1.What are the causes of NPAs.
2.What are the Advantages of financial inclusion.
3.What is demonetization?
4.what are the merits and de merits of demonetization.
5.What is cashless economy? 6.Write the Advantages and disadvantages of cashless economy.
SARFAESI 2002:
The SARFAESI ACT is a kind of act which was established in the year 2002. This act allows the banks and financial institutions to auction properties which was either commercial or residential.After this landmark judgement by the Supreme Court, banks can now seize and sell the properties of the defaulters to recover their dues.A five-judge bench of the Supreme Court headed by Justice Arun Mishra gave the judgement in a case where the Parliament’s decision to amend Section 2(c) of the Sarfaesi Act was challenged.
The acts give the power of seize banks Bank can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. if the borrower fails to comply with the note is the bank may take Re course to one or more of the following measures:
• sale or lease or assign the right over the security and
• take possession of the security for the loan;
• manager the same or appoint any person to manage the same.
The act provides for sale of financial assets by banks and Financial Institutions to asset reconstruction the of the company’s the Reserve Bank of India has issued guidelines to the banks on the process to be followed for sales of Finance assets to assets reconstruction companies.
■ ARBITRATION AND CONCILIATION ACT ,2015.
The arbitration and conciliation amendment act was established in the year, 2015.these act was notified in the official Gazette on 1 January 2016 . For making arbitration a preferred mode settlement of commercial disputes. By making it more user-friendly and cost effective and leading to expedituos disposal of cases.
Thesettlingofdisputesespecially labor dispute between two parties by an impartial third party, whose decide the contending parties agree to accept. Arbitration is often used to resolve conflict diplomatically to prevent a more serious confrontation.
Conciliation is an ADR process where an independent third party, the conciliator, helps people in a dispute to identify the disputed issues, develop options, consider alternatives and try to reach an agreement.
This act facilitates quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in courts. And it also hastens the process of dispute resolution through arbitration so as to encourage foreign investment by projecting India’s an investor-friendly country having a sound legal framework and ease doing business in india.
■ INSOLVENCY AND BANKRUPTCY CODE ,2016:
The insolvency and bankruptcy code 2016 was passed by the Parliament on 11th May 2016 received president assent on 28 may 2016 and was notified in the official gazette on the same day. The code seeks to ensure time Bond settlement of insolvency faster turnaround of Business and create a unified database of serial defaulters.
It is the reconceptualised the framework for insolvency resolution in India. It provides a mechanism for the insolvency resolution of debtors in a time bound manner to enable maximisation of the value of their assets, with a view to promote entrepreneurship, availability of credit and balance the interests of all the
stakeholders.
The code create time bound process for insolvency resolution of companies and individual. this process will be complete within 180 days. of insolvency cannot be resolved, the Assets of the borrowers may be sold to repay creditors.
The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
Information utilities will be established to collect ,collate and disseminate financial information to facilitate insolvency resolution .the National Company Law Tribunal will adjudicate insolvency resolution for companies .that DRT will adjudicate insolvency resolution for individuals.
including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental there too. The insolvency and bankruptcy board of India will be set up to regulate functioning of IPs IPAs , and IUs.
■ BANKING REGULATIONS BILL,2017.
The Banking Regulation Bill, 2017 was introduced in Lok Sabha by the Minister of Finance, Mr. Arun Jaitley, on July 24, 2017. It seeks to amend the Banking Regulation Act, 1949, and replace the banking regulations ordinance, 2017. The empowers of The Reserve Bank of India to resolve the problem of stressed assets . It allows the Reserve Bank of India to initiate insolvency resolution process on specified stressed assets.The RBI may, from time to time, issue directions to banks for resolution of stressed assets. the recovery proceedings will be carried out under the insolvency and bankruptcy code 2016 that provides for a time bound process to resolve its defaults.
The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks.
■ MARGINAL COST OF FUNDS- BASED LENDING RATE .
I in April 2016 all banks move to a new lending rate resign called the MCL aa which stands for marginal cost of funds based lending rate. The new rate Regime was likely to improve the translation rates to the end consumers.The Reserve Bank of India introduced the MCLR methodology for fixing interest rates from 1 April 2016. It replaced the base rate structure, which had been in place since July 2010.The Reserve Bank of India introduced the MCLR methodology for fixing interest rates from 1 April 2016. It replaced the base rate structure, which had been in place since July 2010. M c l r is the new benchmark lending rate at which banks will now lend to new borrowers.
Till 31 March 2016, banks used base rate as the benchmark rate to land. While the mclr are will be the benchmark rate for new borrowers, form for the existing borrowers, the base rate Regime will be continued.
RBI expects the new formula to make floating lending rates more responsive, to its policy rate cuts . ratings agency ICRA.ICRA stands for Information and Credit Rating Agency of India Limited) was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.
ICRA that the norms will improve policy transmission for new borrowings. The mclr is closely linked to the actual deposit rates. Banks have to publish at least five MCLR rates. Banks are also free to to set rate for or longer duration such as two or three years.
■ NON PERFORMING ASSET:
Nonperforming assets are listed on the balance sheet of a bank or other financial institution. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lender might write-off the asset as a bad debt and then sell it at a discount to a collection agency. According to the reserve bank of India an asset,including leased asset ,including leased asset,become non performing when it cease to generate income for the bank.an NPA was defined as a credit facility in respect of which the interest and or installment of principal has remained past due for a specified period of time.
In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days. While 90 days is the standard, the amount of elapsed time may be shorter or longer depending on the terms and conditions of each individual loan. A loan can be classified as a nonperforming asset at any point during the term of the loan or at its maturity. Accordingly with effect from 31 March 2004 ,and NPA shall be a loan or an advance where interest and installment of principal remain overdue for a period of more than 90 days in respect of a term loan; account remains out of order for a period of more than 90 days, in respect of an overdraft or cash credit the bill remains overdue for a period of more than 90 days in that case of bill purchase and discounted ,interest for installment of principal remains overdue for two harvest season but for a period not exceeding two half years in the case of an advanced granted for agriculture purpose and any amount to be received remains overdue for a period of more than 90 days in respect to the other account accounts.
Banks are required to classify nonperforming assets into one of three categories according to how long the asset has been non-performing: sub-standard assets, doubtful assets, and loss assets.
sub-standard asset is an asset classified as an NPA for less than 12 months. A doubtful asset is an asset that has been non-performing for more than 12 months. Loss assets are loans with losses identified by the bank, auditor, or inspector that need to be fully written off. They typically have an extended period of non-payment, and it can be reasonably assumed that it will not be repaid. Stressed accounts are the ones that show incipient science of becoming npa like bounced cheque no on submitting financial data stocks shortage request for frequent over drawoval of accounts and many more overall net stressed loans defined as a net npa plus outstanding standard reconstruction loans reconstructed assets or loans are that assets which got an extended repayment period, reduced interest rate,converting a part of the loan into the equity, providing all the additional financing or some combinations of these measures .hence, under reconstructing a bad loan is modified as a new loan. the real problem is that it was actually an NPA. the reconstructed loan is also a week loan. and NPA and reconstructed loans together show the low asset quality of banks. Hence these together are hence called stressed assets.
☆ Cause of NPAs:
The following factors were identified by the Reserve Bank of India which contributes to creation of NPAs:
- Internal factors:
• slackness in Credit Management and its monitoring.
• lack of coordination among the leading institution.
• management inefficiency.
• inappropriate Technology for technical problems.
• cost overrun.
• business failure.
• diversion of funds. - External factors:
• changes in government policies.
• economic recession.
• volatility in exchange rates.
• natural calamities.
• power shortage.
• input price escalation.
Other factors are as follows: - High interest rates or cost of funds.
2.wilful defaulters diverting the funds for other than the declared purpose . - Utilisation of short term loans for acquisition of fixed assets.
- Over optimistic promoters losing interest when their expectations fail .
5.highly geared borrowers failure to meet adverse economic development. - Liberalization of economy,easing of restriction ,lowering of Tariff, and many more.
- Lack of post Sanction following up and monitoring and failure to recognise early warning signals.
☆ Legal measures:
The following legal and regulatory measures are initiated by the banks for recovery of its NPAs:
1.DRTs: these tribunals are empowered to entertain cases For recovery of debts on fast track basis. - The lok adalats help to resolve disputes between parties by conciliation mediation compromise and amicable settlement.
3.SARFAESI Act:
The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 allows banks and other financial institutions to seize and sell residential or commercial properties of the defaulters to recover loans.
This act empowers the secured creditors to take over the possession of secured Assets of the borrower including right to transfer by way of lease, assignment of sale ,and many more. this act have removed the real legal hurdles and help the bank in resolving large number of NPAs expeditiously.
Www.vinayiasacademy.com - Compromise settlement scheme.
☆ perfect mechanism:
Bank have already preferred to address the problems of stressed loans through restructuring of debt Under The aegis of corporate debt restructuring. While the corporate debt restructuring mechanism was used extensively e the objective seems to have been to provide temporary relief to the borrower rather than to make active efforts to revive business the corporate debt restructuring have met with Limited success in reviving stressed loans owing evaluation of business variability and lack of effective monitoring.
☆ recommended measures:
1.Bad Bank: a Bank may be set up to by the bad loans of a bank with significant npa as at market price by transferring the bad Assets of an institution to the bad Bank the banks clear their balance sheet of toxic assets but would be forced to take right downs. Shareholders and bondholders stand to lose their money for the from the solution banks that become insolvent as a result of the process can be recapitalised nationalized or liquidated.
- Fund for stressed assets:
The government is looking to set up special fund to tackle the issues of the stressed assest . this is expected to be part of the national investment and infrastructure fund which would be like Indian sovereign wealth fund. although banks are seeing a slow down and growth of fresh NPAs they are grappling with a huge of Bad debts due to the problems in certain companies and some sector such as metals and inability of several infrastructure projects to take off.
■ FINANCIAL INCLUSION IN INDIA:
The term financial inclusion was used for the first time in April 2005 in the annual policy statement presented by Y Venugopal Reddy then the governor of The Reserve Bank of India.
Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. The kind of services provided include banking, easy credit investment opportunity and insurance on 25th June 2013, CRISIL India’s leading credit rating and Research company launched and index to measure the status of financial inclusion in India. Measures taken by the Reserve Bank of India to promote financial inclusion are opening of non frills accounts relaxation on know your customer norms for engaging business correspondents use of Technology adoption of electronic benefit transfer revised general credit card intended to cover all enterpreneurial credit for example artisan credit card ,Laghu udyami card ,swarojgar Credit Card ,and weaver Card, and many more simplified branch authorisation opening of branches in and unbanked ruler centres ,tapping the technology is platform like mobile banking, and Aadhaar enabled payment system and allowing opening of the payments banks and small banks like Bandhan bank and IDFC bank.
Corporate sector efforts for financial inclusion include Working of nbfc and opening of white ATMs.
☆ advantages of financial inclusion:
- Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion.
- It helps making the direct benefit transfer.
- Providing access to finance is a form of empowerment of the vulnerable groups.
- Financial inclusion has become an integral part of the efforts to promote inclusive growth.
- It promotes women empowerment.
■ DEMONETIZATION:
Demonetization is the act of stripping a currency unit of its status as legal tender. The opposite of demonetization is a Remonetization, in which a form of payment is restored as a legal tender.
It occurs whenever there is a change of national currency: The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with new currency.
The reason why a nation demonetized because its local unit of currency may be combating inflation combating corruption and crime discouraging a cash dependent economy and facilitating trade.
On 8 November 2016, the Government of India announced that the demonetization of all 500 and 1000 banknotes of the Mahatma Gandhi series. The government has stated that the objective behind the demonetisation policies are first one is to attempt to make India corruption free.
Second one is that is done to curb black money and counterfeit currency, third one is to control escalating price rise, fourth one is to stop fund flow to illegal activity and terrorism ,fifth is to make people accountable for every rupee they posses and pay income tax return. finally ,the last one is an attempt to make a cashless society and create a digital India.
☆ Merits of demonetization:
- It will help the government to track all the black money. those individuals who have unaccounted cash are now required to show income and submit PAN for any valid financial transactions. the government can get income tax return for the income one which tax has not been paid.
- It will help India to become corruption free .those indulging in taking bribe will refrain from corrupt practices as it will be hard for them to keep their unaccounted cash.
- It will stop the circulation of fake currency. most of the fake currency put in circulation is the the high value notes.
- It will also curb the menace of money laundering. now such activity can easily be tracked and Income Tax Department can catch such people who are in the business of money laundering.
- It will stop funding to the the unlawful activities that are thriving due to unaccounted cash flow. banning high value currency will rein in criminal activities like naxalism and terrorism.
- This move has generated interest among those people who had opened Jan Dhan accounts under the Prime Minister Jan Dhan Yojana they can now deposit their cash under this scheme and this money can be used for the developmental activity of the country.
- It will encourage digitalization of currency.
- It will force people to pay income tax returns most of the people who have been hiding their incomes are now forced to come forward to declare that their income and pay tax on the same.
- It will make India cashless society all the monetary transaction has to be through out the banking method method and individual have to be accountable for each penny they possess.
☆ demerits of demonetisation: - It has deeply affected business due to the cash crunch the entire economy has been made to come to a standstill.
- It has caused huge inconvenience to the people.
- The government fought hard to implement these policies .it has to bear the cost of printing of the new currency notes it also found it difficult to put new currency into circulation the 2000 rupee note become a burden on the people as no one like to do transaction with such high value currency. some critics think it will only help people to use black money easily in future.
- Many poor daily wage workers were left with no jobs and their daily income was stopped because employee as unable to pay their daily wage
- India’s economy growth faced slowdown.
Earlier on 16th January 1978 rupees 1000 and rupees 5000 and rupees 10000 currency notes were scrapped to an ordinance impacting 0.6 % of the total currency in the circulation at the time. But before that India has experienced team on a titration of high value currency in 1946 January on both the occasions it impacted only a Minuscule segment of the society and economy.
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■ CASHLESS ECONOMY:
Cashless economy is a situation in which the flow of cash within an economy doesn’t actually exist and all the transaction takes place digitally for internet banking debit card or credit card and apps like PayTM recharge Google pay and so on.
Cashless economy is cost effective, growth friendly, business friendly, pro-financial inclusion, etc. Government is promoting it through BHIM app, AEPS, Digishala etc. Cashless economy requires robust digitalization. It has various challenges-escaping attitudes of people, poor transaction security mechanism, insufficient infrastructure etc. it is boon to industries like UBER and OLA. Further analysis will be done on secondary data.
India is majorly cash driven economy where people prefer to carry cash instead of cards however India is moving towards “less cash economy” -a phase of cultural-economic transition. It is important to curb shadow economy, corruption, terror -financing, human and drug trafficking, counterfeit-currency and many more.
☆ advantages:
Following advantages are expected to accrue: - It is not necessary to be physical present to conduct cashless transaction there is also no limitation on timing of transaction as it can be done at anytime and from anywhere.
- Carrying high amount of cash is always a security hazard. for other modes like credit or debit cards, in the event of loss or robbery , one can block the card. it may also reduce pickpocketing and highway robbery.
- Increasing the shares of cashless will improve government revenue as online transaction leader trail of events that can be traced to find out tax evasion if any.
- The electronic payment will help the entrepreneurs to increase their customer base and breach the geographical limitations.
- As the people increasingly started using cashless transaction it will help in increasing the tax base. it will be easy for the public as well to explain the tax authorities their past expenditure.
- Since the cashless transaction are more visible, it will help in curbing the black money.
- If subsidy aur wages for the welfare schemes MGNREGA are paid online through bank transfer instead of cash it would also help in plugging the leakages and helps in ensuring that subsidies are better targeted.
- There is high cost of printing correct currency notes switching to cashless transaction will decrease this cost.
- One can also trace the funding of terror activities as online transaction Live a trial.
- Problem of counterfeit currency will also be reduced in online transaction.
- Cashless transaction do away with the need of change. one can pay in exact amount even in fraction of rupee aur paise through card payment online transaction.
- It will also be easy to ward off the borrower’s if you are cashless.
- Being cashless also include its budget discipline.
☆ disadvantages: - A cashless society needs a proper infrastructure the banks need to be fully equipped to handle the surge in e transaction infrastructure is also needed in terms of opening more accounts in the banks. Despite its drawbacks the cashless system is in needed and improvement over the traditional cash based system it is practically not possible but reducing the amount of cash and increasing the cashless transaction will definitely improved the transparency in business transactions and therefore is good for the country and economy in fact A cashless society is a welcome idea but not without preparations.
- There are additional charges that are levied by the vendors when they offer an online payment facility.
- Network connectivity issue must be resolved before dreaming about a cashless society.
- The internet cost in India is still substantially high.
- With the recent hack of 32 lakh rupay and Visa debit cards there is a doubt in cyber security of India banking before going for completely cashless economy India needs to strength its cybersecurity first.
- The biggest fear is the risk of Identity theft one can also become a victim of phishinhg trap.
- Since mobile phone had become an important element of cashless economy, loss of phone maybe become a double whammy as many financial details Can be retrieved from it.
- With the literacy level of 74.0 4% India is likely to face the obvious hurdles on its way to achieve a total digitalization of its transactions.
- If we take into account the proportion of non tech savvy population the practical implementation of cashless economic will take enormous effort.
