UPSC Exam Preparation-Gist of Yojana January 2018 Issue: Banking Reforms

Table of Contents: BANKING REFORMS

Introduction

Banking system in India started with small, private commercial banks. But, when some of these began to fail or funds deposited were siphoned off by the banker and customers lost hard-earned money deposited, the government decided to step in and nationalise these banks. This major reform ensured that the customer was not affected by any loss incurred by the bank or the bank could not misuse customer money. Gradually, over the years, other regulatory mechanisms were introduced to regulate public sector banks. Recommendations of the Narsimham Committee on banking sector reforms proved to be another major stepping stone in this direction. Thereafter there have been a series of gradual reforms focusing on improving efficiency and governance of the banking sector.

At one time, the government felt that, like in all other sectors, privatisation should be brought into the banking sector also, to keep pace with global trends. Private sector banks like HDFC, ICICI, Axis and Yes Bank were allowed to operate in the Indian banking sector. These banks proved more successful in gaining customer satisfaction as compared to the public sector banks and became a mainstay in both corporate banking and retail banking. Taking a clue, public sector banks also began to become more customers friendly and introduced technological improvements in their functioning.

A very big obstacle to successful banking has been the issue of Non-performing assets which has been a major Source of concern for most of the banks in India, whether in the public or private sector. To resolve this major issue in the banking sector, the government announced Mission Indradhanush focusing on important reform mechanisms like recapitalization, creation of Banking Board Bureau, and creating a framework of accountability.

Later Insolvency and Bankruptcy Code provided another framework for resolving the issue of Cybersecurity is another concern in modern banking especially with the era of less cash economy and digitalization of banking transactions. This is attempted to be resolved through various initiatives by the department of information technology in collaboration with institutions like IIT. Financial inclusion through banking is a major thrust of the government with schemes like Jan Dhan Yojana and DBT. Rural banking is also another area of concern since many areas still remain to be covered by banking services due to inaccessibility. Rural populations are still, to a large extent, not very comfortable with the banking system partially due to the low level of literacy, inaccessibility of banking services etc. These have been sought to be addressed by the government by the introduction of banking correspondents serve as a link, between banks and rural population.

Banking Sector Reforms: Ensuring Regulation

For both firms and households, the banking system is one of the most important sources of credit in India. The size, resilience and level of capitalization of banks are critical for the smooth functioning of financial markets. India’s banking sector has been characterized by a high proportion of publicly controlled banks.

Key challenges to the banking system

• Low financial depth
• A high share of non-performing assets (NPAs) and
• A high concentration of public sector banks (PSBs).

These issues constrain industrial credit and banks’ ability to meet international capital requirements. Existing measures have not been enough to tackle these challenges.

The focus areas to stimulate the banking sector

• improving governance of banks,
• enhancing competition in the sector and
• developing corporate bond markets to relieve pressure from banks as lending sources.

History of bank reforms of India

• Before 1991, India had been nationalizing a large share of its banking sector.
• In 1969, the government nationalized banks with deposits greater than Rs. 50 crore. It controlled more than 80 per cent of bank branches.
• In 1980, the government brought an additional number of banks under its control, nationalizing banks with country-wide deposits more than Rs. 200 crore. About 90 per cent of all banks were controlled by the government and this share remained fairly steady during this period.
• Between 1969 and 1991, the geographical penetration, density of coverage and number of bank branches grew significantly. Banks also witnessed large deposit and credit growth. Priority sector lending grew from 14 to 41 percent.
• However, by 1991, banks’ efficiency and productivity had declined, customer service quality was poor and profitability was low. In 1991, when the government liberalized the economy, it also undertook a number of banking reforms.
• The Committee on Financial Systems, chaired by Mr. M.Narashimham in 1991, recommended
  • reducing the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) to free up bank resources,
  • relying on market forces to determine interest rates, making it easier for private and foreign banks to enter to enhance competition and
  • reducing substantially the number of public sector banks (PSBs).

Many of the committee’s recommendations were implemented, including the reduction in SLR and CRR, having a market-determined interest rate and opening of the new private sector and foreign banks.

• In 1998, the Committee on Banking Sector Reforms, also chaired by Mr. Narsimham, recommended a further set of measures to strengthen the banking sector. It reviewed progress in existing measures and proposed further measures related to legislation, capital adequacy and bank mergers.
• Beyond these, the 1998 Committee also recommended steps relating to greater technology use, skills training and professional management of banks. Many of these reforms put in place since 1991 improved the performance and strength of India’s banking sector.

The current situation:

• India’s banking system is characterised by a high share of Public Sector Banks (PSBs), accounting for over 70% of total assets. PSB’s performance inevitably represents the performance of the overall banking system as they are the largest contributors to the large and rising stock of Non- Performing Assets (NPAs).
• The share of stressed assets in Public Sector Banks (PSBs) is nearly 16 per cent, more than 3 times that in private banks.
• Rising NPAs have also put a strain on the health of the PSBs, reflected in their declining Return on Assets (ROA) and Return on Equity (ROE) ratios, which turned negative in 2016 for the first time in a decade. The gross non-performing assets of all scheduled commercial banks amounted to Rs. 6.1 Trillion in March 2016.
• Asset quality and profitability have been deteriorating over time.
• The decline in bank’s profits is largely due to higher growth in risk provisions; loan write-offs and decline in net interest income.
• The stresses on the banking sector have translated into a slowdown in industrial credit. They also limit banks’ ability to meet international capital requirements.
• In January 2017, credit growth to the industrial sector contracted by 5.1 per cent relative to an increase of 5.6 per cent in January 2016.
• High NPAs are also likely to impede banks’ ability to meet higher capital requirements under Basel III. These requirements will come into force in January 2019.

The government has infused funds to address the challenge. The measures for recapitalization under the Indradhanush Plan in 2015-16 acknowledge the government’s recognition of high NPA ratios and their adverse effects on the economy.

• The negative effects include further declines in bank credit, low bank profitability and declining capital adequacy ratios. To counter these, the Ministry of Finance announced a Rs. 2.1 lakh crore plan to recapitalize banks on October 24. These funds will not only help PSBs meet their minimum capital requirements but they will also help banks clean up their balance sheets and cover bad loans going forward.
• Beyond recapitalization, the Indradhanush Plan also includes wider banking reforms needed to strengthen institutional governance and align incentives in the banking system.
• Its seven points include creating a framework of Accountability, separating the roles of CFO and Chairman in PSBs, creating a Bank Board Bureau (BBB) for appointments and Governance Reforms. However, its implementation remains incomplete.

Further, the Insolvency and Bankruptcy Code (IBC) also provides a channel for addressing NPAs. It requires banks and promoters to agree on a resolution plan within 270 days or face asset Liquidation.

Global Competition:

• India’s banks lag behind global counterparts in terms of financial depth or the size of banks, other financial institutions and markets relative to economic output. A study using state-level data from India highlights that financial deepening has contributed to poverty alleviation in rural areas.
• India also has low levels of private credit to GDP and credit to deposit ratio, relative to other emerging economies.
• In 2015, India’s private credit to GDP ratio was 50.2 per cent relative to 140 per cent in China and 71 per cent in Brazil.
• Bank credit as a ratio of bank deposits was 77 per cent in India compared to 119 per cent in Brazil and 312 per cent in China in 2015.
• Large banks dominate the banking system with few new entrants. As of March 2016, the top 10 banks (ranked by assets) owned 58 per cent of the total assets in the system. Since 1991, only 14 licenses have been granted for universal banks. In contrast, in the United States, over 130 new banks were chartered annually on average between 1976 and 2009.
• The number of foreign banks in India remains small. As of March 2016, foreign banks accounted for 6 per cent of total banking assets.

Way forward:

• India should strive to have a more robust and well-capitalized banking system, with enhanced capacity to extend credit and an incentive structure suitable for productive allocation of resources.
• To build a robust banking system, recapitalization will have to be complemented by a host of other measures including corporate governance reforms, lower entry barriers, improved financial supervision, development of a dynamic corporate debt market and efficient debt recovery mechanisms.

Three particular areas to be prioritized:

1. Improving governance and strengthening institutions, particularly in PSBs.

• In terms of sequencing, these reforms are as important as a recapitalisation and will also need to be pursued in parallel.
• Global examples highlight the importance of undertaking banking sector reforms in tackling NPAs. For example, in China, besides recapitalization, banking sector reforms focused explicitly on strengthening financial regulation and supervision, improving corporate governance and enhancing transparency. Similarly, South Korea created a Financial Supervisory Service (FSS) to ensure supervision in their banks following the East Asian Financial Crisis of the late 1990s. To some extent, the government has already acknowledged the need for better governance of banks.
• The Indradhanush Plan had suggested the creation of an independent Bank Board Bureau to oversee the employment of bank officials. If a truly independent Bureau is created, this can have a profound effect on PSB governance. Greater accountability can ensure that banks’ lending practices are in line with the productive allocation of credit. We need to ensure that implementation takes places in a timely manner.

2. Other area for reform is the development of corporate bond markets.

• Bond markets need to complement banks as important sources of finance Liquid and deep bond markets will enable firms to raise debt at low costs.
• Over time, ideally, the share of bond markets as the source of corporate debt will increase and the share of banks in lending will decline.

3. The third area for banking sector reform is continuing to make the banking sector more competitive.

• India should continue to encourage the entry of private and foreign players to foster greater competition and innovation in the sector.
• The new policy of “on-tap” licensing of banks is a positive step in this direction. However the entry requirements could be relaxed further to reduce barriers to entry. Advocating a subsidiary structure will not only encourage foreign banks to enter the Indian banking sector but it will also help limit exposure to global shocks.
• In the long run, greater competition will raise the efficiency and profitability of the sector.
• Historically, India’s banking sector reforms — especially in the 199O — have also focused on enhancing competition, strengthening governance and regulation. Future reforms should also build upon these areas and draw lessons from past experiences.

Protagonist To Economic Transformation

As the Indian economy heads into 2018, it is likely to see a discreet but profound change. For the first time, the per capita dollar income of the country will touch the 2000 mark, a threshold, which in global economic history is usually associated with multifold expansion in domestic consumption with improving affordability turning past luxuries into necessities. The Indian banking system will have to play the role of a protagonist in this economic transformation. Not only are we going to witness a sustained rise in banking services, but we will also see increasing sophistication of solutions and delivery.

Factors which contributed towards the increase in market share for private sector banks in the last 10 years are predominantly:

1.Vintage:

With public sector banks undertaking most of the industrial infrastructure financing, their balance sheets naturally bore the brunt of business downswings. In contrast, most of the new age private sector banks were bereft of any asset quality baggage as they spawned in the post-liberalization era with the bulk of their expansion in the 2000s. Relatively newer vintage also helped private sector banks to invest in the latest technology-intensive solutions and enhancing their capabilities which are key in scouting for new revenue fronts in addition to improving customer experience. An example of early adoption of technology by private banks is seen in the expansion of point of sale machines. Despite having only 18 per cent share in credit in 2012, private sector banks had started expanding their reach via the installation of POS machines where they had 80 per cent share in 2012. While public sector banks have played a rapid catch up since then, private sector banks still have a majority share of 57 per cent – this is likely to be a steady source of revenue generation. It is noteworthy that with this diversification, other income contributes 20 per cent to the total income for private sector banks vis-a-vis 14 per cent for public sector banks.

2.Productivity:

• Analysing the cost to income ratio —

CI – (employee expenditure + other operating expenditure/ (net interest income + other income) for banks a stark difference between public and private sector banks can be seen.

1. For private banks, CI has consistently been on the downtrend, coming down from 47 per cent in FY12 to 43 per cent in FYI 7. Whereas, for public sector banks, this ratio has increased from 44 per cent to 49 per cent in the same time period.
2. Keeping overall costs under control is a major competitive advantage as it improves the return on assets which enables the firm to perform on both fronts – it delivers sufficient return to the existing shareholders and provides an opportunity to raise more capital for further expansion.

3. Agility:

• Most new age private sector banks are remarkably flexible in hiring the right talent, while also ensuring that compensation and retention policies are attractive.
• Private Sector Banks are also nimble footed with respect to making decisions regarding early identification of stress, followed by its resolution/recovery thereafter. This has worked in their favour so far both with human resource challenge and asset quality concerns (post the recent Asset Quality Review by the RBI) having a disproportionately larger impact on the public sector banks.

Public Sector Banks

 While the public sector banks have lagged behind their peers in the private sector over the last one decade, recent structural reforms undertaken by the governance could certainly help them in consolidating their position hereon.

• Governance reforms like setting up of Bank Board Bureau splitting up CMD’s post into non-executive Chairman and a CEO, and recommendation for a longer tenure for CEO (5 years) are expected to help improve efficiency in the longer run.
• The creation of CRILC (Central Repository of lnformation on Large Credits) and the implementation of IBC (Insolvency and Bankruptcy Code) have provided an institutional framework for sharing of information and resolution of stressed assets. This will unlock a large part of stuck capital on banks’ balance sheets currently, and thereby hone their appetite for credit expansion.
• The large scale recapitalization plan worth Rs 2.11 lakh cr recently announced by the government for public sector banks can be a potential game changer. While it is timely and will ensure that public sector banks will be able to meet Basel III regulatory requirements, it also incorporates room for ‘growth capital’ for banks which are able to display Superior performance metrics. This is an efficient way to incentivize competition among public sector banks, which would eventually benefit the overall economy.

Next Generation Banking:

With India expected to become the fourth largest economy in the world by 2025, the following 4Ds will determine and drive the banking landscape:

• Development: This includes the government’s financial inclusion agenda and other key sectoral and structural reforms.
• Deregulation: policy improvement in financial intermediation and savings.
• Demographics: Market is getting dominated by young and digitally equipped population.
• Disruption: This involves digitization and the integration of banking, telecom and financial space digitization and the integration Of banking, telecom, and financial Space Based on these 4 Ds, the following seven trends will define the next generation banking in India:

Transforming banking:

• Technology will define banking contours in the future. This would include big data, cloud computing, smart phones and other such innovations.
• ‘Omnichannel’, not multichannel, will redefine the way customers interact with banks. For example, disseminating personalized offers on customers’ mobile phones, use of home video-conferencing system for personalized connect, leveraging face-detection technology for efficient cross-sell are some of the avenues through which technology will aid banking in the future.
• Amidst a high mobile density in India, the potential for leveraging this technology for offering financial services remains immense. In this respect, the JAM Trinity (Jan Dhan- Aadhar Mobile) has the potential to change the face of banking.

Creative Destruction of Banks:

• Outsourcing utilities like customer authentication, fraud checking, payments processing, account Infrastructure KYC processing, to existing technology service providers, Could be key steps going forward in terms of innovation in banking.
• Post demonetization and with active policy emphasis on cashless economy, cashless banking will revolutionize ease of doing transactions with further penetration of Internet and mobile phones metamorphosing into a personal bank branch.
• Branchless banking could help in achieving economies of scale in revenue generation and cost management.
• Banking business model innovations could be combined with national platforms such as Aadhaar to reduce customer acquisition cost by 40 per cent in order to make branchless banking model even more viable.
• India has poor ATM penetration – there are only 11 ATMs for every 1 million people in India compared to 37 in China and 52 in Malaysia. In this regard, Solar ATMs could reduce set up cost by almost 50 per cent and also cater to power scarce rural areas.

Infrastructure Financing:

• India has about 5 per cent share in the global infrastructure market, which is expected to increase to 9-10 per cent by 2025.
• The futuristic development models will evolve on the lines of 5:25 structure and Private- Public-Partnership (PPP) model for long-term financing.
• Additionally, there will be new arrangements in the form of Infrastructure Debt Funds, Green Banking and Viability Gap Funding.
• The MSME sector contributes 8 per cent to the country’s GDP. SIDBI has estimated the overall debt finance demand of the MSME sector at USD 650 billion.
• New structures such as Cluster-Based Financing, Capital Subsidy Policy for Technology Up-gradation, MUDRA Bank, Credit Guarantee Schemes, Incubation Centres and start-up facilities will play an important role in the coming years.

The following are a few innovative thoughts that could become a differentiating reality over the next 15-20 years:

• Account number portability (on lines of mobile number portability)
• Efficient leverage of Big Data Analytics
• Securitization of retail loans Conclusion

A complete embracement of these anticipated changes will not only put Indian banks in the global league, they will also help in pushing up the Indian economy to the Top 4 slot in the world in the next five years.

Managing Non-Performing Assets: A Paradigm Shift

Financial intermediation by banks is an engine of growth because they cause money to be circulated in the economy by seeking deposits from those who have a surplus and lend for investment activity. It has a multiplier effect in the economy. One major reason for muted credit growth is fast accretion of Non-Performing Assets (NPAs) on banks’ balance sheets. Roughly 72 per cent of market share of outstanding credit of SCBs (Scheduled Commercial Banks) is of PSBs. The twin balance sheet problem is overleveraged and distress companies coupled with rising NPAs of PSBs is holding up investment ¡n the economy.

Across the broad spectrum of industries, those which are under stress include primarily basic metals and their products, cement and their products, textiles, infrastructure etc.

The reasons for this state of affairs are:

1. a) Exuberance in increasing balance sheet size by lending to borrowers unworthy of such loans on account of their past credit history.
2. b) Funds were borrowed for creating excess capacities in anticipation of demand without factoring in the global capacities/demand supply position.
3. c) Project completion was delayed for various reasons.
4. d) Recovery of receivables was poor.
5. e) The concerned corporate was not able to raise capital through the issue of equity or other debt instruments from capital markets and used borrowed money as equity leading to double leveraging. Banks did not look at the colour of the equity.
6. f) Business failure because of over-optimistic projections.
7. g) Diversion of funds meant for Expansion/modernisation.
8. h) Wilful defaults, siphoning of funds, fraud, misappropriation etc.
9. j) Lack of skill on the part of the banks to monitor end use of funds and diversion by the borrower through web of shell companies etc.
10. j) Deficiency in credit appraisal and improper due diligence.

Fraud/ wilful default:

• There is a lag of nearly 3 to 4 years before NPAs out of the fresh lending appear. Fresh creation of NPAs during the phase of growth get masked by the high growth of advances and ever greening. Gross NPA ratio does not show alarming rise as denominator advances increase much faster than the numerator (NPA).
• Banks should make themselves alert about the emerging situation by effectively monitoring the cause of delinquency (for reasons as stated above) coupled with prompt corrective action to deny fresh loans to wilful defaulters and for sum optimal projects.
• They should take the intent of RBI circular to monitor/pickup early warning signals (EWS) with all seriousness and declare the errant borrower as non cooperative or wilful defaulter.
• The provisions of company law as detailed below provide ammunition to bankers to initiate action and refer such cases to the Serious Fraud Investigation Office (SF10): As per section 447 of the Companies Act, 2013, a new offence of fraud in relation to the affairs of a company is as under: Any act or omission, concealment of any fact or abuse of position committed by any person with the intent to deceive or to injure the interest of the company or its shareholders or creditors, whether or not there is a wrongful gain or loss, can be investigated by Serious Fraud Investigation Office (SF10) Cases of wilful defaults can, therefore, be entrusted to the SF10 to investigate whether such default amounts to serious fraud under Section 447 of the Companies Act.
• Unless the banks are in a position to establish dishonest intention and false representations on the part of borrowers, it is difficult to initiate criminal proceedings against borrowers for wilful defaults.
• Any person who is found to be guilty of fraud- imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and fine — Not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.

There are enabling laws which are specifically meant for banks to recover default amount from borrowers viz RDDBFJ Act, SARFAESI Act -02 and recent legislation of Insolvency and Bankruptcy Code 2016.

• SARFAESI Act allows bankers to take possession of the assets charged to the bank and auction these without the intervention of the Court. No doubt it is a powerful tool and with proper planning and perfect execution, the assets can be sold.
• The recent ordinance debars wilful defaulters from buy1 back their companies after diverting loan amount and /or making their accounts NPA has taken the wind out of the sails of such promoters.

What can be done?

• Banks need to do a forensic audit for ascertaining the end use of funds.
• Big Data Analytics and other IT based solutions should be used for doing proper due diligence about the borrower and his businesses like fintech companies are doing.
• Artificial Intelligence(AI) can be leveraged to predict default at least one year in advance with the confidence of 80 per cent. A fintech company like D2K technology of Navi Mumbai has developed such a software and results have been remarkable.
• Banks have to fine-tune their HR policies to train the young workforce, which at present lacks experience, and upgrade their skills.
• The government on its part has to appoint professionals on the Board of Banks having domain knowledge and sufficient experience of Bank’s functioning. Selecting retired executives like MI and ED having impeccable track record on the bank Board is worth examining.
• To expedite recovery, the government will do well to have a few more NCLTs and large number of DRTs as present benches are woefully short to achieve this objective.
• Strength of judges can be increased to cope up with the workload. With the coming in of insolvency of individuals, proprietors and partnership firms, the need will be acutely felt.

TIT BITS:

The Union Cabinet chaired by PM has approved that the Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/Aadhaar enabled Payment System (AePS) transactions upto and including a value of Rs. 2000 will be borne by the Government for a period of two years with effect from 1st January, 2018 by reimbursing the same to the banks.

Since such transactions account for sizeable percentage of transaction volume, it will help to move towards a less cash economy. Similarly, MDR is charged on payments made to merchants through BHIM UPI platform and AePS.

Bank Recapitalisation: Enhancing Capital Base

The Union Cabinet, finalised an elaborate Rs 2,11,000 crore plan to revitalize the domestic banking system with a mix of instruments such as market borrowing, budgetary support and most importantly launch of bank recapitalisation bonds.

How do recapitalisation bonds work? What are its probable impacts on the economy?

In all likelihood, government will issue the bonds and banks will subscribe the instrument directly. In doing so, the sovereign money will not move out and it will simply be an accounting entry. Money not changing hands will ensure that the government remains insulated from an additional burden on the fiscal.

• In a scenario wherein government allows the banks to trade the bonds in the secondary market, it will help them raise money and bolster their loan book.
• On the flip side, if the banks are not allowed to sell the bonds in the secondary market, it can serve as ‘investments earning interest income.
• On both counts, it can be safely concluded that issue of recapitalisation bonds is beneficial for the banking system.

The issue of bonds is also a step in the right direction owing to the deluge of deposits that have come into the banking system post demonetisation. Banks would not have otherwise lent the money for want of capital adequacy.

The significance of the bond issue from the Insolvency and Bankruptcy Code angle

With so many corporate debtors going in for resolution, the possibility of explaining hair cut to be borne by the banks cannot be denied. So, for haircuts on account of insolvency resolution and meeting capital norms under BASEL III, PSBs do require infusion, which is the primary responsibility of the government itself, as it is the majority stakeholder. Recap Bonds essentially fit the Bill over here.

• According to Chief Economic Advisor, Arvind Subramanian, the bond issue is not going to stoke inflation or widen the fiscal deficit.

Facilitating Financial Inclusion

Financial inclusion is a process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups in particular, at an affordable cost, in a fair and transparent manner, by regulated, mainstream institutional players (GOI, 2008).

The objective of financial inclusion:

To transform the lives of vulnerable people, mainly poor, by providing them access to banking finance and enabling them to generate stable income.

History of Financial Inclusion in India:

• Contrary to general belief historically, India is a pioneering financial inclusion.
• The Cooperative Credit Societies Act, 1904 gave an impetus to the cooperative movement in India. The objective of cooperative banks was to extend banking facilities, mainly availability of credit, on easy terms compared to the money lender.
• In India, the financial inclusion exercise, explicitly Started with nationalisation of State Bank of India in 1955. In 1967, there merged a debate on social banking and consequently 14 private sectors were nationalised in 1969 to verve the unbanked.
• The concept of priority sector lending became important by 1974 which implied directed lending to unbanked areas, and in 1980, eight more private banks were nationalised to extend banking in rural areas and for vulnerable sections of society.
• Since then, there was considerable reorientation of bank lending to accelerate the process of development, especially of the priority sector of the economy which had not previously received sufficient attention.
• The Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) have also been making concerted efforts in extending banking across the country under which schemes of microfinance initiatives, and business correspondents (BCS) were launched. Other initiatives included establishing Regional Rural Banks (1975), adopting service area approach (1989), and Self- Help Group-Bank linkage programme (1989, 1990).
• In more recent years, especially since November 2005, special efforts were made to ensure financial inclusion, by the RBI by simplifying norms on know-your-customer (KYC) requirements, and introducing ‘no- frills’ account.
• RBI’s cautious policy on financial inclusion has been to ensure a balance between equity and efficiency as well as ensuring financial health of hanks.

Reach of Banking:

• The reach of banking was limited despite different initiatives of financial inclusion contributing in changing the economic landscape in India. There were still important factors such as poverty, low income levels, and distance from bank branches that were restricting vulnerable groups from getting access to the formal banking system.
• According to Census 2011, only 58.7 percent of total households in India and only 54.4% households in rural areas had access to formal banking services.

Expansion of Banking and Role of Money Lender:

• The efforts made by the government and the RBI resulted in branch expansion but the money lender continued to play an important role.
• In 1969, there was one bank branch for 3 lakhs of population. In such a situation money lenders were doing substantial business and continued to play an important role in rural areas, even after nationalisation because bank branches were few and were located far away.
• The spread Of branch networks was extensive but despite government’s efforts to expand banking penetration and extend credit, share of professional moneylenders in rural credit started increasing after 1991.

Government Initiatives:

To ensure a banking account in every household, the Prime Minister, on assuming office, in the maiden speech from the Red Fort on August 15, 2014, announced the need for concerted efforts Pradhan Mantri Jan Dhan Yojana (PMJDY), it

• Envisages universal access to banking facilities with at least one basic banking account for every household
• Consolidates government’s effort to increase number of households availing banking service.
• The progress has been impressive, considering that total amount or bank deposits with commercial banks. The number of RuPay cards have also increased.
• The size of branch network increased rapidly in rural areas though growth rate was higher in urban and metropolitan areas.

• The public sector banks, traditionally involved in social banking, continue to play an important role in extending banking services to unbanked areas but share of private banks, both in number of accounts and amount outstanding is increasing significantly in the last decade. Some of the banks benefited from institutional memory as they earlier operated Pigmy, Honey deposit or Jeevannidhi Schemes, which migrated to no-frill or basic saving accounts in recent years.
• The commercial banks have a significant role in extending credit in northern region, especially in rural and semi-urban areas. There has also been a significant increase credit in urban areas in Eastern and North-Eastern region.
• In extending credit to agriculture sector, commercial banks have been more successful than RRBs Cooperative Banks.

Innovation in extending credit:

• To extend banking services to unbanked population, commercial banks began exploring alternatives to brick and mortar branch like mobile vans, banking kiosks and Business Correspondents (BCs). A large number of the unbanked customers are those who have never entered a bank branch and the BC channel introduced them to a process of inculcating banking culture.
• The customers save of transportation and time/wages lost to visit a branch to complete a transaction.
• In case of rural areas savings are often substantial since the cost of visiting a branch to complete a transaction requires about 2-6 hours which implies absence from regular activity. The banking outlets, with BCS have now been established in remote areas or amidst slums, places where banking penetration was low or non-existent. Accordingly, commercial banks have been successful in extending banking services to nearly 6 lakh villages, mainly through BCS.
• The amount deposited in basic savings account through BCS increased nearly 26 times While that through branches recorded an increase of 15 times over the period.
• The amount transacted through use of information technology recorded the highest growth over the period. Finally, encouraging results of PMJDY are apparent – the amount in basic savings account and transactions through the use of technology show a substantial increase after 2014.

 Select Issues and Suggestions:

• There is need to extend financial inclusion to the disabled, including those elderly where locomotor activity, vision and hearing is impaired.
• Technological issues like frequent machine breakdowns and lack of connectivity which negatively impacts confidence of customers towards informal banking must be reduced.
• There is a need for facilities like biometric-enabled and multi-lingual hand-held devices which can provide confidence in rural masses.
• Technological innovations like integrated machines that have functionality of cash withdrawals and deposits; facility of scanning documents to facilitate new account opening and loan disbursals; and voice commands and narration for available facilities could help increase banking penetration.
• The instruments offered under financial inclusion also need consideration.
• Standard instruments that are offered by commercial banks are designed for salaried segments of society like recurring deposit schemes which would need to differ in rural areas depending on pattern of income based on cycle of agriculture production.
• Financial literacy is a challenge and therefore, bankers been adopting different strategies reach larger segments of the society mainly in villages.
• It is important build a relationship with customer especially villagers, before the part with their money.
• To enhance financial literacy some banks have taken several initiatives such as conducting quiz at college level, preparing comic books, organizing magic shows. etc.
• There is need to standardize literature/material to extend financial literacy amongst the unbanked.

Resolving Insolvency

 India improved its position on the ‘Ease of Doing Business‘ ranking, 2018 released by the World Bank by 30 places to 100th position. One of the reasons cited for that was its performance on resolving insolvency. Well-defined and time-bound norms for entry and exit are considered key to ease of doing business. The Code filled the gap in the exit or restructuring of businesses that the country had.

• The improvement was basically noticed after the government put into effect the Insolvency and Bankruptcy Code (IBC) with a regulator Insolvency and Bankruptcy Board of India (IBBI) in 2016.
• It should be noted that bankruptcy provisions for individuals and partnerships are yet to be notified since the rules have not come.
• Insolvency arises when an individual or organization could not pay its financial dues to its lenders. Insolvency can be tackled through restructuring the debt or if it is not settled this way legal action may be taken against the insolvent, the company concerned is restructured or else its assets are sold to pay the debts.
• Before the Code, there were about 12 laws, including the Contracts Act, the Recovery of Debts Due to Banks and Financial Institutions Act, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. These have not yielded the results that were required. Also the Sick Industrial Companies (Special Provisions) Act and the winding up provisions of the Companies Act, 1956 did not prove to be too effective.
• The National Company Law Tribunal (NCLT) adjudicates insolvency resolution for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.

Insolvency and Bankruptcy Code:

• The Code creates time-bound processes for insolvency resolution of companies the default is over Rs. One lakh, the creditor may initiate insolvency resolution process and go to NCLT.
• The Code is quite different from the earlier resolution systems as it shifts the responsibility to the creditor to initiate the insolvency resolution process against the corporate debtor.
• Under the earlier regime, it was the debtor who primarily initiated a resolution process. While the creditor was the last to pursue separate actions for recovery of dues. However, corporate debtor can also file for insolvency.
• After a case is admitted by NCLT, resolution processes will have to be completed within 180 days, extendable by another 90 days.
• However, there is also a provision for fast-tracking resolution process to complete it in 90 days which could be extended by further 45 days. However, only small companies (private entities having a paid up capital of up to Rs 50 lakh or turnover of up to Rs two crore and start-ups could opt for this method. An unlisted company with total assets of up to Rs 1 crore in the preceding financial year can also choose this method.
• During the resolution process financial creditors assess whether the debtor’s business could be restructured and also consider options for the revival. During this process, creditors’ claims will be frozen. If the insolvency resolution process fails, the liquidation of assets begins.
• Creditors’ committee meets within seven days Of its constitution and decides by 75 per cent of votes either to replace or confirm interim IP as resolution professional. After that, resolution professional is appointed by the NCLT.

Insolvency Professional:

The resolution processes are conducted by licensed Insolvency Professionals (IPs). IPs have at least ten years of experience as chartered accountants, company secretaries, cost accountants, lawyers or in management. He has to clear the Limited Insolvency Examination also. A Person can also become IP by passing the National Insolvency Examination.

• NCLT appoints an interim IP upon confirmation by IBBI within 14 days of acceptance of application. An interim IP holds office for 30 days only.
• He takes control of the debtor’s assets and company’s operations, collects financial information of the debtor from information utilities. He constitutes the creditors’ committee. All financial creditors are part of the creditors ‘ committee, barring the ones who are related party of the corporate debtor. Operational creditors should also be part of the committee but without voting rights but their aggregate dues have to be at least ten per cent of the total dues.
• The Code provides a hierarchy of priority to distribute assets during liquidation. Secured creditors will receive their entire outstanding amount rather than up to their collateral value. Unsecured creditors have priority over trade creditors and the government dues will be repaid after considering claims of unsecured creditors.

Issues:

• Promoters bidding for their own companies. To address the issue, the regulator amended the rules under the Code making it difficult for dubious promoters to take over the companies.
• No wilful defaulter can take back the company now as they would be screened by the committee of creditors. The revised regulations made it mandatory for the resolution professional to ensure that the credit plan presented contains relevant details to assess the credibility of the resolution applicants, inclusive of promoters.
• The resolution applicants’ details terms of convictions, disqualifications criminal proceedings, categorization as willful defaulter as per Reserve Bank of India (RBI) guidelines debarment imposed by SEBI have to be disclosed now.
• Besides, corporate guarantors will also not be eligible to bid for these companies. It also includes the holding company or related party of the promoters of the distressed assets.

Tit bits:

Haircut:

• A haircut is the difference between the loan amount and the actual value of asset used as the collateral. The haircut reflects the lender’s perception of risk of fall in the value of asset.
• In the context of loan recovery, it is the difference between the actual dues from the borrower and the amount he settles with the bank.
• Haircuts are used as last resort when there is absolutely no hope of recovery and the loan is written off for a one time settlement.

Initiatives to Improve Customer Service:

• Giving incentive to banks for adjudication of cut notes and mopping Up of Soiled notes.
• Transferring currency exchange facility to bank branches
• Permitting banks to engage the services of Business Correspondents and Cash-in-Transit companies for distribution of notes and coins and ensure last mile connectivity
• Withdrawal of old series of banknotes (issued before 2005) keeping In View the standard international practice
• Creating ‘Paisa boita hai’ — an educative micro-site Which includes a film for public awareness about bank notes

Strengthening of Cyber Security

Digitalization is the rise of the digital transaction where bank, customers, merchants, industries and other stakeholders form an interdependent financial system network. Digitization is not an option for banking industry, rather it is inevitable, because every industry is being digitized and banking sector is no exception.

Factors influencing the digitalisation in banking:

1. Changing consumer behaviour in favour of digitalization.
2. Financial Inclusion and government initiatives.
3. Leveraging increased smartphone usage and mobile penetration.

A Less-cash Economy is an economy in which many of the transactions are carried out through digital means. It includes various modes such as internet banking, mobile banking, debit and credit cards, card-swipe or Point of Sales (POS) machines, Unified Payments QR Code (Quick Response) based transactions, Touch-n-Go cards.

BHIM UPI – Bharat Interface for Money — Unified Payments Interface:

BHIM UPI is a revolutionary payment system introduced in India which is a first of its kind across the globe.

BHIM Aadhaar is a digital payment acceptance solution enabling merchants to receive digital payments from customers over the counter through Aadhaar authentication.

Measures taken by the Government of India to strengthen the Cyber Security in the complete digital eco-system:

1. National Cyber Security Policy, 2013 (NCSP)

• It was released as a formalized step towards cyber security by the Ministry of Communication and Information Technology under Department of Electronics and Information Technology.
• Its mission is to protect cyberspace information and infrastructure, build capabilities to prevent and respond to cyber-attacks, and minimise damages through coordinated efforts of institutional structures, people, processes, and technology.
• National Computer Emergency Response Team (CERT-in) functions as the nodal agency for coordination of all cyber security efforts, emergency responses, and crisis management.

2. Cyber Swachhta Kendra (Botnet Cleaning and Malware Analysis Centre)

• To combat cybersecurity violations and prevent their increase (CERT- in) in February 2017 launched ‘Cyber Swachhta Kendra’ (Botnet Cleaning and Malware Analysis Centre). The centre has designed new desktop and mobile security solutions for cyber security.
• The Cyber Swachhta Kendra is a step in the direction of creating a secure cyber ecosystem in the country as envisaged under the National Cyber Security Policy in India.

Security and protective tools offered by the centre:

1. USB Pratirodh : aimed at controlling the unauthorised usage of removable USB storage media devices like pen drives, external hard drives and USB supported mass storage devices.
2. Samvid App: It is a desktop based Application Whitelisting Solution for Windows Operating System. It allows only pre-approved set of executable files for execution and protects desktops from suspicious applications from running.

• M-Kavach: a device for security of Android mobile devices. It provides protection against issues related to malware that steal personal data and credentials, misuse Wi-Fi and Bluetooth resources, or stolen mobile device.

1. Browser JSGuard: is a tool which serves as a browser extension which detects and defends malicious HTML and JavaScript attacks made through the web browser based on Heuristics. It alerts the user when he visits malicious web pages and provides a detailed analysis threat report of the web page.

3. Information Technology Act:

IT Act, 2000 is the primary law in India dealing with cybercrime and electronic commerce which had a subsequent amendment in the year 2008.

 IT Act describes the following:

• Digital and Electronic Signature
• Electronic Governance.
• Attribution, Acknowledgement Despatch of Electronic Records.
• Secure Electronic Records and Secure Digital Signatures.
• Regulation of Certifying Authorities.
• Electronic Signature Certificates.

4. Online Frauds and IT Act:

 IT act has detailed the various cyber crimes and also specified the penalty for the cyber wrongdoings by fraudsters online. Phishing is the most common banking fraud which happens online

5. Phishing

Phishing is a type of social engineering attack often used to steal user data, including login credentials and credit card numbers. It occurs when an attacker, masquerading as a trusted entity, dupes a victim into opening an email, instant message, or text message.

 The following Sections of the Information Technology Act, 2000 are applicable to the Phishing fraud:

• Hacking with Computer
• Receiving stolen computer or communication device
• Using password of another person
• Cheating using computer resource

6. Credit Card Fraud

Credit Card Fraud is another online banking fraud where a customer’s card is spoofed and the same is used online. In this fraud also IT Act and IPC rescues the victim and assures penalty from the fraudster.

RBI Directions

• RBI has given directions to protect interests of the customer in its circular on Customer Protection — Limiting Liability of Customers in Unauthorised Electronic Banking Transactions.
• It has thrust upon ‘Zero Liability’ and ‘Limited Liability’ for bank customers against any fraud provided if’ the same is reported to the bank immediately.
• RBI has made it mandatory for banks to register all customers for text message alerts and permit reporting of unauthorised transactions through a reply to the alert message.

However, in cases where the loss is due to negligence of the customer, he/she shall have to hear the entire loss until he/she reports the unauthorized transaction to the bank.

The cyber security infrastructure is to be continuously upgraded, as new threats emerge. Security is a journey, awareness will enable to face and mitigate the risk.

Rural Banking: Translating Vision to Reality

With an average rural literacy rate of 71 per cent most rural Indians are not likely to sacrifice an entire day’s wage to travel to a bank branch which is open between 10.00 AM to 5.00 PM. Intermediaries like NGOs, Self-help Groups, Micro Finance Institutions, semi-formal delivery channels like Banking Correspondents and Business Facilitators, are being used by banks to improve access to credit and savings. However, these channels in their current form, offer limited services and suffer from many a lacunae.

Why are rural markets not viewed as economic opportunity by banks?

• Due to irregular income and expenditure patterns, the banks have high Non- Performing loans in rural areas.
• Dependence of the rural economy on vagaries of monsoons.
• The loan waivers driven by political agenda.
• The average ticket size of both a deposit transaction and a credit transaction in villages is small, which means the banks need more customers per branch or channel to break-even.
• Since many rural folks are not literate and so not comfortable using technology-driven channels like ATMs, phone banking or internet banking, hence mostly dependent on bank branches, leading to banks’ high cost to serve.
• The highly irregular and volatile income streams and unscheduled expenditure like medical or social emergency, attribute to higher risk of credit for the banks.
• Poorer groups might need basic savings services and micro-credit to cover production costs and emergency expenses
• Farmers and farmers’ organisations require larger amounts of credit to finance production, inputs, processing and marketing besides risk mitigation products, for example, insurance for loss of life and assets.

Need for Rural banking:

The new rural finance paradigm needs to be based on the premise that rural people are bankable and rural clientele is not limited only to the farmers and uneducated but also includes a generation which can use and adopt technology, and hence, a demand-driven design and efficient provision of multiple financial products and services through an inclusive financial sector comprising sustainable institutions serving a diverse rural clientele, is the need of the hour. Thus, developing an inclusive yet sustainable rural financial system is extremely challenging and involves comprehensive understanding of the host of complementary issues, which can be placed in seven broad categories-

Challenges in developing an inclusive yet sustainable rural financial system:

1. Product strategy: For catering to the varied needs of small ticket size transactions, whether a chunk of diversified products and services can be developed without compromising on the flexibility, continuous availability and convenience of the products? Which types of financial products have the greatest impact on reducing poverty and lifting growth rates in deprived rural areas?
2. Processes: What kinds of business processes can help banks to reach deprived and vulnerable segments and provide hassle-free near doorstep service to the customers without endangering financial viability? How to design an efficient hub and spoke model overcome the hurdles in the agent-led branchless banking?
3. Partnerships: What are the constraints faced by the unbanked and under banked people in accessing financial services from different types of service providers? Are the bank-non-bank partnerships, such as, Business Correspondents, SHGs, MFIs, etc. working efficiently in easing the accessibility and availability of financial services?
4. Protection: What measures and mechanisms are needed to protect both the providers and the receivers of rural finance from abuse and misuse of such services? Whether enough risks mitigants are there for the borrowers given the higher vulnerability in the sector? Are lenders protected against ebb and flow of uncertainty in credit culture?
5. Profitability: Whether the business strategies and delivery models are geared to provide affordable and acceptable services to the rural clientele while ensuring that rural finance service providers function profitably on a sustained basis? How do we tap into the customer willingness to pay through an appropriate pricing model?
6. Productivity: How do we increase the productivity of financial services provided in the rural areas? What are the strategies needed to synergize other resources with finance (say, under a “credit plus” approach) to ensure more productive and optimal use of financial services?
7. People: Are the rural branch staff well-equipped to meet the needs of driving the process of financial inclusion in terms of knowledge, skill and attitude? Do these people have the capacity, ‘comprehension and commitment to identify potential customers and offer them timely advice and multiple banking services?

Initiatives taken by our government with a view to addressing the challenges of rural banking:

• Reserve Bank of India (RBI) has been undertaking financial inclusion initiatives in a mission mode through a combination of strategies ranging from provision of new products, relaxation of regulatory guidelines and other supportive measures to achieve sustainable and scalable financial inclusion. Some of these steps are: facilitating no-frill accounts and General Credit Cards (GCCs) for small deposits and credit, norms were relaxed for people intending to open accounts with annual deposits of less than 50,000.
• With a view to provide hassle-free and timely credit to farmers, Kisaan Credit Cards (KCC) have been issued by the banking system.
• In January 2006, RBI permitted commercial banks to make use of the services of Non-Governmental Organizations (NGOs) Self Help Groups (SHGs), micro-finance institutions, and other civil society organizations as intermediaries for providing financial and banking services.
• RBI also directed the commercial banks in different regions to start a 100 per cent financial inclusion campaign, as a result of which UTS like Puducherry and states like Himachal Pradesh, Kerala announced 100 per cent financial inclusion in all their districts.
• RBI’s vision for 2020 is to open nearly 600 million new customers’ accounts and service them through a variety of channels by leveraging on IT.
• Enormous success in opening of about 26 crore accounts under Jan Dhan Yojana.
• Setting up Micro Unit Development Refinance Agency (Mudra) for providing micro credits.
• Various social sector schemes like Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana and pradhan Mantri Jeevan Jyoti Bima yojana which would provide social security.
• Providing banking services through banking correspondents and business facilitators.
• Proposed concessions on credit and debit transactions.
• Aadhaar enabled micro ATMs and RuPay cards to replace cash transactions
• Promoting differential banking through new licenses given to payment banks and to small finance banks.
• Launching of India Posts Bank.

Addressing issues in Rural Banking:

• For optimum usage of Banking Correspondents, they need to be adequately compensated by banks so that they are sufficiently incentivized to provide banking services to villagers at their doorsteps.
• Designing suitable innovative products to cater to the requirements of poor villagers at affordable rates is an absolute imperative.
• To wean away villagers from borrowing from money lenders, banks should develop simplified credit disbursement procedures and also flexibility in their processes.
• In an ICT enabled environment, technology is the main lever to achieve the eventual goal of functional inclusion at the earliest.
• Banks need to enhance their ATM network in rural and unbanked areas to serve the rural villagers.
• Adequate security measures, as well as Financial Literacy campaigns, need to be undertaken.
• To reduce the overall transaction costs, associated with small ticket transactions in rural areas, use of domestic RuPay Cards may be enhanced.
• There is a need to promote Electronic Benefit Transfer systems effectively for boosting rural banking.
• The need for vernacularisation of all banking forms is an absolute must, at least in major languages. As part of the Financial Literacy drive, banks need to undertake pro-active steps in helping the common public to get over their English phobia.

Mission Indradhanush: Revamping of Public Sector Banking in India

• ‘Indradhanush Plan’ was developed for recapitalising and revamping of PSBs.
• It was announced by the Central Government on August 14.

1. Appointments:

It was decided to separate the post of Chairman and Managing Director by prescribing that

• In the subsequent vacancies to be filled up, the CEO will get the designation of MD & CEO.
• There would be another person who would be appointed as non- Executive Chairman of PSBs.

2. Banks Board Bureau (BBB):

The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non- Executive Chairman of PSBs.

3. Capitalization:

As of now, the PSBs are adequately capitalized and meeting all the Basel and RBI norms. However, the Government of India wants to adequately capitalize all the banks to keep a safe buffer. The requirement of extra capital for the next four years up to FY 2019 is likely to be about crore. This estimate is based on credit growth rate of 12 per cent for the current year and 12 to 15 per cent for the next three years depending on the size of the bank and their growth ability. Out of the total requirement, the Government of India proposed to make available 70,000 crores out of Budgetary Allocations for four years.

4. De-stressing PSBs:

The Infrastructure Sector and Core Sector projects have been the major recipient of PSB’s’ funding during the past decades. But due to several factors, these projects got stalled/stressed thus leading to NPA burden on banks. Some of the actions undertaken in this direction are-

• Project Monitoring Group (Cabinet Secretariat)/Respective Ministries will pursue with concerned agencies to facilitate issue of pending approval/permits expeditiously.
• Pending policy decisions to facilitate project implementation, operation would be taken-up by the respective Ministries/ Departments.
• Ministry of Coal/PNG will evolve policies to address the long-term availability of fuel for these projects.
• Respective Discoms will be provided hand-holding towards enabling early reforms.
• Promoters will be asked to bring in additional equity in an attempt to address the worsening leverage ratio of these projects.
• The possibility of changing the extant duty regime without adversely impacting the downstream user industry would be considered by the Government.
• The decision to increase import duty on steel has already been taken.
• RBI has been requested to consider the proposal of the Banks for granting further flexibility in restructuring of existing loans wherever the Banks find viability.

NPA Disclosures:

• RBI released Guidelines in 2014 suggesting various Steps for quicker recognition and resolution of stressed assets.
• RBI has now come-out with new category of borrower called Non-Cooperative borrower. Fresh exposure to a borrower reported’s non-cooperative will necessitate higher provisioning.
• RBI has tightened the norms for Asset Reconstruction Companies (ARCs). This step wins increase the cash stake of ARCs in the assets purchased by them.
• The Central Government has decided to establish six new Debt Recovery Tribunals (DRT) at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri, Hyderabad to speed-up the recovery of bad loans of the banking sector.

5. Empowerment:

• The Government has issued a circular that there will be no interference from Government and Banks are encouraged to take their decision independently keeping the commercial interest of the organisation in mind.

6. Accountability:

• A new framework of Key Performance Indicators (KPIs) to be measured for the performance of PSBs.
• Streamlining vigilance process for quick action for major frauds including connivance of staff etc.

7. Governance Reforms:

• The process of Governance Reforms started with “GyanSangam” – a conclave of PSBs and FIS organized at the beginning of 2015 in Pune.
• The ‘GyanSangam ‘ recommendations included among others strengthening of Risk Management practices.
• The focus is on improving HR Management practices and removing barriers so that the banks can share and work together on common resources.

Major game changing initiatives in line with the Banking Reforms:

1. Insolvency and Bankruptcy Code –

• The Insolvency and Bankruptcy Code, 2016 (Code) was enacted with an aim to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation.
• Recently amendments were made in IBC to ensure that wilful defaulters are discouraged to bid again for their own stressed assets which created huge NPAs for banks.

2. Recapitalisation Of PSBs —

In order to promote credit growth and job creation, the Government has sought to recapitalise PSBs.

3. Consolidation of Banks –

• Even though the consolidation has been on RBI’s agenda in the last few years, there have not been many significant mergers in the banking sector except that of six SBI Associate Banks and Bhartiya Mahila Bank with the SBI.
• Consolidation has been largely confined to a few mergers in the private sector and among the associates of SBI in particular.
• Meanwhile, the Central Government has constituted an Alternative Mechanism for consolidation of the Public Sector Banks (PSBs) under the Chairmanship of the Union Minister of Finance and Corporate Affairs,
• The proposals received from banks for in-principle approval to formulate schemes of amalgamation will be placed before the aforesaid Alternative Mechanism.
• The Final Schemes formulated will be approved by the Central Government, and laid in both the Houses of Parliament. Alternative Mechanism will be serviced by the Department of Financial Services for this purpose.
• Central Government also plans to come-out in near future with ‘Indradhanush 2.0’, a comprehensive plan for re-capitalisation of Public Sector Lenders, with a view to make sure that they remain solvent and fully comply with the global capital adequacy norms, Basel-Ill.

Specialized Banks In India:

Financial Institutions are an important segment of the financial system of any country as they provide medium to long term finance to different sectors of the economy. There are four prominent specialized banks or financial institutions in India. These are – Export-Import Bank of India (EXIM Bank), National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI).

Big Data Analysis in Banking Industry

We are in the present era, capable of collecting more data and store more data and analyse. This in technical terms is coined as big data. Big data is used for better understanding of customers behaviours and preferences. Big data analytics is the process of examining large and varied data sets i.e. big data to uncover hidden patterns, unknown correlations, market trends, customer preferences and other useful information that can help organizations make more-informed business decisions.

How is Big Data used in Practice?

1. Understanding and Targeting Customers.
2. Understanding and Optimising Business processes.
3. Improving Healthcare and Public Health.
4. Improving Science and Research.
5. Improving and Optimising Cities and Countries.
6. Improving Security and Law Enforcement Etc.

Indian Scenario at Banking Parlance:

• In the nineties before advent of Core banking banks, through the agency of their branch staff and managers, knew their customers individually. After core banking implementation and stress on retail business with a little leaning towards third party products we have lost that insight we were having. In the previous scenario we were meeting customer expectations and now we have shifted our focus to ‘getting products out of the door’. In this transition phase we need to go back the good old days of principles banking. This banking can be coined as ‘identinomics’. Where individual needs are to be known in advance and instead of pushing products we must sell what customer needs. This big task can be executed by help of big data analysis organically banks do have more data in comparison to any other industry do have, but still have not started using it, With vital information of customer can sell our products better than organisation can do.
• Presently we are going through a data crisis due to our legacy accounts and staff attitude where proper data is not captured by system which makes our journey difficult. So if we want to take data approach we need to go the following process.

Data collection-> Data storage -> Data analysis-> Data utilisation

A New Dimension in Highway Development

The proposal for Phase-I of Bharatmala Pariyojana has been approved by the Cabinet Committee on Economic Affairs in its meeting held in October, 2017.

• Bharatmala is a comprehensive highway development programme for the country.
• The highways sector continues to remain a critical infrastructure sector in India due to existing gaps and enhanced transportation requirements. Bharatmala marks the beginning of a new era for highways infrastructure.
• National Highways Development Project (NHDP) was the first flagship highway development programme in the country launched by the Government in 1998.

Objective of Bharatmala:

Optimize logistics efficiency for both freight and passenger movement on NHS across the country through suitable interventions.

Bharatmala — Six Components:

1. Economic Corridors
2. Inter-Corridors and Feeder Roads
3. National Corridors Efficiency Improvement
4. Border and International Connectivity Roads
5. Coastal and Port Connectivity Roads
6. Greenfield Expressways

Impact of Bharatmala:

1. Optimized efficiency of traffic movement on roads across the country through adoption of a coherent corridor approach. The network identified is expected to cater to about 80 per cent of the inter-district freight movement in the country. It will enable improvement in average speed of vehicles in the country by about 20— 25 per cent.
2. The development of economic corridors and the associated inter-corridor and feeder routes will result in improved road infrastructure, removal of congestion points on the network through bypasses, ring roads etc. Improvement in average speed of the freight vehicles will, in turn, have three key benefits viz (a) improved vehicle utilization resulting in faster breakeven and hence lower freight cost per tonne per km (b) improvement in fuel efficiency of the vehicles due to lower idling time, resulting in lower freight cost, and (c) faster and reliable freight transit, leading to a reduction in average inventory carried in freight. The network, once developed, is expected to reduce about 5—6 per cent in the overall supply chain costs in the economy. This will have a positive impact on the Logistic Performance Index (LPI) Of the country.

• Connecting 550 Districts in the country through NH linkages. Currently, around 300 Districts have NH linkages.

1. Creation Of major opportunities for investment and construction activities in the highways and associated infrastructure development, operation and maintenance,
2. Employment generation and increased levels of economic activities.