Mrunal's Win24 Pillar1B: Bank-NBFC Classification & Burning Issues

Table of Contents

10 Economy Pill#1B1: Bank-NBFC Classification..............................................................................45

10.1🪜Agency Banks of RBI.............................................................................................................45
10.2 R🐯: 🦋RBI’s notable portals....................................................................................................46
10.1.1 🐯: 🦋 UDGAM Portal: Unclaimed Bank Deposits (2023)...................................................46
10.1.2 🐯: 🦋 PRAVAAH Portal for license from RBI (2023)..........................................................46
10.1.3 🐯: 🦋 Daksh Web Portal for supervision (2022)..................................................................46
10.1.4 🐯: 🦋 E-Kuber Portal...............................................................................................................46
11 💳 NBFC related Developments......................................................................................................46
11.1 💳 NBFCs can directly issue credit card...................................................................................46
10.2 💳 🥰 Pros and Cons of NBFC’s Direct Credit Cards...............................................................47
11.2 🔪📡👿 NBFC: Digital Lenders................................................................................................47
12 🔪 Economy Pill#1B1: Burning Issues- NPA etc............................................................................48
12.1 🔪Loan types depending on guarantee / Collateral.................................................................48
12.2 🔪💀Non-Performing Assets (अनर्जक परिसं पत्तियां).......................................................................48
10.2.1 Key ratios of Public Sector Banks (figures in per cent)..........................................................49
10.2.2⚖️💪Legal Rights of Loan Defaulter in SARFAESI Act.........................................................49
12.3 ⚖️🔪🤝 Insolvency and Bankruptcy (I&B) Code 2016...........................................................50
10.2.3 ⚖️🔪🤝IBC: Types of Creditors...............................................................................................50
10.2.4 ⚖️🔪🤝 IBC Code: Appeal Structure......................................................................................50
10.2.5 ⚖️🔪🤝 Statutory bodies related to IBC..................................................................................51
10.2.6 ⚖️🔪🤝: 🥶 IBC code honeymoon period over?....................................................................51
12.4 🔪🥺|😤 Wilful Defaulter (इरादतन कर्ज न चुकानेवाला).....................................................................51
10.2.7 🔪🥺|😤 Wilful defaulters: 6 characteristics by RBI ( लाक्षणिकताएँ).........................................51
10.2.8 🔪🥺|😤 Wilful defaulter can contest election?......................................................................51
10.2.9 🔪😤 Wilful Defaulter Data (इनकी सं ख्या में हुई है बढ़ोतरी).............................................................52
10.2.10 🔪😤 Declare wilful defaulters within 6 months of NPA- says RBI Proposal ...................52
10.2.11 🔪😤 Wilful Defaulters can do compromise settlement – RBI (2023) ..............................52
10.2.12 🔪🥺|😤 Guarantor (ज़मानतदार)...............................................................................................52
12.5 👁‍🗨🔪💻- 🐯 Credit Rating / Monitoring- various org/initiatives............................................53
10.2.13 🐅RBI’s Public-Tech Platform for Frictionless Credit (2023)............................................53

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 10.2.14 👩🏻‍💻 eBkray auction platform / IBAPI (2019).........................................................................53
10.2.15 👩🏻‍💻 CEIB’s Unified Automated Search portal for large borrower (2024) ...........................53
12.6 🐅🔪 NPA/Scams: New Regulatory Issues..............................................................................54
10.2.16 🕵️‍♂️🏦 💸🙇 : 📲 Proposal: DICGC should cover PPIs/Mobile Wallets?............................54
10.2.17 🐯💉👹🦵💬✋🏻 RBI’s Prompt Corrective Action (PCA) for NBFCs................................54
10.2.18 🐅🔪 RBI increasing CRAR on Bank/NBFCs (2023)..........................................................55
10.2.19 🐅 🔪😰 Implications of higher CRAR.................................................................................56
🐅 🔪🤔 RBI’s reasoning behind higher CRAR?...............................................................................56
12.7 👩🏻‍⚖️👭 FinTech- Self-regulatory organisation (SRO)................................................................56
10.2.1 😍 FinTech SRO-Benefits?........................................................................................................57
12.8 🧹🙊: 👹(🚫🏦) NEGATIVE News related to bank/NBFC.....................................................57
10.2.2 🌐🤒 Silicon Valley bank crisis (SVB), USA 2023.................................................................57
10.2.3 🌐🤒 Credit Suisse Bank, Switzerland (2023)........................................................................57
10.2.4 🤒 Negative News: Paytm Payments Bank (2024).................................................................57
10.2.5 🤳🏻 Third Party Application Providers (TPAPs) license- PayTM wants ..............................58
12.9 What is already covered in Past Win## Series? under Pill#1B................................................59
12.9.1 Win20: already covered Following in 1B12............................................................................59
13 Win21: already covered Following in 1B12..................................................................................59
13.1.1 Win22: already covered Following in 1B12............................................................................60
10.2.6 Win23 : already covered Following in 1B12...........................................................................60
10.2.7 👨‍🏫📡MRUNAL’S ECONOMY COURSE FOR UPSC...........................................................61
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Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 44
10 ECONOMY PILL#1B1: BANK-NBFC CLASSIFICATION

We have studied about chart many times. This only to set the mood.

10.1 🪜A GENCY BANKS OF RBI

 🙋🏼‍♀️FAQ1: What does this chart mean? Ans. Explained in the video lecture.
 🙋🏼‍♀️FAQ2: How can a bank collect the tax? isn’t it the work of the income tax officers? Ans. Yes, it

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 45
 is the function of income tax Officer. But, Tax money is to be transferred from tax payers’ bank
account to government’s account. Agency banks deal with that aspect of money
collection/storage/transfer work.

10.2 R 🐯: 🦋RBI’ S NOTABLE PORTALS

10.1.1 🐯: 🦋 UDGAM Portal: Unclaimed Bank Deposits (2023)

• If deposits remain unclaimed for 10 years in a bank → banker need to transfer it to
“Depositor Education and Awareness FUND” (DEA) OF RBI.
• 2023: RBI setup UDGAM portal for it. (Unclaimed Deposits Gateway To Access
inforMation)
• Beneficiary can easily search unclaimed deposits across multiple banks at one place. (e.g. by
searching the Aadhaar card / PAN Card number of the dead parent etc.)
• How it works in real life? NOTIMP4EXAM. You can satisfy your curiosity by
visiting https://udgam.rbi.org.in/unclaimed-deposits/#/login

10.1.2 🐯🦋
: PRAVAAH Portal for license from RBI (2023)
• Banks/NBFC/ Digital payment related companies need to obtain license from RBI.
• They can apply for such licenses using PRAVAAH Portal (Platform for Regulatory
Application, Validation And AutHorisation)
• 😍 Benefit? Ease of doing business. The entrepreneur does not have to visit RBI office offline
multiple times.

10.1.3 🐯🦋: Daksh Web Portal for supervision (2022)

 Web system wherein Banks, NBFC send their reports to RBI
 Then RBI can monitor them more effectively. E.g. how many credit card frauds this month, new
guidelines to prevent it etc.

10.1.4 🐯🦋
: E-Kuber Portal
 Core banking solution (CBS) portal of RBI.
 All bankers have current accounts here.
 RBI handles NEFT/RTGS, Repo, OMO & other instruments from here.
 Retail Investors can buy G-Secs from here.

11 💳 NBFC RELATED DEVELOPMENTS

11.1 💳 NBFC S CAN DIRECTLY ISSUE CREDIT CARD

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 BEFORE After 2022- Reform
NBFC can issue only co-branded credit cards after tying up with a
This facility is continued.
banker. (e.g. Bajaj Finserve Credit with help of RBL Bank)
NBFC cannot also directly issue credit card in its own capacity (i.e. Henceforth, NBFCs can
without co-branding with a banker) do this also.
NBFC could not directly tie with the card-payment gateway such as
can do this.
MasterCard, visa,Rupay

10.2 💳 🥰 Pros and Cons of NBFC’s Direct Credit Cards

🥰 Pros 😰 Cons
🥰 Financial inclusion: This will improve the 😰 Most NBFCs do not have adequate manpower to
penetration of credit cards in rural areas, as handle consumer complaints/frauds in the credit
more NBFCs enter the credit card business. card business. (क्रे डिट कार्ड शिकायत निवारण के लिए पर्याप्त
(गाँव वालों का वित्तीय समावेशन होगा) मानव बल ऐसी एनबीएफसी कं पनियों के पास नहीं है)
🥰 If a farmer or villager uses the credit card 😰 Due to a lack of financial literacy, if villagers
responsibly, it can help save them from the don’t use the credit card responsibly, they may end
clutches of informal moneylenders who up in a debt trap (यदि गाँव वाले वित्तीय साक्षरता के अभाव में ग़ैर
charge exorbitant interest rates. (ब्याजखोरो की ज़िम्मेदार तरीक़े से क्रे डिट कार्ड का इस्तेमाल करेंगे तो वहाँ पर भी कर्ज के
चंगुल से बच सकें गे) विषचक्र में फँ सने का भय होता है।)

11.2 🔪📡👿 NBFC: D IGITAL LENDERS

RBI classified them into 3 groups
Sr Organization Examples 👨🏻Regulator
1 giving loans online and regulated by Banks, P2P lenders RBI itself
RBI
2 Giving loans online but NOT regulated Venture Capital Funds (VCF) SEBI
RBI but some other regulator e.g. SEBI
3 Giving loans online but not regulated unauthorized digital lenders : Nobody /

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 Sr Organization Examples 👨🏻Regulator
by anyone = their App will be shut goonda/mafia ke online mobile illegal.
down. Legal action will be taken. app for giving online loans.
Note: RBI keeps releasing guidelines for digital lending. But daily-commentary not important.
Sufficient to know that such guidelines mostly deal with customer protection.

12 🔪E CONOMY PILL#1B1: BURNING ISSUES- NPA ETC.

12.1 🔪L OAN TYPES DEPENDING ON GUARANTEE / COLLATERAL

Secured Loans
where borrower has to pledge an asset as
security while borrowing from the lender.
e.g. home loans, gold loans, automobile
loans. Biz Loans by pledging fix deposit
certificates, shares, bonds, factory etc.
Banker’s risk is lower. So loan interest rates
may be lower.
Amount of loan given is usually higher
than unsecured loan. (मोटी मात्रा का लोन मिलता
है)
Longer tenure of repayment e.g. 15–20
years (लंबी अवधि का लोन मिलता है)
Unsecured Loans (collateral free loans)
boravar does not pledge asset as collateral. e.g.
Overdraft, Credit Card, Personal loans for
wedding/travel, student loans, farmer loans etc.
Higher risk. Higher interest rate.
Exception: in education loans, Micro enterprise
loans, farmer loans etc. Union government provides
credit guarantee against the losses of the bank. So
such loans may be ‘unsecured’, YET cheap interest
rate. (Ref: Pillar#1D for more.)
lower. क्योकि आप कु छ गिरवी नहीं रख रहे तो बैंक कोई आपको
अरबों रुपये तो देगा नहीं।
Shorter. (because the banker would want to recover
the money as fast as he can)

12.2 🔪💀N ON-PERFORMING ASSETS (अनर्जक परिसं पत्तियां)

➢ If loan principal or interest is not paid for more than 90 days from its due date, then such loan
account is classified as Non-Performing Asset (NPA). किश्त जमा करने की नियत तिथि/तारीख के ऊपर भी 90
दिनों से अधिक हो चुके हो किन्तु किश्त जमा नहीं की गयी तो….
➢ For farm loans, NPA is not counted on number of days but on number of cropping seasons. कृ षि
ऋण में महीनों के हिसाब से नहीं फसल की मौसम/ऋतु के हिसाब से होता है
➢ Non-Performing Assets of Scheduled commercial banks (as % of their total loan) = has declined.
see the graph below:

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10.2.1 Key ratios of Public Sector Banks (figures in per cent)
Basically under Modi-Raj, there has been improvement: as per Chief Economic Advisor (CEA)

10.2.2 ⚖️💪 Legal Rights of Loan Defaulter in SARFAESI Act

We’ll not prepare Hindi term bcoz not imp for Mains.
Right Description (You = owner/defaulter)
Right to ample After account becomes NPA → Lenders must give you 60 days notice
notice before starting auction.
Right to be heard You can make a representation/appeal to the lender/bank manager during
the notice period.
Right to ensure fair e.g. if bungalow’s fair market value is ₹5cr, then lender can’t start auction at
value ₹2cr.
Right to balance e.g. if bungalow auction fetched ₹6cr and loan due was 5 cr only. THEN
proceeds lender must return ₹1cr to you.
Right to humane Recovery Agents cannot harass you or your family members. They can only
treatment contact you between 7am and 7pm.

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12.3 ⚖️🔪🤝 I NSOLVENCY AND BANKRUPTCY (I&B) CODE 2016
शोधन-अक्षमता एवं दिवालियापन सं हिता 2016: कर्जदार का लेनदार के साथ समझौता/मांडवली करवाने के लिए

10.2.3 ⚖️🔪🤝 IBC: Types of Creditors

IBC code classifies creditors into two categories
A) Financial Creditors (FC) =
banks, NBFC, bond & other debt security
holders, + Home buyers. (वित्तीय लेनदार).
They can complaint under IBC code for
recovery of due amount.
They can sit in the committee of creditors
(CoC) for IBC proceedings.
B) Operational Creditors (OC) =
Suppliers, contractors, salaried employees etc.
(कार्यसं बं धी लेनदार : जिन्होंने कं पनी को कु छ वस्तु/सेवा मुहैया
कराई थी लेकिन उस पर पैसा बकाया है)
They can complaint under IBC code for
recovery of due amount.
They can’t sit.

10.2.4 ⚖️🔪🤝 IBC Code: Appeal Structure

Borrower individual person or partnership firm Company
Their Biz is various laws like Shops and Companies Act, 2013
registered under Establishments Act, Indian Partnership
Act, 1932 etc.
Adjudicating Debt Recovery Tribunal (DRT) dealing National Company Law
Authority (AA) / with SARFAESI Act Tribunal (NCLT) from
first level ki courts Companies Act
Appellate National Company Law Appellate National Company Law
Authority Tribunal (NCLAT) from Companies Act Appellate Tribunal (NCLAT)
from Companies Act
NEXT Appeal Supreme Court (SC) SC
Note: different websites give different interpretation. I have made the table from IBBI Manual

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10.2.5 ⚖️🔪🤝 Statutory bodies related to IBC
Org Founded under Law HQ
National Company Law Tribunal (NCLT) Companies Act, 2013 Delhi. With benches in
many cities.
National Company Law Appellate Companies Act, 2013 Delhi
Tribunal (NCLAT)
Insolvency and Bankruptcy Board of India Insolvency and Delhi
(IBBI) Bankruptcy Code, 2016

10.2.6 ⚖️🔪🤝 🥶 : IBC code honeymoon period over?

In 2023, many negative reports have come that IBC code has not been able to recover enough money
and the cases are pending for very very long time up to 500-600 days. However, government official
reports yet to admit this. So I did not find anything MCQ worthy amidst all that negativity.

12.4 🔪🥺|😤 WILFUL DEFAULTER (इरादतन कर्ज न चुकानेवाला)

10.2.7 🔪🥺 😤 | Wilful defaulters: 6 characteristics by RBI (लाक्षणिकताएँ )

Wilful defaulter is a borrower who has the capacity to repay the loan but does not repay the loan. RBI
listed six characteristics of such a person:

 1. He deliberately does not pay the dues despite adequate cash flow and good net worth;
 2. He is siphoning off funds from Company-A to Company B.
 3. He did not use the loan money to purchase the asset (vehicle/factory/machine, etc.) as per the
loan agreement; OR he sold such asset and siphoned the money.
 4. He disposed/removed securities (collaterals) without the bank's knowledge;
 5. He misrepresented/falsified the records;
 6. He made fraudulent transactions.

10.2.8 🔪🥺|😤 Wilful defaulter can contest election?

Criteria Insolvent /incapable defaulter 😤Wilful Defaulter
(दिवालिया/ असमर्थ बकाएदार) (इरादतन कर्ज न चुकानेवाला)
Definition A person /company incapable to pay off A person/company has capacity to
loans due to shortage of money. repay the loans BUT not repaying
the loans
Eligible for Loan Yes. But, IF his loan account is in NPA NOT eligible. His assets will be
Restructuring? for more than a year, and he has no auctioned under SARFAESI Act.
IBC कानून में लोन capacity to repay even partial loan
पुनर्गठन का लाभ amount, then no resolution will be
मिलेगा? done. His assets will be auctioned under
SARFAESI Act.
Can contest Not allowed. Constitution silent about this^^.
election / get

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 Criteria Insolvent /incapable defaulter 😤Wilful Defaulter
(दिवालिया/ असमर्थ बकाएदार) (इरादतन कर्ज न चुकानेवाला)
Govt job/
become a judge?
^^Bankers’ Association has requested the Election Commission that wilful defaulters should not be
allowed to contest election. (However, EC yet to take decision.)

10.2.9 🔪😤 Wilful Defaulter Data (इनकी सं ख्या में हुई है बढ़ोतरी)

Time Period December 2020 December 2022
Number of Wilful Defaulters 12,911 15,778
Total Sum (in ₹ crore) ₹2,45,888 crore ₹3,40,570 crore

10.2.10 🔪😤 Declare wilful defaulters within 6 months of NPA- says RBI Proposal
 2012: Vijay Mallya stopped paying loans to banks. YET SBI didn't declare him wilful defaulter
until 2017. (Meaning five years gone in paperwork / bureaucratic-laziness.).
 2023: RBI proposal says banks shouldnot take so long time. Do this exercise within 6 months
AFTER accounts become NPA. (लोन खाता एनपीए की श्रेणी के अंदर आने के बाद भी यदि 6 महीने तक व्यक्ति के पास
पैसा है किं तु वह कर्जा नहीं चुका रहा है. तो बैंकर ने उसे “इरादतन दिवालिया” घोषित करना होगा)

10.2.11 🔪😤 Wilful Defaulters can do compromise settlement – RBI (2023)

10.2.12 🔪🥺 😤| Guarantor (ज़मानतदार)

 friend, relative, business associate etc who takes legal responsibility for a borrower’s debt ke ‘I
will repay the loan, If this loan-applicant does not repay the loan.”
 Every Bank loan doesn’t require Guarantor. They're usually required in big size loan and/or
borrower’s credit score is not good enough

👩🏻‍⚖️️Legal consequences for Guarantor, IF borrower fails to repay

 Guarantor as liable as loan defaulter.

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 52
 Bank can take action against Guarantor for loan-recovery of principal + interest
 Bank may confiscate/attach the bank accounts of Guarantor, his property etc. depending on case.
 if Guarantor fails to repay the loan, then it will downgrade his credit score/credit-rating also.
 **Note:** there is internal legal difference between the two words Guarantor vs Co-Signer, but
we will not do PHD for MCQ

12.5 👁‍🗨🔪💻- 🐯 C REDIT RATING / MONITORING- VARIOUS ORG/INITIATIVES

10.2.13 🐅RBI’s Public-Tech Platform for Frictionless Credit (2023)

- This portal will collect data from Central and State governments, account aggregators (Ref1B1),
CRA-CICs (Ref1B1) and other organisations.
- This will make loan application approval/rejection faster for the lender.[घर्षण रहित ऋण के लिए सार्वजनिक-
तकनीकी मं च]

🙋🏼‍♀️FAQ: how is it similar or different than the past projects such as public credit registry or
government’s NFIR? Ans. NOTIMP. Because this is not fully launched yet this is in the pilot study
stage.

👩🏻‍💻
10.2.14 eBkray auction platform / IBAPI (2019)
• It’s a website for e-auction of assets attached by Public Sector banks.
• Also called: Indian Banks Auctions Mortgaged Properties Information (IBAPI)
• Boss? Indian Banks Association (IBA) with help of Department of Financial Services (DFS,
under FinMin).
• Buyers can use eBkray/IBAPI portal to search and get properties details and participate in
the auction process.
• Website also contains videos and photographs of the attached properties.

👩🏻‍💻
10.2.15 CEIB’s Unified Automated Search portal for large borrower (2024)
• This website helps the Public Sector Banks to do background verification of the large
borrowers.
• Large borrower = who wants to borrow over ₹50 crores.
• Boss? Central Economic Intelligence Bureau (CEIB- a body under FinMin) with the help of
State Bank of India.

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 53
 • CEIB collects the data related to economic offenses from other regulators/investigating
agencies, e.g. SEBI (Securities and Exchange Board of India), ED (Enforcement Directorate),
CBI (Central Bureau of Investigation), NIA (National Investigation Agency), SFIO (Serious
Fraud Investigation Office), CBDT (Central Board of Direct Taxes), CBIC (Central Board of
Indirect Taxes and Customs) etc.

12.6 🐅🔪 NPA/S CAMS: NEW REGULATORY ISSUES

10.2.16 🕵️‍♂️🏦 💸🙇 : 📲 Proposal: DICGC should cover PPIs/Mobile Wallets?

RBI’s B.P.Kanungo committee on customer services (2022) suggested this. RBI NOT YET taken
final decision. So we will not waste time with further PHD on what/why/how.

10.2.17 🐯💉👹🦵💬✋🏻 RBI’s Prompt Corrective Action (PCA) for NBFCs

(ग़ैर बेंक वित्तीय कं पनीयो के लीए त्वरित सुधारात्मक कार्रवाई)
 From 1/10/2022- RBI to monitor NBFCs using 3 indicators/parameters: - 1) Non-Performing
Assets, - 2) BASEL-capital adequacy ratio - 3) BASEL- Tier 1 capital. (What do they mean?
NOTIMP। इन पैमानो पर निगरानी)
 Accordingly, RBI to classify the NBFCs in risk category#1-2-3. (जोखिम के हिसाब से वर्गीकरण)
 Higher risk → higher restrictions e.g. ✋1) restriction on branch expansion ✋2) halt on
✋
dividend distribution, 3) NBFC owners will be asked to infuse capital in NBFC etc. etc (ग़ैर बेंक
वित्तीय कं पनी में जितना ज़्यादा जोखिम → तो उतनी ज़्यादा पाबं दिया रिज़र्व बेंक उसपे डालेगी)
2022 2023-October reform
applicable on deposit-taking-NBFCs
same as left cell.
(e.g BajajFinServ).
Not Applicable on govt owned NBFCs
(e.g UTI Mutual Fund)
applicable on government-owned non-banking financial
primary dealers, housing finance
companies as well such as PFC, REC, IRFC and IFCI.
companies (HFC)
non-deposit taking NBFCs (e.g. ILFS).

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10.2.18 🐅🔪 RBI increasing CRAR on Bank/NBFCs (2023)

🎤 Watch the detailed YouTube video at: https://youtu.be/n2aNCIP9AlQ?si=exLz7YVvt9DV3uIf

• Under the BASEL-III norms, RBI requires all banks and certain categories of NBFCs to keep
capital in proportion to their risk-weighted assets (RWA). [बासेल मानदंडों के हिसाब से बैंक व चुनिंदा
एनबीएफसी ने अपनी जोखिमपूर्ण सम्पत्तियों के अनुपात में कु छ मात्रा में अतिरिक्त पूंजी रखनी होती है।]
• 2023: RBI increased the Capital to risk-weight asset ratio (CRAR) as follows:

Old Risk New Risk

Loan Type
Weight Weight
1) housing loans, education loans, vehicle loans, loans secured by 100% (no
100%
gold- given by Bank/NBFCs change)
2) Personal/Consumer Loans given by Bank/NBFCs EXCEPT those
mentioned in sr.1
100% 125% ⬆️
3) Banker’s Credit card Loans 125% 150% ⬆️
4) NBFC’s Credit card loans 100% 125% ⬆️

125% ⬆️
5) Banker’s Loans to NBFC (except to Housing-finance companies,
100%
micro finance companies, and Priority sector lending quota)
🙋🏼‍♀️FAQ: do I have to memorise everything? Yes, if preparing for RBI Grade B Officer. Otherwise, it is
enough to know/understand that some risk weight was increased.

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10.2.19 🐅 🔪😰 Implications of higher CRAR
• It will make the bank/NBFC more prudent and careful while approving loans. (अंधाधुंध लोन पास
नहीं करेंगे। कोताही रखेंगे।)
• Higher risk weight = higher capital requirement → then accordingly the bank/NBFC will
make the loan expensive to cover the cost of capital. (अतिरिक्त पूंजी लाने के लिए उनकी लागत ख़र्च बढ़ेगी
उस हिसाब से वे लोन के ब्याज दर भी महँगी कर देंगे।)
• It may increase loan interest rate for borrowers by upto 4%.
• It will decrease the profitability of banks/NBFCs (due to cost of additional capital). (अतिरिक्त
पूंजी की लागत ख़र्च के चलते मुनाफ़े में भी कमी आएगी।)

🐅 🔪🤔 RBI’s reasoning behind higher CRAR?

• 2020: During the corona, RBI had relaxed these norms greatly to make the loans easily
available to the borrowers to revive the Indian economy.
• 2023: However, now RBI feels that the economy is back on track, and inflation is increasing.
(कोरोना के दौरान रिज़र्व बैंक ने नियमों में काफ़ी सरलता की थी ताकि आसानी से कर्ज़ा उपलब्ध हो। लेकिन क्योंकि अब अर्थतंत्र
वापस पटरी पर आ गया है)
• So, RBI is adopting a counter-cyclical policy to ensure no systemic risk is created due to
reckless lending by Bank/NBFCs. (तो रिज़र्व बैंक ने यह प्रतिचक्रिय नीति अपनायी है अन्यथा/वरना इन
बैंक/एनबीएफसी द्वारा अंधाधुंध तरीक़े से लोन देने से, पूरी व्यवस्था में जोखिम खड़ा ना हो जाए।)

12.7 👩🏻‍⚖️👭 F INTECH- SELF-REGULATORY ORGANISATION (SRO)

 An SRO is a non-governmental organisation that regulates a particular industry. (गैर सरकारी सं स्था जो
किसी औद्योगिक क्षेत्र का स्व-नियंत्रण करती है)
 Objective? To enforce transparency, fair competition, ethical practices , protect consumer &
workers, dispute resolution among the companies, training and skill development programs for
workers. (पारदर्शिता, न्यायोचित स्पर्धा, नैतिक आचरण, ग्राहक सुरक्षा, विवाद निपटान, तालीम कौशल वर्धन)
Example from News Industry
News Type Printed Newspapers Digital News Channel (e.g Lallantop, Firstpost),
Private TV News Channels (e.g AajTak)
Regulator? Press Council of India News Broadcasters & Digital Association (NBDA)
Type? Statutory body/regulator Self-regulatory organisation (SRO) created by the
setup by Parliament’s law in private sector players. NBDA is not a government
1978 body, statutory body, constitutional body.

2023: RBI governor has suggested the Fintech companies to create a self-regulatory organisation
(SRO) for themselves. What are Fintech companies? (Ref: Pillar#1B1-classification)

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 56
10.2.1 😍 FinTech SRO-Benefits?
 😍1) Reduce RBI’s workload in supervision.
 😍2) Establish a proper link between RBI and the fintech companies.
 😍3) setup rules/standards for data-privacy, cyber security, mis-selling, ethical conduct,
complaint/grievance redressal for consumers.

12.8 🧹🙊: 👹(🚫🏦) NEGATIVE N EWS RELATED TO BANK/NBFC

Sometimes UPSC asks 1 liner MCQs about global bank/NBFC negative news esp. in NON-IAS
exams like CDS/CAPF/IES. So we will prepare basic idea without forensic analysis.
10.2.2 🌐🤒 Silicon Valley bank crisis (SVB), USA 2023
 USA Fed Tapering → USA Central bank increased loan interest rates to fight inflation → SVB’s
loan customers decreased (due to expensive loans).
 SVB had invested money in government securities, but made losses due to yield change.
 negative media coverage made the depositors panicked to withdraw their money, including some
Indian start-up founders who had parked their money in the bank.
 💊Outcome? Federal Deposit Insurance Corporation (FDIC- America’s DICGC type
organization) has shut down SVB. FDIC will sell SVB’s assets to return money to depositors.
10.2.3 🌐🤒 Credit Suisse Bank, Switzerland (2023)
 This bank suffered losses due to an instrument called ‘Credit Default Swaps (CDS: more in
pillar1C)’.
 More problems due to Post-Corona, Post-Ukraine general slowdown in the banking industry.
 Data leak revealed this bank helps criminals/druglords hide their money → investigations/court-
cases started → share-price fell.
💊Outcome?
 1) Bank had to write-off/delete $17 billion worth of AT-1 Bonds to cover losses. The move has
angered AT1 bondholders as their investments have been reduced to zero.
 2) Another Swiz Bank UBS has bought Credit Suisse Bank.
 What is AT1 bonds? covered in earlier Win## series. If not seen then watch
https://youtu.be/Ne4mh6IJPQQ?si=_eHpFLGlt5Ec4g22
10.2.4 🤒 Negative News: Paytm Payments Bank (2024)
• 2017: Paytm Payments Bank Ltd (PPBL) starts operation.
• Its parent company is called ‘One97’.
• Founder Vijay Shekhar Sharma.
• Early Investors: Warren Buffett’s Berkshire Hathaway Group (USA), Jack Ma’s Alibaba
Group (China) etc. Although most of the early investors have sold their shares at a loss and
exited the company by 2023.
✋🚨 2024: RBI stopped Paytm bank from accepting deposits, adding money in PayTM wallet,
Fastag, etc., for the following reasons: 👇
 Non-compliance with Know-Your-Customer (KYC) norms while opening bank accounts.

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 Same PAN number used for activating multiple accounts, and these accounts were conducting
crores of rupees of transactions. (एक ही पैन कार्ड नंबर द्वारा कई बैंक खातों को खोला गया था और वहां धन शोधन यानी
काले धन को सफे द करने का गैर कानूनी काम चल रहा था ऐसे आरोप.)
 Allegations of Money laundering (converting black money into white)
 RBI’s inspection revealed that there was no separation in servers or physical space occupied by
the Paytm bank and other One97 group entities e.g. Paytm Insurance, PayTM Mall, Paytm
Games, etc. = data security issue, possible spams/marketing offers by misusing the user data.
✅ However, RBI has allowed Paytm to continue its UPI/App related activities e.g. Paytm QR, Paytm
Soundbox, and Paytm Card Machine; financial services, such as loan agent work, insurance agent
work, and equity (share) broking etc.

10.2.5 🤳🏻 Third Party Application Providers (TPAPs) license- PayTM wants

Now PayTM facing problem because:

• Matter explained in this Youtube https://youtu.be/PCTocRrufkA?si=iuCo2_HiMR_6cjO9

• Non-banks like Amazon Pay, Google Pay, Mobikwik, PhonePe, and WhatsApp etc. need to
obtain this TPAP license from NPCI to use the UPI, Fastag & other services of NPCi.
• Moreever, TPAP companies need to tieup with Partner banks to do transactions with NPCi.
• Previously, Paytm did not require such license because it was a payment bank.
• But, from January 31, 2024, the RBI began restricting all banking activities for Paytm
Payments Bank (Company’s name: One97)
• So, now PayTM applying for TPAP license from NPCi, with help of Axis bank as a 'partner
bank'.

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🙋🏼‍♀️FAQ: How can NPCi give license? it is not a statutory body unlike RBI.Ans. Don’t mix the word
‘license’ with sarkaari type licenses (Gun /vehicle/bank etc.) Here, the word 'license' is in context of
getting permission from a company. Example, If you want to use Photoshop software, you have to
“buy” license from Adobe company.

12.9 WHAT IS ALREADY COVERED IN PAST WIN## SERIES? UNDER PILL#1B

निम्न चीज़ें हम पहले ही पढ़ चुके हैं. आपने नहीं पढ़ा तो उसमें से देख लेना. URL: Mrunal.org/Win23
Red highlight.= I find them less important for the 2023 prelims

12.9.1 Win20: already covered Following in 1B12

• 🤩 Golden Anniversary of nationalization- ES20

• 🦄> 🦁: Private sector banks are better than PSBs
• 🦁 = 🐌 PSBs: reasons for inefficiency & remedies?
• Merger of 10 PSBs into 4 (Announced in 2019-August)
• 🏦 👨⚖️🌎🚫🚗📜 On-Tap Licenses for SFB
• 📮 (Yearbook) Dept of Post: POSB vs IPPB
• 🏦 👨🌾Cooperative Banks: Kerala Bank (2019)
• 🏦 👨⚖️AIFI: NHB’s regulatory power shifted to RBI
• 🏦👨⚖️NBFC → Investment and Credit Companies (new category in 2019)
• 🏦👨⚖️Microfinance → Lending norms changed in 2019-Oct
13 Win21: already covered Following in 1B12
• 🏦 👨⚖️🔂Consolidation of PSBs [एकत्रीकरण]
• PSB Privatization: Banking Investment Company (BIC-बैंकिं ग निवेश कं पनी)
• 🤵 LVB merged with DBS (विलीनीकरण)
• 🚫🏦 👨⚖️🚗📜 Allowing NBFC/Large Corporate to setup Banks
• ⚖️🐯💪💪🦵👻💬🤚Banking Regulation (Amendment) Ordinance/Act, 2020
• DFI → NaBFID: National Bank for Financing Infrastructure and Development
• 👹(🚫🏦) NBFC: Shadow Banking (आभासी / प्रतिछाया बैंकिं ग प्रणाली)
• 👻 ATMANIRBHAR → 🐯: 👹(🚫🏦) RBI Helping NBFCs
• 👻 ATMANI → 🧔🔪🏦🙊 Partial Credit Guarantee Scheme (PCGS) 2.0
• 👻 ATMANI → 🧔🔪🏦🙊 Special Liquidity Scheme for NBFC/HFC (खास तरलता योजना)
• 👻 ATMANI → 🧔🔪🏦🙊 Credit Guarantee Enhancement Corporation
• 🐯: 👹(🚫🏦) FI → NBFC: RBI’s 4 tier regulation structure (Proposed)

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 59
13.1.1 Win22: already covered Following in 1B12

निम्न चीज़ें हम पहले ही पढ़ चुके हैं. आपने नहीं पढ़ा तो उसमें से देख लेना. URL: Mrunal.org/Win23
• 🏦 RBI Governor gets re-appointment
• 🏦 👨⚖️ Bank Classification: New Developments
• Scheduled Banks Status to Airtel, Paytm
• 🏦 👨⚖️ 🌎🚫🚗📜 Unity Small Finance Bank (SFB) gets license (2021)
• 🏦 PMC Scam resolution (2021-22)
• 🏦 👨⚖️ NBFC Classification: New Types- BNPL, P2P
• 📙📙ES22 observations on NPA
• ⚖️🔪🤝:🤫 IBC Pre-Packs (पर्दे के पीछे जल्दी से के स सुलटा लेते है!)
• (⚖️🔪🤝)🈶🌐 Cross-border Insolvency (सीमा-पार का दिवालियापन)
• (⚖️🔪🤝) Voluntary Liquidation of Companies
• 🕵️♂️👩🔧(🏦 🔪💀): 🧬 Bad Bank Structure
• 🏦 💸🙇 DICGC (Amendment) Bill 2021
• 🐯💉👹🦵💬✋🏻 RBI’s Prompt Corrective Action (PCA) for NBFCs
• 🐯: 🦋Regulations Review Authority (RRA 2.0)- for Ease of implementing RBI rules
• 🤦🏻♂️👮:🛡Staff Accountability Framework for PSB-NPA
• 📞Financial Messaging Systems: SWIFT- Russia gets banned
10.2.6 Win23 : already covered Following in 1B12
निम्न चीज़ें हम पहले ही पढ़ चुके हैं. आपने नहीं पढ़ा तो उसमें से देख लेना. URL: Mrunal.org/Win23
• Classification of cooperative banks
• MULTI-STATE COOPERATIVE SOCIETIES (AMENDMENT) BILL, 2022
• RBI’4-tiered regulatory framework for urban cooperative banks (2022-Dec)
• NABFID, the 5th AIFI (2022-Mar)
• DFI Status sought by PFC under Power ministry (2022-Nov)
• 💸📡 : Digital Banking Units in Budget 2022
• 💸📡 : Digital Payments- NeoBanks (चिकने चुपड़े शब्द)
• Pillar-1B2: Bad Loans
• NPA observations by ES23 📙
• Loan Write-off
• “IBC bahut Mahaan” says ES23 📙
• 📙
ES23 suggested 4R’s approach to fix banking sector i.e.
• 🔪📡👿 Digital Lenders
• Digital lending norms by RBI (2022-Nov)
• Digital lending → FIRST LOSS DEFAULT GUARANTEE (FLDG) norm by RBI
• 🚫🏦👨‍⚖️ Credit Information Companies (CIC) versus Credit Rating Agencies (CRA)

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 60
 • Credit Rating / Monitoring- various org/initiatives
• National Financial Information Registry (NFIR) in Budget-2023👛
• 🐯🦋 : RBI supervision: Utkarsh-2022” roadmap
• 🐯🦋 : RBI supervision: Daksh web system 2022
• Financial Stability Report (FSR)
• Bad Loans: Tools/Instruments in Negative News
• AT1 Bond controversy
• 📞 Financial Messaging Systems: SWIFT- Russia gets banned
• Personnel Selection → Bank Board Bureau (BBB), 2016
• 🤦🏻‍♂️
Personnel Selection → FSIB replaces BBB (2022)
• 🤦🏻‍♂️
Enhanced Access and Service Excellence (EASE) Agenda 2018

10.2.7 👨‍🏫📡MRUNAL’S ECONOMY COURSE FOR UPSC

Subscribe Now for 50% off & 6 Months Extra:

unacademy.com/goal/upsc-optional/KSCGY/subscribe?plan_type=plus&referral_code=mrunal.org

Next Handout: Pillar1C: Sharemarket.

Missed previous classes / handouts? Visit Mrunal.org/win24

Mrunal’s Economy Win24 Series Pillar1B: Bank-NBFC Classification & Burning Issues → Page 61