Weekly Economic Round-up by Maggu Bhai

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1. RBI forms working group to review regulatory norms on core investment
firms

Core investment companies

 As per Core Investment Companies (Reserve Bank) Directions, 2016 issued

by RBI, Core Investment Company (CIC) is a non-banking financial company
carrying on the business of acquisition of shares and securities.
 Systemically Important Core Investment Companies (CICs-ND-SI) is a Non-
Banking Financial Company (NBFC) with asset size of Rs 100 crore and
above carrying on the business of acquisition of shares and securities

Brief points

 The Reserve Bank of India (RBI) has constituted a working group to review the
regulatory guidelines and supervisory framework applicable for core
investment companies (CIC).
 The working group will be headed by Tapan Ray, non-executive chairman of
Central Bank of India and former secretary, Ministry of Corporate Affairs.
 The terms of reference of the working group would be to examine the current
regulatory framework for CICs in terms of adequacy, efficacy and effectiveness
of every component thereof and suggest changes therein, to assess the
appropriateness of and suggest changes to the current approach of the RBI
towards registration of CICs, to suggest measures to strengthen corporate
governance and disclosure requirements for CICs.
 Details can be read from here.

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2. PNB, Allahabad Bank, UCO Bank, Corporation Bank fined for violation of
KYC norms

Key points

 The Reserve Bank of India (RBI) has imposed a penalty of Rs 1.75 crore on
four public-sector banks, including PNB and UCO Bank, for non-compliance
with KYC requirement and norms for opening of current accounts.
 While PNB, Allahabad Bank and UCO Bank have been fined Rs 50 lakh each,
a Rs 25-lakh penalty has been imposed on Corporation Bank.
 For more details, click here.

3. Wilful defaults in India cross $21 billion in 2018-19

Key points

 India's state-owned banks had classified 1.50 trillion rupees ($21.76 billion)
worth of loans as "wilful defaults" in 2018-19, with the biggest lender State
Bank of India accounting for nearly a third.
 Under Indian law, wilful defaulters are classified as firms or individuals who
own large businesses & deliberately avoid repayments.
 Details can be read from here.

4. N S Vishwanathan gets extension by one year as RBI deputy governor

Key points

 Reserve Bank of India (RBI) Deputy Governor N S Vishwanathan has been

given a one-year extension by the government.
 According to RBI law, of the four deputy governors, two are outside specialists
— usually an economist and a career banker, while two are career RBI central
bankers.

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  Generally, the Department of Banking Regulation (headed by Vishwanathan)
and Department of Currency Management (headed by B P Kanungo) are
reserved for RBI insiders.
 Monetary Policy Department (headed by Viral Acharya) and Department of
Banking Supervision (headed by M K Jain) are reserved for outsiders.
 Source

5. RBI sets 24-hr timeframe to bring back payment data processed out of India

Key points

 The Reserve Bank of India (RBI) has said that all payments-related data has
to be stored within India and in cases where data gets processed outside the
country, it needs to be brought back within 24 hours.
 The entire payment data shall be stored in systems located only in India,
except in cases clarified herein.
 The data should include end-to-end transaction details and information
pertaining to payment or settlement transaction that is gathered / transmitted /
processed as part of a payment message / instruction.
 For cross border transaction data, consisting of a foreign component and a
domestic component, a copy of the domestic component may also be stored
abroad, if required
 The System Audit Report (SAR), from a CERT-In empanelled Auditor, should
inter-alia include Data Storage, Maintenance of Database, Data Backup
Restoration, Data Security, etc.
 Details can be read from here.

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6. RBI issues norms for setting up FBAs for fixing efficient benchmarks for
financial instruments

Terminologies

 ‘Benchmarks’ mean prices, rates, indices, values or a combination thereof

related to financial instruments that are calculated periodically and used as a
reference for pricing or valuation of financial instruments or any other financial
contract.
 ‘Financial Benchmark Administrator’ (FBA) means a person who controls the
creation, operation and administration of significant benchmark(s).
 ‘Significant benchmark’ means any benchmark notified by the Reserve Bank
as a ‘significant benchmark’ under these Directions.

Key points

 FBA will be a company incorporated in India and will maintain a minimum net
worth of Rs 1 crore at all times, it said
 FBAs will ensure that a 'significant benchmark' is designed to be an accurate
and reliable representation of the referenced (specified) financial instrument.
 It will also ensure that the "data used to construct a 'significant benchmark' is
based on an active market involving arm's length transactions.
 Where such transactions are not available, it shall record justification for any
data, information or expert judgment used to construct the benchmark,"
 FBAs will submit to the RBI such data and reports within such timelines and in
such formats as advised from time to time, it said adding that they should also
submit periodic return or report on their compliance with the directions or
instructions issued by the the central bank within such timelines and in such
formats as advised from time to time.
 The guidelines are based on the report submitted by a committee under its
executive director P Vijaya Bhaskar on June 28, 2013.
 For more details click here.

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7. RBI issues norms for interest rate derivatives, limits retail use

Terminologies

 Interest Rate Derivative (IRD) is a financial derivative contract whose value is

derived from one or more interest rates, prices of interest rate instruments, or
interest rate indices.
 An Interest Rate Cap is a series of interest rate call options (called caplets) in
which the buyer of the option receives a payment at the end of each period
when the underlying interest rate is above a rate agreed in advance (strike
rate).
 An Interest Rate Floor is a series of interest rate put options in which the
buyer of the option receives a payment at the end of each period when the
underlying interest rate is below the strike rate.
 Overnight Indexed Swap (OIS) is an interest rate swap based on the
Overnight Mumbai Interbank Outright Rate (MIBOR) benchmark published by
Financial Benchmarks India Pvt. Ltd (FBIL).

Key points

 The Reserve Bank of India (RBI) on Wednesday released norms for rupee
interest rate derivatives (IRD) in a view to consolidating, rationalising and
simplifying all previous regulations issued for such contracts.
 While retail users are allowed to participate in these contracts, RBI said it
would be only for the purpose of hedging an underlying interest rate risk.
 Resident ‘non-retail’ users can undertake transactions in permitted products
for both hedging and otherwise.
 A non-resident Indian can undertake transactions in rupee interest rate
derivatives markets to hedge an exposure to rupee interest rate risk and for
select other purposes other than hedging.
 Recognised stock exchanges have been granted the flexibility to design and
structure standardised products based on market requirements.
 Similarly, in the Over-the Counter (OTC) market, market makers such as
banks have been permitted to offer such products tailored to the needs of
corporates and other non-retail entities.
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  Any person resident in India and any non-resident, to the extent specified,
would be eligible to participate in these IRDs.
 All regulated entities can participate in IRDs with permission of and subject to
the terms and conditions fixed by their respective regulators.
 For more details, click here or here.

8. RBI panel report suggests big role for NBFCs in developing MSME sector

Key points

 A Reserve Bank of India (RBI) committee report on micro, small and medium
enterprises (MSMEs) has suggested few recommendations.
 To start with, the committee suggested that more NBFCs be onboarded on the
trade receivable platform — TReDS — of the Reserve Bank of India (RBI).
 The TReDS platform mitigates risk arising out of non-payment of receivables
of MSMEs that supply to a large buyer or are a part of a formal supply chain.
 The receivables are put up for bidding and the highest bidder gets the bill and
the MSME’s account is credited securely.
 For more details, click here.

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9. RBI begins monitoring HFCs

Key points

 The Reserve Bank of India (RBI) has started monitoring the liquidity position,
asset-liability gap and repayment schedules of housing finance companies
(HFCs) on a daily basis.
 For this purpose, a general manager in National Housing Bank has been
asked to be in regular communication with a chief general manager in the
department of non-banking supervision (DNBS) of the RBI.
 For more details, click here.

10. New UPI category waives MDR for small merchants

Key points

 The National Payments Corporation of India (NPCI) has created a new

category of Unified Payments Interface (UPI) transactions to enable small
offline merchants to accept such payments without having to pay merchant
discount rate (MDR).
 The P2PM category of payments will cater to small merchants and the
unorganised retail sector.
 Once the merchant is acquired, they will be allowed a cooling period of three
months.
 If such a merchant clocks inward UPI payments of Rs 50,000 per month for
three consecutive months, they will have to be formally acquired under the
P2M category. This means that they will have to begin paying MDR.
 For more details, click here.

11. Now, taxman can let PSBs in on immoveable assets of loan defaulters

Key points

 Tax officials can now share data with public sector banks to help them recover
dues from loan defaulters.
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  The Central Board of Direct Taxes (CBDT) has permitted its officials to share
information on immovable properties of such defaulters following many
requests from banks.
 The CBDT, however, stressed that the information may be provided only of the
borrower, mortgager and guarantor of the loan.
 Further, at the time of giving the information, a confidentiality clause must also
be included and an undertaking signed by the bank that the data will be used
only for recovery of the loan and will not be shared with any third party.
 It has also directed its officials to ensure that any tax due against the defaulter
is safeguarded in case of recovery based on the information shared.
 The CBDT directive is the latest in a series of measures aimed at helping
banks recover dues from defaulters, many of whom have wilfully defaulted on
loans.
 For more details, click here.

12. NHB lowers refinance rates in order to transmit the policy rate cuts

Key points

 Housing finance sector regulator has said that in order to transmit the policy
rate cuts announced on June 6, it has reduced its refinancing rates.
 Refinance rates were also lower by about 20 bps in the second fortnight of
June over the previous fortnight.
 NHB offers refinance assistance to housing finance companies in respect of
their loans given to individuals for housing.
 In 2018-19, it had increased the refinance limit to Rs 30,000 crore for housing
finance companies in view of the liquidity position of the sector. As the
regulator, NHB regularly monitors the liquidity position of housing finance
companies.
 With 75 basis point reduction in this calendar year, repo rate now stands at
5.75% from 6%.
 For more details, click here.

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13. RBI opens third office of Ombudsman in New Delhi

Key points

 The Reserve Bank said it has opened third office of the Banking Ombudsman
and Ombudsman for Digital Transactions (ODT) at its New Delhi office.
 The Banking Ombudsman scheme is an expeditious and inexpensive forum
for bank customers for resolution of complaints relating to certain services
rendered by banks.
 The scheme is introduced under Section 35 A of the Banking Regulation Act,
1949 by RBI with effect from 1995.
 For more details, click here.

14. Asset reconstruction companies can now acquire financial assets of peers

Key points

 The Reserve Bank of India (RBI) has allowed asset reconstruction companies
(ARCs) to acquire financial assets from other ARCs in a bid to accelerate
timely resolution of stressed assets.
 Those with access to bigger amounts (funds) and endowed with skills to tackle
complex assets will be in a position to buy out exposure from fellow ARCs.
 This would help quicken the resolution process in a system that is saddled with
huge pile of stressed loans, said the chief of a small ARC.
 The RBI’s move follows amendment to the Securitisation and Reconstruction
of Financial Assets and Enforcement of Securities Interest Act, 2002.
 The transaction should be settled on a cash basis. The price discovery for
such a transaction should not be prejudicial to the interest of security receipt
holders.
 The selling ARC should use the proceeds for the redemption of underlying
security receipts.
 The date of redemption of security receipts and the period of realisation shall
not extend beyond eight years from the date of acquisition of the financial
asset by the first ARC.

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  For more details, click here.

15. RBI sets average base rate of 9.18% for NBFC-MFI borrowers for July
quarter

NBFC-MFI

 An NBFC-MFI is defined as a non-deposit taking NBFC (other than a company

licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the
following conditions:
- Minimum Net Owned Funds of Rs.5 crore. (For NBFC-MFIs registered in
the North Eastern Region of the country, the minimum NOF requirement
shall stand at Rs. 2 crore).
- Not less than 85% of its net assets are in the nature of “qualifying assets.
- Further the income an NBFC-MFI derives from the remaining 15 percent of
assets shall be in accordance with the regulations specified in that behalf.
- An NBFC which does not qualify as an NBFC-MFI shall not extend loans to
micro finance sector, which in aggregate exceed 10% of its total assets.

Key points

 The Reserve Bank Friday set an average base rate of 9.18 per cent for non-
banking financial companies and micro finance institutions to be charged from
their customers for the quarter beginning July 1.
 The central bank in a circular in 2014 had communicated to NBFCs and MFIs
regarding pricing of credit on the last working day of every quarter.
 RBI sets the average base rate for NBFC-MFIs on the basis of average of
base rate of the five largest commercial banks.
 For more details, click here.

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16. RBI relaxes leverage ratio for banks to boost their lending capacity

Leverage ratio

 The leverage ratio, as defined under Basel-III norms, is Tier-I capital as a

percentage of the bank's exposures.
 A leverage ratio is any one of several financial measurements that look at how
much capital comes in the form of debt (loans) or assesses the ability of a
company to meet its financial obligation.

Key points

 The leverage ratio stands reduced to 4 per cent for Domestic Systemically
Important Banks (DSIBs) and 3.5 per cent for other banks effective from the
quarter commencing October 1, 2019.
 In order to mitigate risks of excessive leverage, the Basel Committee on
Banking Supervision (BCBS) designed the Basel III Leverage Ratio as a
simple, transparent, and non-risk-based measure to supplement existing risk-
based capital adequacy requirements.
 For more details, click here.

17. Payment security mechanism for private power plants launched

Key points

 With the new order, it would be mandatory for distribution companies

(discoms) to open and maintain adequate letter of credit (LC) as payment
security to private power plants.
 Discoms’ dues to power producers stood at Rs 35,845 crore at the end of
April, up 30% from a year earlier, and 58% of these were “over-dues” with
payment default of 60 days or more.
 The order also makes sure that discoms cannot arm-twist generators by
threatening to buy power from alternative sources if IPPs choose to curtail
supply after payment default.
 The dispatch (to the discom) shall stop once the quantum of electricity under
LC is supplied” and load dispatch centres, as mandated by the Electricity Act,

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 2003, will also have to ensure that defaulting discoms cannot procure power
either from the spot exchanges, or through short-term open access.
 For more details, click here.

18. BIS starts fintech hub as central banks look into crypto currency

BIS

 The Bank for International Settlements (BIS) is an international financial

institution owned by central banks which "fosters international monetary and
financial cooperation and serves as a bank for central banks.”
 It is based in Basel, Switzerland, with representative offices in Hong Kong and
Mexico City.

Key points

 The Bank for International Settlements (BIS) is setting up shop to help officials
embrace financial technology, who may need to speed up developing their
own digital currency.
 The news comes after Facebook Inc. earlier this month unveiled plans to
create a cryptocurrency it expects will one day trade much like the dollar.
 For more details click here.

19. Reserve Bank Of India Works To Create New Blockchain Banking Platform
For Government

Key points

 The Reserve Bank of India (RBI), is currently working on a blockchain platform

for banking in its R&D branch.
 Although the bank seems to be moving towards distributed ledger technology
(DLT), the bank and the whole country have never been in favor of virtual
currencies and digital assets. Bitcoin (BTC) and other cryptocurrencies can be
transacted in India, but the lack of clear regulations and pressure on different
companies operating in the country has affected the whole ecosystem.
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  For more details click here.

20. Govt to raise health services expenditure to 2.5% of GDP by 2025

Key points

 YoutubeHealth Minister Dr Harsh Vardhan today said government has set a

target to raise health services expenditure to 2.5 per cent of the country's GDP
by 2025.
 The Minister said the policy recommends that State governments should
spend more than 8 per cent of their budget on the health sector by 2020.
 For more details, click here.

21. Money in Swiss banks: India moves down in the list, ranks 74

Key points

 India has moved down one place to 74th rank in terms of money parked by its
citizens and enterprises with Swiss banks, while the UK has retained its top
position.
 An analysis of the latest annual banking statistics released by the Swiss
National Bank (SNB) shows that India remains ranked very low when it comes
to money parked by Indian individuals and enterprises in Swiss banks.
 For more details, click here.

22. Karnam Sekar is new head of IOB

Key points

 Karnam Sekar has taken charge as Managing Director and Chief Executive
Officer of Chennai-based Indian Overseas Bank (IOB) with effect from July 1.

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