Economy Flashcards
BANK CONSOLIDATION
Bank of Baroda Vijaya Bank and Dena Bank shall be “amalgated” making the new entity India’s third Largest Bank
- Narasimham committee of 1991 - recommended a restructuring of Indian banks with 34 large banks that could be positioned as global banks and 8-10 small ones with a national footprint.
- The P J Nanak committee in 2014 suggested that government should privatise or merge some PSBs.
- Govt approved the “merger” of SBI’s five associate banks and later of the Bharatiya
Mahila Bank (BMB) with SBI. - Government had constituted Alternative Mechanism Panel headed by the Minister of Finance and Corporate Affairs
Arguments in favour of Consolidation
- Too many Public Sector Banks (PSBs)
- Resolving the NPA issue
- Increase in business
- Global banks
- Cost cutting
- Enhanced geographical reach
- Greater capital and liquidity
- Enhanced human resource
- Employee welfare
Arguments aganist consolidation
- Set back to corporate governance perspective
- Meaningless without implementation of government reforms
- set back to financial inclusion
- Systemic risk
- Protests
- Varying work culture
- Harmonization of technology
Way forward
- Clear rationale
- Non-imposotion
- Twin fold governance reforms
- Creating a healthy entity
- Training of HR
- Allow non risky failures
PAYMENTS REGULATOR
Inter-Ministerial Committee headed by Subhash Chandra Garg submitted draft Payment and Settlement System Bill, 2018, which seeks to setup independent Payments Regulatory Board (PRB)
Background
1. Growing Digital Payment
According to Google and Boston Consulting Group (BCG) titled Digital Payments 2020 study, digital payments in India will exceed $500 billion by 2020, up from $50 billion in 2016
2. Nachiket Mor Committee Report (2013)
* in spite of bank-led payment systems - vast gap in the availability of basic payment services for small business, and low-income households
3. Watal committee (2016)
* recommended constituting a Payment Regulatory Board (independent of RBI)
4. Budget 2017
*proposed to create a Payments Regulatory Board in RBI by replacing Board for Regulation and Supervision of Payment and Settlement Systems
Provision of Payment and Settlement System Bill, 2018
- Setting up Independent Payments Regulatory Board (PRB)
- Objectives for the PRB
1. Consumer protection
2. Systemic stability and resilience
3. Competition and innovation - Defining Role of RBI
- Parity Between Banks and Non-Banks
Significance
- Shifting of Power from RBI to PRB
- Improving Efficiency
- Restoring Requisite RBI Power
- Improving Confidence
- Improving Financial Inclusion
Challenges
- Another Bureaucratic Level
- Crypto currency transactions
- Against the Majority Views
- Cyber Breach Cost
Way Forward
- Financial Sector Legislative Reforms Commission (FSLRC) recommended draft Indian Financial Code
- FSLRC also envisages a unified Financial Sector Appellate Tribunal (FSAT)
Payment Regulator
Where The Committee Differs with The Finance Act, 2017
Committee
Chairperson
* Person appointed by govt in consulation with RBI
RBI nominees
*Deputy chairman, nominated by Central Board of RBI, not below rank of executive director
Two whole-time by Central Board of RBI
Govt nominee
* 1 nominated by Centre not below joint secretary and 2 whole-time members
Finance Act Chairperson *Governor of RBI- Ex- Officio RBI nominees * Deputy Guv of RBI in charge of payment & Settlement Systems RBI officer to be nominated by Central Board of RBI Govt nominee 3 persons to be nominated by Centre
India Post Payments Bank
Launched on 1st Sept -to offer doorstep banking
Incorporated as public limited company - 100% government equity - governed by RBI
Started operations on 30.01.17 - pilot branches in Jaipur and Ranchi
1.55 lak postoffice branches 3 lak postmen under training as bankers 650 branches in operation 14 billion budget allocation 170 million savings accounts
Services offered
Saving and current account, Direct Benefit transfer, Money transfer, Bill and utility payments, enterprise and Merchant payment
3rd party financial services - insurance, mutual funds, credit products, forex products
QR based biometric cards
Channels - counter services, micro ATM, SMS, IVR, mobile banking app
Advantages
- Financial inclusion
- Ease of access
- Benefit of government schemes to rural areas
Disadvantages
- Charges and restrictions
- Limited accessibility
- Limited appeal
- Limited manpower in post offices
- Technical issues
- Bad health of postal department
- Competition with private players
Steps for financial inclusion
- IPPB
- PMJDY
- Banking correspondents
- Opening branches in unbanked rural areas
- Relaxation of KYC norms
Difference b/w IPPB and traditional bank
- Limited products
- Accept deposits upto 1lak per customer
- Cannot issue loan and credit cards
- Restriction on doorstep banking 10000 charge 15-35
- 3 types of saving accounts - basic digital
- Other payment banks - airtel paytm and fino payment bank
