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Money, Banking, Finance Notes for UPSC CSE

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What is difference between economics and finance?

Finance is study of money, banking and financial instruments. While economics is larger set
associated with production, consumption, and distribution of goods and services

Favourite Governor (Rajan)

1. Inflation control

Unnecessary facts if you fail in interview

Fiat currency - Issued by order of government or RBI

Legal tender - Valid for all transactions
Cash transaction limit - 2 lakh by Finance act 2017

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Stale cheque - Not withdrawn in 3 months

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Core Banking System - Centralized digital data management, Finacle (Infosys) & E Kuber (RBI)

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RTGS - 2 lakh to 2000 crore (Only by banks)

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NEFT - 10 lakh (Only by banks)

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IMPS - By banks, prepaid payment instruments , mobile wallet, etc (That is no IFSC code

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required thus no direct involvement of RBI)

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Radio-frequency identification (RFID) uses electromagnetic fields to automatically identify and

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track tags attached to objects. An RFID tag consists of a tiny radio transponder; a radio receiver

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and transmitter.

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Card tokenization - Masks card number, expiry date , CVV , etc from third party

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ATM types

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1. Bank label
2. Brown label
3. White label
M3 is most commonly as used money supply (Currency with public + DD+TD with commercial
banks)
Money in the hand of poor & developed countries has higher velocity
CRR - 4%
SLR - 19%
Bank rate - Banks borrows in long term from RBI without pledging collateral
MSF - Penal rate as SLR limit is
breached, (Bank rate is also penal rate
hence MSF and Bank rate are same),
Only used by all schedule commercial
banks, Use of collateral of Gsec including
SLR [Overnight facility]
LAF - All client of RBI [Excluding RRB],
Money lent at REPO, collateral is
government securities (including
state) [7-14 days]
Reverse Repo - Clients lend money to the RBI

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Standing Deposit facilities - Bank parks funds in RBI for short term to earn interest
Hawkish policy - Fight inflation
Dovish Policy - Expansionary policy
Mudra - 100% SIDBI subsidiary
Mudra loans are collateral free. If borrowers default losses will be covered by credit guarantee
fund for micro units operated by NCGTL (Loan interest is high)
Banks lending rate is linked to the
1. Repo rate
2. 91 days T bill
3. 182 days T bill
4. Any other bench mark rare decided by Financial benchmark India ltd
CHIT fund - Concurrent list
Sharda chit fund- Ponzi scheme (After 100cr SEBI permission is required)

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Definitions

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Teaser loan - Earlier year low interest rate (Higher restrictions)

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Subprime - Borrower does not have ability to pay (Teaser loan to home buyer was reason to

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subprime crisis)
Over leveraged borrower - Company borrows too much than its ability to pay back

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Zombie lending - When a weak bank keeps giving new loans to a subprime overlaveraged

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borrower

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Inverted yield curve

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1. Reflects a scenario in which short-term debt instruments have higher yields than long-term

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instruments.

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Operation twist
1. sells the short term securities and buys long term securities simultaneously through Open
Market Operations (OMO).
2. Deals with steep bond yield curve
3. Reduced long term interest rate

Long term repo operations

1. Long term repo operations conducted with current repo rate
2. Reduced interest rate on the long term borrowing

Incremental CRR exemption

1. On few sectors like Auto, Housing, MSME

Accommodative stance
To increase the money supply in the economy.
Neutral stance
Neutral stance of RBI provides it the flexibility to move in either of the directions. (Depend on
the inflation)
Contractionary stance
Followed by RBI to decrease the overall supply of money in the economy

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Issues

Cashless Economy (Already lots of digitisation happening)

1. Raise awareness about adoption of BHIM
2. RBI should prepare index of digital financial inclusion
3. 10% digital literacy increase it

Benefit
1. Reduction in black money
2. Better tax surveillance
3. Difficult to steal if proper care is taken

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Challenges

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1. Interoperability

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2. KYC Adhar - Privacy debate

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3. Issues for rural area Digital literacy

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4. Internet issues

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Blockchain

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1. Its a decentralize, open ledger technology which maintain a growing list of transaction.

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2. Each block contains a cryptographic hash of the previous block a timestamp, and transaction

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data

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3. In cryptography and computer science, a hash tree or Merkle tree is a tree in which every leaf

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node is labelled with the cryptographic hash of a data block, and every non-leaf node is labelled

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with the hash of the labels of its child nodes.
4. Once recorded, the data in any given block cannot be altered retroactively without alteration of
all subsequent blocks, which requires consensus of the network majority.
5. Last year Coffee Board had launched the Coffee Blockchain initiative. Under it, country’s first
blockchain-based marketplace app for trading in Indian coffee was launched which aimed at
getting growers better returns by removing middlemen
6. Yes bank vendor payment

Cryptocurrency
Its digital virtual currency created and stored using blockchain technology. (Bitcoin, Libra by
facebook using move programming language, )
Why crypto?
1. Anarchist lost faith in fiat money because of subprime crisis due to eroded purchasing power of
US dollar (Satoshi Nakamato - 10^8 Satoshi = 1 bitcoin)
2. Miner verifies transaction to get bitcoins
3. only 21 million bitcoins can be mined
Challenges
1. Mining - Thermal electricity wastage
2. Difficult to trace by law enforcement agencies
3. Terror finance

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4. Ineffectiveness of monetary policy

5. Volatility
6. Theft
7. Quantum computing can solve blocks very easily thus will crash the value of bitcoins
8. 2018 budget it is not a legal tender
9. If private key lost then bitcoin loss (SHA256 has function)
10. Cryptojacking

Challenges using blockchain

1. ‘immutable’ nature necessitates very valid data
2. Reduced need of intermediaries thus there is need of change in legal framework

Other use of blockchain (NIT Ayog)

1. Land Records: Creating a new system to manage land record transfer and ownership

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2. Payment between banks can be settled using block chains

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3. Pharmaceutical drugs supply chain

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4. Bond market (Commercial paper by yes bank)

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Co operative banks

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Problems with co operatives

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1. Politicization

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2. Casteism

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3. Scams

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4. Demonetisation

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5. Money laundering

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6. Poor recovery of loan

PMC bank crisis

1. Bank is facing regulatory actions and investigation over alleged irregularities in certain loan
accounts. Loans given to financially stressed real estate player Housing Development &
Infrastructure (HDIL) are at the centre of the investigation.
2. HDIL promoters allegedly colluded with the bank management to draw loans from the bank's
Bhandup branch. The bank officials did not classify these loans as non-performing advances,
despite non-payment.
3. The bank also allegedly created fictitious accounts of companies which borrowed small sums of
money, and created fake reports to hide from regulatory supervision.
Steps taken
1. regulatory actions and investigation by RBI
2. Union proposed amendment in BRA to bring multi-state cooperative banks under the watch of
the central bank
3. Proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks,
while administrative issues will still be guided by Registrar of Cooperatives
4. Cooperative banks would be audited according to RBI rules and appointment of CEOs would
require prior approval from the central bank. The RBI will also have the right to supersede the
management of a cooperative bank in case of governance failure

Subprime Crisis

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1. Teaser loan - Earlier year low interest rate (Higher restrictions)

2. Subprime - Borrower does not have ability to pay (Teaser loan to home buyer was reason to
subprime crisis)
3. Boom in the mortgage backed securities
4. Housing bubble burst around 2006
5. The subprime mortgage crisis was the collective creation of the world's central banks,
homeowners, lenders, credit rating agencies, underwriters, and investors.
Response
1. Open market operations by FED to ensure the liquidities of banks
2. Economic stimulus - Income tax rebate

NPA Crisis
Some Facts
1. NPA - If loan principle or interest is not paid for more than 90 days from due date

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2. Net NPA is simply the total bad assets (actual) minus the provision left aside.

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3. NPA ratio declining to 9.1 percent in FY19 from 11.2 percent in FY18

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4. Gross NPAs of public sector banks improved to 11.6 per cent in FY19 from 14.6 per cent in FY18

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5. During the same period, private sector banks' gross NPA deteriorated to 5.3 per cent from 4.7

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per cent (Because of LIC)
6. Loan write off - Written off asset from bank balance sheet. It is just done for the tax benefit

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purpose and bank has not waived off write to recover loan.

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7. Restructuring loans - principle, interest rate, tenure of loan is modified

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8. Stressed asset = NPA + Loans written off + Restructured loans

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9. Evergreening of loans - Borrower take loan to pay off his old loan

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Why NPA are higher in PSB

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1. vulnerability to political pressures to lend to certain segments of the economy
2. Recovery - Again political pressure
3. Fear of loosing job by employee the private banks thus most loans are provided with care
4. No CVC/CBI/CAG control thus loan restructuring is easy process

Origin
1. Before 2005 boom in global economy. Indian corporates took large amount of loan and
overleveraged
2. 2007 - Subprime crisis . Indian export declined
3. 2008-2013 - Policy paralysis and environmental activism stalled projects
4. Balance sheet of borrowers became weak - Led to the Twin balance sheet problem

Strategy to fight NPA

1. RBI 4R framwork
a. Rectification - No change in tenure, interest just ask client to rectify his irregularities
b. Restructuring - Ease tenure, interest rate (Corporate debt restructuring is under IBC). In
strategic debt restructuring bank's debt is converted to the equity

c. Recovery - Auction, liquidation

d. recapitalisation

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2. SARFAESI Act 2002

a. Enacted in 2002
b. Bank and HFC can attach the mortgaged asset when loan is not repaid
c. Can change board of director, can auction such assets, can also sell sucha sset to ARC
d. Not applicable on farm loan
e. Debt Recovery tribunal
3. IBC 2016
a. NCLT - For companies
b. Rs 1 lakh threshold
c. DRT - Individual and partnerships
d. IBC is not applicable to - Wilful defaulter, Incapable defaulter (These two under
SARFAESI)
e. Separation of commercial and judicial aspect
f. Insolvency professional will be registered with insolvency professional agency (like

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CA insti)

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g. Insolvency and bankruptcy board - Will regulate IP and IPA

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h. Initiation (Financial creditor, operational creditor, employees or company itself) ->

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Appointment of IP (180 - 270 days) -> Committee of financial creditors take decision

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-> Liquidation

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i. Preferences : Insolvency cost > workers salary (upto 24 months) > secured creditor

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> unsecure creditor > dues to government > priority shareholder > equity

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shareholders

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j. Banks are not included

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k. IBC has section related to cross border insolvency but it is not notified yet

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l. Due to fear of losing control of Company corporate governance and financial discipline

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increased

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m. 50k crore NPA updated to standard asset
n. 1.70 lakh crore settled through I&B
o. Promoters of small companies are exempted from disqualification criteria under
Section 29A
p. Improve infra and man power to fasten resolution process
q. 1322 cases have been admitted by National Company Law Tribunal (NCLT). 4452 cases
have been disposed at pre-admission stage.

4. Strategic Debt Restructuring (SDR) is an attempt to revive stalled projects by giving equity
participation to banks in such projects. (Similar is S4A both are withdrew)

5. Project Sashakt (Sunil Mehta Committee)

a. Small size - Bank itself
b. Mid size - Inter creditor agreement
c. Large size - AMC
6. Deosthalee committee recommendation - Public credit registry to give 360 degree of borrower
to lender
7. Legal entity identifier number - RBI order big companies to obtain it
8. Fugitive economic offender act
a. 100 cr and above for schedule crime and fled India
b. Special court under PMLA
c. Appeal only in HC or SC

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9. FRDI bill (Not yet passed)

a. DICGCI as Resolution corporation
b. RC drafts resolution plan for banks
c. In case no resolution plan like merger, etc happened then Bail in provision using
depositors money
10. Bad Bank (PARA) - PARA Buys bad loan from banks
11. Prompt Corrective Action
a. Putting restriction on lending and beanch expansion
b. Restricting bank's directors salaries and dividend distribution
12. BASEL III
a. Pillar 1 - Minimum capital and liquidity requirement
b. credit risk - Some of the borrower may not repay loan or interest
c. Market risk - fluctuation in value of investment
d. Operational risk - Fraud

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e. Capital adequacy ratio or Capital to risk assets ratio - (T1 + T2) / Risk weighted

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asset; RBI mandated 9% [Government debt is allowed 9% risk weighting hence

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subtracted from total asset ]

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f. limit on leverage ratio ( is the proportion of debts that a bank has compared to its

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equity/capital ) [3%]

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g. Liquidity ratio - ability to pay off current debt obligations without raising external

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capital.

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h. Pillar 2 - Supervisory review process

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i. Pillar 3 - Risk disclosure and market discipline

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j. Common equity is the amount that all common shareholders have invested in a

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company.

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k. Capital conservation buffer to hold above CAR in the form of common equity (2.5%)

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13. Recapitalization (2.1 lakh crore)
a. If bank don't have enough capital to comply with BASEL III norms then it can issue debt
bond and equities to gather capital
b. Investor may not buy such bonds from weak banks thus there is bond recapitalisation
c. Bank lend money to the government and then with that money government buys equity
14. Bank board bureau - For appointment of the top officials of public sector financial company
15. Enhanced access and service excellence agenda 2018
a. Customer responsiveness
b. Reduce NPA & prevent frauds
c. Improve quality of human resource through performance linked promotion, training

PNB Fraud
1. Bank earns commission by issuing letter of undertaking to the foreign bank on behalf of
customer (Guarantee)
2. For last 7 years PNB's branch from Mumbai kept issuing LoU to tge foreign banks on behalf of
Nirav Modi
3. Fraud was not detected as SWIFT is not connected with CBS
4. Structured financial messaging system for domestic clients

ILFS crisis
Shadow banking

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Shadow banking comprises a set of activities, markets, contracts and institutions that
operate partially (or fully) outside the traditional commercial banking sector and are
either lightly regulated or not regulated at all.

Was there any early sign of crisis?

Economic survey showed that health score of NBFC was giving early sign of the crisis

Reason behind crisis

1. Financial institutions rely on short term financing to fund long-term investments. This reliance
on short-term funding causes an asset liability management (ALM) problem
2. Over dependence on short term funding requires frequent refinancing. Due to this NBFC is
connected to Liquid debt mutual funds. This systemic risk in NBFC can transferred to the LDMF
and vice versa

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3. Liquidity crunch in debt markets often leads to credit rationing. [ limiting by lenders of the

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supply of additional credit to borrowers who demand funds]

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4. In short problem is over dependence on short term wholesale funding

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5. For HFC ALM risk is higher for retail NBFC interconnected risk is higher

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Refinancing risk

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Possibility that a borrower cannot refinance by borrowing to repay existing debt. For

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NBFC the risk is driven by their dependence on the short term wholesale funding.

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Redemption risk

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Risk associated with redemption of bond before maturity

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Remedies taken
1. Replaced companies board
2. Investigation of IL&FS auditor and accountants
3. CRA has to disclose bond default probability
4. Amendment in RBI act for more regulation of NBFC

Monetary transmission
Its way by which general economic conditions and asset prices are affected by the monetory
policies
Channels
1. Interest rate channel,
2. Credit channel
3. Exchange rate channel,
Lower domestic interest rates could lead to a depreciation of the domestic currency, on
the one hand making exports more competitive in the global market and adding to
domestic demand and economic activity
4. Asset price channel.
Lower interest rates also boost asset prices such as housing and equity prices as these
can now be purchased at cheaper borrowing cost

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Challenges
1. Bank balance sheets are weak
2. Lag of 3-4 quarters
3. Unlike USA in Indian banks are not much depend on RBI for borrowing
What done ?
1. MCLR (Marginal cost of lending rate) to the benchmark rate
2. NPA reduction

Banking Reforms
PJ Nayak Committee
1. Government should transfer its shares to Bank investment Company (BIC), with functional
autonomy.
2. All PSB should be incorporated under companies act
3. liberate the banks from grasp of CVC-CAG-RTI (Own vigilance mechanism)

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4. Bank board bureau till BIC

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5. BIC delegate power to directors Either merged or privatize state own bank

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NARSIMHAN Committee

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1. Four tier banking structure with three to four big banks including SBI should be developed as

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international banks. Eight to Ten Banks having nationwide presence should concentrate on the

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national and universal banking services. Local banks should concentrate on region specific

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banking. And Rural banks for agricultural lending activities

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Bank Consolidation / Bank merging

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1. Merging banks and forming a new entity

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2. All duplicate operations and redundancies are rationalised thus reduces cost

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3. Vijaya Bank, Dena Bank with Bank of Baroda - Diversifiaction of customer base
4. However in increases risk and harms interest of shareholders of good banks
5. Merger will lead to a bigger capital base and higher liquidity which will help in meeting the
norms under BASEL
6. It should not be used as tool to bail out weaker banks but for commercial consideration
7. New entity will have similar problems of old banks thus bring governance reforms
8. At present, FDI of up to 49 percent is allowed in private banks without the permission of the
government, and upto 74 percent can be invested with the government's approval. (Increase to
100% in PSB it is 20%)

RBI vs PSB
The RBI regulates both governance and prudential norms of private banks. For public banks, the
government exercises the powers relating to governance while leaving prudential regulation to
RBI.

Other Reforms
1. HR training
2. Coorigination of PSL loan (2018) - Pooling of PSL

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Share Market
Unnecessary facts for prelims if you fail
T Bill - Sold at discount and buy at face value
Ways and means advances is not counted in calculation of fiscal deficit
Indian bond risk - BAA2/BAA by moody
ISIN number - 12 Digit number issued by NSDL to identify securities
Sensex = Present price * 100/ original price
FATF - G7
FSDC - Headed by FM (Chiefs of all regulators)
Financial stability board - G20 [Secretory DEA, Dy Governor RBI, SEBI chairperson]

Definition

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Equity - Ownership (Last claim in liquidity)

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Bonds - lending instruments.

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Debenture - Unsecured bonds

a
Money market - <1 year

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Capital market - >1 year

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Primary market - New securities issued for the first time

a
Secondary Market - Old securities are resold

ex
Spot market - Buy and sell for immediate delivery

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Future market - where parties write contract today to buy and sell something in future

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Universal exchange - Where all capital and money market products are available at one place

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Gilt edge securities - Bond issued by government

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Call money - Borrow for a day
Notice money - 2 to 14 day s
Bearer bonds - Not linked to id. Anyone who present it to issuer will get interest and principle
Coupon - Contain detachable coupon
Masala Bonds - Rupee dominated bonds issued outside India (Kerala first state)
Maharaja Bonds - IFC bonds in India
Sweet equity - Shares given at discount to the directors and employee for their contribution
Penny stock - Value less than face value
Blue chip stocks - Well established and financially sound company which provides good
dividend
Venture capital - Professional firms helping start ups with seed capital
Angle investor - High net worth individuals helping start up companies
Share pledging - Use share as collateral
Underwriter - Who help companies to raise capital by IPO. If IPO is undersubscribed
underwriter will by unsubscribed securities
Investment banking - a special segment of banking operation that helps individuals or
organisations raise capital and provide financial consultancy services to them
Follow on public offer - Company who issued IPO previously issued additional shares (First
right to existing share holders)

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Global Depositary receipt/ American depositary receipt - Indian company mobilizing capital
from foreign American stock exchange
Circuit breaker - If fluctuation in share price exceeds x percent then stop trading for y minute
Box trading - Trade occur on unofficial ledger of broker (he may not execute it on demat)
Algorithamic trading - Some companies uses algorithmic trading programme to buy and sell
securities at speed and frequency. (Not banned but regulated by putting limitation on per
second trade)
Commodity market - Where buyer and sellers trade goods in bulk (Grain, oilm gas, precious
metal)
Future commodity trade - Earlier used to regulated by FMC now FMC merged with SEBi after
NSEL scam
Mutual fund - a company that pools money from many investors and invests the money in
securities

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Equity linked saving scheme - Tax benefit, Three year lock in period, Equity linked MF

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Side pocketing - Allow MF to separates bad asset from good asset

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Hedge fund - Pools money from high net worth individuals and invest in risky but high return

a
investment

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Sovereign wealth fund - State owned investment fund (NIIF)

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ETF - It is like mutual fund traded on stock exchanges, much like stocks.

a
Alternative investment fund - Venture capital, angle investor, private equity or debt fnd, hedge

ex
funds

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Forward - Settlement takes place in future date. Not tradable, (futures are tradable)

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Options - Call (Buying right) and Put (Selling right)

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Derivatives - It is a contract whose value is derived from the value of the another underlying

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assets
Participatory Note - Offshore derivatives which derives values from Indian bonds and shares
(Not registered with SEBI thus risk of money laundering and tax invasion)
Dormant company - Not filed annual return in last two years

Competition Commission of India

1. To promote fair competition among companies
2. Prevent cartelization and monopoly
3. In 2002 CCI act replaced MRTP act
MRTP vs CCI
To check the expansion of industrial houses with assets > Rs. 20 cr (1985 100cr) such provisions
was abolished in CCI
Success
1. 2012 fine on cement cartelisation
2. Competition Commission of India (CCI) had penalized the three airlines for cartelisation in
determining the fuel surcharge on air cargo
Strengthening it
1. Understaffed In India 1 person in CCI handles 28 companies compared to US where 1 person
handles 2 companies.
2. Dominant position clause

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Software used by stock exchange

1. BOLT - BSE
2. NEAT - NSE
3. VSAT satellite

Why to issue shares to institutional buyers (They have expertise and financial muscle)
To increase confidence of other investors in the securities (Also known as anchor investor)

Role of SEBI
To protect investors interest and to prevent scams in capital market

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Issues

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Electoral Bonds

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1. Its a promisary note bought buy the Indian citizen of companies for the election funding

a p
2. SBI
3. To parties with 1% vote share

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4. 10 days start of each quarter

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5. Only an Indian citizen or company registered in the India can buy

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Benefit

. e
1. Reducing cash in the political funding

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2. Confidentiality of donor

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Issues
1. Earlier firm could donate only 7.5% of profit this limit is excluded

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2. Affects right to information of the share holders of the companies
3. Possibilities that shell companies will be opened to use black money in election
Way forward
1. Transparency with total digitisation
2. Reintroduce profit rules
3. To avoid pro quid quo National way of donations to a national election fund

Corporate Governance
1. It ensures the protection of all the stakeholders
2. Legal, Technical, Moral and Ethical
3. Absence of corporate affair leads to fraud, employee harassment

CSR
1. Spend 2% of Last three year avg profit
2. Education, environment, health, sanitation, disaster management, etc
3. Applicable on both Public and private sector companies

Insurance
Prelims facts
1. 1870 - First Indian insurance company (Bombay mutual life insurance)

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2. FDI limit - 100% in insurance intermediaries and 49% in investment companies (Link it with
liberalisation and LIC disinvestment)

Challenges
1. Risky business
2. Skilled insurance agents are required
3. Insurance gap is high in India (Total asset/ Insured asset)
4. Capital intensive industry
5. Hard to recover investment if company in which invested fails

Insurance schemes
1. Sampoorn Bima gram Yojana - Cover under RPLI
2. Aam Adami Bima Yojana - BPL and marginally above
3. Pradhan Mantri Jiva jyoti Bima yojana - Any type of death (No hospitalisation cost)

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4. PM Suraksha Bima Yojana - Accidental death + Accidental loss (No hospitalisation cost)

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5. Rashtriy Swastya Bima Yojana - No premium by beneficiary only one time fee. Now RSBY and

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SCHIS is sub assumed in PMJAY

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Ayushman Bharat

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1. 80% of hospital expenditure is out off pocket expenditure
2. 1.5 lakh PHC to be transformed to health and wellness center

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3. PMJAY - 5 lakh per family

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4. NHA is implementing authority

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Challenges

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1. Health is state subject. States have their own insurance scheme . Name should be changed to

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PM-CM JAY

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2. Budgetary allocation is insufficient

Should insurance sector be liberalized?

1. More capital in the insurance sector
2. Companies act has norms like independent directors, auditing, whistle blower, CCI is also there
so probability of mischief by foreign companies is less
3. Care - Regulation not to invest in junk bonds to increase profits and premiums

Pension
Monthly instalment received after retirement

PM Rojgar Protsahan Yojana

1. EPFO applies for establishment having employee greater than 20
2. Employer contribution 12%
3. Under this scheme employer contribution is paid for three years on formally hired employees

NPS
1. NPS opened for all citizens and NRI on voluntary basis
2. Employees contribution 10% and 14% government

PM Vay Vandana Yojana

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1. 8% interest on deposits - 1.5 lakh to 15 lakh deposit

Financial Inclusion
1. Fin inclusion is providing access to banking to all citizens irrespective of their socio economic
status
2. Helps to improve less cash economy
3. Helps in DBT
4. Access to credit
5. Safety of hard earned money
6. Banking Ombudsman in 1995 (RBI Act) -> Higher appeal to Dy governor
7. Digital Transaction Ombudsman - 2019 (Payment settlement act)
8. India 4th rank in Financial inclusion among 55 countries

New Banking Policy 1969

o m
1. Nationalisation of 14 banks

c
2. Lead bank scheme

p .
3. Priority sector lending (40% at low rate)

a
Impact

m
1. 4 branch in unbanked rural area for 1 urban branch

m
2. Rural bank branches increased from 1,833 (in 1969) to 35,206 (in 1991)

a
3. The share of institutional sources in the outstanding debt of rural households increased from

x
just 16.9% in 1962 to 64% in 1992.

. e
4. The gross savings rate rose from 12.8% in 1969 to 21.7% in 1990.

w
5. The gross investment rate rose from 13.9% in 1969 to 24.1% in 1990.

w
After Liberlisation

W
1. The rate of growth of agricultural credit fell sharply from around 7% per annum in the 1980s to
about 2% per annum in the 1990s.
Conclusion
India’s nationalisation shows that monetary policy, banks and interest rates can be effectively
used to take banks to rural areas, backward regions and under-served sectors, furthering
redistributionist goals in an economy.

Yes Bank crisis

1. Risky loan disbursement ( DHFL, Jet Airways and Cafe Coffee day, Reliance communication)
2. Loan disbursement to the promoter owned companies
3. Independent director failed to check
4. Companies becoming fued of founder
5. Institutional shareholders failing to act against promoter
6. Media failed to expose balance sheet
7. ICAI failed to act against auditor
8. At the end RBI has failed to check to loan divergence and RBI acted late (NPA not shown)
Action taken
1. Moratorium placed
2. Restructuring plan is discussed by RBI
What else needed
1. Corporate governance
2. Monitoring

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3. Whistle blower act

4. Rotate auditor
Corporate governance in India
1. It is important for healthy functioning of the company and protection of interest of all the
stakeholders
2. It is rules which ensures fair, efficient and transparent functioning of the company
Need
1. Interest of stakeholders
2. Minority shareholders
3. Prevent scams
Provisions
1. Independent directors
2. Independent Auditing (Rotation system needed)
3. Bonds rating (Rotation ssytem)

m
4. Insider trading

o
Kotak committee

. c
1. Director to attend at least half of meeting else can not continue

a p
2. Limit on being independent director one at a time
3. Independent director incerase from 33 to 50

m
4. SEBI should have power to act against auditor

m
Other

xa
1. Strengthen regulators

. e
2. Provide staff, funds, technology to monitor

w
The Bimal Jalan panel

w
1. RBI may pay interim dividends only under exceptional circumstances

W
2. unrealised gains in the valuation of RBI’s assets ought to be used as risk buffers against market
risks and may not be paid as dividends.

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