[Current] Sep-2016: Economy, Banking, Finance: MPC Members, SBI Merger & Share Swapping, Stock Gaming, PFMS, Talgo Rails & Hyperloop Train

[Current] Sep-2016: Economy, Banking, Finance: MPC Members, SBI Merger & Share Swapping, Stock Gaming, PFMS, Talgo Rails & Hyperloop Train

  1. Prologue
  2. Pillar#1: Banking-Finance
    1. Monetary policy committee (MPC)
    2. Monetary policy: Oct-2016 update
    3. RBI other developments
    4. NPA Related
    5. Banking: SBI Merger & share-swapping
    6. Finance: SEBI and NBFC related
    7. Finance: Insurance-Pension related
    8. Scams: Banks
    9. Scams: Share market
  3. Pillar#2: Budget, Public Finance
    1. PFMS
    2. Committee pe Committee
    3. Labour and wages
  4. Pillar-3: BoP and World Trade
  5. Pillar-5: Infrastructure
    1. Railways
  6. Summits and Rankings

Prologue

Compilation of selected current affairs related to economy from August and September 2016.

Pillar#1: Banking-Finance

Monetary policy committee (MPC)

  • Purpose- Maintain inflation within 2-6% of All India CPI.
  • Setup on the recommendations of RBI’s Urjit Patel Committee.
  • For long, the composition was stuck because Government wanted its officers in the Committee- with, but RBI feared this will hurt autonomy.
The final composition
3 from RBI side 3 from outside
  1. Governor Dr. Urjit Patel (can give tie-breaker vote)
  2. Dy. Governor R.Gandhi
  3. Executive Director Michael Patra
  1. Chetan Ghate- Professor @Indian statistical inst.
  2. Pami Dua- Director @Delhi school of economics
  3. Ravindra H. Dholakia-  Professor @IIM-A’bad.

Want to learn more about this Committee? Watch lecture

Monetary policy: Oct-2016 Review & update

Urjit Patel New Monetary policy SBI Merger

EVEN IF ALL 3 OUTSIDE-MEMBERS IN MPC WERE THEHINDU COLUMNISTS, URJIT PATEL NEED NOT WORRY SINCE HE HAS TIE-BREAKER VOTE!

  • Repo rate decreased by 0.25%. New repo rate is 6.25%
  • Reverse repo rate 5.75%
  • SLR, CRR unchanged.
  • To understand theory- watch the lecture.

RBI other developments

Governor change
  • Governor Urjit Patel replaced Raghuram Rajan. (August 2016)
  • Dy. Governor R.Gandhi will hold the monetary policy department (earlier under ex-Dy.Gov Urjit Patel).
  • Ex-governor Rajan to teach corporate governance as professor in Chicago booth university.
E-Kuber RBI will administer the Sovereign gold bonds on through this e-portal.
Khan Panel (RBI)
  • Mechanism to deepen Corporate Bonds market.
  • Foreign investors can directly participate in bond-market without broker.
  • Banks permitted to issue rupee denominated overseas bonds.
  • Need to give bond access to low-credit borrowers.
Chandan Sinha working group (RBI)
  • Executive director of RBI
  • This RBI group will review commodity hedging guidelines.

Banking: NPA related

Insolvency and Bankruptcy board
  • body constituted under Insolvency and Bankruptcy code 2016
  • Madhusudan Sahoo becomes chairman. He’s also a member of the CCI.
  • To understand NPA and Bankruptcy code, watch lecture
Defaults Banks can’t publish photos of all defaulters and their gurentators. Only wilful defaulter’s name can be published- says RBI.
Resolution Corporation
  • Ajay Tyagi (Addl. Secy in Finmin) committee was setup to prepare draft code on resolution of financial firms.
  • It has recommended abolishing DICGC and creating a Resolution corporation- to address the solvency issues of financial firms.
  • SARFAESI act and Bankruptcy code 2016- deals with non-financial type firms.
S4A
  • S4A: RBI’s new guideline to help lenders recover bad loans. S4A aims to address the lacunas in earlier 5:25 and SDR scheme.
  • RBI also issued draft guidelines for corporate lending. They’re technically designed in a way, that banks will be nudged to give attention to retail loans as well.
Mallya Says he wants to return from UK but government has suspended his passport. MEA says he can- by applying for an ’emergency certificate.’

Banking: SBI Merger & share-swapping

  • SBI Chairman Arundhati Bhattacharya given 1 year extension so she could complete the Merger of SBI, its 5 associated banks and Bharatiya Mahila Bank; and resolve NPA problem.
  • Under the merger, existing shareholders of those 6 smaller banks will get SBI shares in following table.
  • After share-swapping the existing shares of those khopchaa-banks will be cancelled.
Table not important, except for Bank exams and interviews
खोपचा-Banks If you have __ shares You will get__SBI  shares
  • State Bank of Bikaner & Jaipur (SBBJ)
10 share of Rs. 10 each
  • 28 shares of Rs. 1 each
  • In other words, swap ratio is 2.8:1
State Bank of Mysore (SBM)

  • Lowest manpower among the merged banks (10650)
  • Lowest no. of branches (1037)
22 shares
  • 10 shares
  • In other words, swap ratio is 2.2:1
State Bank of Travancore (SBT) 22 shares
  • 10 shares
  • In other words, swap ratio is 2.2:1
State Bank of Patiala (SBP)
  • Unlisted company
  • SBI itself holds ~99%
NA
  • State Bank of Hyderabad (SBH)
  • Highest manpower (18,842)
  • Maximum branches (1933)
  • Unlisted company
  • SBI itself holds ~99%
NA
Bharatiya Mahila Bank Limited (BMBL) 100% govt owned 4.42 crore SBI shares to govt. (तो फिर बनाया ही क्यों था ये बेंक? except to harass IBPS aspirants?)

To Understand the evolution of Banking sector in India. Watch Lecture
SBI: Misc. Developments

  • Launched unit in GIFT city,Gandhinagar to deal in external-commercial borrowing and trade credit.
  • SBI is 45th largest bank of the world with assets over Rs.37 billion.

Finance: SEBI and NBFC related

SEBI
  • Chief UK Singha got appointed in 2011 for 3 years + 2 years extension. Term to end on 1st March 2017
  • Hunt begins to select new chief, he’ll get 4.5 lakh per month package as per the recommendation of Justice AK Mathur’s 7th Pay Commission.
  • SEBI chief applications are filtered by the financial sector regulatory appointments search committee headed by Cabinet secretary (IAS).
SEBI reform
  • To deepen corporate bond market- FPI directly invest without a broker
  • ReITs and InvITs also fine-tuned for similar purpose.
InvITs
  • IRB Infra. Developers ltd. Launched first InvIT fund.
  • Similar to mutual funds- money pooled from investors and put into finished and revenue generating infra. Projects.
  • Unit holders get returns depending on their quantum of investment.

Finance: Insurance-Pension related

ICICI Prudential
  • Got approval from SEBI to launch IPO.
  • This is first IPO by an Indian insurance firm
  • Got oversubscribed 10x times.
LIC
  • 60  years completed on 1st September 2016., 22 lakh cr. Rs. Under management; 10 lakh + agents, 2048 branches.
  • SK Roy becomes first chairman of LIC to resign before completion of his term. MD VK Sharma became the new chairman.
PFRDA
  • Following are the fund managers of NPS
    • ICICI prudential
    • HDFC
    • Kotak-Mahindra
    • Reliance cap
    • Birla Sunlife
    • LIC
    • SBI
    • UTI

Last three responsible for managing Government sector NPS. In news because now PFRDA invited fresh bits to manage NPS funds- total 10 will be given ‘license.’

Scams: Banks

IFCI
  • Industrial finance corporation of India (IFCI)- accused of financing Satyam- a willful default declared by RBI.
  • So, SC orders RBI, SEBI and SFIO to probe against IFCI.
Jan Dhan Data Dressing
  • To reduce the number of ‘zero-balance’ Jan Dhan account, the Bank staff itself adding one rupee in such accounts of poor people by diverting the money meant for office/canteen expenditure. Account holders themselves unaware.
  • Financial inclusion alone not sufficient, without generation of jobs / incomes. This data-dressing tends to hide this problem.
Bank of Maharashtra CMD Sushil Muhnot removed for allegedly occupying two houses.

Scams: Share market

Stock gaming
  • Sites such as “stockrace.in”,  allow lottery type of games linked with performance of BSE-NSE, where real money and physical prizes are given.
  • Experts criticize this as one type of ‘betting/gambling’. But SEBI helpless. Matter falls in State government domain. Assam-Odisha laws have forbidden them.
NSE
  • Allegations that big brokers are using algo-trading (using computer algorithm to put large scale orders) and they’ve installed such system within NSE building to get faster access to portal compared to ordinary share investors accessing through (*insert name of your most hated mobile company*) ki bogus 3G/4G service.
  • Meaning, Big brokers can place orders faster than ordinary investors. thus giving possibility to price manipulation and stock-rigging.
  • So, NSE orders probe.

Pillar#2: Budget, Public Finance

GST Lot of updates but will cover in future lecture since the topic is still evolving.
Budget reform Plan vs non-plan classification to be removed, Budget date to be advanced, rail budget to be merged…More in future lecture.
Income declaration scheme
  • ~65,000 people declared black money worth Rs.65,000 crores.
  • In the earlier scheme of 1997- amnesty was given, but this 2016 scheme involves penalty of 45% on black money so,  it can’t be called “amnesty scheme.”
  • More insights in future lecture.
E-nirvan This portal is launched by CBDT to handle Income tax payers’ grievances.
1924 This is the toll free number to complaint against Indian Post.
Commodity boards Commerce ministry suggests that in tea, coffee, rubber, tobacco board- the chairman should be a politician and IAS should be of dy. Secretary rank. Earlier IAS themselves used get appointed as Chairman.

PFMS

  • Public financial management system (PFMA) is managed by Controller General of Accounts (CGA).
  • This webportal gives real-time monitoring of the central funds allotted to various central schemes; with its treasury-bank interface.
  • Doesn’t monitor state schemes.
  • Voluntary for states to join, but government hopes by 2017,March all will join.
  • W.Bengal not joined the portal, but Union assures it’s not ‘intrusive’,  only central funds to CSS will be monitored.
  • CGA also manages NRTP: Non-tax receipt portal.
  • CGA’s new building inaugurated. Its name is “Mahalekha Niyantrak Bhavan”

Committee pe Committee

Justice AP Shah Panel
  • RIL should compensate ONGC for the KG-D6 block for past 7 years because RIL was gas from ONGC’s block was migrating to Reliance’s block in the Krishna Godavari basin.
  • Government order DG-hydrocarbon to work out the penalty formula on reliance.
CEA Arvind Subramanian Panel
  • Pulse production- how to improve using MSP and related policies.
  • Recommendations- will discuss in the lecture.
Rajan P Watal committee
  • Finmin setup this committee to suggest ways to promote e-payments via giving ta-x rebates, cash back, lottery etc.
  • Ratan Watal is ex-finance secretary.
Sanjya Mitra committee
  • He is secretary (IAS) in Union highway ministry.
  • This committee will look into issues related to taxi-operators including surge pricing by taxi-app companies and taxi-permits.
Body pe body FM to setup a forum, which will apprise creation of new institutions/bodies/SPV etc.

Labour and wages

Minimum wages
  • For unskilled non-agro worker, the minimum wages have been hiked from 246 to Rs.350 per day.  But trade union demand Rs.18,000 per month. Hence planning to go on strike.
MP wages
  • Government brining bill to raise MP’s emoluments to Rs.2.8 lakhs per month.

Pillar-3: BoP and World Trade

WTO
  • American solar companies had challenged India’s JNSolar mission under which desi solar panels were given first preference in public procurement.
  • WTO ruled in favour of USA.
  • India went to WTO-appellate body but they also ruled in favour of USA.
World Bank
  • Traditionally,  World bank chief chosen by USA and IMF chief by Europe.
  • Jim Yong Kim’s first five year tenure ends on June 2017. he’s given 2nd term. (although staff had opposed)
Cyprus DTAA
  • After fixing CGT exemption from Mauritius DTAA, now government doing same with Cyprus. No more CGT exemption from April 2017.
BIS
  • Bank for international settlement (BIS) says Banks in china are to face crisis in next 3 years because they’re unwittingly giving too much loans to home buyers and real-estate developers.
  • But some experts say just because American banks burned hands in Sub-prime lending doesn’t mean history shall repeat in China.
Bahama papers After Panama papers, now Bahama papers leaked- detailing the shell firms registered by the rich to evade tax in their home countries. ~475 from India.
Vodafone
  • Receives 47,000 crore FDI infusion from parent company to compete after Reliance-4g offer!
  • This is the biggest FDI infusion in Indian history.
Exchange rate council Comm. Min wants there should be a separate panel to decide the value of rupee against foreign currency. At present, rupee said to be 10% overvalued against dollar- hence negatively affecting exports.
Apple-Ireland EU orders Apple to pay #13 billion Euro as back tax to Ireland. Ireland itself not keen to accept money fearing it’ll deter other investors from opening companies and creating jobs in Ireland.

Pillar-5: Infrastructure

Smart city
  • Third round – 27 cities from 12 states selected
  • Total count is – 60 x each to get 200 crores from union.
PPP
  • CAG tells PAC that PPP projects get money from Consolidated fund, hence should be audited by CAG. PAC forms a subpanel to examine how to do it in systematic manner.
Sasan UMPP This ultra-mega powerplant is Located in Madhya Pradesh. Reliance power has mortgaged the coalmines linked to this project to lenders. But coalmin prohibited those lenders from transferring the leases to third parties without its consent.

Railways

Rail budget To be merged with general budget. Will be covered in lecture.
Hyperloop train. They run faster than aircraft at a speed of 1120 kmph. Niti Gadkari met SpaceX entrepreneur Elon Musk and suggested him to introduce such trains in INDIA!
Talgo rails
  • Talgo is a Spanish company specializing in high speed railways.
  • It has given a trial train to India – claiming to run at 200 kmph.
  • Desi trains use Linke Hoffman Busch (LHB) coaches- their wheels are joined by axle underneath
  • While in Talgo coaches,  each wheel is fitted individually.
Railway insurance
  • Rail ministry launches insurance scheme for travelers: children below 5 and foreign citizen not covered.
  • 10 lakh for death/total disability + 10k for transporting dead body.
  • Upto 2 lakh for hospitalization, robbery, dacoity, arson etc.

Summits and Rankings

Swatchh Bharat
  • Swatchh Bharat Sarvekshan (Survey) 2016 by Drinking water and Saniation  ministry, with help of NSSO data.
  • Best state in rural sanitation is Sikkim. Most Bogus is UP.
WEF World economic freedom index 2016- India’s rank declined from earlier. Now we’re 112th most bogus country among 159 total countries. Hong Kong (1), Singapore (2).
It’s prepared by the Heritage Foundation in partnership with Wallstreet Journal.
health index for SDG
  • international  collaboration on global burden of disease (GBD) has analysed each country’s progress to SDG goals.
  • Their 1st health index released @UNGA.
  • Total 100 marks, Best country Iceland (85),  most bogus Is Central African Republic.
  • India ranks 143/188 countries,  we spend hardly 1% of GDP on healthcare.
Inequality of wealth New World Wealth report : Japan is most equal country; Russia- most unequal; India- 2nd most unequal because millionaires control >50% of national wealth.

Summits

Tourism
  • First Incredible India tourism investors summit held at New Delhi. It was organized by tourism ministry.
Innovation summit
  • National summit on innovation and technology- held at Gandhinagar, Gujarat.

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