By

Shyam S Kaggod

Points discussed• Introduction

• Financial Inclusion

• Rural Banking

• Mission Indradhanush

• Bank Recapitalisation

• NPA

• Cyber Security & Big Data Analysis

Intro

• Role• Provide financial services• Deposit Mobilization• Attract savings • Access to Credit• Credit dissemination• Financial inclusion

• In the last decade there has been better growth in the private sector banks• Lending patterns differ• CIR (Cost to Income Ratio)• Human Resources

Reach of Banking

Reach of Banking

Jan Dhan Yojana

Credit growth in a decade

Agricultural Credit

Business Correspondents (BCs)

• Commercial banks have covered services in 6 lakh villages through BCs

• During the period from 2010 to 2017, the money deposited through BCs has increased by 26 times compared to 15 times increase in the deposits collected through bank branches

Issues related to Financial Inclusion

• Cover dis-abled/Divyang

• Technology issues/limitations (eg-Handheld devices)

• There is a need for providing flexibility in the financial schemes provided for the rural population/customers (eg-FDs and RDs are for regular salaried persons)

• Promoting financial literacy

• Need to assign the duty of tracking Financial Inclusion to an authority

Rural Banking

Situation

• In India of 6 lakh villages, 4.5 lakh villages are covered• 14,976 are having bank branches

• 4,16,636 are covered by BCs

• 20,539 are covered under other forms-ATMs, Mobile Vans etc

• India is home to • 24% of world’s unbanked adult population

• Around two thirds of South-Asian unbanked population

• 31 Cr potentially bankable population does not have access to formal banking sector

Issues

• It is viewed as a regulatory requirement rather than economic opportunity

• Ticket size of transactions are very low

• Cost of operations are very high

• Infrastructure limits the usage of financial services

• NPAs are very high

• Loan waivers will aggravate the problem for the bankers

Reforms/Steps taken so far…

• No-frills account/JDY

• NGOs/SHGs have been allowed to be used as financial intermediaries

• Penetration through issuing Kisan Credit Cards

• 100% financial inclusion camps

• Financial products such as APY, PMSBY, PMJJBY etc

Way out/Solution• Incentivize the services provided by the BCs

• Design suitable innovative products to cater to the requirements of poor villagers

• To reduce cost of operations, coverage of ATMs and issuance of RuPaydebit cards can be done

• Provide priority to cover small farmers compared to large farmers

• Vernacularizing of the banks

• Promote eDBT

Mission Indradhanush

Mission Indradhanush• Appointments

• The post of CMD has been split into MD & CEO ; and Executive Chairman

• BBB• Replace Appointments Board• Appoint whole-time directors, non-executive chairman

• Capitalisation• Budgetary allocation• Recapitalisation Package

• De-stressing• Sectors causing stress have been identified and actions such as Project Monitoring

Group, facilitating easy approvals, handholding services in power sector etc are being taken

• NPA disclosures

Indradhanush - Capitalisation

Mission Indradhanush

• Empowerment• The government has issued a circular stating that there will not be any further

interference in the banking operations

• Accountability• KPIs (Key Performing Indicators) to measure the the performance of PSBs• DFS (Department of Financial Services) has laid down strict timelines for filing of

fraud cases• NPA guidelines by RBI

• Governance Reforms• IBC• Recapitalisation package• Consolidation of the banking sector

Recapitalization

RC Bonds

• Around ₹ 80K Cr for 20 PSBs (SBI will get the largest allocation, followed by IDBI and then BoB)

• Bonds will be issued with six different maturities (10, 11, 12, 13, 14 and 15 years) and coupon rates

• These bonds will bear interest rates between 7.35 per cent and 7.68 per cent and will mature between 2028 and 2033

• These are non-transferable

• These are to be HTM (Held-to-Maturity) bonds

• Will be non-SLR

NPAs Recovery - Gist

RBI-New Norms

• The bank has to start contemplating for the resolution of the stressed asset from the first day of the default

• RP has to be done within 180 days from the default date failing which the account has to be referred to IBC

• Applicable for the debts which are over ₹ 2000 Cr

• Applicable from 1st March 2018

• The new framework specifies that banks must report defaults on a weekly basis in the case of borrowers with more than Rs 5 crore

RBI-New Norms

• Pros• Transparency

• Quicker resolution of stressed assets

• Concerns/Issues• May lead to piling up of NPAs

• Force the banks to take big haircuts

• May lead to litigation

Bankruptcy/Insolvency BillLender/Borrower will approach DRT/NCLT

Authority appoints an Insolvency Professional (IP)

IP form CoC (Committee of Creditors)

CoC will deliberate

Decision is arrived (if no decision then IP recommends liquidation of the asset)

The liquidation process is started

IBC-Priority Waterfall

Insolvency Resolution Process and Liquidation costs

Secured creditors and workmen dues

Unsecured creditors

Government dues

Preference shareholders

Equity shareholders

IBBI - Grievances and Complaints

• Notified on 7th December 2017

• Provides grievance redressal to stakeholders against the service provider

• The aggrieved party has to file a complaint in Specified Form along with a fees of ₹ 2500 (which would be refunded if the complaint is not frivolous or malicious)

Big Data Analytics

Cyber Security

• The whole ecosystem of digitalization includes following stakeholders• Customer/originator

• Originating institution (financial institution)

• Processing agency (NPCI)

• Beneficiary institution

• beneficiary

Cyber Security

• National Cyber Security Policy 2013• Aims

• Facilitate creation of secure computing environment

• Enable adequate trust and confidence in electronic transactions

• Guide stakeholders actions for protection of cyber space

• Strategies adopted• Computer Emergency Response Team (CERT-In) has been designated to act as a nodal

agency

• National Critical Information Infrastructure Protection Centre (NCIIPC) has been set up as a nodal agency to protect critical infrastructure

• Organizations have been encouraged to appoint a senior member as Chief Information Security Officer

• Promotion of cutting edge technologies

Cyber Security

• CERT-in has launched “Cyber Swachhta Centre” (Botnet Cleaning and Malware Analysis Centre) in February 2017• USB Pratirodh

• Samvid App

• M-Kavach

• Browser JSGuard

Some important points

• Mangalam village (Pondicherry) became the first village, where all the households had an account

Reforms needed in the sector

• Leverage the mobile and internet connectivity

• Penetration of ATMs

• Low financial depth

• High NPAs

• High concentration of PSBs