Current Affairs – April, 2014

Latest Current Affairs April, 2014 with Current Affairs, news summary on current events of National and International importance of April, 2014 for Banking, SSC, CLAT, UPSC, State PCS, IBPS, Railways and other Competitive Examinations.

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Board of Financial Supervision (BFS) clears proposal that RBI will conduct an independent audit of big corporates declared fraudulent by banks

Following a sequence of investigations by the banks themselves in high-profile cases viz. Deccan Chronicle, Kingfisher Airlines, etc. which yielded very little, the RBI has now decided to itself investigate such high-profile fraud cases. The Board of Financial Supervision (BFS), chaired by RBI governor Raghuram Rajan, has cleared a proposal that RBI itself will now conduct an independent forensic audit of corporates who have taken loan of more than Rs 1,000 Crore and are declared fraudulent by banks.

Why RBI has taken this decision to itself and independently audit high profile fraud cases?

In past few years, there has been a huge rise in the number of cases of bad loans. The Gross NPAs (Non-Performing Assets) – bad loans prior to making provisions, for year 2013 stood at Rs 24,3210 Crores, up by 35% (Y-o-Y) Year on Year basis. Not only this, the number of cases referred to the CDR (Corporate Debt Restructuring) has also gone high in near past.

In order to curb rise in such NPA (Non-Performing Assets), the RBI has come with strong measures to ascertain that banks in India don’t brush off bad loans under the carpet.

Besides, the number of cases referred to the corporate debt restructuring (CDR) cell has also risen sharply in recent months.

Will an Independent forensic audit by the RBI put a check on the rise in stressed assets in the banking system?

The findings from independent forensic audit will allow RBI to formulate policies that will assist it keep a close watch on the creditor-borrower relationship, and promptly step in when there’s an abuse in the banking system.

What is Board of Financial Supervision (BFS)? What are the Functions of Board of Financial Supervision (BFS)?

The Financial Supervision functions are carried out by the Reserve Bank of India under the guidance of the Board  for Financial Supervision (BFS). Board for Financial Supervision (BFS) is chaired by the Governor of Reserve Bank.

The chairman is supported by the 4 co-opted directors as members for a 2 year term. There is a Vice chairman of the board who is one of the Deputy Governors of the Bank. The Board meets typically every month. The chairman is supported by the 4 co-opted directors as members for a 2 year term. There is a Vice chairman of the board who is one of the Deputy Governors of the Bank. The Board meet s typically every month.

Some typical functions of Board of Financial Supervision (BFS) are:

  1. Restructuring of the system of bank inspections
  2. Introduction of off-site surveillance,
  3. Strengthening of the role of statutory auditors and
  4. Strengthening of the internal defenses of supervised institutions.

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RBI raises Rs 20,000 Crores in record auction; India’s biggest debt auction ever

RBI fully sold the Rs 200 billion ($3.31 billion) worth of Government bonds on Thursday April 17, 2014, executing the India’s biggest-ever auction. Speculations ran in market that Life Insurance Corporation had bought a major portion of the debt at the auction. On Thursday April 17, 2014, the Benchmark bond yield ended down 11 basis points at 8.85%, the biggest single-day fall since 20 January, 2014.

This was India’s biggest debt auction ever.

What are Government Bonds?

Government bonds or Dated securities are long term Government securities with original maturity of one year or more. These are tradable instruments issued by the Central Government or the State Governments.

The Short term Government securities are called Treasury bills (maturities of less than one year). In India, the Central Government issues both, Treasury Bills and Bonds (Dated Securities) while the State Governments issue only Bonds (Dated Securities). The State Govt Bonds are called the State Development Loans (SDLs).  Practically, Government securities carry no risk of default and, for this reason, are called risk-free gilt-edged instruments.

How are the Government Securities issued?

Government securities are issued via “Auctions” conducted by the Reserve Bank of India.  Auctions are conducted on the electronic platform called the Negotiated Dealing System (NDS) – Auction platform.

What are the different types of auctions used for issue of securities?

Previous to introduction of “Auctions” as the process of issuance, the interest rates were administratively fixed by the Government. With the introduction of auctions, the Rate of Interest (Coupon Rate) gets fixed via a market based Price Discovery Process.

An auction may be:

a)     Yield based Auction– Conducted when a new Government security is issued

b)    Price based Auction– Conducted when Government of India re-issues securities issued earlier.

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