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Insights Daily Current Events, 20 July 2016
Paper 3 Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Rural areas pose hurdle for small finance banks
With merely 8 months remaining to start operations, small finance banks are facing headwinds to open 25% of their total branches in unbanked areas as it will impact their profitability. Hence, in a recent meeting with the banking regulator, the small finance bank representatives have requested the regulator to give them three years to comply with the norms.
- According to them, the cost of opening or converting the present microfinance institutions branches into full-fledged bank branches is higher. Therefore, one year will be very challenging from the profitability point of view for these institutions.
- The other issue that is posing a hurdle is that compliance with the Basel norms. According to the guidelines for small finance banks, RBI had said as small finance banks are not expected to deal with sophisticated products, the capital adequacy ratio will be computed under Basel Committee’s standardised approaches.
The Reserve Bank of India (RBI) has mandated that the small finance banks have to open at least 25% of their branches in unbanked rural areas within one year of their operations. Unbanked rural areas are the centres having a population less than 9,999 as per latest census.
In September 2015, RBI granted in-principle licences to 10 entities to start small finance banks. These entities will have to start operations within 18 months, else the licences will lapse. Out of the 10, nine entities were predominantly involved in microlending. Only one entity, out of 10 that received licences, has commenced operations – Jalandhar headquartered Capital Small Finance Bank, which was a local area bank earlier.
What are small finance banks?
The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
What they can do:
- Take small deposits and disburse loans.
- Distribute mutual funds, insurance products and other simple third-party financial products.
- Lend 75% of their total adjusted net bank credit to priority sector.
- Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
- Minimum 50% of loans should be up to 25 lakhs.
What they cannot do:
- Lend to big corporates and groups.
- Cannot open branches with prior RBI approval for first five years.
- Other financial activities of the promoter must not mingle with the bank.
- It cannot set up subsidiaries to undertake non-banking financial services activities.
- Cannot be a business correspondent of any bank.
The guidelines they need to follow:
- Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
- Minimum paid-up capital would be Rs 100 cr.
- Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%.
- Foreign shareholding capped at 74% of paid capital, FPIs cannot hold more than 24%.
- Priority sector lending requirement of 75% of total adjusted net bank credit.
- 50% of loans must be up to Rs 25 lakh.
Sources: the hindu.
Paper 3 Topic: Inclusive growth and issues arising from it.
Centre injects Rs.22,915 cr into 13 public sector banks
In a bid to boost credit growth in the economy, the Centre has announced a sum of Rs.22,915 crore for recapitalisation of 13 public sector banks. State Bank of India (SBI) will receive the largest allocation of Rs.7,575 crore. Indian Overseas Bank and Punjab National Bank are to get Rs.3,191 crore and Rs.2,816 crore respectively.
- The infusions required in the current year were assessed from the CAGR of credit growth for the last five years and the banks’ projections of credit growth. The potential for growth of each these banks was also factored in.
In the Union Budget, the Centre had allocated a total of Rs.25,000 crore for the capitalisation of public sector banks in the current financial year 2016-17, in line with the infusion plans announced under the umbrella scheme “Indradhanush” introduced last year. The plan proposes infusions adding up to Rs.25,000 crore in 2015-16 as well as in 2016-17, followed by Rs.10,000 crore each in 2017-18 and 2018-19.
What is Mission Indradhanush?
Mission Indradhanush aimed to revamp the functioning of public sector banks so that PSBs can compete with the Private Sector Banks. The mission is a brainchild of PJ Nayak committee.
- It is launched by Ministry of Finance under the Department of Financial Services. The mission is regarded as one of the big steps after the nationalisation of banks in 1970s.
- The mission includes the seven key reforms of appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms.
Sources: the hindu.
Paper 2 Topic: Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources, issues relating to poverty and hunger.
Centre lets microbeads off the hook
Based on a petition requesting a ban on microbeads, also called microplastics, a National Green Tribunal Bench has asked the Ministries of Health, Environment and Water Resources file their response.
What the petition says?
The crux of petition is that these plastics are too small to be caught by sewage treatment and water filtration techniques and they pass unchecked into rivers and seas and contaminated them. They take centuries to degrade and worse, are sometimes eaten by fish and other aquatic animals and could even make their way into human diets. The United States has promulgated a ban, which will come into effect next July, on cosmetic products containing microbeads.
What are Microbeads?
Microbeads, small pellets of plastic, extensively used in personal care products such as shampoo, baby lotion and face cream and considered toxic to marine life, are being banned internationally, but key arms of the Indian government have side-stepped the issue either passing the buck or saying that no studies have been conducted to ascertain the harm posed to the environment or its potential toxicity.
Over 299 million tonnes of plastic was produced worldwide in 2013 some of which made its way to oceans, costing approximately $13 billion per year in environmental damage to marine ecosystems, says a June 2015 report by the United Nations Environmental Programme that investigated the possible harm by microbeads/microplastics.
Sources: the hindu.
Paper 2 Topic: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
Panama to sign tax treaty
Panama has agreed to sign a multilateral tax treaty, which the Indian agencies believe will help them expedite investigations into the “Panama papers” recently made public by the International Consortium of Investigative Journalists.
Signing and ratifying the Convention will be a very significant step forward in implementing its commitment to tax transparency and effective exchange of information.
About the convention:
Multilateral Convention on Mutual Administrative Assistance in Tax Matters was developed jointly by the OECD and the Council of Europe in 1988.
- It was amended in 2010, in response to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, “thus ensuring that developing countries could benefit from the new transparent environment.”
- The Convention represents a wide range of countries, including all G20, BRIICS and OECD countries, financial centres and several developing countries.
- India is among the 98 countries and jurisdictions that have already joined the Convention.
Sources: the hindu.
Facts for Prelims:
- The Supreme Court has clarified that an offender cannot be directed to undergo two life sentences consecutively as that would be “anomalous” and “irrational” and will disregard the fact that “humans like all other living beings have but one life to live”. The apex court, however, said that multiple sentences for imprisonment for life can be awarded for multiple murders or other offences punishable with imprisonment for life but such sentences needs to be superimposed over each other so that any remission or commutation granted in one does not ipso facto result in remission of the sentence awarded to the prisoner for the other.
- Tata is India’s most valuable brand in 2015-16 with a brand valuation of $13.7 billion despite 11% value erosion during the year due to troubles concerning its steel business in the U.K, according to Brand Finance India’s top 100 most valued Indian brands. The top 10 brands of 2015-16 include Tata, LIC ($6.6 billion), Airtel ($5.7 billion), SBI ($5.7 billion), Infosys ($4.7 billion), Reliance ($3.5 billion), ONGC ($3.4 billion), L&T ($3.3 billion), Indian Oil ($3.2 billion) and HCL ($3.2 billion).
- SpiceJet has topped the list among domestic private airlines in a study titled ‘India’s Most Reputed Aviation Brands 2016’, followed by Jet Airways with a 34% lower Brand Reputation Score. The study was conducted by media analytics firm BlueBytes in association with TRA Research.
- The trail of death and destruction left by Nepatrak, the first Typhoon to hit China’s eastern coast this season, has led to the sacking of a number of senior officials — a move emblematic of the Chinese leadership’s mood to enforce accountability in the wake of a string of disasters.
- A significant bill aimed at putting in place a single common examination for medical and dental courses was recently passed by the Lok Sabha, with the government saying even private colleges will be under its ambit. The Indian Medical Council (Amendment) Bill, 2016 and the Dentists (Amendment) Bill, 2016 provides a Constitutional status to the National Eligibility-cum-Entrance Test (NEET) examination” which is intended to be introduced in the academic session next year. These bills replace the Ordinances that were promulgated by the government to circumvent the Supreme Court order for implementation of NEET examination this session itself.