banks, NBFCs and UCBs under one
umbrella.

Unifying the supervisory functions shall reduce the supervisory arbitrage and information asymmetries
across SEs and address the complexities arising from their inter-connectedness. This will also help in
the holistic understanding of systemic risks.

 Steps have been taken to improve the supervisory function through better capacity building and skilling of
supervisors and for this purpose a separate College of Supervisors (CoS) has been set-up which is conducting
extensive training programs in different areas.
 Strengthening Sound Governance and Internal Controls

 Strengthening the assurance function- Reserve Bank issued revised

guidance for concurrent, internal, as well as external audits in banks.

 Compliance function
The compliance function in a bank is an integral part of
corporate governance.
The RBI guidance advises banks on laying down a Board-
approved compliance policy, well-defined selection process for
Chief Compliance Officer (CCO), a fixed tenure to CCOs, and
requisite authority.
 Early Warning Systems and supervisory Stress Testing have been made an
integral part of prudential supervision.

 For continuous engagement with SEs, a web-based and an end-to-end workflow

automation system has been developed. It has various functionalities including
inspection, compliance and incident reporting for cyber security, etc.

 Cyber-Security- To address cyber crime, threat concern, the Reserve Bank has
developed a model-based framework for assessing cyber risk in banks. Several
Advisories and Alerts are issued on various cyber threats.

 The Digital Payment Security Control Guidelines were issued recently by RBI to
set up a robust governance structure and implement common minimum
standards of security controls.

Many other risk management and better governance and supervision initiatives
have been taken up by RBI.
Thanks For
Watching!!