GIFT city Current Affairs - 2020

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Budget 2020: Financial Sector

The Budget 2020-21 has been framed on the basis that Governance and Finances are the two major hands in achieving the three themes of the budget. The three themes include aspirational India, Economic Development and Caring India

The Budget has allocated funds for the following in the efforts of achieving 5 trillion USD economy.

Public Sector Banks

The GoI has earlier approved consolidation of 10 major banks into 4. In order to achieve this a fund of 3,50,000 crores has already been infused into the economy. Still, in order to make them robust and competitive, budget has allocated funds to carry out reforms in these banks

A robust mechanism is to be put in place to monitor the health of Scheduled Commercial Banks. This is being done to make sure if the depositor money is safe.

Deposit Insurance increased to 5 lakhs

The Depositor Insurance Coverage (DIC) has been increased from 1 lakh to 5 lakh per depositor. The DIC is looked after by Deposit Insurance and Credit Guarantee Corporation (DICGC).

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Amendments to acts proposed

The following acts are to be amended

Banking Regulation Act

The Banking Regulation Act is to be amended to increase professionalism, improve governance, enable access to capital and enable sound banking through RBI

SARFAESI act

The SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) act, 2002 is to be amended. This is to reduce the limit of debt recovery of NBFCs from 500 crores to 100 crores. The debt recovery for loans of the NBFCs is to be reduced from 1 crore to 50 lakhs

PFRDAI act

The Pension Fund Regulatory Development Authority India Act is to be amended. According to the amendment the role of PFRDAI is to be strengthened. This is being done to infuse auto enrolment in Universal Pension Coverage scheme. The act will also enable establishment of Private trusts by employees.

Factor Regulation Act, 2011

The act will be amended to extend invoice financing to the MSMEs. This will help in enhancing their financial and economic sustainability.

MSME Sector

Scheme

A scheme is to be introduced to increase the working capital credit of the MSMEs. Under the scheme, subordinate debt is to be provided for entrepreneurs of MSMEs.

RBI’s Restructuring of Debts

In 2019-20, more than 5 lakh MSMEs have been benefitted with the RBI restructuring its permissible debts. The GoI has requested RBI to extend the window till March 31, 2021.

Application to be launched

An application is to be launched to raise invoices of loan products introduced for MSME sector. This will reduce the problem of cash flow mismatches and delayed payment problems.

Scheme by EXIM and SIDBI

Together both the EXIM and SIDBI will launch a scheme of 1000 crores. The institutions will contribute 50 cores each.

The scheme will help the MSMEs in technology upgradations, business strategies and Research and Development.

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Bond Market

  • The limit of FPI in corporate bonds that are currently at 9% is to be increased to 15%
  • A legislation is to be framed that will create a mechanism for netting of financial contracts. This will help to increase investor confidence
  • Upon the success of the Exchange Traded Fund introduced recently, Gol has allocated budget to expand ETF focusing primarily on government securities
  • A partial Credit Guarantee scheme is to be formulated to address the liquidity constraints of NBFCs.

International Bullion Exchange Centre in GIFT city

Budget 2020-21 allocated funds to establish the GFT city. The GIFT has International Financial Service Centre (IFSC). IT has been approved to set up Free Trade Zone for housing vaults. There are more than 40 banking entities and 19 insurance entities operating in the city. The city is to be established as an International Bullion Exchange centre.

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Government to set-up a Unified Authority for Regulating Entities in IFSC

The Union Cabinet headed by Prime Minister Narendra Modi has approved setting up of a unified authority for regulating all financial services in international financial services centres (IFSCs) in the country. The government has approved a bill to set up a unified regulator.

Fact Box

The first IFSC in India was set up at GIFT City in Gandhinagar, Gujarat.

Promoting the Ease of Doing Business

IFSCs are set-up to bring back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches or subsidiaries of financial institutions (FIs) to India.

In order to ensure this, the business and regulatory environment must be comparable to other leading international financial centres in the world like London and Singapore. Currently, the banking, capital markets and insurance sectors in IFSCs are regulated by multiple regulators like the RBI, SEBI and IRDAI respectively.

For IFSCs to attain its objectives there is a need for inter-regulatory coordination. The establishment of a unified financial regulator for IFSCs will result in providing a world-class regulatory environment to market participants from the ease of doing business perspective.

For the setting up of a unified regulator, the Union cabinet has approved the International Financial Services Centres Authority Bill, 2019.

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