1 D1 Flashcards
Meaning and significance of Insurance
- Meaning: insurance policy is a Debt instrument / Legal contract against eventualities of death or damage.
- 2 parties in this contract: 1) Insured / client 2) Insurer / Underwriter.
- Insurance provide stability to the households (against death, disability, damage) and entrepreneurs (against fire, theft, natural disasters etc.)
- Insurance companies invest clients’ premium in various public and private sector projects, thereby channelizing savings towards investment & economic growth.
History of Insurance in India
Read in handout
Types of Life insurance and money returned?
Whole life= Longer policy: (e.g. 35-40 yrs) Endowment= Shorter policy: (e.g. 10-20) - At maturity - Yes, savings returned, At death - Yes
Term = Short Policy, Low Premium e.g. PM Jeevan Jyoti Bima Yojana , At maturity - no , At death - Yes
ULIP: Unit Linked Insurance Plans: Part of money goes in insurance, part in Mutual fund, At maturity - Yes, savings returned, At death - Yes
Life Insurance → notable entities in public sector
What is Post Office Life Insurance?
- Initially started as postal life insurance for the postal employees (1884), later extended to rural people as well.
- Presently, 6 schemes for govt employees and 6 schemes for rural areas (usually with prefix of “GRAM” e.g. gram Suvidha / Suraksha / Santosh….)
Life Insurance → notable entities in public sector
Sampoorna Bima Gram Yojana (2017)
✓ by Ministry of Communications
✓ In every district, atleast 1 village identified → In that village, cover all households with a minimum of one RPLI (Rural Postal Life Insurance) policy.
✓ All villages under the Saansad Adarsh Gram Yojana will also be covered.
Purpose of LIC act?
Headquarters location and name?
LIC motto
✓ To take over/nationalize the private life insurance companies → LIC Act, 1956. So, LIC is a statutory corporation/statutory company.
✓ Rigveda: (Yogakshema: well being) = name of LIC HQ@Mumbai & its corporate magazine.
✓ Gita: (Yogakshemam Vahamyaham:- I ensure safety and well being (of my devotees) = LIC motto.
✓ 2018: became majority shareholder in IDBI bank. 2019-March: RBI classifies IDBI as a ‘private sector’ bank.
WHY is Govt disinvesting LIC?
Budget-2020: LIC Act will be amended → LIC will be converted from a statutory corporation into a (listed) Public Limited Company → Initial Public Offering (IPO) → Government will sell part of its shareholding.
WHY is Govt doing disinvestment?
LIC’s insurance products come with a sovereign guarantee by the Govt. So people prefer to buy it over private sector insurance policies. This hampers perfect competition.
If Government shareholding ⬇ → LIC functioning becomes independent → less financial repression of households (e.g. how LIC bought loss making IDBI under Government’s pressure. Ref Pillar#1B-1: Banks’ classification).
So, earlier, International Monetary Fund (IMF, 2018) and Justice B.N.SriKrishna’s Financial Sector Legislative Reforms Commission (FSLRC-2011) had also advised the same to Government of India.
Disinvestment = Government will earn some ₹₹ by selling its shares → welfare schemes.
PM schemes for Life Insurance & Accidental (Gen) insurance launched by Finance Ministry → Dept of Financial Services ?
Does it cover hospitalisation cost?
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJB)
Pradhan Mantri Suraksha Bima Yojana (PMSBY)
Neither scheme gives hospitalization cost.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJB) Age Purchase from Premium Type Nature of Plan Return?
18-50 years with bank account in India. NRIs eligible but payment in rupee currency only.
LIC or any empaneled pvt. life insurance company.
Rs. 330 per person/ annum
LIFE Insurance
1 year “term” LIFE insurance. Term LIFE insurance = no death, no money returned.
Any type of death: ₹ 2 lakhs
doesn’t cover hospitalization cost.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) Age Purchase from Premium Type Nature of Plan Return?
18-70 years with bank account in India. Remaining same as PMJJB
4 Public Sector, or any empaneled pvt. General Insurance company.
Rs.12/- per person/ annum
General Insurance
1-year “term” accident cum death insurance.
Accidental Death: murder, natural disaster etc. ₹2 lakhs
- 1 eye/hand/leg: 1 lakh
- 2 organs/>: max. 2 lakhs
Suicide, alcohol-drugs related death: not eligible
doesn’t cover hospitalization cost.
What is General insurance?
An insurance policy other than ‘life insurance’, is called General Insurance. e.g. Accident Insurance, Health Insurance, Crop Insurance, Fire-Theft-Marine & Vehicle Insurance.
Name Public Sector General Insurance Entities with years
1948: Employees’ State Insurance Corporation (ESIC) under Labour Ministry – through an act of Parliament to protect selected category of workers.
1957: Export Credit Guarantee Corporation of India (ECGC) under Commerce Ministry. Gives insurance cover to exporters, and credit guarantee to Bank/NBFC who loan to exporters.
1961: DICGC Act: banks must buy deposit insurance from it. Although not considered a General Insurance Company in textbook sense because doesn’t directly sell insurance
policy to any individual household/businessman.
1972: General Insurance Nationalization Act: 107 (private) general insurance companies were taken over by GIC and its 4 subsidiaries (viz. National insurance, New India Assurance, United India, Oriental). Later, Govt took direct control over these 4 subsidiaries, and left GIC to take care of re-insurance biz.
2002: Agriculture Insurance Company ltd, (formed with funding of GIC, above 4 public sector Gen. Insurance Cos and NABARD.)
2018-Feb: Budget announced to merge National Insurance Company, United India Insurance Company and Oriental India Insurance Company- but the plan
has not materialized yet.
2018-Oct: FinMin → Dept of Financial services organized ‘Insurance Manthan’ for Public Sector GI @Delhi. Outcome? six-point agenda: fully insured society, customer orientation, digital -analytics for future, sustainable-prudent business, reach for everyone and talent management.
Employees’ State Insurance Corporation & Act year and ministry
1948: Employees’ State Insurance Act → 1952: ESIC corporation (ESIC) setup under Labour Ministry.
Where does ESIC apply?
any establishment with 10/> (10 or more) employees - BEFORE - Compulsory ATMANIRBHAR Reform (2020)- Compulsory
If establishment less than 10 workers → but it’s a hazardous industry e.g. (firecrackers, toxic chemicals, acid) - BEFORE - Voluntary, ATMANIRBHAR Reform (2020)- Compulsory
If establishment less than 10 workers → Non- hazardous industries - BEFORE - Voluntary, ATMANIRBHAR Reform (2020)- Voluntary
Who are the ESIC subscribers?
Employee in above establishment, with monthly salary less than ₹21,000/-
Who pays ESIC premium?
“x%” of employee’s wages+ “y%” from employer’s side.
An ESIC subscriber gets following benefits?
1) Medical insurance for the worker and his family from day#1 of joining
2) Maternity Benefit to women employees
3) Monthly payment to family, if worker dies by employment related injuries.
4) Sickness benefit: partial wages during medical leave.
5) Monthly payment on disability
6) Unemployment allowance if involuntary loss of employment- through the scheme ‘Atal Bimit Vyakti Kalyan Yojna’.
Project Panchdeep - digitization and automation of ESIC processes by WIPRO
Project Arrow - (2017) Modernization of India Post (2008)
What are Project Panchdeep and Project Arrow?
PP- digitization and automation of ESIC processes by WIPRO (2017)
PA- Modernization of India Post (2008)
[Asked in UPSC-Pre-2012] Consider the following:
1) Hotels and restaurants 2) Motor transport undertakings 3) Newspaper establishments 4) Private medical institutions The employees of which of the above can have coverage under ESIC? (a) 1, 2 and 3 only (b) 4 only (c) 1, 3 and 4 only (d) 1, 2, 3 and 4
D
Details about general insurance for corona warriors?
Age limit?
Company?
Who pays premium?
Duration?
Gen Insurance → Corona Warrior ₹50 lakh cover (2020-March)
ATMANIRBHAR → PM Garib Kalyan → ₹50 lakh accident insurance scheme cover for health workers involved in managing the Coronavirus such as doctors, nurses, paramedical staff, ASHA workers etc.
o If corona illness death / corona duty related accidental death (like mob lynching & stone pelting) = family gets ₹50 lakhs.
o If corona led illness but recovered AND NOT DIED = no ₹₹ given to anyone.
Age limit? None.
Company? New India Assurance, a public sector general insurance company.
Who pays premium? Ministry of Health and Family welfare
Duration? Upto 2020-September.
Types of Health Insurance schemes under General Insurance?
Fixed Benefit
Fixed payment given depending on illness.
If the Policy agreement said “if you get cancer, we’ll give you ₹50 lakhs.”
So, even if a patient spends ₹10 lakh on hospitalization, still the company will pay ₹50l.
Indemnity Based
Upto to the “actual hospitalization cost” from the total insured sum.
“Indemnity” = upto actual cost in treatment, subject to max limit. so, if ₹5 lakh ki policy=
Actual treatment cost ₹2 lakh → company pays only ₹2 lakh
Actual treatment cost ₹7 lakh→ company pays max ₹5 lakh
Further Subtypes:
Cashless policy: patient simply goes to an
empanelled hospital = free treatment.
Non-Cashless policy: patient first payshospital bill from own pocket → submits bills to insurance company → gets refund.
What is Arogya Sanjeevani Policy (2020) and features?
Too many types of health insurance policies with various features and premiums = a common man gets confused which health policy is best for him.
So, IRDAI ordered health insurance companies to launch a Standard Health Insurance Product (SHIP) to cover the basic health insurance requirements of every person.
With following Features:
Name: must be “Arogya Sanjeevani Policy -”. Any other name NOT allowed.
Type: Indemnity based Health insurance policy.
Premium :Decided by individual insurance company.
Validity: minimum 1 year to lifetime
Entry age:
✓ Minimum 18 to Maximum 65.
✓ Policy can for (A) self and/or (B) Family Floater policies
What are costs covered under Arogya Sanjeevani Policy?
hospitalization cost, pre and post hospitalization cost, Ayush treatment (=Ayurveda, homeopathy etc).
Under General Insurance - Health insurance =
Differences between Corona Kavach vs Rakshak?
2020: IRDAI issued guidelines for the general insurance & health insurance companies to launch standard health policies against Covid-19, with following standard names:
Corona Kavach
Compulsion: general insurance & health insurance
companies have to compulsorily launch this policy
Type: “Indemnity” = upto actual cost in treatment, subject to max limit.
Coverage: ₹50,000 to ₹5 lakh
Premium: Decided by an individual company.
but the company will have to keep it uniform across all States/UT.
Age: minimum age 18 to maximum 65. (dependent younger children are also covered, but they can’t ‘subscribe’ by themselves.) subscribers’ min. age is 18 years.
Corona Rakshak
Compulsion: optional for company to launch this policy
Type: Fixed Benefit Plan- Fixed amount of money if
subscribers gets Corona. Irrespective of actual treatment cost.
Coverage: ₹50k to 2.5 lakh
Premium: Decided by an individual company.
but the company will have to keep it uniform across all States/UT.
Age: minimum age 18 to maximum 65. (dependent younger children are also covered, but they can’t ‘subscribe’ by themselves.) subscribers’ min. age is 18 years.
What is Rashtriya Swasthya Bima Yojana?
✓ Fee? One time registration ₹ 30. No premium by beneficiary. Govt pays premium.
✓ Benefits?
o ₹ 30k for medical treatment [smartcard, cashless: even existing ailment, even private hospital.]
o ₹ 25k for accidental death. And if breadwinner dies: ₹ 50 x 15 days.
✓ ++Senior Citizen Health Insurance Scheme (SCHIS) –if 60/> they get additional ₹ 30k for treatment.
✓ Both RSBY and SCHIS are subsumed in PM-JAY (2018)
What is Ayushman Bharat?
(Introduction: DATA) In the last decade, in-patient hospitalization has increased nearly 300% in India. More than 80% of the hospital expenditure met by out of pocket.
So, rural households are forced to use household savings and borrowings = vicious cycle of poverty. So, Ayushman Bharat launched in Budget 2018, with two components:
A) 1.5 lakh Primary Health Care Centers (PHC) to be transformed into Health & Wellness Centres. Free drugs, checkup, mother-child care etc.
B) National Health Protection Scheme (AB-NHPS) → Later renamed ‘PM Jan Arogya Yojana (PMJAY)’ and launched with Motto “Swasthya Aapka, Saath Hamara” from Ranchi, Jharkhand (2018, Sept). It has subsumed Rashtriya Swasthya Bima Yojana (RSBY) & Senior Citizen Health Insurance Scheme (SCHIS).
PM Jan Arogya Yojana (PMJAY, 2018)
What is given?
Who are the beneficiaries?
Where to get treatment?
✓ What is given?
A FREE insurance cover upto ₹ 5 lakh per family,
per year for secondary and tertiary hospitalization.
All pre-existing disease covered from day 1.
Pre and post hospitalization & medicine expenses.
Cashless and paperless access [NITI partnered web portal, with privacy protection]
✓ Beneficiaries?
Socio-Economic Caste Census (SECC) data → + 8 cr rural + 2 cr urban = 10 cr families= ~50 crore people. No limit on family size or age of members.
✓ Where to get treatment?
All public hospitals and empaneled private hospitals (by the respective States).
Hospitals to have Pradhan Mantri Aarogya Mitras (PMAMs) to help patients with the paperwork.
These PMAMs are trained using National Skill Development Corporation (NSDC) and Ministry of Skill Development.
National Health Authority’s role in PM-JAY?
✓ Originally it was an “Agency”, then restructured & renamed into “Authority” (2019).
✓ NHA oversees the implementation of PM-JAY, operational guidelines, collaborate with
insurance companies & IRDAI, running web-platform etc.
✓ NHA is an ‘attached (adjunct) office with health ministry. i.e. Health Ministry only looks after parliamentary matters like replying in question hour, tabling annual reports etc. thus giving NHA more freedom in day to day functioning.
✓ NHA has a Chief Executive Officer (CEO) with status of Secretary to Govt of India
. Above NHA → “Governing Board”
o Chairman: Minister of Health & Family Welfare
o Members: NITI Ayog CEO, NHA-CEO & other govt officials and experts.
o States will be represented in the Governing Board on rotational basis
State Health Agency’s (SHA) role in PM-JAY?
- Each State to form a Trust / Society / Not-For-Profit Company / Nodal Agency → that will act as State Health Agency (SHA).
oSHA can directly implement the scheme by themselves OR.
oSHA can tie up with an insurance company to implement the scheme.
“Special Category States”:
- North-Eastern States, and
- TWO Himalayan Hilly States: Himachal Pradesh
and Uttarakhand# - Cost sharing: Union contributes 90%: State contributes 10% of the cost for scheme implementation in the given State.
- Other States: who are not in above category (UP, Bihar, etc.)
- Union territory (UT) with legislature: Delhi, Puducherry, Jammu & Kashmir. - Cost sharing: 60:40
- UT without legislature: Ladakh, Andaman Nicobar etc. - Cost sharing: 100%
- # Before the removal of Article 370 (in 2019), the State of J&K was previously in Special category, so it got 90:10 funding.Afterwards: J&K is UT with legislature, so, J&K will get 60:40. So, 2019-Aug: Central
Government considering creating a new category ‘Hill Union Territory so J&K may continue to received 90:10 funding.
Budget-2020 on Ayushman Bharat PM-JAY
✓ We’ll setup hospitals in aspirational (=backward) districts for treatment of PM-JAY beneficiaries. Hospital construction Funding: Public private partnership (PPP) →
Public side’s funding will be provided using ₹₹ from tax on medical devices.
✓ We’ll use Artificial Intelligence and Machine Learning (AI-ML) to take preventive actions against the spread of diseases. Total ₹6400 cr allotted for PM-JAY.
Challenges for PMJAY?
- Cooperative Federalism: spirit is missing. States have to sign agreement with Union to begin operations. But, W.Bengal already has state-govt sponsored “Swasthyasathi” scheme in State with similar features so CM Mamta has left PM-JAY (2019, Jan). Similar issues in other Non-BJP states.
- Fiscal Challenges: Budgetary allocations insufficient. If govt borrows more money→ ⏫ in fiscal deficit. Private hospitals may perform unnecessary surgeries & prescribe excessive amount of medicines to extract more money from govt.
- AdministrativeChallenges:
o Beneficiary identification
o Doctor to patient ratio
o Physical and IT infrastructure, Transport & connectivity upto village level.
o Medical privacy of Patient-data may be leaked to Pharma companies for their clinical trials and commercial motives. - Lack of coordination with other schemes: 2019-Feb NHA announced PM-JAY will not cover cataract surgeries, dialysis and normal deliveries because already there are
other schemes for poor people.
❓ Which one of the following is not a feature of the Ayushman Bharat Scheme? (UPSC-CDS-i-2020)
(a) There is no cap on family size and age.
(b) The scheme includes pre- and post-hospitalization expenses.
(c) A defined transport allowance per hospitalization will also be paid to the beneficiary.
(d) The scheme provides a benefit cover of Rs. 10 lakh per family.
D
❓ Centrally sponsored scheme Ayushman Bharat is a national health insurance system for: (UPSC-Geologist-2020)
a) women b) every citizen c) old age people d) poor and vulnerable.
D
Under GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE, What is Pradhan Mantri Fasal Bima Yojana (2016)? Nodal agency and challenges?
- Against natural calamities, pests, diseases
- Protects before, during and after harvest.
- Premium paid by farmers against the total insured amount: Rabi winter crops (1.5%) – Kharif summer monsoon crops (2%) –Horticulture & Commercial crops other than oilseed & pulses (5%). Remainder premium is paid by Union: State Govt (50:50).
- It’s optional for States to join.
- It’s compulsory for farmer to buy a crop-insurance IF he’s taking crop-loan from banks
- Nodal Ministry: Agri Min → Public sector general insurance companies, and empanelled private sector insurance companies.
- Challenges? States not paying their portion, Pvt insurance companies not settling claims quickly. Union upgraded technical guidelines to fix the delays.
Features of PM-FBY (2.0) revamped in 2020?
Controversy?
Before-2020
- Suppose a kharif crop insurance premium = ₹100.
Farmer paid ₹2 of the premium
Union paid ₹49 + State paid ₹49. In other words, Union and States shared their premium burden half-half (50:50).
- Compulsory for farmer to buy this insurance policy, IF he wanted crop loans from bank
- Multiple Perils covered such as flood, drought, hailstorm. But, farmers in Rajasthan had no fear of floods.
- Government allotted a district /area to an Insurance company for usually 1 year.
From 2020-Kharif
- Suppose a kharif crop insurance premium = ₹100.
Farmer pays ₹2 of the premium
Union pays only ₹25 to 30 based on whether it’s
irrigated or unirrigated respectively.
State may have to pay ₹68-73. So, states’ burden increased.
However, the Union will bear 90:10 of the burden in case of North Eastern States.
- Voluntary for farmers.
- ‘Single-peril’ insurance can be taken e.g. “protection only against drought.” This will help reduce premium amount.
- Minimum 3 years. And if company shows outstanding performance then even more years may be granted. This will encourage companies to invest more in the marketing & insurance agent network.
-Updated the methodology for assessment of crop
loss
Controversy: W.Bengal implemented scheme in 2016 to 2018 but then stopped it, & launched its own Bangla Fasal Bima Yojana (2019) so cooperative federalism missing.
Under GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE, What is NIRVIC Scheme (2019)?
Insurance to Banks on Exporters’NPA → NIRVIC Scheme (2019)
Boss? Commerce Ministry → Export Credit Guarantee Corporation (ECGC)
✓ NIRVIK (Niryat Rin Vikas Yojana) is an Export Credit Insurance Scheme (ECIS).
✓ Exporter takes a loan from a bank. But if he defaults then ECGC will cover upto 90% of his principal + interest losses to the bank. (Before NIRVIC scheme, it was only 60%)
✓ Exporters pay ‘premium’ to the bank → bank pays it to ECGC.
✓ Premium rates depend on sector e.g. diamond, chemical etc.
Under GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE, What is Third Party Motor Insurance?
- Motor Vehicles Act (1988) requires all motor vehicle owners to purchase it.
- Third party (TP) insurance: When your vehicle hits another vehicle, person or property → that victim (third party) registers a case, gets compensation. IRDAI
regulates premium rates & other norms. - SC judgement (2019): TP insurance validity should be 3-5 years, so even if owner forgets to renew annually, the third party is protected.
What is Own Damage Insurance (OD)?
It protects owner of vehicle against theft, vandalism, accident, fire.
Under GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE, What is Title Insurance?
- ‘Title’ means a legal document showing ownership of a property.
‘Title dispute’: usually happens when multiple persons are claiming ownership of the same
land / building. - ‘Title Insurance’ protects the new buyer in case of such legal disputes (by refunding the money he had spent in buying land, construction, legal expenses etc).
- Real Estate Regulation and Development Act 2016 (RERA) requires the builders to buy this type of insurance.
RERA requires builders to buy this type of insurance A- Catastrophe insurance B - Title insurance C - Own damage insurance D - Third Party insurance
B
What is Catastrophe Insurance?
It is just proposed.
Protects the client from natural and manmade disasters.
Presently, farmers’ crops are protected from natural disasters through PM-Fasal Bima Yojana. But, if his own home was destroyed in floods, it’s not covered → Union & State Governments forced to use taxpayers’ money for paying compensation to victims of floods, cyclones etc.
2019: IRDAI planning to allow catastrophe insurance (or CAT cover) for poor people.
What is Re-insurance?
- DICGCI Act (1961) requires banks to take deposit insurance from DICGCI. Similarly, Insurance Act (1938) requires insurance companies take ‘re-insurance’ on their biz.
- Previously, only GIC was the sole-reinsurer, but then norms liberalized (2015). New re- insurance cos allowed. e.g. India’s ITI Reinsurance Ltd. Even foreign re-insurers such as Swiss Re, Munich Re, General Reinsurance (Warren Buffet) are permitted.
- Benefits of multiple re-insurance cos? GIC’s monopoly in dictating re-insurance premium rates is gone. So, insurance cos’ cost of operations declined → biz. expansion, launch innovative products etc.
- (Full) Budget 2019: Technical Norms relaxed to attract foreign reinsurers to open branches in India.
HQs and Chronology of IBBI, PFRDA, RBI, IRDAI, SEBI?
RBI - Mumbai, 1934 SEBI - Mumbai, 92-99 IRDAI - Hyderabad, 96-99 PFRDA - New Delhi, 2003-13 IBBI - New Delhi, 2016
IDRAI - The insurance regulator - setup, HQ, structure and functions?
- 1996: IRDA setup→ given statutory status in 1999
- 2014: Its name changed to Insurance Regulatory and Development Authority of India (IRDAI)
- HQ: @Hyderabad, Telangana.
Structure - 1 Chairman: Dr. Subhashchandra Khuntia (IAS) (5/65), 9 members (5/62) = Total 10. They can be re-appointed
Functions
IRDAI gives separate licenses for life, general & re-insurance companies.
Prescribes norms for insurance companies for accounting, solvency, audit, commission to agents etc. It can penalize companies, suspend or cancel registration. Appeal → SAT
Norms for agents & brokers, banks selling products (Bancassurance), Surveyor/ Loss Assessor, and Third-Party Administrators (e.g. Hospital)
Consumer grievance redressal via Insurance Ombudsman
IRDAI is member of Financial Stability and Development Council (FSDC).
Challenges to insurance industry?
1) Capital intensive industry: Private players not generating enough profits due to poor returns in sharemarket. Bleeding in commission rates and marketing
2) Products are not cheap.
3) Insurance agents need more skill, network than banker. For bankers- loan recovery easier (SARFAESI, I&B) compared to an insurance company that invested into shares/bonds of a failing company (like IL&FS).
4) Rural people: either disinterested / un-served despite schemes & IRDAI norms.
5) People hesitate in buying House / Factory / Fire / Theft insurance due to fear of discovery of ‘asset value’- IT/GST raids & ransom demands. As a result, India’s “insurance gap” is high i.e. all the assets are not insured.
6) Insurance: Highly regulated, but Healthcare: highly unregulated, so
o Supply demand mismatch: between (doctors-hospitals) vs. patients.
o Standardized medical treatment costs difficult to ascertain, unlike car damage.
o Delays in claim settlement= fewer repeat customers for health insurance.
What are the Insurance progress indicators?
Insurance penetration % = Premium divided by GDP
Life (2011-2018) - decreasing in zig zag fashion
Non- Life (2011-2018) - improving in zig zag fashion
Insurance density $ = Premium divided by population
Life (2011-2018) - improving in zigzag fashion
Non-Life (2011-2018) - improving steadily
For India, these indicators are low compared to many developing countries due to aforementioned challenges.
Should FDI be increased beyond 49% in insurance companies?
Arguments for:
Indian insurance companies will get additional capital from Foreign investors = this can help mitigating the challenges.
- They can expand overseas, mobilize money from Bangladesh/Kenya’s insurance clients etc. & invest it in Indian economy.
- IRDAI prescribes “Investment pattern”, there is ombudsman for customer complaints. Further, Companies Act has norms for independent directors, auditing, whistleblower protection, CSR. So, apprehension that foreign investors will cause mischief = unlikely.
- China, Thailand, Indonesia et al have raised FDI limits in insurance sector. We should also follow their path.
Arguments against:
Foreign investors will put pressure on Indian insurance companies to generate more profit. So
- investment in junk bonds that offer higher return → Collapse.
- Insurance company may reject insurance claims for frivolous reasons to increase its profitability to keep foreign investors happy.
What is Pension?
Insurance: person/his family eligible to receive ₹ ₹ if he suffers death / damage. e.g. PM Jeevan Jyoti: ₹ 2 lakhs on death.
Pension: person eligible to receive monthly ₹ ₹ when he retires. And when he dies, his wife (is usually) eligible to receive monthly ₹ ₹. When she also dies, scheme stops.
ES2019 observed that in future, we’ll have an ageing population and less young people, so we should gradually raise the age of retirement. More in Pillar#6 → Demographic dividend.
When was EPFO set up, nodal ministry, governed by?
EMPLOYEE PROVIDENT FUND ORG.
- 1951-52: EPFO was setup initially by ordinance & then Act.
- Nodal: Labour Ministry.
- EPFO governed by Tri-partite “Central Board of Trustees”
I. Government (Union + state) – 15 nominees
II. Employers (industrialists) - 10 nominees
III. Employees (workers) – 10 nominees - They make policy decision about where to invest money (usually G-sec>C- Bonds>Shares; with minimum and maximum slabs) and they decide how much interest should be paid to subscribers.
Chronology of EPF, EPS EDLI
Employee Provident Fund (EPF) 1952
Principal + interest returned upon retirement age/ death
Partial withdrawal upto“X%”allowed for education, marriage, illness and house construction.
2020: ATMANIRBHAR → PM Garib Kalyan Package→ labour ministry allowed EPFO subscribers’ to withdraw upto “X%” of EPF fund to help the workers during lockdown.
Employees Deposit Linked Insurance Scheme (EDLI) 1976
If worker dies → family gets upto 6 lakh insurance.
Employee Pension Scheme (EPS) 1995
Monthly pension on retirement (once they attain the age of 58 years old) / permanent disability
What is UAN?
- EPFO subscriber worker has UAN (Universal Account Number) that remains unchanged even if he changes job from one organization to another.
- Previously, employee himself couldn’t generate his UAN, he had to request his employer to send forms to EPFO.
But 2019: EPFO allowed employees to generate UAN online by simply giving Aadhar & Mobile Number.
What is LIN?
Factory owner/Employer has LIN (Labour Identification Number)- which he uses while uploading EPFO documents on Shramsuvidha webportal of Labour Ministry.
- EPFO & ESIC transactions can be done through
o public and pvt sector banks
o through Ministry of Electronics and Information Technology (MeitY)’s UMANG App (Unified Mobile Application for New-age Governance).
What is EPF Commutation (2020)?
EPFO: Employees’ Pension Scheme = worker gets pension after retirement age (58 years).
EPF Pension commutation = Worker can partially withdraw his pension in advance before reaching retirement age. But, then EPFO will pay him less pension
afterwards when he actually reaches retirement age.
2020: some technical reforms made to help workers here.
What is Pradhan Mantri Rojgar Protsahan Yojana? and Pradhan Mantri Paridhan Rojgar Protsahan Yojana?
(2016) Pradhan Mantri Rojgar Protsahan Yojana (Labour Min)
- Private sector employers hire workers informally, but don’t report them in official formal records lest they’ve to contribute to EPFO-funds under statutory norms, face harassment of EPFO officials.
- So, worker is hired informally, denied job-security & social security.
Economic Survey 2015-16 diagnosed it as “EPFO Regulatory Cholesterol preventing formal-job creation. - So, to encourage pvt companies to hire new workers ‘formally’ → Govt pays employer (Factory owners) portion for the first 3 years.
- This scheme is called Labour Ministry’s Pradhan Mantri Rojgar Protsahan Yojana.
Later, Textiles ministry announced, “if it’s a textile factory, then we’ll pay the X% component (to EPFO), while labour ministry pays the Y% component = this is called “Pradhan Mantri Paridhan Rojgar Protsahan Yojana” to encourage formal job creation in the textile sector.
What are Atmanirbhar Reforms in EPFO?
For Small firm (up to 100 workers) - Worker and Boss - 12% each - Under Atmanirbhar Reform -
Total 24% goes to EPFO
PM Garib Kalyan → Government to deposit this 24%
deposit from its own pocket, for “X” months.
At present “X”=March to August 2020.
Large firm (more than 100 workers) - Worker and Boss currently - 10% each - Under Atmanirbhar Reform - Government has reduced their % from 12+12=24% to 10+10=20% (so that worker and boss will be left with more money to spend in their hands= shopping/demand ⏫= economic revival)
What is National Pension Scheme?
Govt Employees (from 2004)
- 2004: New Pension Scheme →(2009) renamed into National Pension System.
- Subscriber? Those who joined govt. service on or after 01/01/2004**
- Mechanism? Employees (10 % of basic pay) + Govt. contribution (14% of basic pay: since Interim-Budget-2019) → goes to PFRDA →NPS Trust → empaneled NPS-Fund-manager → Invested G-sec, Corporate Bonds and Shares depending on your preference in Tier1/Tier2**.
Middle Class (from 2009) - In 2009, the Government employee's National Pension System was made open for all citizens (and NRIs) aged 18-55 on voluntary basis. You contribute money till age of 60, as per your capacity →invested →pension
What is NPS-Lite (Swavlamban)?
2010: NPS-Lite (Swavlamban): If poor person from unorganized sector joined NPS, then govt to co-contribute money for five years**.
What is PRAN and what does ES20 tell about NPS?
NPS subscribers have PRAN: Permanent Retirement Account Number, Just like EPFO subscriber has UAN Number.
ES20: in NPS: # of State Govt employees»_space; union govt employees. And within State govt employees: UP > Madhya Pradesh >Raj > Maharashtra.
What is Jeevan Pramaan (2014)?
- Previously, a pensioner (in any Govt / public sector org.) had to submit a physical life certificate in November each year to prove that he’s alive = hardship, bribery.
- “Jeevan Pramaan” – an “Aadhar-based Digital Life Certificate“ by Ministry of Electronics & Information Technology (MEITY)
- Pensioner’s Aadhar number + biometric reading device→ PC, Mobile→ “Digital Life Certificate”→ submit to the authority → pension released.
- 2020: Jeevan Pramaan system also expanded to EPFO subscribers.
Pension for senior citizens with capacity to invest?
Pradhan Mantri Vaya Vandana Yojana (2017-DFS, LIC)
Post-demonetisation, banks were flush with deposits, so deposit interest rates were likely to fall → so to protect the senior citizens’ income government launched this.
A 60 years/> senior citizen can join.
He can invest minimum ₹ (approx.) 1.5 lakhs to maximum ₹ 15 lakhs.
Money remains invested in the scheme for 10 years.
LIC guaranteed x% annual interest on investment. Then original amount returned. In between, if senior citizen dies then nominee (spouse, children) gets original amount back.
If LIC can’t generate guaranteed return, then Govt (Dept of Financial Services) to pay subsidy for shortfall to LIC.
❓ [Asked in UPSC-CDS-2019-1] Consider the following passage about a scheme : It was launched to provide social security during old age and to protect elderly persons aged 60 years and above against a future fall in their interest income due to uncertain market conditions. The scheme enables old age income security for senior citizens through provision of assured pension / return linked to the subscription amount based on government guarantee to Life Insurance Corporation of India (LICI). Identify the scheme.
Answer Choices:
a) Pradhan Mantri Swasthya Suraksha Yojana b) Pradhan Mantri Vaya Vandana Yojana c) Liveability Index Programme d) Rashtriya Vayoshri Yojana
B
1) Atal Pension Yojana 2) PM Jivan Jyoti Yojana and 3) PM Suraksha Bima Yojana are collectively known as?
Pradhan Mantri Jansuraksha Schemes
Names of pension for poor people with capacity to invest?
Atal Pension Yojana (APY) 2015
Pradhan Mantri Shram-Yogi Maandhan, Interim Budget-2019
Atal Pension Yojana details?
By Dept of Financial Services, 2015
Only 18-40 age Indian citizen residing in India (No NRI)
No minimum or maximum income limits. Mukesh Ambani can also join, but given that fact that maximum pension is ₹5,000 a month so target-audience is poor people, unorganized workers outside EPFO security.
Monthly pay ₹42-210 rupees till the age of 60
₹1k-5k monthly pension- depends on @which age joined, how much contributed?
One person-1-subscription account only.
- If husband dies after 60, then wife continues to receive same amt. pension.
- If husband dies before 60 age, wife gets premium OR if she continues to pay then she gets pension when she reaches 60.
- Both die, then beneficiary (child) receives the entire principal (premium).
Pradhan Mantri Shram-Yogi Maandhan details?
Interim Budget-2019→Labour Ministry
Income Tax-payer, NPS,EPFO,ESIC- not eligible.
unorganized sector workers with monthly income upto ₹15k. E.g. street vendors, rickshaw pullers, construction workers, rag pickers, agricultural workers, beedi workers etc. in the age of 18-40
Monthly invest ₹55-200 (depending on age). Govt to co-contribute equal amount. Till the age of 60
Fixed ₹3k pension per month.
One person-1-subscription account only.
If husband dies after 60, wife gets ₹1500pm as family pension. Once Wife dies, scheme stops. If husband dies/disabled before 60, wife can continue paying OR withdraw with interest. Premature exit before 60: his contribution returned with interest.
❓ [Asked in Prelim 2016] Find correct statement(s) regarding ‘Atal Pension Yojana’:
1. It is a minimum guaranteed pension scheme mainly targeted at unorganized sector workers.
2. Only one member of a family can join the scheme.
3. Same amount of pension is guaranteed for the spouse for life after subscriber’s death.
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
C
Pension: Three Maan Dhan Yojanas
Pradhan Mantri Shram-Yogi Maan-dhan (Feb’19)
Pradhan Mantri Laghu Vyapari Maan-dhan Yojana (Jul’19)
Pradhan Mantri KISAN Maan-dhan Yojana (Aug’19)
Pension: Three Maan Dhan Yojanas details?
LIC Fund manager + This Ministry co- contributes?
Who is eligible?
18-40 Age; ₹ 55-200 fees; Pension @60=3000 → family pension ₹ 1500
Pradhan Mantri Shram-Yogi Maan-dhan (Feb’19)-
Labour
unorganized sector workers with monthly income upto ₹15k
Pradhan Mantri Laghu Vyapari Maan-dhan Yojana (Jul’19)-
Labour
Small trader / shopkeepers whose annual turnover does not exceed Rs 1.5 crore, based on self- declaration.
Pradhan Mantri KISAN Maan-dhan Yojana (Aug’19)-
Agri
small / marginal farmers with upto 2ht land.
Eligibility for Pension: Three Maan Dhan Yojanas ?
1 person can join only 1 type of scheme.
Income Taxpayers & those who joined EPFO/ESIC are not eligible for any of these schemes.
(Full) Budget-2019: announced to launch “Pradhan Mantri Karam Yogi Maandhan Yojana” for Small traders / shopkeepers. But, when they actually notified it, the title was changed to “Pradhan Mantri Laghu Vyapari Maan dhan Yojana” technically called, “National Pension Scheme for Traders and Self Employed Persons Yojana” or in shorter form “NPS-traders”.
Budget-2020: we’ll launch a Universal Pension coverage with auto enrolment for workers. It’ll cover workers even when they change jobs.
Pension for poor people without capacity to invest?
- For Below Poverty Line (BPL) people, Rural Development Ministry’s National Social Assistance Programme (NSoAP) in 1995, where direct money is given without asking for any premium from the beneficiary.
- It’s a core of the core scheme with 100% cost is paid by Union.
It’s optional for state govt. to contribute money- They may contribute, if they want to enhance the scheme’s features. For example: NSoAP Components - Old age pension @60, Widow pension Aged 40-59, Disability pension: Aged 18-59, National Family Benefit INSURANCE, Annapurna (2001)
2020: ATMANIRBHAR→ PM GaribKalyan → single time ₹1,000 to poor senior citizen, poor widows & poor disabled (total 3cr person covered)
PFRDA Organisation, HQ and structure
2003: Executive order to setup PFRDA- Pension Fund Regulatory and Development Authority 2013: given statutory status.
HQ: New Delhi, just like IBBI.
1 Chairman (5/65), 5 members (5/62) = 6 people. Can be re-appointed.
Functions of PFRDA?
Implement National pension system (NPS), select its fund-managers.
Regulate all public and private pension funds except EPFO, J&K, Seaman, Coal miners, Assam tea plantations related pension schemes as they’ve their separate acts / mechanisms.
Protect Clients,Pensioners
Prescribe liquidity, auditing, investment norms for Pension funds.
Powers of civil court. Documentation,
financial awareness generation through pensionsanchay.org.in
Pension FDI is linked with insurance FDI (49%) so not decided by PFRDA.
Pension/Insurance - social security for overseas Indians?
Following schemes’ boss? Ministry of External Affairs
Mahatma Gandhi Pravasi Suraksha Yojana, 2012 to 2017
✓ It was a voluntary “insurance+pension” policy for Indian workers in foreign countries.
✓ but very few people subscribed so ultimately closed in 2017.
Pravasi Bharatiya Bima Yojana, 2017
Some nations do not have strict laws regulating the entry, employment or safety of foreign workers. So, the Indian Government classifies them under Emigration Check Required countries. e.g. Saudi, Qatar, UAE, Libya, Malaysia, etc.
✓ It’s compulsory for Indian workers going ECR nations to join Pravasi Bharatiya Bima Yojana from the empanelled insurance companies.
✓ Insurance cover of Rs. 10 lakhs if accidental death/permanent disability while abroad,
✓ Maternity expenses cover for women worker, Family Hospitalization etc.
✓ Premium: ₹275-375 depending on tenure of policy
What is Financial Inclusion?
Providing access to banking, investment, pension, insurance and credit (loan) facilities to each citizen.
This ensures social, economic and transaction security (S-E-T), improves social harmony, women empowerment, helps reaping the benefit of “LESS CASH Economy”
What is Social Security?
A system of payments / assistance by the government
to citizens who are ill, handicapped, poor, aged or unemployed.
The foundation of SS in our constitution @DPSP Article 41- State to provide public assistance to its citizens in case of unemployment, old age, sickness and disablement; and DPSP Article 42- The State shall make provision for securing just and humane conditions of work and for maternity relief.
What is Social Justice?
Distribution of wealth, opportunities, and privileges
within a society- through reservation in jobs, admissions and election and through legal safeguards for protection of civil rights, prevention of atrocity and personnel laws.
How does Financial inclusion, social security and social justice help?
Collectively, these three (FI,SS,SJ) help in human development, inclusive economic growth and Sustainable Development Goals
Steps taken Financial inclusion- bank accounts for everyone
HD Pg 173-174
What is Pradhan Mantri Jan Dhan Yojana and its objectives?
2014: launched by FinMin → Dept of Financial Services with Motto “Meraa Khaataa, Bhagya Vidhaataa”. Scheme in two phases, 6 objectives:
PM JDY – phase I (2014-15)
- Financial literacy
- Banking within 5 kms
- Account for every family with overdraft, with Rupay ATM-cum- DEBIT Card
PM JDY – phase II (2015-18)
- Credit Guarantee Fund (For Overdraft defaults)
- Direct Benefit Transfer (DBT)
- Sell Micro insurance & pension products through bank.
PM-JDY bank account can be opened in any Commercial or Cooperative Bank provided that (1) bank has CBS (2) bank is tied with Rupay Payment Gateway.
Basic Savings Bank Deposit Account - Age 10/>; Zero balance- no penalty. But, Chequebook only with “balance”;
restrictions on max. number of money withdrawals per month.
Overdraft upto ₹ 10k (originally 5k) depending on balance history of min. 6 months.
Overdraft given on only one account holder in household (preferably woman). Money has to be returned with interest within 3 years. Banks to decide the loan interest rate.
EVERY Jan Dhan account comes with FREE Rs.1 lakh Accident Insurance; Premium by NPCi, it’s therefore necessary to regularly use card- atleast for checking balance.
Union Government employees, and income tax payers not eligible for this free insurance.
Significance and criticism of JM JDY
Significance? JAM trinity (JanDhan, Adhar, Mobile) for targeted and direct transfer of subsidies, scholarship and payments to beneficiaries.
Criticism? PM-JDY accounts were used as money mules during demonetization.
2020:👻ATMANIRBHAR→PM Garib Kalyan→ ₹500 per month to 20 crore women Jan Dhan accounts for three months.
❓ [Asked in Pre-2015] Pradhan Mantri Jan-Dhan Yojana’ has been launched for: (a) providing housing loan to poor people at cheaper interest rates
(b) promoting women’s Self-Help Groups in backward areas
(c) promoting financial inclusion in the country
(d) providing financial help to the marginalized communities
C
What is Jan Dhan Darshak App?
Jan Dhan Darshak App (2018)
Jointly developed by Department of Financial Services (DFS) & National Informatics Centre (NIC). It helps people find the nearby financial touch points such as Bank branches, ATMs, Post Offices etc.
Other schemes for Financial inclusion investments other than banks?
HD pg 175
What is Post Shoppe?
special outlet in big post offices for philately (stamp collection hobby)
What is Indian Postal Orders (IPO)?
RTI fees can be submitted by buying Indian Postal Orders (IPO). E-IPO = overseas Indians can pay RTI fees online using this mechanism.
What is Deen Dayal SPARSH Yojana?
Students in class 6-9 given scholarship for philately.
Dhai Akhar Letter Writing Competition 2019-20’s theme?
Dhai Akhar Letter Writing Competition wherein students asked to write letters to Mother Teresa, Tagore etc. 2019-20’s theme “Dear Bapu, you’re immortal.” This theme is inspired by Albert Einstein’s homage to Gandhi “Generations to come will scarce believe that such a one as this ever in flesh and blood walked upon this earth”.
Department of Posts officer’s training at?
Officers’ training conducted at Rafi Ahmed Kidwai National Postal Academy at Ghaziabad, UP. Kidwai was India’s first Minister for Communications.
Ministry of Communications depts?
1) Depart of Telecommunications 2) Department of Posts
Min of Communications -> Dept of Posts consists of?
Post Office Savings Bank (PoSB)
India Post Payments Bank (IPPB)
Post Office Savings Bank (PoSB)
foundation Accept demand deposits? Accept time deposits? Can keep more than ₹1 lakh balance? E-Banking and online bill payment Sukanya Smriddhi (daughter’s fixed deposit account) loans to individual? Objective?
Govt Savings Bank Act 1873 Savings account only YES YES Not directly but you can do it by linking PoSB account with IPPB account Can be opened No. ₹₹ goes to NSSF Promote savings habits among poor
India Post Payments Bank (IPPB)
foundation Accept demand deposits? Accept time deposits? Can keep more than ₹1 lakh balance? E-Banking and online bill payment Sukanya Smriddhi (daughter’s fixed deposit account) loans to individual? Objective?
Companies act 2013 → Public ltd company registered in 2016
1. Current account 2. Savings account
No, bcoz payment bank
No, bcoz payment bank. But u can link IPPB account with PoSB account to auto- transfer (=SWEEP) excess balance to PoSB.
yes , UPI, BHIM, NEFT, IMPS and BBPS (Bharat Bill pay) available.
Not possible. Because time deposits are not allowed.
Not until it becomes Small Finance Bank
Remittance & digital payments
What is Sukanya Samriddhi Yojana (2015)?
- Parents open a (fixed deposit type) bank account in the name of a 0-10 years girl child, and deposit annually ₹ 250 to ₹ 1.5 lakhs till she reaches age of 14.
- FinMin’s Dept of Economic Affairs announces interest rate (originally 9.1%, presently ~8.5%)
- Money (principal and interest) can be withdrawn @ the age of 18-21 depending on whether married or not. So, it indirectly prevents child marriages & empowers the grown-up daughter with money to pursue higher education, small business etc.
- One daughter = ONLY one account can be opened in this scheme.
- Maximum two daughters can be enrolled by parents/legal guardians.
difference between chit fund and prize chits
Chit Funds
- Scheme runs for a definite period e.g. 12 months from Jan to Dec-2020.
- Every month each subscriber deposits equal ₹₹, as stipulated in the scheme document
- Every month Foreman draws ‘chit’ → whichever subscribers’ name comes he may get loan / prize. (in next month, previous winners’ names may not be added to the lottery pool). This way, everyone has an equal chance of winning.
- Even if you won in Feb-2020, still you’ll have to compulsorily pay monthly deposits until Dec-2020 when the scheme is officially over.
- This is legal, under Chit Funds Act
Prize Chits
- Scheme is illegal and vaguely designed. It runs until idiot investors keep coming, then it collapses.
- There are no official documents or account books.
- Scamster will accept whatever small / large amount is offered by the poor person who falls prey.
- Investor doesn’t know with surety how much is contributed by other investors?
- Not compulsory to pay the monthly deposits after you’ve won the prize. (Therefore the scheme will collapse eventually, when new subscribers stop coming).
- This is illegal under Prize Chits and Money Circulation Schemes Banning Act, 1978
Changes in the Chit Funds (Amendment) Act, 2019?
To amend 1982’s Chit Funds Act.
Will regulate: ‘Chit Funds’, ‘Kuri’, ‘fraternity fund’, ‘rotating savings and credit institution (ROSCA)’.
Chit must be drawn in the presence of at least two subscribers. Video-conferencing is
allowed.
Chit Fund’s fund manager is called ‘Foreman’. New act increases his commission%
New Act also increases the maximum amount of investment the foreman can accept
from subscribers.
Further powers with State Governments.
Chit Fund comes iii State/Union/Concurrent list?
Chit fund is a type of “contract” = subject to Concurrent list. So, UNION has Prize Chits and Money Circulation Schemes 1978, Chit Funds Act 1982 (2019); Further state have their own acts / rules / State regulator of Chit Funds.
What is Saradha Chit Fund scam, Rose Valley Chit Fund Scam? and action taken?
-The scamsters ran multiple schemes in W.Bengal and neighbouring states, invested money in sharemarket, real- estate, shopping malls etc. thus violating the chit-fund laws.
- Further, any collective investment scheme of ₹100 cr/> requires SEBI permission. Yet
they didn’t obtain permission.
- They also engaged in Multi-level marketing (MLM) / Pyramid /Ponzy Selling = they’d use new investors’ money to pay-off old investors. But once new investors stop coming, it’ll collapse.
- Action? CBI & other agencies investigating. Union Govt proposed “Banning of Unregulated Deposit Schemes Bill 2018”→ later ordinance 2019.
What is Banning of Unregulated Deposit Schemes Act, 2019?
- If an entity is soliciting public to deposit /invest money, then it could be regulated by RBI (Bank, NBFC-D, Home loan NBFCs etc), SEBI (MF, ReITs, InvITs etc), IRDAI & PFRDA, Corporate Affairs ministry (NIDHI), State Governments (chit fund), EPFO, Multi state cooperative societies Register under Agriculture Ministry.
- A deposit-taking scheme is defined as ‘unregulated’ if person is asking people to deposit/invest money but he has not registered with any of the above organizations. E.g. builders, jewellers, etc. Act prohibits advertisement & money collection in it.
- Penalty upto ₹50 crores and jail time upto 10 years + attaching the assets to refund depositors within prescribed timelines.
- Union to setup an online central database of deposit-taking activities in the country.
Credit Guarantee Meaning
Meaning?
if borrower defaults, then losses of banks/NBFCs will be covered by credit guarantor. So, Bank/NBFC can lend confidently without requiring borrower to pledge collaterals. Earlier DICGCI used to give credit guarantee for PSL borrowers, but now this work is done by organizations such as:
SIDBI + Govt - Credit Guarantee fund trust for Micro & Small Enterprise (CGTMSE) - Loans to Micro & Small Enterprise
Dept. of Financial Services - National Credit Guarantee Trustee Company (NCGTC) - Mudra, Stand up India, Skill & Education loans
Commerce Ministry - Export Credit Guarantee Corporation of India fund (ECGC) - Exporters
What is Refinance?
- When an AIFI (or MUDRA) gives new finance to Banks/NBFCs based on the quantum of finance they (Bank/NBFC) have already given to end-borrowers.
- Usually works via the process of securitization of the previous loan papers.
MSME: What is the changed Definition under ATMANIRBHAR (2020)
2006: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 gave
definition of micro, small and medium enterprises
- 2020: ATMANIRBHAR → MSME ministry changed the definition as following:
Manufacturing and Services enterprise -
Micro - Investment not more than 1 cr, Turnover not more than 5 cr
Small - Investment not more than 10 cr, Turnover not more than 50 cr
Medium - Investment not more than 50 cr, Turnover not more than 250 cr
What is Emergency Credit Line Guarantee Scheme?
Loan for the MSME Non-NPA borrower → ECLGS
Corona Lockdown → MSME business hurt → need loans to restart business → Emergency Credit Line Guarantee Scheme (ECLGS) launched
This scheme will expire when
o A)31/10/2020isoveror
o B) Total ₹3 lakh crore worth loans have been distributed, whichever is earlier.
Beneficiary?
o MSME with a turnover upto ₹100 crore. Mudra borrowers are also covered.
o Previous outstanding loan account can’t be more than ₹25 crores, and can’t be an NPA. (It may be a regular, SMA0 or SMA1 account, as on 29/2/2020].
Loan Amount? 20% of the outstanding loan.
Loan Tenure? 4 Years
Loan Interest? 9.25% (Bank), 14% (NBFC).
Collateral? Not required.
If the borrower doesn’t repay loan principal or interest→ Credit guarantee covered by NCGTC (National Credit Guarantee Trustee Company Limited), a company under the Department of financial services in FinMin.
What are Loans for MSME NPA borrower called? Beneficiaries, credit guarantee covered by?
MSME NPA borrower → Subordinate Debt
Beneficiary? MSME whose loan account is in NPA/ stressed category.
Such stressed MSME to be given subordinate loan Upto ₹75 lakhs to revive business.
If the borrower doesn’t repay loan principal or interest→ Credit guarantee by CGTMSE (Credit Guarantee Trust for Micro and Small enterprises, an org funded by SIDBI + Govt).
Public Sector Banks’ officers are worried about what for giving loans to MSME under AB?
Public Sector Banks’ officers are worried that if loans given to MSME turn NPA then 3Cs will harass them unnecessarily:
o Central Bureau of Investigation (CBI),
o Central Vigilance Commission (CVC)
o Comptroller and Audit General (CAG)
So, FM Nirmala.S has assured PSBs- don’t worry and give loans to eligible borrowers.
What is MSME → Equity infusion via Fund of Funds
Govt will set up a Fund of Funds with ₹10,000 crore.
This FoF will invest in daughter funds (who’ll supply ₹40k cr from their funds). So, total 10k+40k=50k equity funding/infusion to MSME.
What is MUDRA full form, when was it set up and who owns it?
Micro Units Development & Refinance Agency.
NBFC → Mudra (2015, 100% SIDBI subsidiary)
Objectives, ownership and beneficiaries of MUDRA
- Objective? provides indirect lending via SCB, RRB, Cooperatives, MFI & other NBFCs through refinancing.
- Ownership? It’s wholly owned by SIDBI, and also receives the funding from PSL- shortfalls via RBI, and budgetary support via Department of Financial Services.
- Beneficiary? Micro Enterprises from Agri-allied sectors, mfg & service sector who are not registered under the companies act = Non-corporate type.
What are Mudra Products?
Pradhan Mantri MUDRA Yojana (PMMY)
1) Shishu: loans upto 50,000/-
2) Kishor : >50,000/- upto 5 lakh
3) Tarun : > 5 lakh and upto 10 lakhs
MUDRA Rupay Card
- ATM cum Debit Card issued against MUDRA loan account.
- For working capital component.
- Can be accessed in all modes like a routine
debit card (ATM, MicroATM, PoS, Online)
Collateral requirement and credit guarantee for MUDRA?
challenges?
- Mudra loans are collateral-free
. If borrower defaults on loan, then lender’s losses are covered through Credit Guarantee Fund for Micro Units [CGFMU] which is operated by National Credit Guarantee Trustee Company Ltd. [NCGTC, 2016]- which is a private ltd company by Dept of Financial Services in Finance Ministry.
- MUDRA Challenges? (1) Loan Interests are high (2) Rising NPA/Bad loans.
changes in shishu mudra loans under AB 2020?
ATMANIRBHAR-2020: Shishu loan borrowers = 2% Interest subvention- IF they’re prompt payees (=repaying the loans regularly).
This offer is valid for 12 months.
❓ Pradhan Mantri MUDRA Yojana is aimed at (Asked in UPSC-Pre-2016)
a) bringing the small entrepreneurs into formal financial system
b) providing loans to poor farmers for cultivating particular crops.
c) providing pensions to old and destitute persons.
d) funding the voluntary organizations involved in the promotion of skill development and employment generation.
A
What is psbloansin59minutes.com (2018)?
portal by SIDBI & 5 PSBs.
GST-registered MSME get loans 10L to 1 cr.
Without collaterals.
₹1000 fees if loan approved.
Boss, Objective, Collateral, (Full) Budget-2019 of Stand Up India Scheme, 2016?
- Boss? FinMin’s Dept of Financial Services
- Objective? Each SCB bank branch to give Greenfield Loans between 10 lakh and 1 Crore to at least 1 SC/ST and atleast 1 Woman entrepreneur with tenure upto 7 years.
- Collateral? Bank can ask collaterals. If loan without collaterals, then Credit Guarantee Fund for Standup India (CGFSI) operated by NCGTC.
- (Full) Budget-2019: this scheme extended till 31/3/2025.
What is Self-help group → Credit?
- is an informal group of 10-20 local people to combine their savings/ resources, engage in biz activity like weaving, agarbatti etc
- and not registered in as a firm / company under partnership act or companies act etc.
- Self-help groups are formed under the government schemes like National rural livelihood mission (NRLM).
- (Full) Budget-2019:
o 1 woman in each self-help group (SHG) will be made eligible for ₹ 1 lakh loan under Mudra scheme.
o Every verified woman SHG member with a PM Jan Dhan account eligible for overdraft of ₹ 5,000. - ATMANI→ PM GaribKalyan → Women Self Help Groups (SHGs) to be given ₹20 lakh collateral free loans. Further,
o Government will procure masks and sanitizers prepared by SHG = ₹₹ income for poor families.
o These SHG are given additional 10-15k rupees as Revolving funds (RF), if they’re holding – regular meetings, regular savings, and maintenance of proper books of accounts etc.
ATMANI= RF fund disbursal will be done through PAISA web portal.
What is PM SVANidhi?
Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi Scheme (PM SVANidhi)
Boss? Ministry of Housing and Urban Affairs
Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi Scheme (PM SVANidhi)
Street Vendors will be given ₹10,000 loan via banks, NBFCs, Micro Finance institutions
Loan Tenure: 1 year. Repayment to be done on a monthly basis.
Loan Interest? Not explicitly mentioned but if the vendor repays loan on a timely
fashion → government will give 7% interest subsidy in his bank account.
Scheme Valid till: 2022-March.
What is PaiSA Portal (2018)?
- Ministry of Housing and Urban Affairs (MOHUA) → Deendayal Antyodaya Yojana- National Urban Livelihoods Mission (NULM) → urban poor are given skill training, bank loans to setup business → interest subvention.
- 2018: MoHUA launched PaiSA (Portal for Affordable Credit and Interest Subvention Access) with the help of Allahabad Bank as the nodal / coordinator.
- PaiSA portal aims to connect with all scheduled commercial banks, RRBs and Cooperative Banks.
- Before this portal: Interest subvention was released manually on a quarterly basis, sometimes delays.
- After this portal: released on a monthly basis, and can be tracked through this portal, beneficiary gets SMS information.
What is Micro Insurance?
Insurance policy may be Life / General Insurance with a very low premium.
When small sum insured (upto ₹50k) & target audience is poor / villagers / farmers.
It may be an individual / group based insurance. Intermediaries such as NGO, SHG, MFI help in selling such policy.
Policy/ Contracts are given in local language. e.g. LIC’s Jeevan Madhur and Jeevan Mangal
What is Gig Workers’ social security code?
Informal workers = doesn’t have formal job contracts with employers. E.g. Domestic Maids, Brick Kiln Workers, Construction Labourers, Gurkha Chowkidar, Dhaabaa cooks/waiters etc.
Gig workers = Uber Taxi Drivers, Amazon/Zomato Delivery boys, Urbanclap’s beauticians/ plumbers/ AC repairman, Unacademy Educators etc. They are freelancers / independent contractors hired by startup or digital companies for short-term engagements. While they may have some written contract to deliver services to the company, but the contract is worded in such manner they are not “regular employees” of a company = not eligible for EPFO, ESIC etc.
2019-Sept: Labour Ministry drafting a “social security code for all informal & gig workers”. It aims to provide insurance on death/disability/sickness, maternity benefit, pension, scholarship for their children etc.
What is Workers’ Social security (2020) under AB?
- Annual health check-up for all employees.
- Govt’s Social security schemes will be extended to Gig workers and platform workers e.g. Zomato delivery boys, Urbanclap beautician, uber taxidrivers etc.
- Central Government’s Building and Other Construction Workers Act, 1996: → workers contribute ₹₹ to a fund held by the State Government → they get pension after retirement/accident compensation etc.
👻ATMANI→ PM GaribKalyan → State Governments ordered to use this ₹₹ for helping construction workers during Corona.
Portability of social security benefits to migrant workers. E.g. If a construction worker deposits a premium in Gujarat building workers welfare fund → Afterwards he returns back to home state Odisha, he will get pension from there.
Customer Protection under Financial Inclusion for Banks/NBFCs under RBI
Banking Ombudsman
NBFC Ombudsman
Digital Transactions Ombudsman
Customer Protection under Financial Inclusion for Banks/NBFCs under RBI
Banking Ombudsman
NBFC Ombudsman
Digital Transactions Ombudsman
2019: RBI launched online Complaint Management System (CMS): Customers can lodge complaints against any RBI regulated Bank or NBFC → Complaint would be directed to the appropriate Ombudsman
Customer Protection under Financial Inclusion for Pension
- NPS: NSDL→ PFRDA.
- If EPFO- then its internal machinery
RBI’s Banking Ombudsman
Set up year?
RBI designates a senior RBI official under?
Where does he sit?
Customer can file free complaint against?
For amounts*
Penalty
Higher Appeal?
1995 Banking Regulation Act, 1949 21 offices across India Any type of bank upto ₹20 lakhs Ombudsman can order penalty upto ₹1 lakh for customer’s mental agony, waste of time and money Dy. Gov
RBI’s Banking Ombudsman
Set up year?
RBI designates a senior RBI official under?
Where does he sit?
Customer can file free complaint against?
For amounts*
Penalty
Higher Appeal?
1995 Banking Regulation Act, 1949 21 offices across India Any type of bank upto ₹20 lakhs Ombudsman can order penalty upto ₹1 lakh for customer’s mental agony, waste of time and money Dy. Gov
RBI’s NBFC Ombudsman
Set up year?
RBI designates a senior RBI official under?
Where does he sit?
Customer can file free complaint against?
For amounts*
Penalty
Higher Appeal?
2018
powers to regulate NBFCs under RBI Act, 1934
4@ Chennai, Kolkata, New Delhi and Mumbai, looking after respective zones.
- Any NBFC-Deposit-taking (e.g Mahindra, Jindal, Sriram), OR
- Any NBFC with assets size of ₹1 billion & customer interface. Although Exempt: Infrastructure finance/debt companies, Core Investment Companies, NBFCs under liquidation. (for them NCLT, SEBI-SCORE).**
upto ₹10 lakhs
Ombudsman can order penalty upto ₹1 lakh for customer’s mental agony, waste of time and money
Dy. Gov
RBI’s Digital Transactions Ombudsman
Set up year?
RBI designates a senior RBI official under?
Where does he sit?
Customer can file free complaint against?
For amounts*
Penalty
Higher Appeal?
2019
Payment and Settlement Systems Act, 2007
21 offices across India
Prepaid payment instruments, Mobile wallets, Apps, NEFT/RTGS and other digital transactions
upto ₹20 lakhs
Ombudsman can order penalty upto ₹1 lakh for customer’s mental agony, waste of time and money
Dy. Gov
Under Financial Inclusion : India’s Performance? What is Global Microscope Report 2019?
- Annual report started in 2007, to measure financial inclusion levels, this report is prepared by The Economist Magazine’s Economist Intelligence Unit, Accion global NGO & partners like Bill & Melinda Gates Foundation, Metlife foundation etc.
- 2019’s Ranking? Columbia (1), India (#5: last year it was #4) among 55 nations.
- 2019’s report measures gender gap in financial inclusion for the first time.
- Over the years, this report identified following challenges in India:
full interoperability across payment systems. Lack of financial literacy, no trust in financial system or buying insurance.
Digital divide, grievances redressal. extreme poverty, no surplus to save / invest.
No land / property records→ access to loans is difficult.
What is Global Findex Database 2017: (released in 2018, April) under Financial Inclusion : India’s Performance?
- By World Bank with help of Bill & Melinda Gates Foundation
- It’s published every 3 years. It doesn’t give ranking but measures how many % of people have access to banking, credit etc. in a given nation.
- 2017’s report appreciated PM-Jan Dhan, now we are parallel to China in % of population with bank account.
Financial inclusion helps bringing rich poor divide
through targeted delivery of subsidies via J-A-M (Jandhan, Aadhar, Mobile)
What is (India’s own) Financial Inclusion Index by DFS under Financial Inclusion : India’s Performance?
- 2018-Sept: Proposed by Department of Financial Services (DFS).
- This annual index will have three measurement dimensions; (i) Access to financial services (ii) Usage of financial services and (3) Quality. It complies with the format prescribed by the G20.
- No ranking released yet.
What is (India’s own) RBI’s National Strategy for Financial Inclusion (NSFI) under Financial Inclusion : India’s Performance?
2020-Jan: RBI released this report covering the timeframe “2019-2024.”
