YOJANA JANUARY 2018 – BANKING REFORMS

For RBI Grade B 2018 and NABARD Grade A and Grade B 2018

JANUARY 2018
BANKING REFORMS

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 Relevance of this Topic
With Regard to RBI:
Phase 2 Finance and Management (FM):

• a) RBI- functions and conduct of monetary policy

• b) Changing landscape of the banking sector

• c) Risk management in banking sector

• d) Financial inclusion- use of technology

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 FOCUS AREAS

NON I.T. IN
PERFORMING BANKING
ASSETS SECTOR

BANKING
REFORMS

RECAPITAL-
-IZATION OF FINANCIAL
BANKS INCLUSION

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 HIERARCHY OF COVERAGE

BANKING REFORMS IN INDIA

VIDEO 1
NON-PERFORMING ASSETS

INSOLVENCY & BANKRUPTCY CODE

BANK RECAPITALIZATON
VIDEO 2
CYBER SECURITY & BIG DATA

FINANCIAL INCLUSION & RURAL BANKING

VIDEO 3
MULTIPLE CHOICE QUESTIONS (MCQs)

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BANKING REFORMS IN
INDIA
(FIRST TWO
CHAPTERS)

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 Banking Reforms in India

• Since the dawn of independence, India has witnessed several banking reforms.
• The main objective of banking sector reforms has been to improve the allocative efficiency of
resources through operational flexibility, improved financial viability and institutional
strengthening.
• Banking reforms in India can broadly be studied in two key timelines:

Pre - 1991 1991 onwards

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 History of Banking Reforms in India (PRE 1991)

• Government nationalized 14 banks with deposits greater than Rs. 50

1969 crores.
• It controlled more than 80% of bank branches.

• Government brought additional number (6) of banks under its control,

1980 nationalizing banks with deposits more than Rs. 200 crore.
• About 90% of all banks were controlled by government.

• Between 1969 and 1991, geographical penetration, density of coverage

and number of bank branches grew significantly.
IMPACT
• Banks witnessed large deposit and credit growth.
• Priority Sector Lending grew from 14 to 41 percent.
• However, banks efficient, productivity and profitability was low.

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History of Banking Reforms in India (POST 1991)
• Narsimham Committee recommended reduction of CRR & SLR, market
1991 determined interest rates and opening of new private & foreign banks.
• Many of recommendations were implemented.

• Narsimham Committee II recommended further set of reforms to

reform banking sector – measures relating to legislation, capital
1998 adequacy & mergers, use of greater technology, skills training &
professional management of banks.
• Many of recommendations were put into place.

2000 • Constitution of further committees for banking & financial development

2014 • PJ Nayak Committee constituted with focus on governance &

management reforms in banks.

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 Current Situation

• India’s banking system still characterized by high shares of Public

Sector Banks (PSBs) – accounting for 70% of total banking assets.
• PSBs also the biggest contributors to large and rising stock of Non-
Performing Assets (NPAs) – 88% share as in March 2016.
• Nevertheless Private Banks are also plagued by high share of NPAs.
• Stress on banking sector has translated into slowdown in industrial
credit.
• In this background, government has kick-started a set of banking
reforms which will be discussed in this video.

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 Rising share of Private Sector Banks
Private Sector banks share in outstanding credit has increased from 20% in 2007 to 29% in 2017 with 75% of
incremental credit being disbursed by them. Various factors responsible for this include:

• Most of Private sector banks bereft of any asset quality baggage

Vintage • Private banks have relatively newer technology and expanded there
reach via POS machines and other digital means.

• For Private Banks, cost to income (CI) ratio has consistently been on the
down trend whereas for public sector banks this ratio has marginally
Productivity increased.
• CI ratio = (Employee exp. + Other Operating exp.) / (Net interest income
+ other income)
• Private sector banks remarkable flexible in hiring right talent giving them
Agility attractive compensation packages.
• They are also nimble footed w.r.t. decisions on early stress identification
& resolution.
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 Next Generation Banking
With India expected to become fourth largest economy in the World by 2025, the following 4Ds will
determine and drive the banking landscape:

Development This includes government’s financial inclusion agenda and other key sectoral
and structural reforms.

Deregulation Policy improvement in financial intermediation and savings propensity.

Demographics Market getting dominated by young and digitally equipped population.

Disruption This involves digitization and the integration of banking, telecom and
financial space.

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 7 Trends Defining Next Generation Banking
Transforming the way Technology will be key enabler. JAM Trinity has potential to change face of
we Bank banking.
Creative Destruction of Focus on innovation, partnering to achieve scales of economy, outsourcing
Banks utilities like customer authentication, KYC processing etc.

Cashless & Branchless 24*7 Online Banking Solutions – will make banking more viable.
Banking
Innovation in ATM Solar ATMs could reduce setup cost of ATMs and help cater to power scarce
Usage rural ares.
Infrastructure New forms of PPP models, Infrastructure debt funds, green banking and
Financing Viability Gap Funding.
New models to serve New structure such as cluster based financing, Capital Subsidy Policy, MUDRA
MSMEs Banks, Credit Guarantee Schemes, Start-up facilities will play important role.
Competition & Urge to innovate, complete and remain in business will pave way for
Consolidation consolidation.

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 MANAGING
NON-PERFORMING
ASSETS –
A PARADIGM SHIFT

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 Introduction

• Financial Intermediation as a tool to circulate money in the economy.

• When Lending contracts, economic growth also declines.
• India facing problem of muted credit growth due to fast accretion of
NPAs and Twin Balance Sheet Problem.
• Gross NPAs of banks as on September 2017 stand at 8.40 lakh crores
• Twin Balance Sheet Problem: - overleveraged and distressed
companies and the rising NPAs in Public Sector Bank balance sheets.

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 How it all began ?
• Meteoric Rise in NPAs – Genesis in rapid credit growth in 2008-14
• Reasons for problem include:

Delays in Project
Poor credit recovery Wilful defaults
Completion

Deficiency in credit appraisal and improper due

Diversion of borrowed funds
diligence

Lending to unworthy borrowers Borrowings in anticipation of demand without

(unfavorable past credit history) factoring global demand supply situation

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 How the number stack up?
• During 2008-14, gross advances of PSBs grew from 18 lac crores to
54 lac crores and by September 2017 to 55.01 lakh crores.

• Share of large borrowers (advances of 5 crores & above) in advances

is 56% but share in NPAs is 86.5%.

• Top 100 large exposures (outstanding advances) account for nearly

15.2% of gross advances but their share in Top 100 NPAs is 25.6% of
GNPAs of SCBs.

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 Sector-wise Stressed Advances
Stress Advances Ratio (March 2017)

Sector Proportion of Stressed Advances

Industries 23%
Agriculture 6.3%
Services 7%
Retail 2.1%

Most stressed industries include basic metals and their products, cement and
their products, textiles, infrastructure etc

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www.edutap.co.in
 Tools in the hands of Banks

Fraud as per Section 447 of Companies Act, 2013 – cases of wilful

COMPANIES ACT, 2013
defaults can be entrusted to SFIO

Banks can take possession of charged assets and auction them

SARFAESI ACT, 2002
without court’s intervention

Punjab & Haryana High Court in “Deepak Narang vs State and Haryana
JUDICIAL
& Anr.” provided for Protection to authorised officer of banks from
PRONOUNCEMENTS harassment by means of false FIRs and complaints by defaulters.

INSOLVENCY &
Brahmastra to destory the demon of NPAs
BANKRUPTCY CODE

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 WAY FORWARD

Forensic Audit for ascertaining end use of funds

Use of Big Data and IT Based Solutions for doing proper due diligence about the
borrower and his businesses

Training of workforce / fine-tuning HR policies of Banks

Appointment of Professionals on board of banks having domain knowledge & sufficient

expertise

More benches of NCLTs and DRTs to cope with increased workload

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RESOLVING
INSOLVENCY

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 INTRODUCTION

• Insolvency is when an organization, or individual, can no longer meet

its financial obligations with its lender or lenders as debts become
due.
• Improvement in India’s ease of doing business ranking, 2018 (Now at
100th place).
• One of factors for improvement also the improvement in process of
insolvency resolution.
• Govt. put into effect Insolvency and Bankruptcy Code (IBC) with a
regulator Insolvency and Bankruptcy Board of India (IBBI) in 2016.

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 About Insolvency and Bankruptcy Code, 2016

• It seeks to consolidate the existing framework by creating a single law

for insolvency and bankruptcy.

• Before IBC there were around 12 laws dealing with insolvency

resolution which were not too effective

• The bankruptcy code is a one stop solution for resolving insolvencies

which at present is a long process and does not offer an economically
viable arrangement.

• IBC not yet notified for individual and partnership firms.

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www.edutap.co.in
 Key Highlights of the Code

Time bound process for insolvency resolution (i.e. 180 days + 90 days extension)

Shifts the responsibility to the creditor to initiate insolvency resolution as against corporate debtor
though corporate debtor may also initiate the same

If Default > 1 lakhs, creditors may initiate insolvency resolution and go to NCLT

Provision for fast-tracking resolution process to complete within 90 days + 45 days (extension) – only
for small companies and start ups

If insolvency resolution process fails, liquidation of assets begins

Resolution processes are conducted by licensed insolvency professionals (eminent persons like
Chartered Accountants, Company Secretaries, Cost Accountants, Lawyers etc.)

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 Banking Regulation (Amendment) Act, 2017

• It seeks to amend the Banking Regulation Act, 1949 to insert

provisions for handling cases related to NPAs of banks.
• It will enable CG to authorize RBI to direct banking companies to
resolve specific stressed assets by initiating insolvency resolution
proceedings under the Insolvency and Bankruptcy Code, 2016.
• It empowers RBI to issue directions to banks for resolution of
stressed assets from time to time.
• It enables RBI to specify committees on resolution of stressed assets.
• It inserts provision to make above provisions applicable to the SBI and
its subsidiaries and also Regional Rural Banks (RRBs).

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 Amendment to Insolvency and Bankruptcy Code

• Recently Parliament gave its nod to amendments to the insolvency

and bankruptcy code that aims to keep defaulting promoters out of
the resolution process of insolvent companies.

• The amendment seeks to bar wilful defaulters, defaulters whose dues

had been classified as NPAs for more than a year, and all related
entities of these firms from participating in the resolution process.

• It, however, allows defaulting promoters to be part of the debt

resolution process, provided they repay dues in a month to make
their loan account operational and the resolution happens within the
overall time frame specified in the code.
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 WAY FORWARD

• Make the code resilient.

• Addressing some unclear issues like definition of related parties

• Contesting issues will keep coming up but we need to speedily tackle

them to make it easier for companies to exit or restructure
themselves.

• Care has to be taken that resolution does not linger on to make it

tedious for companies to do business.
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 BANK
RECAPITALISATION :
ENHANCING CAPITAL
BASE

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 INTRODUCTION

• Rising NPAs (Non-Performing Assets) in PSBs (Public Sector Banks) is

hindering their lending capacity.

• Constrained lending capacity of PSBs is impacting Private

Investments in the country.

• It is in this backdrop, bank recapitalization plan has been

conceptualized.

• It has to be followed and preceded by whole set of banking reforms.

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RECAPITALIZATION PLAN

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 RECAPITALIZATION PLAN

Cabinet finalized Rs. 211,000 crore plan to revitalize domestic

24 October, 2017 banking system through mix of market borrowing, budgetary
support and laucnch of bank recapitalization bonds.

Budgetary Support 18,000 crores

Equity Issuance 58,000 crores

INFUSING CAPITAL
IN BANKS Bank recapitalization bonds 135,000 crores

Total 211,000 crores

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 ABOUT RECAPITALISATION BONDS

• Department of financial services and Department of Economic

Affairs is finalizing broad contours of the bonds.
• Bonds would be front loaded i.e. large chunk of money would be
pumped in first few months only.
• Govt. will issue and banks will subscribe directly leading to
enhancement of their capital base.

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 NEED FOR RECAPITALISATION BONDS

• The regulatory requirements of capital adequacy and credit growth

are the two main drivers for bank capitalisation.

• The global regulatory architecture in form of Basel Norms require

banks to maintain minimum capital adequacy ratio (CAR).

• Recapitalization will help in meeting capital norms under BASEL III.

• Recapitalization is also necessary as banks would be taking a haircut

(some estimates suggest around 60%) on their lendings to the
companies under resolution process under IBC Code.
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 DILEMMA ON TREATMENT OF INTEREST COSTS

• Annual interest cost of bonds is likely to be around Rs. 8000 – 9000 crores.

• This however won’t stoke inflation or fiscal deficit due to increased

economic activities and asset creation.

If recap bonds are treated as per Indian accounting system it

would give rise to debt pushing fiscal deficit
ACCOUNTING
DILEMMA
However, no fiscal deficit would arise if treatment is
done as per IMF accounts method.

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STRENGTHENING
OF
CYBER
SECURITY

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 Introduction

Increasing digitization in banking brings out the need for cyber security.

Reasons for increased Digitization

Changing consumer behavior Financial Inclusion

Government Initiatives Increased Smart Phone Penetration

Use of Internet banking, mobile banking , Launch of UPI – BHIM, QR code based payment
debit / credit cards, PoS machines systems

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Rise in Digitization – Use of BHIM

Around 82 lacs
transactions per month
being conducted through
BHIM.

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 Various Stakeholder in Digitization

ORIGINATING INSTITUTION

CUSTOMER

TRANSACTION PROCESSING AGENCY

BENEFICIARY
BENEFICIARY INSTITUTION

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 RESPONSIBILITIES STAKEHOLDERS IN DIGITIZATION

Device used should be cyber sanitized (anti-virus, password/PIN should be

Customer / Originator
confidential)

Originating / They should employ state of the art IT systems to ensure integrity of the
Beneficiary Institution transaction cycle (data remains intact)

They include NPCI, Mumbai or IDRBT, Hyderabad. IT architecture of financial

Processing Agency
institutions should confirm to its stipulated standards and procedures

Beneficiary They should share correct account number / IFSC code

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 CYBER SECURITY VIS-À-VIS BANKING INDUSTRY

• Cyber security refers to the body of technologies, processes, and

practices designed to protect networks, devices, programs, and data
from attack, damage, or unauthorized access.
• Cyber and data security remain a priority issue for banks.
• Criminals are constantly searching for creative new ways to obtain
money from banks and customers through fraud and cybersecurity
vulnerabilities.
• As consumers and businesses rely more on electronic devices such
as computers, tablets, and smartphones to bank and shop online,
vulnerabilities increase.

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www.edutap.co.in
 NATIONAL CYBER SECURITY POLICY, 2013

Released by Ministry of communication and IT under DeitY (now MeitY) in 2013.

VISION

To build a secure and resilient cyberspace for citizens, business, and

government and also to protect anyone from intervening in your privacy.

To protect information and information infrastructure in cyberspace, build

MISSION

capabilities to prevent and respond to cyber threat, reduce vulnerabilities

and minimize damage from cyber incidents through a combination of
institutional structures, people, processes, technology, and cooperation.

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 CYBER SWACCHTA KENDRA

• Launched by Cert-In in February, 2017

TOOLS OFFERED
• Operated by Cert-In u/s 70B of IT Act, 2000

It is a desktop security solution to protect from USB mas storage device

USB Pratirodh
threat

It is a desktop solution that helps preventing threats from malicious

App Samvid
applications

It is an indigenously developed mobile application to address the

M-kavach
security threats in mobiles

It blocks access to the harmful, inappropriate and dangerous websites

Browser JS Guard
that may contain malicious content.

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 IT ACT

• Primary law dealing with cyber crime and e-commerce in India

• The Act is administered by the Indian Computer Emergency Response
Team (CERT-In).
• A major amendment was made in 2008. It introduced the Section
66A which penalized sending of "offensive messages".
• IT act provides punishment for IT related offences like Phishing.
• Phishing involves fraudulently acquiring sensitive information through
masquerading a site as a trusted entity.
• Section 420 of IPC also applicable for credit card frauds.

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 RBI DIRECTIONS

• Recently released circular of customer protection.

• It provided for limited liability of customers in unauthorised

economic banking transactions if same are reported to bank
immediately.

• Reporting mechanism – phone banking, sms, email, call centre, IVRS

& online

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 BIG DATA
ANALYSIS IN
BANKING SECTOR

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 WHAT IS BIG DATA ?

Big data is a term that describes the large volume of data – both structured and
unstructured – that inundates a business on a day-to-day basis.

3 V’s OF BIG DATA

Volume extreme volume of data

Variety wide variety of data types

velocity at which the data must be

Velocity
processed

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 USE OF BIG DATA IN BANKING INDUSTRY

Big Data will allow banks to make sure that no unauthorized transactions will be
FRAUD DETECTION & made, providing a level of safety and security that will raise the security standard of
PREVENTION the entire industry.

ENHANCED CUSTOMER Banks now have access millions or even billions of customers’ needs, and they can
SATISFACTION now use Big Data to cater to them in a more meaningful way.

CUSTOMER Big Data will give banks deep insights into customer spending habits and patterns,
SEGMENTATION simplifying the task of ascertaining their needs and wants

PERSONALISED PRODUCT By analysing past and present expenses and transactions, a bank can get a clear
OFFERING understanding of how to get the highest response rate from their clients

Big Data locates and presents big data on a single large scale that makes it easier to
RISK MANAGEMENT reduce the number of risks to a manageable number

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 INDIAN SCENARIO

• Banks are having vast amount of data but don’t know how to use it.

• We need to make use of identinomics.

• Identinomics refers to Identifying individual needs in advances and

selling what customer needs.

• Big Data can play a crucial role in this.

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 Using Big Data

If we want to take big data approach we need to go through following process:

Through branches, Apps, Internet Banking, SMS & e-mails, Credit

Data Collection
rating agencies, Credit information companies

Banks can contact or follow organisations which follow big data

Data Storage analysis FOR EXISTING
CUSTOMERS
Recongnizing top contributors to banking business, reaching
Data Analysis &
desired rated customers for marketing loan products, Credit
Utilisation profile of customers

For new customers: Gathering basic information about them from own website and other websites which provide
these services at nominal charge.

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 MISSION
INDRADHANUSH :
REVAMPING PUBLIC
SECTOR BANKING IN
INDIA

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 INTRODUCTION

• In past few years, PSBs which had predominant share of

infrastructure financing had been deeply affected due to several
reasons like delay in approvals, land acquisition, low global and
domestic demand, thus resulting in lower profitability.

• In order to overcome various challenges, the Government in 2015

developed Indradhanush Plan.

• It is a plan for recapitalizing and revamping of PSBs and one of the

most comprehensive banking reforms since banking nationalization
since 1970.
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 ABOUT MISSION INDRADHANUSH

• Mission Indradhanush is a 7 pronged plan launched by Government

of India to resolve issues faced by Public Sector banks.
• It aims to revamp their functioning to enable them to compete with
Private Sector banks.
• Many of the measures taken were suggested by P J Nayak committee
on Banking sector reforms as indicated.
• The measures involved in Mission Indradhanush have already been
around for some time.
• The real reform would be in proper implementation of the suggested
measures

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 7 COMPONENTS

Appointments

Bank Boards Bureau

Capitalisation

De-stressing

Empowerment

Framework of accountability

Governance Reforms

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 Separation of posts of CEO and MD to check excess concentration of power and
Appointments
smoothen the functioning of banks; also induction of talent from private sector
To replace appointments board of PSBs, advise banks on how to raise funds and how
Bank Boards Bureau
to go ahead with mergers and acquisitions, also hold bad assets of PSBs
Capitalisation of banks by inducing Rs 70,000 crore into the banks in 4 years. Banks
Capitalisation are in need of capitalisation due to high NPAs and to meet the new BASEL- III norms.

Solve issues in the infrastructure sector to check the problem of stressed assets in
De-stressing banks.

Empowerment Greater autonomy for banks; more flexibility for hiring manpower

The banks to be assessed on the basis of new key performance indicators:

Framework of accountability
Quantitative: NPA management, return on capital, growth; Qualitative: HR etc.

GyanSangam conferences between government officials and bankers for resolving

Governance Reforms issues in banking sector and chalking out future policy.

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 MISSION INDRADHANUSH 2.0

• The Union Government is planning to come out with ‘Indradhanush

2.0’, comprehensive plan for recapitalisation of public sector lenders.

• Indradhanush 2.0 will be finalised by Reserve Bank of India (RBI)

after completion of Asset Quality Review (AQR).

• It aims to clean up the balance sheets of PSBs to ensure banks remain

solvent and fully comply with global capital adequacy norms, Basel-III.

• The numbers are being relooked and revised programme of

capitalization of PSBs will be issued as part of Indradhanush 2.0.
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FACILITATING
FINANCIAL
INCLUSION

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 INTRODUCTION

Financial inclusion may be defined as the process of ensuring access

to financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and low income groups at an affordable cost.

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JOURNEY TOWARDS FINANCIAL INCLUSION : HISTORICAL PERSPECTIVE

Setting up cooperative societies (Cooperative Credit Societies Act, 1904)

Nationalization of State Bank of India (1955)

Nationalization of Private Sector Banks (1969 & 1980)

Priority Sector Lending (1974)

Regional Rural Banks (1975)

Self-Help Group Bank Linkage Programme (1990)

No-frills account (2005)

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 Situation of Financial Inclusion in India

• Despite various measures towards financial inclusion, reach of formal

banking is still minimal.

• As per census, 2011, 58.7% of total households in India and only

54.4% household in rural areas had access to formal banking services.

• It was in this backdrop, that Pradhan Mantri Jan Dhan Yojana (PMJDY)
was launched.

• Also, there have been several innovations in credit with focus on

Mobile vans, Banking kiosks and BCs (Business Correspondent)Model.
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FIGURES SPEAK LOUDER THAN WORDS ?

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FIGURES SPEAK LOUDER THAN WORDS ?

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STATUS OF PRADHAN MANTRI JAN DHAN YOJANA

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 WAY FORWARD

• Extend financial inclusion to the disabled.

• Resolving technological issues (glitches, breakdowns).

• Promoting technological innovations in Financial Inclusion.

• Need to setup a dedicated financial institution for furthering financial

inclusion in rural areas (NABARD can be given such responsibility).

• More focus on financial literacy.

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 RURAL BANKING :
TRANSLATING VISION
TO REALITY

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 SITUATION OF RURAL BANKING IN INDIA

• Rural banking has become integral to the Indian financial markets

with a majority of Indian population still living in rural or semi-urban
areas.
• Despite efforts towards financial inclusion, rurals areas still remain
financially excluded.
• India is home to 24% of world’s unbanked adults and about 2/3rd of
south asia’s.
• About 31 crore potentially bankable rural Indians do not have access
to formal banking services.

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 REASONS BEHIND LOW FINANCIAL INCLUSION IN RURAL AREAS

• Rural folks not likely to sacrifice entire day’s wages to travel to banks.

• Banks view rural market as regulatory requirement and not economic

opportunity.

• NPAs due to irregular monsoons and loan waivers driven by political

agenda further aggravate the problem.

• Poor physical and social infrastructure alo impacts the access of

financial services.
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 STEPS TOWARDS RURAL BANKING BY RBI

Can be opened and maintained with a zero balance, levies zero or nominal
NO-FRILLS ACCOUNT
charges and does away with the unnecessary services or frills

GENERAL CREDIT To increase flow of credit to individuals for entrepreneurial activity in the
CARDS (GCCs) non-farm sector provided through the General Credit Card.

KISAN CREDIT CARD Credit delivery mechanism that is aimed at enabling farmers to have quick
(KCC) and timely access to affordable credit

INTERMEDIARIES Use of NGOs, SHGs, MFIs etc as intermediaries for rural banking

RELAXATION OF
Various norms have been relaxed for banks operating in rural areas.
NORMS

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 ADDRESSING ISSUES IN RURAL BANKING

To ensure effective functioning of Business correspondents, they should be

Functioning of BCs
provided adequate compensation alongwith proper skills and training.

Develop simplified Innvoative credit disbursement products to cater to poor

Credit Disbursement
villages and prevent them from borrowings from money lender

Need to enhance ATM network, reduce transaction costs, SMS based funds
Using ICT
transfer, cheap remittance facilities to migrants and IT training to staff / BCs.

• Vernacularisation of all baking forms in all major languages

Others • Improve credit absorption capacity by promoting employment & other
opportunities,
• Leveraging postal network

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 ISSUES IN RURAL BANKING

PRODUCT STRATEGY Which products to develop to cater to needs of small ticket size transactions

PROCESSES Which processes to use to reach deprived and vulnerable in hassle free way

PARTNERSHIPS Partnerships with Business Correspondents (BCs), SHGs & their efficiency

PROFITABILITY Viability in rural banking

PRODUCTIVITY Ensuring productive and optimal use of financial resources

PEOPLE Literacy, Skills & Attitude

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 RECENT STEPS BY RBI & GOVT. IN RURAL BANKING

JAN DHAN ACCOUNTS As part of Pradhan Mantri Jan Dhan Yojana

to “fund the unfunded” by bringing such enterprises to the formal financial

MUDRA YOJANA
system and extending affordable credit to them

Social sector schemes like PM Jeevan Jyoti Beema and PM Suraksha Bima
SOCIAL SCHEMES
Yojana have been launched.
BUSINESS Banks use services of third party agents as BCs to provide banking and
CORRESPONDENTs (BC) financial services, such as credit and savings, on their behalf

CONCESSIONS Various concessions are being provided on use of Debit and Credit Cards.

SPECIAL BANKS Setting up of Small Finance Banks and Payment Banks

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 CHALLENGES IN RURAL BANKING

PMJDY Issue of multipliciy of accounts and dormant accounts.

IT ENABLED SERVICES lack of internet penetration, e-literacy, frauds, connectivity

LIMITED REACH Social sector schemes still not reaching vast sections of rural population

EFFECTIVENESS OF BCs BCs are ineffective and even involved in siphoning off money in some cases

PRIORTY SECTOR
Not reaching the deserved, banks giving to people with fraud documents
LENDING

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 WAY FORWARD

• RBI’s vision for 2020 is to open nearly 600 mn new customers

accounts and service through variety of channels leveraging IT.

• New rural finance paradigm needs to be based on the premise that

‘rural people are bankable’ and rural clientele is not limited only to
farmers & uneducated but also includes a generation which can use
and adopt technology.

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 MCQ’s

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1. Which of the following is incorrect regarding the impact of banking reforms in Pre-1991 era?
a) Geographical penetration, density of coverage and number of bank branches grew
b) Banks witnessed large deposit and credit growth
c) Priority Sector Lending grew from 14 to 41 percent
d) Banks attained high levels of efficiency and profitability.

2. Which of the following is/are correct regarding Nationalisation of Banks in 1969?

a) Government nationalized 14 banks in 1969 .
b) Banks with deposits exceeding Rs. 50 crores were nationalized.
c) With nationalization, Government controlled more than 80% of bank branches.
d) All are correct

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3. Which of the following is/are correct regarding nationalization of banks in 1980?
a) 7 Private sector Banks were nationalized in 1980.
b) Private sector banks with deposits exceeding 100 crores were nationalized.
c) With nationalization 90% of all banks were controlled by government.
d) All are correct

4. Which of the following was not the recommendation of Narsimham Committee I (1991) pertaining to
banking reforms in India?
a) Increasing the CRR / SLR
b) Market determined rate of interest
c) Opening of new Private and Foreign Banks
d) All of the above were the recommendations

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5. Which of the following is/are correct regarding current banking situation in India?
a) India’s banking system is characterized by high shares of Public Sector Banks (PSBs) – accounting for 70% of
total banking assets.
b) PSBs are the biggest contributors to large and rising stock of Non-Performing Assets (NPAs) with 88% share
as in March 2016
c) Share of stressed assets in PSBs is nearly 16%, more than 3 times that in Private Banks.
d) All are correct
6. With India expected to become fourth largest economy in the World by 2025, the 4Ds will determine and
drive the banking landscape. Which of the following is not one of the 4Ds?
a) Development
b) Deregulation
c) Disruption
d) Deterioration
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7. Which of the following is/are correct regarding ATM infrastructure in India?
a) India has poor ATM penetration with only 11 ATMS for every 1 million people
b) Solar ATMs need to be used in India to reduce setup cost and cater to power scarce areas
c) Both of the above
d) None of the above

8. Which of the following correctly describes the Cost to Income ratio (CI) in banks?
a) (Employee exp. + Other Operating exp.) / (Net interest income + other income)
b) (Interest exp. + Other Operating exp) / (Interest income + other income)
c) (Net interest income + other income) / (Employee exp. + Other Operating exp.)
d) None of the above

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9. Private Sector banks share in outstanding credit has increased from 20% in 2007 to 29% in 2017. Which of
the following factor(s) can be attributed to this rise?
a) Most of Private sector banks bereft of any asset quality baggage
b) For Private Banks, cost to income (CI) ratio has consistently been on the down trend
c) Private sector banks show remarkable flexibility in hiring right talent and retaining them
d) All are correct

10. Which of the following is most accurate description of Twin Balance Sheet Problem?
a) underleveraged and distressed companies and the rising NPAs in Public Sector Bank balance sheets.
b) overleveraged and distressed companies and the rising NPAs in Public Sector Bank balance sheets.
c) overleveraged and distressed companies and the rising NPAs in Private Sector Bank balance sheets.
d) None of the above

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11. Which of the following is/are correct regarding situation w.r.t. advances and stressed assets in India?
a) During 2008-14, gross advances of PSBs grew from 18 lac crores to 54 lac crores and by September 2017 to
55.01 lakh crores
b) Share of large borrowers (advances of 5 crores & above) in advances is 56% but share in NPAs is 86.5%.
c) Top 100 large exposures (outstanding advances) account for nearly 15.2% of gross advances but their share
in Top 100 NPAs is 25.6% of GNPAs of SCBs.
d) All are correct

12. Which of the following is the correct order w.r.t. proportion of stressed advances ratio as of March 2017?
a) Agriculture > Services > Industries
b) Agriculture > Industries > Services
c) Industries > Services > Agriculture
d) Industries > Agriculture > Services

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13. Judgement of Punjab & Haryana High Court in “Deepak Narang vs State and Haryana & Anr.” is
remarkable in helping banks in recovery of stressed assets. It provided for:
a) Protection to authorised officer of banks from harassment by means of false FIRs and complaints by
defaulters
b) Automatic recovery in case of stressed assets
c) Increased powers for banks in getting the property held as collateral in getting registered in their names
d) None of the above

14. Which of the following is incorrect regarding features of Insolvency and Bankruptcy code, 2016?
a) Time bound process for insolvency resolution within 180 days with further extension of 90 days
b) Shifts the responsibility to the Corporate Debtor to initiate insolvency resolution as against creditor
c) Provision for fast-tracking resolution process for small companies and start ups
d) Resolution processes to be conducted by licensed insolvency professionals

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15. Which of the following is/are correct regarding Banking Regulation (Amendment) Act, 2017?
a) It seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to NPAs
of banks
b) It empowers RBI to issue directions to banks for resolution of stressed assets from time to time
c) It will enable CG to authorize RBI to direct banking companies to resolve specific stressed assets by initiating
insolvency resolution proceedings
d) All are correct
16. On 24 October, 2017, Cabinet finalized Rs. 211,000 crore plan to revitalize domestic banking system.
Which of the following means would be used for recapitalization of banks?
a) Budgetary support
b) Equity Issuance
c) Bank Recapitalization Bonds
d) All of the above

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17. On 24 October, 2017, Cabinet finalized Rs. 211,000 crore plan to revitalize domestic banking system.
Through which of the following means maximum infusion would be made?
a) Budgetary support
b) Equity Issuance
c) Bank Recapitalization Bonds
d) All of the above

18. Which of the following is incorrect regarding Cyber Swacchta Kendra?

a) It was launched by Cert-In in February, 2017
b) It is operated by Cert-In u/s 70B of IT Act, 2000
c) It includes various tools like USB Pratirodh, App Samvid & M-Kavach for cyber security.
d) All of the above are correct

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19. Which of the following can be areas of application of Big Data in Banking Industry?
a) Fraud Detection & Prevention
b) Personalised product offering
c) Customer Segmentation
d) All are correct

20. Which of the following is not one of the 7 areas under Mission Indradhanush?
a) Appointments
b) Capitalising
c) Governance reforms
d) Re-nationalization

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 ANSWERS
1. D 11.D
2. D 12.C
3. C 13.A
4. A 14.B
5. D 15.D
6. D 16.D
7. C 17.C
8. A 18.D
9. D 19.D
10.B 20.D

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YOJANA JANUARY BANKING REFORMS

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Thank You! Happy Learning!

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