Banking Misc

Question 1

Project Sashkt

Answer 1

5 pronged strategy based on size

<50 Cr: will be resolved at the bank level itself
50-500 Cr: bank-led resolution, Inter creditor agreement
>500 Cr: Asset management company and AIF based resolution approach
Larger asset already with IBC: NCLT/IBC approach
Asset Trading Platform

Inter Creditors Agreement: Banks and other financial institutions including NBFC’s, Payments Banks

For Loan value of b/w 50 Crore and 500 Crore. A plan will be prepared by leading bank and will be submitted to Overseeing committee which will be then submitted to consortium for their approval. 66% consensus is required.
Dissent banks has the option to exit either by buying at premium (125% of agreed value) or selling at discount (15%)
Deadline of 180 days

Question 2

Indradhanush appointments:

Answer 2

Besides induction of talent from the Private Sector into the public banks, separation of the posts of Chief Executive Officer and the Managing Director, in order to check the excessive concentration of power and smooth functioning of the banks.

Question 3

Indradhanush BBB

Answer 3

The appointments Board of the Public Sector Banks would be replaced by the Bank Boards Bureau (BBB). Advice would be rendered to the banks in the matters of raising funds, mergers and acquisitions etc by the BBB. It would also hold the bad assets of the Public Sector Banks. The BBB separates the functioning of the PSBs from the government by acting as a middleman.

Question 4

Indradhanush Capitalization

Answer 4

Due to the high NPAs and the need to meet the provisions of the Basel III norms, capitalization of banks by inducing Rs. 70000 crore was planned

Question 5

Indradhanush De-stressing

Answer 5

Solving issues arising in the infrastructure sector in order to check the stressed assets in the banks by strengthening the asset reconstruction companies. Development of a vibrant debt market for PSBs.

Question 6

Indradhanush Empowerment

Answer 6

Providing greater flexibility and autonomy to PSBs in hiring manpower

Question 7

Indradhanush Framework of accounatability

Answer 7

Assessment which will be based on Key Performance Indicators.

Efficiency of capital use (25)
Diversification of business/processes (25)
NPA management (15)
Financial Inclusin (15)
Strategic initiatives taken to improve asset quality, efforts made to conserve capital, HR initiatives and improvement in external credit rating (15)

Question 8

Indradhanush Governance Reforms

Answer 8

Started with Gyan Sangam a conclave of PSBs and FI

No interference policy from governement

Question 9

Deposit Insurance and Credit Gurantee Corporation (DICGC) Act

Answer 9

Acted in 1961
RBI deputy governor acts as chairperson
All banks must purchase this insurance and NBFCs are not covered
Insurance cover of 5 lakh for deposit holder

Question 10

Public Sector Asset Rehabilitation Agency (PARA)

Answer 10

Also called Bad bank
Bad bank to buy out all toxic loans from banks
This helps banks get on with business as usual, while the bad bank grapples with recovering the loans or realizing cash from selling the underying asset

Question 11

Prompt Corrective Action (PCA)

Answer 11

PCA is a frmwork under which banks with weak financial metrics are out under watch by the RBI. PCA framwork deems when risky if they slip below certain norms on 3 parameters: Capital Ratio, Asset Quality, Profitability

3 Risk categories

Corrective Actions:

a) Stricter supervision
b) Restriction on compensation and salaries to management and director fees
c) Restriction on dividend distribution
d) Restriction on branch expansion

Question 12

SWIFT

Answer 12

SWEET is a messaging network that financial institutions use to securely trasmit information and instructions through a standardized system of codes.

SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code.

First four characters: the institute code

Next two characters: the country code

Next two characters: the location/city code

Last three characters: optional, but organizations use it to assign codes to individual branches

Question 13

NOSTRO

Answer 13

Account maintained by Indian bank in foreign countries

Question 14

VOSTRO

Answer 14

Maintained by foreign bank in India

Question 15

LORRO

Answer 15

PNB needs Dollars from standard chartered Bank (USA),but it does not have a NOSTRO account or Minimum balance in NOSTRO Account. In this case they can ask for SBI’s help who is having an account in standard chartered USA. So SBI Account will act as LORRO Account for PNB.

Question 16

Haircut

Answer 16

haircut is the difference b/w the actual dues from a borrower and the amount he settles with the bank

Question 17

Bank overdraft

Answer 17

Purpose: to manage short-term cash flow problems

Limit: An overdraft limit is determined based on the credit worthiness of a borrower and the availability of collateral or a guarantee

How it works: Bank permits an account holder to use or withdraw more than they have in their account

Question 18

Reverse Mortgage

Answer 18

A reverse mortgage enables a senior citizen to receive a regular/monthly income from a lender (a bank or a financial institution) against the mortgage of his home

The borrower continues to reside in the property till the end of his life.