Chapter-3: Monetary Management and Financial Intermediation

What are survey notes on NFC (Non-Food Credit)?

• Non Food Credit (NFC) grew at 8.85 per cent Y-o-Y in November 2017 as compared to 4.75 per cent in November 2016.
• Bank credit lending to Services and Personal Loans (PL) segments continue to be the major contributor to overall NFC growth.

What are survey notes on Insolvency and Bankruptcy Code (Amendment) Bill, 2017?

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017, was passed by the Lok Sabha on December 29, 2017, and by the Rajya Sabha on January 2, 2018. It replaces the IBC (Amendment) Bill, 2017, which was promulgated on November 23, 2017. In the CIRP the Committee of Creditors (CoC) invites resolution plans from resolution applicants, and may select one of these plans. The Code originally does not specify any restrictions on who these resolution applicants might be.

The Bill has declared that some persons are ineligible to submit resolution plans:

• an undischarged insolvent;
• a “wilful defaulter”;
• a borrower whose account has been identified as a non-performing asset for over a year and who has not repaid the amount before submitting a plan;
• a person convicted of an offence punishable with two or more years of imprisonment;
• a person disqualified as a director under the Companies Act, 2013;
• a person prohibited from trading in securities;
• a person who is the promoter or in the management of a company which has indulged in undervalued, preferential, or fraudulent transactions;
• a person who has given guarantee on a liability of the defaulting company undergoing resolution or liquidation, and has not honoured the guarantee;
• a person who is subject to any of the above disabilities in any jurisdiction outside India; or
• a person who has a connected person disqualified in any manner above.

The thrust of the Bill is to prevent a range of undesirable persons from bidding for the debtor. The Bill may prevent promoters from bidding for their own firms. A resolution plan would typically involve significant haircuts on the parts of the financial and operational creditors. Thus, allowing a promoter to bid without restriction would mean countenancing a situation where an owner, having driven a firm into insolvency, is now able to purchase it back at a discount. This can lead to a situation of moral hazard, where incompetent or fraudulent promoters are effectively rewarded with the control of their company, leaving the creditors to write off their debts. The Bill, thus, seeks to achieve a balanced approach, enabling the CoC to avoid imprudent transactions, while preserving its freedom to choose the best resolution plan from amongst all the applicants.

Insolvency and Bankruptcy Code, 2016

A major factor behind the effectiveness of the new Code has been the adjudication by the Judiciary. The Code prescribes strict time limits for various procedures under it. In spite of the large inflow of cases to NCLT benches across India, these benches have been able to admit or reject applications for CIRP admissions with few delays. In addition, appellate courts, including the NCLAT, High Courts and the Supreme Court have also disposed appeals quickly and decisively. In this process, a rich case-law has evolved, reducing future legal uncertainty.

What are survey notes on GNPA & RSA?

• The Gross Non-Performing Advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) increased from 9.6 per cent to 10.2 per cent between March 2017 and September 2017, whereas, their Restructured Standard Advances (RSA) ratio declined from 2.5 per cent to 2.0 per cent.

What are survey notes on Capital to Risk-weighted Asset Ratio?

• Capital to Risk-weighted Asset Ratio (CRAR) of SCBs increased from 13.6 per cent to 13.9 per cent between March 2017 and September 2017 largely due to an improvement for private sector banks (PVBs). SCBs’ Return on Assets (RoA) remained unchanged at 0.4 per cent between March 2017 and September 2017.

What are survey notes on NON-BANKING FINANCIAL SECTOR?

• Non-Banking Financial Companies (NBFCs) bring in diversity and efficiency to the financial sector and make it more responsive to the needs of the customers. Peer to Peer (P2P) and Account Aggregators are the new categories of NBFC that have been introduced recently.
• To further financial inclusion through direct interaction between small lenders and small borrowers and to address the associated consumer protection issues, the Reserve Bank has introduced a new category of Non-Banking Financial Company (NBFC) called NBFC-P2P (NBFC- Peer to Peer Lending Platform) with light touch regulation and emphasis on adequate disclosures.
• The NBFC sector, as a whole, accounted for 17 per cent of bank assets and 0.26 per cent of bank deposits as on September 30, 2017.
• NBFCs depended largely on public funds for funding their balance sheets.

What are survey notes on insurance sector?

• Insurance, being an integral part of the financial sector, plays a significant role in India’s economy. The potential and performance of the insurance sector should be assessed on the basis of two parameters, viz. Insurance Penetration and Insurance Density.
• Insurance penetration is defined as the ratio of premium underwritten in a given year to the gross domestic product (GDP). The Insurance penetration which was 2.71 per cent in 2001, increased to 3.49 per cent in 2016
• Insurance density is defined as the ratio of premium underwritten in a given year to the total population (measured in US$ for convenience of international comparison). The insurance density in India, which was US$ 11.5 in 2001, has increased to US$ 59.7 in 2016.