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How ‘secure’ are the secured loans? A bank for women, by women Just 660 days! Target over-ambitious... Merger mania haunts banks The collaboration suite of cyber criminals Hesitancy in announcing year-end results Small is ‘more’ beautiful Fund healthcare clinics in villages... New bank licences, at last... Perhaps small is more beautiful than big! Ernakulam excels... Ferrying digital banking to Lakshadweep Bottomlines shrink, bad loans rise... Governance in Reverse Gear? LVB- A supermarket of financial services Reaching out: is it slowing down? Who is the real beneficiary? Managing NPAs... Lacklustre credit expansion How okay are new banks? New capitals of Migrant banks Why priority status? What is the priority – mergers or NPA reduction? A new development bank rising in the east… Mega merger is on All that glitters is not gold... Good, bad and ugly Capital base of regional rural banks raised Anytime banking to anywhere banking Holy or unholy? Grows Bigger Well-lived... From lazy banking to easy banking Reaching the Unreached… Financial inclusion vs unclaimed deposits One down in private sector Bank deposits account for 46.3 per cent of household savings Too big to fail and too small to sail Growing gainfully Banking on Risk Emerging crisis Banking in Telangana Banking overhauling or reorganisation? Growing volume of stressed assets… Stage set for Indian ‘avatar’ of foreign banks Greet Lakshmi the banking robot Needed a Banking Atlas United India Insurance - Rs 110 crore losses have been claimed till now due to floods in Tamil Nadu Two banks: their jubilees and performances Small finance banks offer high interest rates Drop in SLR- sparing lendable resources Thirty more cities seek to become SMART Another route for achieving financial inclusion The paradox: clamour for the Goliath and David Small finance payment banks... Cradle of banks to a smart city... Smart banking in smart cities Payment banks have arrived Why any time money? A development bank for BRICS Cautious and considerate Insatiable appetite for credit Rationalised It’s a war on black money, support it. Cut in repo rate – lower than expected Indian customers are tech savvy Drastic decline in asset quality Big bank merger, bigger expectations Aadhaar, niraadhaar and banking Targets continue to be ad hoc Nothing much can happen…. Monetary policy continues to adopt dis-inflationary path
 
Growing volume of stressed assets…
With the Union Budget focusing on the rejuvenation of rural India, the banking sector did not receive much attention from the Finance Minister.

There was greater thrust on raising the economic condition of farmers and improving the living conditions in the villages. The total allocation made to the agricultural sector, for the welfare of farmers and irrigation projects is Rs 47,912 crore. This amount is nearly twice the allocation made in the previous budget.  


Recapitalisation of banks

The banking sector’s performance during the third quarter of FY 2016 in maintaining the health of its credit portfolio has been dismal. There has been a sudden spurt in the gross NPA ratios of almost all of the public sector banks. Erosion of their net worth is therefore causing great concern to the government. Hence, in the Union Budget, Rs 25,000 crore is provided for infusing fresh capital into these banks. However, this amount is grossly insufficient.

    In order to increase productive investment in the farm sector, the banking sector has been given a credit target of Rs 9 lakh crore to be achieved during the current financial year. In the previous Budget, the target stipulated was Rs 8.5 lakh crore. According to a Reserve Bank of India source, the total direct agricultural advance made by banks was Rs 6.27 lakh crore as on June 2014, and the banking sector could not reach the stipulated target for farm credit deployment.

Contrary to this, there has been a huge increase in borrowings of farmers from multiple sources in the recent years. Moneylenders still continue to have a major share of rural indebtedness. According to a National Sample Survey report titled Situation Assessment Survey of Agricultural Households in India published in December 2014, there has been a substantial increase in the indebtedness of agricultural households. Based on a sample of 35,000 households during 2012-13, the average debt per household was estimated to be Rs 47,000, while average income was Rs 6973 per annum.  An assessment of the pattern of borrowings revealed that the share of institutional agencies was 60 per  cent, and that of non-institutional sources was 40 per cent. Moneylenders were dominant among the non-institutional sources, charging exorbitant interest rates. Increase in the number of farmers’ suicides in the recent years is mainly due to multiple borrowings.  

The farm credit target of Rs 9 lakh crore stipulated in the budget may not be high enough to meet the credit demand of all farm households in rural areas. For facilitating better loan repayment by farmers, a provision for interest subvention has been made in the Budget.  To reduce their interest burden, a provision of Rs 15,000 crore has been made. However, the usurious interest rates charged by moneylenders cannot be curbed, so long as the farmers continue to have multiple borrowings.

 

Financial sector reforms    

 

Emphasising that the strength of financial sector depends upon a strong and well-functioning banking system, a reference was made in the Budget speech to the comprehensive ‘Plan for Revamping of Public Sector Banks- Indradhanush,’ which is under implementation. It is proposed to set up a Monetary Policy Committee to provide statutory basis for a Monetary Policy Framework. This committee-based approach is expected to add more value and transparency to monetary policy decisions. Therefore, the RBI Act 1934 would be amended suitably for this purpose.

A Financial Data Management Centre under the aegis of the Financial Stability Development Council (FSDC) is proposed to be set up to facilitate integrated data aggregation and analysis in the financial sector. Besides this, Bank Board Bureau is expected to be operationalised during 2016-17.

Specific reference was made to the growing volume of stressed assets in the banking sector. To strengthen the functioning of Asset Reconstruction Companies (ARC) for reducing such stressed assets, it was proposed to make necessary amendments to the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100 per cent stake in the ARC and to permit non-institutional investors to invest in securitisation receipts.

 

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