Banking Current Affairs 2017

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Black Money: Automatic Information Sharing with Switzerland from 2019

Switzerland has ratified automatic exchange of financial account information with India and 40 other countries. This will facilitate Switzerland to share information about suspected black money with India and other 40 nations.

According to the Swiss Federal Council, the implementation of the exchange sharing agreement has been planned for 2018 and hence the first set of data is likely to be exchanged in 2019. The Swiss Federal Council is a top governing body of Switzerland. The exact date of automatic information exchange would be notified by the Swiss Federal Council soon as there were no procedural delays for the implementation.

However, the Swiss banks have started seeking new safeguards so as to protect the details of their clients against misuse that could expose them to crimes such as kidnapping or blackmail. So, the Swiss Council had stated that they will prepare a situation report before the first exchange of data. As per thr process, it will be ascertained whether the states and territories concerned have put in place a standard, especially those concerning confidentiality and data security. It will be assessed whether the democratic processes in these states and territories are robust or not and whether corruption is high or not etc.

Background

Switzerland has long been perceived as one of the safest havens for black money stashed abroad by Indians. The participation of Switzerland which is the world’s largest home for overseas wealth in the information sharing agreement would be a major boost in ending tax avoidance.

As a step towards fighting black money stashed abroad, ‘Joint Declaration‘ for implementation of Automatic Exchange of Information (AEOI) was signed between India and Switzerland on November 2016. Switzerland agreed for the introduction of the AEOI (Automatic Exchange of information) on tax matters under the guidance of G20, OECD and other global organisations.

AEOI, based on Common Reporting Standards, when implemented fully would put in place a system wherein bulk taxpayer information will be sent periodically from the source country of income to the country of residence of taxpayer. It would enable India to get access to information virtually from almost all the countries in the world including offshore financial centres.

Switzerland has said the AEOI will be implemented based on the Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information (AEOI). The MCAA is based on the international standard for the exchange of information developed by the OECD. India, on its part has promised to safeguard the confidentiality of the data received.

India joined the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on 3rd June, 2015. According to the OECD, MCAA is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate the automatic exchange of information and avoids the need for the conclusion of several bilateral agreements.

Black money is that amount of money which is liable for taxation, but on which tax is not paid or evaded. It is usually received in cash from underground economic activity and, as such, is not taxed.

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RBI identifies 12 Bank Accounts accounting 25% of NPAs to initiate Bankruptcy Proceedings

RBI’s Internal Advisory Committee (IAC) has identified 12 bank accounts constituting nearly 25% of the gross bad loans for immediate referral and resolution under the bankruptcy law. Each of the 12 identified accounts was having more than 5,000 crore rupees of outstanding loans, of which at least 60% was classified as non-performing by banks as of March 31, 2016. The RBI, however, has not disclosed the names of the accounts.

Salient Highlights

RBI’s internal advisory committee (IAC) mainly comprises of its independent board members. Based upon the recommendations of the IAC, the RBI will issue directions to the banks to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). These cases will be accorded priority by the National Company Law Tribunal (NCLT). The NCLT is the arbitration authority for cases filed under IBC.

For those loan accounts which do not meet the criterion recommended by the IAC, the concerned banks should finalise a resolution plan within six months. The details of the resolution framework for these other non-performing accounts will be released soon by the central bank.

Background

Indian banks have an estimated Rs 10 trillion as stressed assets. Of this, gross bad loans amounts close to Rs 7.7 trillion and the rest constitutes the restructured loans.

In May, the Union Cabinet had cleared an ordinance that amended the Banking Regulation Act and gave more powers to Reserve Bank of India to deal with non-performing assets (NPAs) in the banking sector. The Amendments has empowered the RBI to act against loan defaulters and defaulting companies under the bankruptcy code. These amendments would pave for faster resolution of the NPAs as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans.

The assets of the banks which don’t perform are called Non-Performing Assets (NPA) or bad loans. If customers don’t pay either interest or part of principal or both, the loan turns into a bad loan. According to RBI, loans on which interest or instalment of principal remains overdue for a period of more than 90 days from the end of a particular quarter will be classified as a Non-performing Asset.

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RBI to release New batch of Rs 500 Currency Notes

Reserve Bank of India has said that it will release new batch of Rs 500 currency notes whose design will be similar in all respects to the Rs 500 rupee banknotes of the Mahatma Gandhi (New) Series which were released post demonetisation.

Salient Highlights

The new batch of Rs 500 banknotes will have inset letter “A” in both the number panels.

It will bear the printing year as ‘2017’ on the reverse side.

The new notes will have the signature of RBI Governor Dr. Urjit R. Patel.

The old Rs 500 notes released in the wake of demonetisation would continue to remain as legal tender.

RBI has said that it has no plans to release new denomination currencies in the near future as it aims to promote cashless transactions in the country.

The banknotes will also have Swachh Bharat logo printed on the backside of the banknote. In addition, some of the notes would carry an additional character in between the prefix and the number of the banknote.

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