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India’s Forex reserves increase by $1.25 billion

According to the Reserve Bank of India’s weekly statistical supplement, India’s foreign exchange (Forex) reserves have increased by $1.25 billion to reach $371.13 billion from $369.88 billion as on April 21, 2017. The current reserves are just short of a lifetime high of USD 371.99 billion reached in the week to September 30, 2016.

Components

The components of India’s Foreign Exchange Reserves include:

  • Foreign currency assets (FCAs)
  • Gold
  • Special Drawing Rights (SDRs)
  • RBI’s Reserve position with International Monetary Fund (IMF)

FCAs constitute the largest component of the Forex Reserves. It was augmented by $1.23 billion to $347.48 billion as on April 21, 2017. FCAs consist of US dollar and other major non-US global currencies. It also comprises of investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks.

The gold reserves stand at $19.86 billion.

SDRs’ value has increased $5 million to $1.45 billion.

RBI’s reserve position with the IMF stands to $2.33 billion.

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RBI issues Revised Prompt Corrective Action (PCA) framework for NPAs

RBI has come up with a notification titled “Revised Prompt Corrective Action (PCA) framework for banks.” The revised framework would apply to all banks operating in India including small and foreign banks. The new set of provisions will be effective from April 1 based on the financials of banks as of March 2017. The revised framework will override the existing PCA framework. The revised framework will be again reviewed after three years.

Need for revised framework

RBI had promised to revise the PCA framework at its first monetary policy review of the current fiscal held on April 6, as the bad loans including those already restructured reached USD 80 billion or 15% of the system as of March 2017. As per the estimates, the NPAs of state-run banks reached Rs 6.3 lakh crore as of September compared to Rs 5.5 lakh crore at the end of June 2016.

Salient guidelines of revised PCA

Capital, Asset Quality and profitability would be the basis on which the banks would be monitored. Banks would be placed under PCA framework depending upon the audited annual financial results and RBI’s supervisory assessment. RBI may also impose PCA on any bank including migration from one threshold to another if circumstances so warrants. RBI has defined three kinds of risk thresholds and the PCA will depend upon the type of risk threshold that was breached.

If a bank breaches the risk threshold, then mandatory actions include the restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director’s fees. Specifically, the breach of ‘Risk Threshold 3’ of CET1 (common equity tier 1) by a bank would call for resolution through tools like amalgamation, reconstruction, winding up among others.

RBI in its discretion can also carry out the following actions:

  • Recommend the bank owner be it government/promoters/parent of foreign bank branch to bring in new management/board.
  • Advise bank’s board to activate the recovery plan as approved by the supervisor.
  • Advise bank’s board to carry out a detailed review of business model, the profitability of business lines and activities, assessment of medium and long-term viability, balance sheet projections among others.
  • Review short term strategies and medium-term business plans and carry out any other corrective actions like the removal of officials and supersession or suppression of the board.

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Pradhan Mantri Mudra Yojana crosses loan targets

Loans disbursed under the Pradhan Mantri Mudra Yojana (PMMY) have crossed its target of Rs 1.8 lakh crore in the financial year 2016-17. Loans extended currently stands at Rs 1.80,087 crore. Of this, a majority of the loans were awarded by banks (Rs 1.23 lakh crore). Non-banking financial institutions have lent about Rs 57,000 crore. In this year’s budget, Rs 2.44 lakh crore has been set as a target for Mudra loans for the financial year 2017-18.

Significance

  • Significantly, out of the 4 crore borrowers, over 70% of the borrowers were women. Around 20% of the borrowers belonged to Scheduled Caste category, 5% belonged to Scheduled Tribe category and 35% belonged to other backward classes.
  • Robust growth in bank loans to unfunded and underfunded segments of the society indicates that this category of borrowers has emerged as a key driver of demand for credit.
  • Non-insistence of collateral/guarantor, simple documentation and quick processing are the three praiseworthy attributes of the MUDRA loans.

Pradhan Mantri Mudra Yojana (PMMY)

The objective of this scheme to launch a Micro Units Development and Refinance Agency (MUDRA) Bank to support the entrepreneurs of Scheduled castes, scheduled tribes and other backward classes entrepreneurs in the MSME sector. The scheme was launched on April 8, 2015.

MUDRA cards are the unique feature of this scheme. The card permits access to working capital through ATMs and card machines.

MUDRA loans can be availed for non-agricultural activities upto Rs 10 lakh and for activities allied to agriculture such as dairy, poultry bee keeping etc. The scheme provides loans to micro units in three categories ranging from Rs. 50,000 to Rs. 10 lakh.

  • Shishu: Loan up to Rs 50,000
  • Kishore: Loan ranging from Rs 50,000 to Rs 5 lakh
  • Tarun: Loan ranging from Rs 5 lakh to Rs 10 lakh.

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