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INDIAN ECONOMY > 12.Current Banking issues (Part 2) > Flashcards

12.Current Banking issues (Part 2) Flashcards

1
Q

What is the Indhradhanush Scheme?

A

The Indhradhanush Scheme is a government initiative aimed at revamping the working of public sector banks in India.

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2
Q

How many reforms are included in the Indhradhanush Scheme?

A

The Indhradhanush Scheme comprises seven-point reforms.

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3
Q

What is the first reform under the Indhradhanush Scheme?

A

The first reform is related to appointments, specifically separating the post of Chairman and Managing Director and introducing the role of non-Executive Chairman in public sector banks (PSBs).

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4
Q

What is the Bank Board Bureau (BBB)?

A

The Bank Board Bureau (BBB) is an autonomous body of the Government of India established under the Indhradhanush Scheme. It replaces the Appointments Board for the appointment of Whole-time Directors and non-Executive Chairman of PSBs.

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5
Q

What is the role of the Bank Board Bureau (BBB)?

A

The BBB engages with the Board of Directors of PSBs to formulate growth and development strategies. It recommends the selection of the chief of government-owned banks.

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6
Q

How is the Bank Board Bureau (BBB) structured?

A

The BBB comprises a chairman and six members, including three officials and three experts, with at least two from the banking sector. The selection of BBB members is done by a Search Committee consisting of the Governor of RBI and secretaries from relevant departments.

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7
Q

When did the Bank Board Bureau (BBB) start functioning?

A

The BBB started functioning from April 1, 2016.

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8
Q

Where is the current office of the Bank Board Bureau (BBB) located?

A

The current office of the BBB is located with the head office of RBI in Mumbai.

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9
Q

Who is the current chairman of the Bank Board Bureau (BBB)?

A

Bhanu Pratap Sharma is the current chairman of the Bank Board Bureau (BBB).

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10
Q

What is the third reform under the Indhradhanush Scheme?

A

The third reform is related to capitalization, where the Government of India aims to adequately capitalize all banks to maintain a safe buffer above the minimum Basel III norms.

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11
Q

Which sectors have been major recipients of funding from public sector banks (PSBs)?

A

The infrastructure sector and core sector have been major recipients of funding from PSBs.

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12
Q

What is the objective of de-stressing PSBs?

A

The objective is to address the stress faced by PSBs due to stalled or stressed projects, particularly in the power, steel, and road sectors, which contribute to the burden of non-performing assets (NPAs) on banks.

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13
Q

What is the fourth reform under the Indhradhanush Scheme?

A

The fourth reform is empowerment, where the government has issued a circular to ensure that banks make independent decisions without interference, considering the commercial interests of the organization.

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14
Q

What was the previous system for measuring a bank’s performance?

A

The previous system was called SoI (Statement of Intent), where banks and the Ministry of Finance discussed and finalized annual target figures based on criteria set by the ministry.

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15
Q

What is the sixth reform under the Indhradhanush Scheme?

A

The sixth reform is the framework of accountability, aiming to improve the measurement of a bank’s performance and outcomes.

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16
Q

What was “Gyan Sangam”?

A

“Gyan Sangam” was a conclave of public sector banks (PSBs) and financial institutions (FIs) held in Pune in 2015. It involved stakeholders such as the Prime Minister, Finance Minister, RBI Governor, CMDs of PSBs and FIs, and focused on discussions and decisions related to optimizing capital, digitizing processes, strengthening risk management, improving managerial performance, and enhancing financial inclusion.

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17
Q

What is the seventh reform under the Indhradhanush Scheme?

A

The seventh reform is governance reforms, which were initiated through “Gyan Sangam” and aimed at improving the governance practices of PSBs.

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18
Q

How many “R” strategies were adopted by the government to improve the financial health of PSBs?

A

The government adopted four “R” strategies.

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19
Q

What is the first “R” strategy?

A

The first “R” strategy is the recognition of non-performing assets (NPAs) in a transparent manner.

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20
Q

What is the second “R” strategy?

A

The second “R” strategy is the resolution and recovery of value from stressed accounts.

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21
Q

What is the third “R” strategy?

A

The third “R” strategy is the recapitalization of PSBs.

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22
Q

What is the fourth “R” strategy?

A

The fourth “R” strategy is the implementation of reforms in PSBs and the wider financial ecosystem for a responsible and clean system.

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23
Q

What were the steps taken under the 4 R’s strategy to reduce NPAs of PSBs?

A

Comprehensive steps were taken, but specific details are not mentioned in the given text.

24
Q

When was the bank recapitalization programme announced?

A

The bank recapitalization programme was announced in October 2017.

25
Q

What was the total amount of the bank recapitalization programme?

A

The total amount of the bank recapitalization programme was Rs 2.11 lakh crore.

26
Q

How much of the total amount was to be mobilized through bank recapitalization bonds?

A

Rs 1.35 lakh crore was to be mobilized through bank recapitalization bonds.

27
Q

How does the bank recapitalization bond process work?

A

The government issues bonds that are subscribed by banks, and the money collected by the government is used to increase banks’ equity capital, thereby strengthening their capital reserves.

28
Q

How does the government maintain its fiscal deficit target through the bank recapitalization bond process?

A

The money invested by banks in recapitalization bonds is classified as an investment that earns them interest. This allows the government to maintain its fiscal deficit target as no money directly goes out from its coffers.

29
Q

What are some arguments against the bank recapitalization bond process?

A

Some arguments include that the government is supporting banks that are not working properly, and the government is also bearing the interest burden.

30
Q

When was the Insolvency and Bankruptcy Code (IBC) introduced?

A

The Insolvency and Bankruptcy Code (IBC) was introduced in 2016.

31
Q

Why was the IBC introduced?

A

The IBC was introduced to overhaul the corporate distress resolution regime in India and consolidate previously available laws. It aimed to create a time-bound mechanism with a creditor-in-control model.

32
Q

What are the two outcomes when insolvency is triggered under the IBC?

A

The two outcomes are: 1. Resolution and 2. Liquidation.

33
Q

What is the first objective of the IBC?

A

The first objective of the IBC is resolution, which aims to save a business as a going concern through restructuring, change in ownership, mergers, and other methods.

34
Q

What is the second objective of the IBC?

A

The second objective of the IBC is to maximize the value of assets of the corporate debtor.

35
Q

What is the third objective of the IBC?

A

The third objective of the IBC is to promote entrepreneurship, availability of credit, and balancing the interests.

36
Q

What role does the Insolvency and Bankruptcy Board of India (IBBI) play?

A

The IBBI provides Insolvency Professionals who are involved in the dissolution process of insolvent individuals, companies, LLPs, or partnerships.

37
Q

Who can initiate the Corporate Insolvency Resolution Process (CIRP) under the IBC?

A

Either the creditor or the debtor can initiate the CIRP under the IBC when a corporate debtor defaults on its loan repayment.

38
Q

What is the minimum amount of default required for applying for insolvency?

A

The minimum amount of default required for applying for insolvency was increased to ₹1 crore, considering the stress on companies amid the pandemic.

39
Q

Where can one approach to apply for insolvency under the IBC?

A

One has to approach the designated adjudicating authority (AA), which is the various benches of the National Company Law Tribunal (NCLT) across India.

40
Q

What is the timeline for admitting or rejecting an insolvency application by the Tribunal?

A

The Tribunal has 14 days to admit or reject the application, and if the admission is delayed, a reason must be provided.

41
Q

What is the amended mandatory deadline for the completion of the resolution process?

A

The amended mandatory deadline for the completion of the resolution process is 330 days.

42
Q

Who is appointed as an interim resolution professional (IRP) once the application is admitted?

A

The AA appoints an IRP, who is registered with an insolvency professional agency (IPA).

43
Q

What are the responsibilities of the IRP during the resolution process?

A

The IRP takes control of the defaulter’s assets and operations, collects information about the company’s state from Information Utilities, and coordinates the constitution of a Committee of Creditors (CoC).

44
Q

What is the role of the Committee of Creditors (CoC) in a Corporate Insolvency Resolution Process (CIRP)?

A

The CoC, comprising all financial creditors, is the decision-making body in a CIRP. It decides whether the defaulting company should be restructured or liquidated and approves resolution plans.

45
Q

Who appoints an insolvency professional (IP) during the CIRP?

A

The CoC appoints an IP, who can be the same as the interim resolution professional (IRP) or a new professional. The IP looks after the operations of the company during the CIRP.

46
Q

What is the role of the IP in the resolution process?

A

The IP invites and examines proposals for a resolution plan, including debt restructuring or company merger/demerger. Eligible plans are submitted to the CoC for approval.

47
Q

How much voting share is required for the approval of a resolution plan by the CoC?

A

A resolution plan is approved by the CoC if it receives 66% of the voting share of committee members.

48
Q

What happens if the CoC fails to approve any resolution plan?

A

If the CoC fails to approve any resolution plan, the company goes for liquidation.

49
Q

What happens after a resolution plan is approved by the CoC?

A

The approved plan is submitted to the Tribunal for approval. Once approved, the debtor is bound to implement the plan.

50
Q

In what sequence is the recovered money distributed in the CIRP?

A

The recovered money is distributed in the following sequence: higher-level employees receive 12 months’ salary, lower-level employees receive 24 months’ salary, operational creditors receive payment, banks that provided loans receive payment, debenture holders receive payment, and finally, the company owner receives the remaining funds.

51
Q

Has the Insolvency and Bankruptcy Code (IBC) been successful in recovering money?

A

Yes, the IBC has been successful in recovering a significant amount of money and has achieved a considerable level of success.

52
Q

What is the National Asset Reconstruction Company Limited (NARCL)?

A

NARCL is the bad bank announced in the budget of 2021-22. It is responsible for acquiring bad loans worth two lakh crore rupees from banks.

53
Q

What is the purpose of the India Debt Resolution Company Limited (IDRCL)?

A

IDRCL has been set up to sell the stressed assets in the market. It is another entity associated with the resolution of bad loans.

54
Q

How is the NARCL funded?

A

The government has provided government receipts worth Rs. 30,600 crores to support the functioning of NARCL.

55
Q

How does NARCL pay for the acquired bad loans?

A

NARCL pays 15% of the agreed value of the loan in cash, and the remaining 85% is given in the form of government-guaranteed security receipts. The government guarantee would be invoked in case of a loss against the threshold values.

56
Q

What happens if the bad bank is unable to sell the bad loans or sells them at a loss?

A

If the bad bank is unable to sell the bad loans or sells them at a loss, the government guarantee will be invoked, and the difference will be paid by the Government of India.

INDIAN ECONOMY (35 decks)

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