Banking Current Affairs 1stJan 2013 to 30Sept2013

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CCEA takes steps for operationalization of IDFsSeptember 29th, 2013

TheCabinet Committee on Economic Affairs (CCEA)has taken the following steps topromote theoperationalizationofInfrastructure Debt Funds (IDFs).

The annual Guarantee Fee payable to the Concession Authority has been capped at0.05% per annum, of outstanding debt financed by the IDF NBFCs (Non-BankingFinancial

Companies) for the first 3 years of operation of the IDF NBFC.

IDFs will be given the status of Public Financial Institutions (PFI). Infrastructure DebtFunds are allowed to file Shelf Prospectus under Section 60 A of the Companies Act, 1956

and access to provisions of the SARFAESI Act, including to the adjudicatory process

through Debt Recovery Tribunals.

Post-successful COD PPP (Commercial Operation Declaration) projects shall now beeligible for investment by Insurance Companies, Provident Funds (PFs), EPFO, Mutual

Funds(MFs), etc.

What are Infrastructure Debt Funds (IDF)?

As per Reserve Bank ofIndia, IDFs are investment vehicles which can be sponsored by

commercial banks and NBFCs in India in which domestic/offshore institutional investors,

specially insurance and pension funds can invest through units and bonds issued by the

IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructure

companies, thereby creating fresh space for banks to lend to fresh infrastructure projects.

IDF-NBFCs would take over loans extended to infrastructure projects which are created

through the Public Private Partnership (PPP) route and have successfully completed 1 year

of commercial production. Such take-over of loans from banks would be covered by a

Tripartite Agreement between the IDF, Concessionaire and the Project Authority for

ensuring a compulsory buyout with termination payment in the event of default in

repayment by the Concessionaire.

What legal forms can IDF be set up as and who will be the regulators?

Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A trust

based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a company

based IDF would normally be a NBFC regulated by the Reserve Bank.

Do the NBFCs/IFCs need prior permission from Reserve Bank for sponsoring IDFs?

Yes NBFCs and NBFC-IFCs need to take prior approval from the Reserve Bank forsponsoring IDFs.

How do IDF- NBFCs and IDF-MFs (Mutual Funds) raise resources?

IDF-NBFCs will raise resources through issue of either Rupee or Dollar denominated bonds

of minimum 5 year maturity. IDF-MFs will raise resources through issue of units of MFs.
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What does sponsorship mean?

Sponsorship means equity participation by the NBFC between30 to 49% of the IDF.

Who can invest in the bonds of IDF-NBFCs and Units of IDF-MFs?

Domestic/offshore institutional investors, especially insurance and pension funds can investthrough units and bonds issued by the IDFs.

IDBI Bank launches Own Your NPA campaignSeptember 27th, 2013

In a bid to speedily recover Non-Performing Assets (NPA), theIDBI Bankhas launched a

campaign named Own Your NPA.

What is Own Your NPA campaign?

It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its

managers at the zonal, regional and branch levels to focus their on making recoveriesfrom thetop 20 bad loan accountsin their jurisdiction. As part of the campaign, each zonal,

regional and branch manager will personally go and meet the customers. The bank has

identified 1522 cases, involving an aggregate principal outstanding of Rs 5,805 crore which

is approximately 73% of its total NPAs of Rs 7,959 crore as on June-end 2013.

What is Non-Performing Assets (NPA)?

In simple words, the assets of the Banks which dont perform (means dont bring any

return) are called Non Performing Assets. In more general sense they are bad Loans.

Any asset, including a leased asset, becomes non performing when it ceases to generateincome for the bank.

However, there is a prescribed definition by the RBI which defines the NPAs as:

Terms Loans on which interest and / or installment of principal remain overdue for aparticular quarter for a period ofmore than 90 days from the end of that particular

quarter.

The Bills those remain overdue for a period of More than 90 Days from the end of aquarter.

Any amount to be received remains overdue for a period of more than 90 days. The Cash Credit account remains out of order for a period of more than 90 days. Out of

order means over the sanctioned limit.

Note: This period of 90 Days for the above categories was 180 days prior to 2004.

So 90 Days is the thumb rule in the deciding the NPAs. However, there is an exception to

this. Go through the following case:
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A farmer has taken a loan for a paddy crop in the beginning of the Rabi Season and

has not made a repayment. In which of the following situations, if Installment or

interest is not paid for this loan, it would become a NPA (Non-Performing Asset)?

1. 90 Days from the due date2.

90 Days from the end of the Rabi Season3. 1 crop season from the due date

4. 2 crop seasons from the due dateThe answer of the above question is (4) i.e. 2 crop seasons from the due date. Please note

the following:

Forshort duration cropagricultureloans such as paddy, Jowar, Bajra etc. if the loan

(installment / interest) is NOT paid for 2 crop seasons (means Kharif, and next Rabi in the

above question), it would be termed as a NPA.

Forlong durationcrops, the above would be 1 Crop season from the due date.

Investment through P-Notes hits 3-month high of $26 billionSeptember 26th, 2013

As per share market regulator SEBI, investments into Indian shares through participatory

notes (P-Notes), hit a three-month high of Rs 1.65 lakh crore (about $26 billion) in August

2013.

What are Participatory Notes?

Participatory Notes or P-notes are derivative instruments, used by Foreign Institutional

Investors (FIIs) who are NOT registered with SEBI. The major characteristics of P-notes

are:

1. They are derivative instruments2. They are used by Foreign Institutional Investors (FIIs) who are NOT registered with SEBI.3. They are used on Indian shares, but at a location outside of India.

This means that the FIIs who are not registered with SEBIbut wish to take exposure in the

Indian securities markets can use P-notes. P-Notes, mostly used by overseas HNIs (High

Net worth Individuals), hedge funds and other foreign institutions, allow them to invest in

Indian markets through registered Foreign Institutional Investors (FIIs), while saving on

time and costs associated with direct registrations. Brokers buy or sell securities on behalf

of their clients on their proprietary account and issue such notes in favor of such foreigninvestors.

Moodys lowers SBIs debt and local currency rating to junkSeptember 26th, 2013

Global rating firm, Moodys Investors Service, has downgraded State Bank ofIndias senior

unsecured debt and local currency deposit ratings to Baa3 or lowest investment grade
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rating from Baa2 and altered the outlook on SBIs financial strength rating

to negativefrom stable as the economic slowdown impacts banks credit quality.

Why did Moodys downgrade SBIs rating?

As per rating agency, the combination of mounting pressure on credit fundamentals and the

ongoing dependence on the fiscally constrained Indian government to maintain CapitalAdequacy Ratio (CAR) are key players behind the rating downgrade at a level no higher

than the sovereign.

Impasse over RBIs 80:20 gold import scheme endsSeptember 24th, 2013

The government cleared the confusion that was going between the Customs Department

and gold importers regarding the RBIs 80:20 scheme which was introduced in July 2013.

What is 80:20 scheme of RBI?

Under this scheme, the importers are directed to export back 20% of the total gold imports.It prohibits further imports if this 20% norm is not met by importers. The step was aimed at

curbing rising gold import which led to high Current Account Deficit.

Why there was a deadlock over 80:20 scheme of RBI?

The RBI 80:20 norm left many confused, leading to imports being held up at customs. It

was wrongly interpreted that an importer could not export more than 20%. Whereas, the

case was otherwise as it means that at least 20% is given for exports and one can export

more than 20% of total imports. Due to this confusion the customs officials had stopped

stocks from entering the country. With this clarification, gold imports are likely to resume.

Fitch slashed Indias growth projectionSeptember 23rd, 2013

Global rating agency Fitch has scaled down its projections on Indias growth to 4.8% for the

current fiscal from the earlier estimate of 5.7% made in June, 2013.

Why did Fitch scaled down Indias growth prospects?

The following are the key reasons behind the cut in growth projections:

Weak Indian currency against dollar Expanding Current Account Deficit (CAD) on account of rising crude prices and falling

rupee Weak demand

RBI confident of financing CAD without drawing much from reservesSeptember 23rd, 2013

RBI Governor Raghuram Rajan evinced confidence that the country would be able to finance

the Current Account Deficit (CAD) without drawing down much from the forex reserves.
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RBI is of the view that CAD could be brought down to $70 billion or even below that. In

fiscal 2012-13, CAD stood at a historic high of 4.8%, or $88 billion, of the GDP. The

government has set a target of 3.7% CAD, or $70 billion, this fiscal.

The efforts of the RBI through FCNR-B and swap facility have yielded a total of nearly $1.4

billion. The market has also recuperated considerably afterthe USfederal bank postponedthe tapering of stimulus. Mr. Rajan stressed on improving countrys economic parametersregardless of the actions that the U.S. took.

RBI slashes MSF rate to 9.50%September 23rd, 2013

The Reserve Bank ofIndiaslashed the Marginal Standing Facility rate (MSF) by 75 basis

points from 10. 25% to 9.50%. The central bank also rolled back minimum daily

maintenance of the Cash Reserve Ratio (CRR) from 99% to 95% keeping the CRR

unchanged at 4%.

RBI has assured that it will reduce the difference between the MSF and repo rate to 100basis points. RBI raised the repo rate by 25 basis points to 7.50%.

What is MSF?

Marginal Standing Facility (MSF) was introduced by the Reserve Bank of Indiain 2011-12 as

part of its monetary policy. Under this facility, banks can borrow funds from RBI at 8.25%,

which is, generally, 1% or 100 basis points above the Liquidity Adjustment Facility-repo rate

against pledging government securities.

Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This

measure was introduced by RBI to regulate short-term asset liability mismatches more

effectively.

What is the difference between Liquidity Adjustment Facility-repo rate (LAF) and Marginal Standing

Facility (MSF) rate?

Banks can borrow from the RBI under LAF-repo rate, which stands at 7.50%, by pledging

government securities over and above the Statutory Liquidity Requirement of 24% (SLR).

Banks cannot sell government securities to RBI that is part of its SLR quota while availing

LAF on the other hand they can do so while availing MSF.

MSF is open to the banks that want to borrow from the RBI even if the credit is costlier by a

percentage point or so. Through MSF banks can borrow funds up to 2% of their Net Demand

and Time Liabilities (NDTL), at current 9.50%. However, it can be availed with securities

above the SLR of 24% and even below.

RBI relaxes for opening new bank branches in Tier I cities September 22nd, 2013

Now banks will have freedom to open branches in tier-I cities (those with population over 1

lakh) without seeking RBIs approval in each case.
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However, as per RBI guidelines, there are some conditions on opening branches,

these are stipulated below:

Banks should open 25% of their branches in a financial year in Un-banked tier-V and tier-VI centres as earlier.

Total number of branches in tier I centres cant exceed the number of branches openedin tier-2 to tier-6 centres during a year.

If the banks are unable to open all tier 1 branches during that year, they can carry itover for next 2 years.

If the banks unable to open requisite branches in tier- II to tier- VI centres for somereason, it should necessary correct the shortfall in the next financial year.

Bharatiya Mahila Bank to recruit POsSeptember 22nd, 2013

Indias first all-women bank, Bharatiya Mahila Bank, which expected to be operational

from November 2013, has invited online applications from female candidates for the 115

Probationary Officer posts. The last date for online application is till September 30, 2013.

About Bharatiya Mahila Bank:

Bharatiya Mahila Bank is Indias first all-women public sector bank. The bank proposes to

complete the first six branches at Mumbai,Delhi, Kolkata, Chennai, Indore and

Guwahati by October 2013. The Government has already approved Rs 1,000-crore seed

capital for the bank as announced by Finance Minister P. Chidambaram in Budget 2013-14.

The bank was already given in-principal approval by the RBI and the banking company is

being set up.

Headquarter ofBharatiya Mahila Bank will be in Delhi.

Objective: One of the key objectives of Bharatiya Mahila Bank is to focus on the bankingneeds of the women and promote economic empowerment. It will also address the

gender related issues and will be helpful in financial inclusion.

Draft norms on new Company Law make companies to disclose managements

paySeptember 22nd, 2013

As per norms stipulated in the second set draft rules for the new company law, listed firms

have been mandated to disclose in the boards report the ratio of the remuneration of

each director to the median remuneration of employees.

The new company law seeks to improve the regulatory framework around disclosure of

managerial remuneration.

The new rules also prohibit companies from issuing shares with differentiated rights as to

voting, dividend or otherwise unless certain conditions are fulfilled. A key condition is that

shares with differential rights should not exceed 25% of the post issue paid up capital.
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It has also been stipulated that the company should have a 10% dividend payment track

record for the last 3 financial years immediately proceeding the financial year in which such

shares are to be issued.

RBI hikes repo rate by 25 basis points to 7.5%September 22nd, 2013

In a surprising move, the Reserve Bank ofIndiaGovernor Raghuram Rajan, in his maiden

mid-quarter monetary policy review, hiked the short-term lending (repo) rate to

7.5%,seeking to control inflation. TheCash Reserve Ratio (CRR)was left untouched at4%.

To ease liquidity, the Marginal Standing Facility (MSF) rate, at which banks borrow from

the RBI, was reduced to 9.5% from 10.25% and the minimum daily maintenance of the

CRR was lowered to 95%.

In reaction to RBIs decision the rupee slipped 46 paise to close at 62.23 against the dollar

in line with a sharp decline in local stocks.

However, RBI Governor Raghuram Rajan has made his stance clear that RBI wants lower

inflation and aims to curb it to 5% mark.

China launches its first direct bankSeptember 22nd, 2013

Chinalaunched its first direct bank, a new mode of providing online banking services

without any entity outlets. The direct bank has been launched by the Bank of Beijing in co-

operation with theNetherlands-based ING Group.

What is a Direct Bank?

A direct bank is a bank without any branch network that offers its services remotely via

online banking and telephone banking and may also provide access via ATMs (often

through interbank network alliances), mail and mobile. By eliminating the costs associated

with bank branches, direct banks can make substantial savings which they may pass on to

clients via higher interest rates or lower service charges.

RBI tightens norms for companies lending against goldSeptember 21st, 2013

As per the notification by the RBI, the central bank has tightened rules for finance

companies which lend against gold, in line with the suggestions of an internal panel. As per

the new rules:

The lenders need to value the pledged gold at the average closing price of 22-carat goldfor the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at

the loan-to-value ratio. The ratio would remain at 60% for loans against jewellery.

At present, there is no standard method for arriving at the value of gold accepted ascollateral and valuation is arbitrary.
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The process by which lenders auction gold when a borrower defaults has also beenstreamlined by the RBI. Lenders will now need to declare a reserve price for the pledged

ornaments.

Lenders would also need RBI clearance to open branches exceeding 1,000. New branches would not be allowed without sufficient storage facility for gold.

RBI invites bids to implement global Legal Entity Identifier systemSeptember 16th, 2013

In order to have a better control on financial transactions, such as equity and currency

derivatives, the Reserve Bank ofIndiahas invited limited bids from about six entities,

including depositories, depository participants and custodians, to issue unique

identification codes to market participants.

The RBI will select one or two entities to assign them the responsibility of implementing a

globalLegalEntity Identifier (LEI) system that will uniquely identify parties to financial

transactions.

What is Legal Entity Identifier (LEI) system?

LEI is a unique global identifier for each legal entity operating in the financial markets. The

need to have such a system was felt after the global financial crisis of 2008. The system will

work under the supervision of the RBI. LEI will aid in identification of participants in

different trading, clearing and settlement systems, thus enabling aggregation of exposures

and identification of linkages across markets as well as institutions, both domestic as well as

global.

What are the objectives of LEI system?

The key objectives ofLegal Entity Identifier (LEI) system are:

Improved risk management in firms Better assessment of micro- and macro-prudential risks Facilitation of orderly resolution Containing market abuse and curbing financial fraud Enabling higher quality and accuracy of financial data overall

How would the LEI system help?

As perFinancial Stability Board,the LEI system would cut operational risks within firms byextenuating the need for tailored systems to reconcile the identification of entities and

support aggregation of risk positions and financial data, which inflict substantial

burdensome costs across theeconomy. It would also facilitate easy processing.

What is Financial Stability Board (FSB)?

FSB is aninternationalbody which was established after the 2009 G-20 London summit in

April 2009 as a successor to the Financial Stability Forum. FSB work is to coordinate at the
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international level the work of national financial authorities and international standard-

setting bodies and to develop and promote the implementation of effective regulatory,

supervisory and other financial sector policies. The Board includes all G-20 major

economies, FSF members, and the European Commission. It is headquartered in

Basel,Switzerland.

Who are the members of FSB form India?

The ReserveBank of India(RBI), the Securities and Exchange Board of India (SEBI)

and theMinistry of Financeare the members of FSB from India.

Definition of control in relation to FDI notified by RBISeptember 16th, 2013

The Reserve Bank ofIndianotified the definition of term control in the context ofForeign

Direct Investment (FDI) and revised the list of states where FDI is allowed in multi-brand

retail.

What is Control as per RBI notification?

Controlshall include the right to appoint a majority of the directors or to control the

management or policy decisions including by virtue of their shareholding or management

rights or shareholders agreements or voting agreements. The tighter definition is to ensure

foreign investors do not acquire indirect control in sectors where FDI is prohibited or capped

at 49%.

States ready to implement FDI in Multi-Brand Trading:

The list of states which have given consent to implement FDI in Multi-Brand trading has

been modified with the addition of Pradesh andKarnataka. With this, the number of states

and Union Territories which have given consent to implement the FDI policy on multi-brandretail has increased to 12.

Latest in FDI:

Norms for multi-brand retail trading have been relaxed and the mandatory 30% localsourcing norms for companies have also been eased.

FDI in insurance stands at 26%.The cap in telecom enhanced to 100% with automatic route allowed for FDI of up to 49%.

Union Cabinets nod to RBI for buying $4.3 bn World Bank bondsSeptember 16th, 2013

The Reserve Bank ofIndia(RBI) was given nod by the Union Cabinet to invest $4.3 billion inspecial bonds of theWorld Bankas it would help in securing extra funding from themultilateral lending agency for infrastructuredevelopment projects.
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How would this move benefit?

With this decision, RBI will be able to sign a special private placement bond agreement with

theInternationalBank for Reconstruction and Development, the World Banks lending

arm, which will provide additional borrowing space.

ATMs, PoS machines to scan UID biometricsSeptember 14th, 2013

The RBI is understood to be preparing a directive for banks to introduce additional facilities

in all new credit card swipe (Point of Sales, or PoS) machines and Automated Teller

Machines (ATMs) for providing a mechanism for Aadhaar authentication using biometrics.

The central bank intends to have an Aadhaar-based authentication to provide additional

security for card transactions. Although RBI seems to have accommodated to a combination

of chip and PIN authentication for existing customers and biometric checks for hitherto

unbanked cardholders, the challenge is in the acceptance devices.

Banks are of the view that the additional facilities would significantly increase investment

costs. The other challenge is that conventional phone lines may not work to transmit

scanned fingerprint images for verification. As per banks, the new machines will require the

equivalent of 3G data speeds to transmit biometric data.

RBI asks banks to consider using business correspondents to distribute currencySeptember 12th, 2013

In the backdrop of growing currency demands, the RBI, in a notification, asked banks to

explore the possibility of distributing banknotes and coins throughbusinesscorrespondents.

Earlier, RBI, in its Monetary Policy Statement 2013-14, had acknowledged the need toidentify alternative distribution possibilities to effectively meet the rising demand for

banknotes and coins.

What role the business correspondents are currently playing?

Currently, business correspondents are in the activities which include identification of

borrowers, collection and preliminary processing of loan applications, creating awareness

about savings and other products and processing and submission of applications to banks.

What did the RBI suggest banks to enhance currency distribution?

RBI has said that services of business correspondents could be used for distributingbanknotes and coins. Their services could also be used by banks for follow-up for recovery,

disbursal of small value credit and collection of small value deposits. As per the notification

by RBI, NGOs, micro-finance institutions, section 25 companies and post offices, among

others, could act as business correspondents.
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RBI notifies norms for banks to swap overseas borrowingsSeptember 12th, 2013

The Reserve Bank ofIndia, in a notification, said that banks can raise funds overseas above

50% of their Tier I capital with a minimum maturity of 3 years and swap these borrowings

with the RBI at a concessional rate of a 100 basis point below the market rate with aminimum tenor for 1 to a maximum of 3 years. Bank can use this swap facility to sell

dollars in multiples of a million to RBI. At the end of the swap period, the bank would have

to buy the same amount of dollars.

As per the new norms by the RBI for banks to swap overseas borrowings:

The swaps should be available at a concessional rate of a 100 basis points below themarket rate for all fresh borrowing with a minimum tenor of 1 year and a maximum tenor

of 3 years, irrespective of whether such borrowings are in excess of 50% of their

unimpaired Tier I capital or not.

While the swaps would be for the entire tenor of the borrowing, the rate would be resetafter every 1 year from the date of the swap at 100 basis points lower than the marketrate prevailing on the date of reset.

Although the banks are permitted to borrow in any freely convertible currency, the swapwill be available only for conversion of US dollar equivalent into rupees and the American

currency equivalent would be computed at the relevant cross rate prevailing on the date

of the swap.

Banks can now borrow funds from their Head Office, overseas branches andcorrespondents and overdrafts in nostro accounts up to a limit of 100% of their

unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever

is higher, as against the existing limit of 50%.

Issue of corporate guarantee on behalf of second generation or subsequent level stepdown operating subsidiaries will be considered under the approval route for Overseas

Direct Investment, provided the Indian Party indirectly holds 51% or more stake in the

overseas subsidiary for which such guarantee is intended to be issued.

OMCs seek compensation in case of loss through RBIs currency swap windowSeptember 11th, 2013

Oil Marketing Companies (OMCs) are not content with RBIs currency swap facility through

which it sells and buys dollars from OMCs as part of its measures to control the rupee

decline. Though the rupee has gained some stability but the OMCs are unhappy with the

hedging mechanisms as they feel that with RBIs swap window, there is uncertainty of being

compensated if they incur loss in the swap transactions.

Why OMCs are unhappy with RBIs currency swap window facility?

RBI has recently started a currency swap window to sell dollars to oil companies in

exchange for rupees on condition that they reverse the transaction at a future date. The

swap window is for fresh Foreign Currency Non-Resident (banks) (FCNRB) dollar funds,

mobilized for a minimum tenor of three years and over. This is similar to RBI lending dollars

to oil companies. Since OMCs are the biggest buyers of foreign currency which they use to
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buy petroleum/oil, RBI selling dollars directly to them will keep them away from FOREX

market thereby helping the rupee to recuperate. Under the swap arrangement, the RBI will

sell dollars to OMCs on condition that OMCs will repay the same amount of dollars.

However, the OMCs are unhappy over the facility as they feel insecure about the future

adverse changes in the rates of dollar which could cause loss to them. There areapprehensions that if something bad- US strike onSyriaimpacting oil supply and further

tightening of dollar (expensive dollar)- happens then there will be losses to OMCs who will

have to pay the dollars they bought under swap arrangement. Although, in such a situation,

RBI has the option to roll over the transactions until the rupee stabilizes, OMCs seek

compensation for any future losses.

RBI notifies norms for currency swap windowSeptember 9th, 2013

RBI has notified norms for currency swap window. As per the notification, the swap facility

will be available to scheduled commercial banks for fresh Foreign Currency Non-Resident

Bank FCNR(B) deposits mobilized for a minimum period of 3 years. It further says thatthe deposits raised may be in any permitted currency, but the swap would be available only

in dollars. Although the swap window will be operated on a daily basis on all working days in

Mumbai, a particular bank can avail of the swap facility only once in a week.

What is Currency Swap?

A currency swap is a foreign-exchange agreement between two institutions to exchange

aspects (namely the principal and/or interest payments) of a loan in one currency for

equivalent aspects of an equal in net present value loan in another currency.

Currency swaps are over-the-counter derivatives, and are closely related to interest rate

swaps. However, unlike interest rate swaps, currency swaps can involve the exchange ofthe principal.

What are the main uses of Currency Swap?

Currency swaps have two main uses:

To secure cheaper debt (by borrowing at the best available rate regardless of currencyand then swapping for debt in desired currency using a back-to-back-loan).

To hedge against (reduce exposure to) exchange rate fluctuations.ECB keeps key rate unchanged at 0.5%September 6th, 2013

The 23-member governing council ofEuropean Central Bank has left its benchmark

interest rate unaltered at a record low of 0.5%. The council said that the slowly

recuperating Eurozoneeconomydidnt need a further stimulus.
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The 17 European Union member countries that used the euro came out of recession

in the second quarter when the economy posted 0.3% growth from the quarter before,

discontinuing a series of 18 months of falling output.

About European Central Bank

Established in 1998 through Treaty of Amsterdam in 1998. It is one of theseven institutions of the European Union (EU) listed in the Treaty on European Union

(TEU).

Headquarters: Frankfurt,Germany.

Current President: Mario Draghi

It is centralbank for the euro and administers the monetary policy of the17 EU member

states which constitute the Eurozone. However, capital stock of the bank is owned by the

central banks of all 28 EU member states.

Primary Objective: To maintain price stability within the Eurozone. It has this single ill-

defined primary objective, with other objectives subordinated to it.

Basic Tasks of ECB:

To define and implement the monetary policy for the Eurozone To conduct foreign exchange operations To take care of the foreign reserves of the European System of Central Banks To promote smooth operation of the financial market infrastructure under

the TARGET2 payments system and the technical platform (currently being developed) for

settlement of securities inEurope(TARGET2 Securities).

Exclusive right to authorize the issuance of euro banknotes.RBI allows companies to use ECB for general corporate purposesSeptember 5th, 2013

In a bid to attract capital flows, the RBI relaxed the External Commercial Borrowing

(ECB) norms by permitting companies to use funds raised from their foreign equity holder

company with minimum average maturity of 7 years for general corporate purposes. Till

now borrowings in the form of ECB were not allowed to be used for general

corporate purpose.

Nevertheless, the RBI has put certain conditions. As per the conditions, the minimum paid-up equity of 25% should be held directly by the lender (overseas partner) and the

repayment of the principal will commence only after completion of minimum average

maturity of seven years and no prepayment will be allowed before maturity.

What is External Commercial Borrowing (ECB)?

Any money that has been borrowed from foreign sources for financing the commercialactivities inIndiaare called External Commercial Borrowings.
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The Government of India permits ECBs as a source of finance for Indian Corporates forexpansion of existing capacity as well as for fresh investment.

The ECBs are defined as money borrowed from foreign resources including the following:

Commercial bank loans

Buyers credit and suppliers credit Securitized instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private

sector window of Multilateral Financial Institutions such asInternationalFinance

Corporation (Washington), ADB, AFIC, CDC, etc.

Objective of External Commercial Borrowing (ECB):

Government permits the ECBs as an additional source of financing for expanding theexisting capacity as well as for fresh investments. The ECB policy of the Government

seeks to emphasize the priority of investing in theinfrastructureand core sectors such as

Power, telecom,Railways, Roads, Urban infrastructure etc.

There is also emphasis on the need of capital for Small and Medium scale enterprises.How ECB is different from FDI?

It must be noted that ECB means any kind of funding other than Equity. If the foreignmoney is used to finance the Equity Capital, it would be termed as Foreign Direct

Investment.

The ECB should satisfy the ECB regulations stipulated by the Government or its agenciessuch as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed

Securities or anything of that nature are included in ECB.

The following are not included in the ECBs

Any Investment made towards core capital of an organization such as equity shares,convertible preference shares or convertible debentures. We should note here that those

instruments which can be converted into equity are called convertible. The convertible

instruments are covered under the FDI Policy.

Any other direct capital is not allowed in ECB.Lok Sabha passes PFRDA Bill 2011September 5th, 2013

The Pension Fund Regulatory and Development Authority Bill (PFRDA), 2011 which

aims to regulate the New Pension System (NPS) has been passed in theLok Sabhawith

official amendments. The bill was introduced in the lower house in March 2011 to provide

for a statutory regulatory body. Currently the PFRDA has a non-statutory status. The

legislation seeks to empower PFRDA to regulate the New Pension System (NPS).
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Some highlights of PFRDA Bill 2011:

It provides subscribers a wide choice to invest their funds for assured returns by optingfor government bonds as well as in other funds depending on their capacity for risk.

It allows for withdrawals from the individual pension account subject to the conditions,such as, purpose, frequency and limits, as may be specified by the regulations.

It makes the Pension Fund Regulatory and Development Authority a statutory authority.Presently, it has non-statutory status.

What is the main reason behind providing PFRDA a statutory status?

NPS which is compulsory for government employees (except defence) has been

launched for all citizens of the country including un-organized sector workers, on voluntary

basis, with effect from May 1, 2009. Further, the Government has launched the co-

contributory pension scheme titled Swavalamban Scheme in the Budget of 2010-11.

Currently, the number of subscribers under NPS is 52.83 Lakh with a corpus of Rs. 34, 965

crore. In order to effectively invest and manage huge funds belonging to a large number of

subscribers and to ensure the integrity of NPS, establishment of a statutory PFRDA with

well-defined powers, duties and responsibilities is considered absolutely necessary and

would benefit all NPS subscribers.

RBI asks banks to consider e-KYC a valid processSeptember 5th, 2013

In a notification issued by the Reserve Bank ofIndia, banks have been asked to avail the

electronic Know Your Customer, e-KYC service, launched by the Unique Identification

Authority of India,UIDAI. The notification directed banks to revise their KYC policy by

accepting the e-KYC as a valid process for KYC verification under the Prevention of

Money (Maintenance of Records) Rules, 2005. As per the notification, the informationcontaining demographic details and photographs made available from UIDAI as a result of

e-KYC process may be treated as an Officially Valid Document under PML Rules.

What is e-KYC?

The e-KYC service was launched by the UIDAI to help people link their existing records,

like ration cards, pension accounts, license and certificates, to their Aadhaar numbers in a

safe and easy manner.

Current Affairs: Top Headlines for September 1, 2013September 1st, 2013

RBI forbids overseas buying, plus point for Indian realty

In a bid to curb the outflow of capital from the country, the RBI has cut down the annual

cap on automatic outflows from $2,00,000 to $75,000 per individual. In addition to this, the

central bank has also imposed a ban on overseas real estate purchases with immediate

effect. The move expected to benefit the domestic real estate as the capital which otherwise

would have been diverted overseas will now remain in the country.
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Indias foreign exchange reserves deplete by $1.08 billion

As per RBIs data,Indias foreign exchange (forex) reserves reduced by $1.08 billion to

$277.72 billion for the week ended Aug 23, 2013. The Special Drawing Rights (SDRs)

decreased by $4.5 million to $4.38 billion for the same period. Gold reserves remained at

the same level at $20.74 billion.Decline in Rupee may not impact agriculture sector: NABARD

According to National Bank for Agricultureand Rural Development (Nabard) head Prakash

Bakshi the continuing depreciation of rupee against the dollar is unlikely to make any

negative impact on the agriculture sector. In the event rupee decline impacts the prices of

fertilizers or diesel it would be compensated either by the way of subsidy or by hiking the

minimum support price.

Delhis tops in per capita income in India

As perDelhiDevelopment Report 2013, Delhis average per capita income stands at more

than Rs 2 lakh per year in 2012-13 which makes it the highest in India. It is around 3 times

more than the national average per capita income.

India approaching IMF for foreign exchange not imminent: Planning Commission

Planning commissiondeputy chairman Montek Singh Ahluwalia has assured that India has

adequate forex reserves to manage the current situation and ruled out

approaching theInternationalMonetary Fund (IMF) for help, saying the economic

situation has not reached a point where outside aid is warranted. Indias foreign exchange

reserves were up at 278.602 billion $ as of August 9, 2013.

RBI not considering to convert idle gold into bullion

Responding to the reports that ReserveBank of India(RBI) is mulling over multiple

measures, including using thousands of tone of idle gold jewellery in temples, to replace for

import, the central bank said it did not have any proposal to convert idle gold from temples

and individual trusts into bullion.
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Current Affairs: Top Headlines for August 31, 2013August 31st, 2013

Indias fiscal deficit is around 63% of target

As per government data, Indias fiscal deficit during the April-July period was Rs 3.41 trillion

($50.91 billion), or 62.8% of the full-year target. Net tax receipts for the first 4 months of

the current fiscal year to March 2014 touched Rs 1.45 trillion, while total expenditure was

Rs 5.21 trillion. Indias fiscal deficit during the 2012-13 fiscal year ending March decreased

to 4.9% of the countrys GDP, compared to 5.8% in 2011-12. The fiscal deficit target is

4.8% of GDP for the current fiscal year.

India registers 4.4% GDP growth in Q1 slowest in 4 years

The first quarter of the current fiscal has been slowest in over 4 years with GDP growth of

4.4%. The decline implies a deepening slowdown and aggravating the widespread negative

sentiment brought on by the sharp depreciation of rupee depreciation and plunging stock

markets.

7000 tickets/min will be the booking speed of IRCTC website

The Centre for Railway Information System is developing next generation e-ticketing

system for IRCTCs website which will have an efficiency to book 7200 tickets e-tickets per

minute. It will render the website to perform faster and hassle free access even at peak

time and have high availability andbusinesscontinuity, scalability to meet the needs of

future growth and security to prevent frauds and unauthorized access.

Mars One: 8,000 Indians register for one-way trip to the Red Planet

So far 8,107 Indians have registered for the one-way trip to Mars and to live on the redplanet, as Mars One project is planning to set up a colony there in the next 10 years. A

not-for-profit initiative, Mars One, intends to establish a permanent human settlement on

Mars in 2023 and is signing up those inclined to fly there. India has fourth highest number

of participants among other nations of the world.

The top 10 nations to register are the USA (37,852), China(13,124),Brazil(8,686), India(8,107), Russia (7,138), Britain (6,999),Mexico(6,771),Canada(6,593),Spain(3,621)andPhilippines(3,516).

RBI permits premature encashment of 8% Savings (Taxable) Bonds

As per a statement released by the ReserveBank of India, individual investors who are 60years are allowed to avail premature encashment of 8% Savings (Taxable) Bonds. This

facility is available after a minimum lock-in period of 3 years from the date of issue. Those

desiring to avail of the facility will have to submit documentary evidence in support of

his/her date of birth to satisfaction of the agency bank.

Saudi Arabia makes domestic violence a criminal offence
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The cabinet ofSaudi Arabiaapproved a new law that criminalizes domestic violence, usually

targeting women and children. The Protection from Abuse law is meant for protecting people

from all forms of abuse and providing them shelter as well as social, psychological, and

medical help.

Current Affairs: Top Headlines for August 30, 2013August 30th, 2013

Melbourne tops the list of liveable cities in world

According to a survey conducted by the Economist Intelligence Unit, the AustraliancityofMelbourne is the most live able city in the world whileconflict batteredSyriascapital Damascus is the least live able city. The survey also lists

Karachi and Dhaka among the least live able cities.

HDFC Bank expands its rural business

HDFC Bankfurther expanded its rural presence by announcing the launch of 18 new ruralbranches inHaryana, taking its total network to 200 branches in the state. Of the 18 newbranches 14 are in unbanked places which will bring formal bankingservices to around

90,000 people in the state. At the national level, the bank has 53% of its branches in semi-

urban and rural areas supporting the idea of inclusive growth.

Rupee could depreciate to 75, more measures needed: BofA-ML

According to a report by Bank of America Merrill Lynch (BofA-ML), if the current stancetowards declining rupee is maintained then the scenario could be worse, rupee could touch 75 perUS dollar by the end of 2014. It suggested the Reserve Bank ofIndia(RBI) to take more pro-active measures to rebuild forex reserves. It also suggested the RBI to launch a scheme to attract

significant forex inflows where the INR risk would be borne by the RBI to comfort investorconfidence like issue of NRI or sovereign bonds or reviving FCNRA deposits.

National Sports Day celebrated across India

August 29was celebrated as NationalSportsDay across the country to commemorate the birthanniversary ofthe Wizard ofHockey,Major Dhyan Chand.Various sporing events wereorganized across the nation to mark the day. It was 118thbirth anniversary of Dhyan Chand, thelegend who helped India win three Olympic gold medals in 1928, 1932, and 1936.

Scientists discover Suns twin

An 8.2-billion-year-old twin of the Sun has been discovered by the astronomers. AstronomersinBrazilused ESOs Very Large Telescope to locate the star HIP 102152 located 250 light -yearsaway. It is very similar to the Sun- except that it is nearly four billion years older. Studying theancient star allows researchers to predict what may happen to our own Sun when it reaches thatage.Rupee registers biggest single-day gain in 15 years with RBIs intervention
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With the step taken by the ReserveBank of Indiato open aspecial dollar facilityfor PSU oilfirms, the rupee, which is under severe pressure, posted sharp 225 jump to end at 66.55 againstthe dollar and the sensex increased by over 400 points. The dollar facility will allow PSU oilcompanies to buy dollars directly to pay for the import of petroleum.

Right to Education anthem launched by Ministry of HRD

With a view to disseminate the message of Right toEducation, the Human ResourcesDevelopment Ministry launched an anthem on the same which ideates to make education forchildren interesting and friendly. The ministry hopes that children will now imbibe the RTEmessage from popular public figures in a musical form. The anthem will be dubbed in Englishand 15 regional languages.

Second quarter brings sharp growth for US GDP

The U.S. Gross Domestic Product (GDP) speeded up more quickly than expected in the secondquarter owing to increase in its exports, strengthening the case for the Federal Reserve Bank to

taper the quantitative easing programme started in 2008 global financial crisis. As per revisedestimates GDP rose at a 2.5% annual rate. The quarters growth rate was more than double thegrowth rate recorded in the previous 3 months.

Government approves RILs $3.18 bn gas field development project with BP

The Reliance Industries Ltd. and Bharat Petroleums plant invest $3.18 billion in thedevelopment of R-series gas field in the KG-D6basin, which is expected to produce up to 13million standard cubic meters gas, has been given governments approval.The government has asked the operator to fast track the development of R-series discoveries toreverse falling output from the block, which declined to around 14 mmscmd from 62 in March2010. At present, gas is produced from D1, D3 and MA fields in the KG-D6 block.

LIC raises it shareholding in SBI to 13.26%

Insurance giant Life Insurance Corporation (LIC) has increased its equity stake by 2.86% in

the countrys largest public sector bank State Bank of India from 10.4 % to 13.26% by

buying 19.57 lakh shares from open market. The additional stake would have been acquired

by paying Rs 49.15 crore at current market price. With this, the equity share capital of the

LIC has increased to Rs 684.03 crore from Rs 634.88 crore.

Offshore markets affecting rupee fluctuationsAugust 27th, 2013

The RBI stated in its annual report that the Non-Deliverable Forwards (NDF) marketsare exerting more pressure on the onshore currency market, especially when rupee is under

stress.

The rupee has nearly declined 21 % so far this fiscal. As per RBI, during the period of the

rupee fall the shocks originating in the NDF market may carry more information which is

mirrored in the onshore segments of the market through mean and volatility spill over.
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It further says that during the period of the rupee appreciation the NDF market and the

rupee spot market exhibit a bi-directional relationship. However at times of rupee fall

relationship turns unidirectional from the NDF to onshore market.

What is NDF (Non-Deliverable Forwards)?

Non-Deliverable Forwards (NDF) is a foreign exchange derivative instrument tradedover the counter and is operated in currencies that are not freely convertible such as the

rupee. The market enables hedging of exchange rate risks irrespective of any restrictions

arising in the currency of origin.

No proposal to increase FDI ceiling in banksAugust 24th, 2013

The government has clarified that there is no proposal to raise foreign investment limit in

thebankingsector.

What is the current status of foreign investment in banking sector?

Currently, the aggregate foreign investment (FDI, FII and NRI) cannot be more than 74% in

private sector banks while the limit is at 20% for nationalized banks, State Bank

ofIndiaand its associate banks.

What is the status of FDI in insurance sector?

The government intends to increase the FDI limit in insurance sector. For this it introduced

the Insurance Laws Amendment Bill, 2008 in Parliament to increase it from current 26% to

49%. The coverage of life insurance in India has enhanced from 2.15% in 2001 to 3.17%

which is aboveBrazil, Russia,Malaysia,Pakistan,China,Sri Lanka,AustraliaandGermany. However, the penetration is belowFrance,Switzerland,the UK, the

US,Japan,Singapore,South Korea,TaiwanandHong Kong.

RBI eases portfolio investment scheme for NRIsAugust 23rd, 2013

TheReserve Bank ofIndiaeased the rules governing portfolio investments such as equity

and debt by Non-Resident Indians (NRIs) to pull in foreign currency.

Under thePortfolio Investment Scheme (PIS)forNRIs, banks were given a unique code for

each branch making it unwieldy for them to administer the scheme.

Now, RBI has allowed banks to do away with the unique code for branches making banks

free to administer the PIS scheme for NRI.

As per the guidelines of the RBI:

The designated branch of the bank will grant a one-time permission to the NRI applicantfor the purchase and sale of shares or convertible debentures of an Indian company.

Two distinct permission letters (for repatriation basis and non-repatriation basis) shall beissued as per the prescribed format.
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The designated branch will open a separate sub-account of NRE/NRO account (openedand maintained by an NRI in terms of the Foreign Exchange Management (Deposit)

Regulations, 2000) for the exclusive purpose of routing the transactions under PIS on

behalf of an NRI.

If NRI is eligible to make investment in India his resident power of attorney holder can bepermitted by AD bank to operate NRE (PIS)/NRO (PIS) account to facilitate investmentunder the scheme.

Shares or debentures purchased will be held and registered in the name of the NRI andthe shares or debentures acquired by the NRI under the scheme will not be pledged for

giving loan to a third party without prior permission of the RBI.

Banks must ensure that NRIs are not allowed to invest in any Indian company which isengaged or proposes to engage in the businessof chit fund, Nidhi Company, agricultural

or plantation activities.

NRIs investments cant be made in real estate business excluding development oftownships, construction of residential or commercial premises, roads or bridges,

educational institutions, recreational facilities, city and regional levelinfrastructure,

townships.

RBI takes measures to ease liquidityAugust 23rd, 2013

RBI took a few measures to ease liquidity including Rs 8,000 crore bond buyback, to ensure

adequate credit flow to the productive sectors of theeconomyto counter the surge in

interest rates following its steps to support falling rupee.

RBI has decided to take following measures to ease liquidity:

Conduct open market purchase of government bonds of Rs 8,000 crore to inject liquidity.More Open Market Operations (OMO) would be undertaken when required.

Retain the Statutory Liquidity Ratio (SLR) which is the portion of total deposits banksare required to park in G-Secs at 24.5 % to help banks reduce Market-to-Market (MTM)

losses resulting from abnormal market condition.

Relax SLR requirement by allowing banks to retain SLR holdings in Held To Maturity(HTM) bonds category at 24.5 % until further instructions. Banks have the option of

valuing these securities for the purpose of such transfer.

As per RBI the hardening of long term yields has resulted in banks incurring

large MTM losses in their investment portfolio and these MTM losses are partially resulting

from abnormal market conditions and could be expected to be largely recouped going

forward.

Indias sovereign outlook remains negative on S&P ratingsAugust 23rd, 2013

Global sovereign rating agency Standard & Poors said it will maintain negative outlook for

theIndiaas currency depreciation is adversely impacting investors confidence. They will

maintain a negative outlook on IndiasBBB sovereign credit ratings. S&Ps statement

came when the rupee slid down to a record low of 64.11 to a dollar.
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What is BBB?

BBB is the lowest investment grade and a downgrade would mean pushing the countrys

sovereign rating to junk status making overseas borrowings by corporates costlier.

According to S&P:

Indias long term growth prospects could weaken on a sustained basis, with negativeimplications for the sovereign credit fundamentals.

The capital outflows and depreciating rupee is an indication of weakening investorconfidence in India. This is a result of the declining economic growth in the past two years

and insufficient long term policy response that could reverse the decline and revive

investments.

Investments continue to be strangled by inadequate infrastructure, rigidities in labour andproduct markets, and red tape, among other issues.

Future credit rating action would depend upon the response of policy-makers to the latesteconomic developments.

RBI lowers remittance limit, discourage green card dreamsAugust 23rd, 2013

Taking further measures to reduce the burden on the already weakened rupee, RBI reduced

the limit for remittances made by individuals to $75,000 from $200,000 per financial year

and banned the purchase of property outsideIndia. The rich Indians with a view to invest inbusinessor buy property in some foreign countries to gain permanent residency find their

dreams crushed with this measure.

Various countries and their conditions to afford a green card:

Countries such asthe US, UAE,Australia,Bahamas,Spain, Mauritiusand parts ofCanadaofferpermanent residency and fast track green card to those who invest in businesses or

property there.

The US EB 5 visa offers a fast track green card if one invests $500,000 in a business. Buying a property worth $500,000 one can get a permanent residency in the Bahamas. In Australia one has to invest $5 million to het the green card. In the UAE foreign property buyers are automatically given a three year residency permit. Canadas Quebec province runs an investor programme which gives permanent residency

to immigrants who can invest $800,000 in the province in the form of a guaranteed,

interest-free loan.

SEBI auctions Govt. debt securities worth $9.34 bnAugust 22nd, 2013

With the aim to attract foreign investors towards Indian debt market, market

regulator SEBI auctioned government debt securities worth $9.34 billion (Rs 58,264 core)

and it received bids worth $10.4 billion (Rs 64,908 crore).

The FIIs were in a trend of selling their holdings after the USannounced that it would taper

the the $85-billion-a-month bond purchase programme as early as next month and end it

next year if the US economic recovery is up to its expectations.
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This is the biggest ever auction for such bonds and exceeds the previous record of Rs

42,022 crore, auctioned two months ago on June 20, and neutralizes the prevailing

concerns in markets with regard to foreign investments.

As per experts, the fall in the Indian currency has been instrumental in overseas investors

exiting debt markets as the rising cost of hedging a volatile rupee hurt the yield differentialthe FIIs work with.

With a view to attract foreign investments, the government recently raised the investment

limits for FIIs in government debt to $30 billion, from $25 billion previously.

FDI limit in Asset Reconstruction Companies hiked to 74%RBIAugust 20th

Documents

Banking Current Affairs 1stJan 2013 to 30Sept2013