Ashish Kumar Panda is consistently

in top-10 in last 3 Quiz so far.

Aman Singh, Animesh P, Surbhi
Goyal consistently in top-10 in last 2
Quiz. So appreciate them and
emulate their discipline…

Seems that if there is a ‘tie’ in

score, the system gives higher
rank to person who finished fast.

Upto rank 23 got 18/20 so

congrates to them as well
This topic was rather easy
test of ‘factual memory’. So
not giving solutions, as they
are easily available in
handout. Still confusion
send doubt through google
form.
Last week’s topic continued

Quiz Time changed to

Pillar#1C: SEBI, Sharemarket 9:30 pm on account of
some students having
CDS /job exam in the
Quiz from Burning issues in Bank: NPA-BASEL day time.
@what lending rate
should I loan this
incoming money to
make good profit?
 BPLR
@what lending rate
should I loan this
incoming money to 2010: Base Rate
make good profit?
2016: MCLR

2019: External
Benchmark

Methodology updated for

This is just a recap, watch previous 1. Better transmission of monetary policy
video if class missed. 2. Transparency for borrowers
Fixed Interest
• e.g. Short-term crop loans upto Rs.3
lakh rupees for farmers at fixed
Interest 7% - will not be changed
throughout the loan tenure.
Floating Interest
• e.g. Base Rate or MCLR or External
Benchmark + Spread
• But this is regularly updated. So may
increase / decrease.
Teaser Loan
• A type of floating interest rate loan,
where initial years: low interest, but
afterwards- higher interest rate.
Subprime Borrower (=individual person)
• doesn’t have the capacity to repay loan. Giving
teaser rate home loans to sub-prime borrowers -
> Sub-prime Crisis in USA (2007-08), which
ultimately led to Global Financial Crisis (GFC).
Overleveraged Company
• has borrowed too much money than ability to
pay it back. An Overleveraged company has high
ratio of Debt (Bonds/loans) to Equity (Shares).
Zombie Lending
• When a weak bank keeps giving new loans to a
subprime / overleveraged borrower.
“Evergreening of loans”
This is just a recap, watch previous
video if class missed.
This is just a recap, watch previous
video if class missed.
 This is just a recap,
watch previous video if
class missed. Multiple database nhi, single public
credit registry is required. Yeshwant M.
Deosthalee

1. What if tries to borrow from

overseas? Ans. Legal Entity
Identifier (LEI) global Aadhar card
for corporate borrowers.
2. What if runs away? Ans. Fugitive
Economic Offenders Act
 Arrogant banks not
correcting their
behaviour with
alphabetical soup
(5/25, I&B code)
…time for some “direct
PARA action”
“let’s protect the
depositors” Bad Bank will
Justice B N Sri Krishna’s solve NPA
FRDI bill… problem!!-
#EPICFAIL-withdrawn Arvind S.

This is just a recap,

watch previous video if
class missed.
 Lending Rates NPA/TBS Resolution SARFAESI/I&B PCR/LEI/Fugitive
Methodology, MCLR Eco. Offender

FRDI/PARA/PCA BASEL- PNB/IL&FS RBI Dividend/Sec7

III/EASE/Sashakt
Let’s continue forward
 Mechanism not important
MOTIVE is..

BASEL-III Norms, D-
SIB
Recapitalization of
PSBs
CCCB

LCR:HQLA
Which neighbours on Southern side? Self study Map ref: switzerlandmap.facts.co
 Bank on international Settlement,
UN convention on Transboundary Movements Committee on Banking supervision.
of Hazardous Wastes (From 1989) SETUP IN 1930, 60 CENTRAL BANKS,

Vienna: IAEA,
OPEC

IOC

WEF, WTO,
WHO, WIPO, WEF annual
ILO summits
Map ref: switzerlandmap.facts.co
 When any company / Banking company is setup:
Capital
Equity Debt:
•Buy our shares, If we •Buy our Bonds: We’ll pay
profit then we’ll pay you interest irrespective
‘dividend’ of our profit or loss.

Let’s understand the motive

of BASEL-norms, first.
 When a Bank is opened: Capital
Equity Debt:
• Buy our shares, If we profit then • Buy our Bonds/Debentures- We’ll
we’ll pay ‘dividend’ pay you interest irrespective of our
profit or loss.

Assets (6-7
Capital (~1.5lcr) Liability (5 lcr.) Lcr)
Shares: ~1200 Cr •Deposits: •CRR, SLR,
Bonds: ~1.5 Lcr •~5 lakh cr •Loans: ~4.6lcr
•+ other assets
 When a Bank is opened: Capital
Equity Debt:
• Buy our shares, If we profit then • Buy our Bonds/Debentures- We’ll
we’ll pay ‘dividend’ pay you interest irrespective of our
profit or loss.

Assets (6-7
Capital (~1.5lcr) Liability (5 lcr.) Lcr)
Shares: ~1200 Cr •Deposits: •CRR, SLR,
Bonds: ~1.5 Lcr •~5 lakh cr •Loans: ~4.6lcr
•+ other assets

ICICI “Moral Hazard-Too big to fail” because if ICICI fails-

then deposit holder public, media & Opposition parties will
blame govt so Govt will be forced to ‘bail us out’ using tax
payers money!! :P :P :P
 But ICICI is too
big to fail, if we
fail then Govt will
bail us out!!! :P

Capital (~1.5lcr) Assets (6-7

Liability (5 lcr.)
Lcr)
Shares: ~1200 Cr • Deposits:
• CRR, SLR
Bonds: ~1.5 Lcr • ~5 lakh cr
• Loans given.

If large part of these loans turn NPA, then how

will ICICI return the deposits? Because CRR-
SLR ~20%, not 100% to cover the losses.
 MOTIVE: How to reduce this “Moral Hazard”? Banks should be
allowed to grow healthy & liquid But at the same time we should
prevent banks from growing ‘too big to fail’?

Assets (6-7
Capital (~1.5lcr) Liability (5 lcr.) Lcr)
Shares: ~1200 Cr •Deposits: •CRR, SLR
Bonds: ~1.5 Lcr •~5 lakh cr •Loans: ~4.6lcr
•+ other assets

RBI can’t prescribe

In payment bank: 1 person = 1 lakh more than 40% SLR.
Therefore BASEL norms require
balance. But other banks free to CRR hike = directly
banks to have sufficient among here,
accept & can grow “too BIG” reduce money multiplier
if they want to grow bigger.
= expensive loans.
 Assets (100)
Capital Liabilities
• CRR, SLR (22)
(1) • deposits • Good Loans (__)
99 • Bad loans (__)
 Assets (100)
Capital Liabilities
• CRR, SLR (22)
(1) • deposits • Good Loans (__)
99 • Bad loans (__) Calculate “Risk Weighted Assets”
(formula /mechanism not imp)
More bad loans = more risk assigned.
RWA = Rs.120.
 Assets (100)
Capital Liabilities
• CRR, SLR (22)
(1) • deposits • Good Loans (__)
99 • Bad loans (__) Calculate “Risk Weighted Assets”
More bad loans = more risk assigned.
RWA = Rs.120.

BASEL-III norms (WEF 31/3/2019)

Min. Capital to Risk weight Asset Ratio (CRAR) = 9%.
Present CRAR: (1/120) x 100 = less than 1%
Desirable CRAR: (11/120) x 100 = 9%
 Assets (100)
Capital Liabilities
• CRR, SLR (22)
(1) • deposits • Good Loans (__)
99 • Bad loans (__) Calculate “Risk Weighted Assets”
Additional Rs.10 capital required. More bad loans = more risk assigned.
The process of gathering that capital RWA = Rs.120.
= Recapitalization.
BASEL-III norms (WEF 31/3/2019)
Min. Capital to Risk weight Asset Ratio (CRAR) = 9%.
Present CRAR: (1/120) x 100 = less than 1%
Desirable CRAR: (11/120) x 100 = 9%
 Assets (100)
Capital Liabilities
• CRR, SLR (22)
(1) • deposits • Good Loans (__)
99 • Bad loans (__) Calculate “Risk Weighted Assets”
Additional Rs.10 capital required. More bad loans = more risk assigned.
The process of gathering that capital RWA = Rs.120.
= Recapitalization.
BASEL-III norms (WEF 31/3/2019)
If not done then
1. Bank has to resolve NPA or sell assets to
Min. Capital to Risk weight Asset Ratio (CRAR) = 9%.
reduce the RWA, and thereby its capital Present CRAR: (1/120) x 100 = less than 1%
requirements. Desirable CRAR: (11/120) x 100 = 9%
2. Else RBI can restrict your banks’ lending
operations, branch expansion, even
force its merger (PCA framework)
 Separate / longer
Tier1, tier2 not imp. / relaxed
deadlines.
UCB & state coos,
AIFI and certain
categories of
NBFC.

SFB & PB =its higher (12%)...Useless for UPSC.

Figures not important but absolute fact is…that “BASEL not same everywhere”
BASEL-III Norms, D-
SIB
Recapitalization of
PSBs
CCCB

LCR:HQLA
 Recapitalization of PSBs…
Equity (Share) Debt (Bonds):
• Buy our new shares, If we profit • Buy our Bonds, We’ll pay you ~8%
then we’ll pay ‘dividend’ interest irrespective of our profit or
• Investors: we are not idiots! Look loss.
at your NPA and profitability!! • Investors: We still don’t believe
you, risk too high, promise 18%
interest!
 • Merger of smaller
banks.
• Recapitalization of
remaining PSBs based
on ‘performance’.
Indradhanush, EASE
framework
• Privatization of weak
banks.
Recapitalization of PSBs…
Equity (Share) Debt (Bonds): please help…
• Buy our new shares, If we profit • Buy our Bonds/Debentures- We’ll
then we’ll pay ‘dividend’ pay you ~8% interest irrespective
• Investors: we are not idiots! Look of our profit or loss.
at your NPA and profitability!! • Investors: We still don’t believe
you, risk too high, promise 18%
interest!
not practicable 
 let me help them ‘partially’. Rest of the amount they can
gather by themselves through issuing new shares/ bonds.

By October 2017: amount insufficient,

new announcement made.. Total 2.11
lakh crore will be given
We’ll use this money for recapitalizing public sector banks
Because if we issued shares to
investors, they’ll not buy due to
poor profits. If we issued
bonds, investors will ask more But I’m giving sovereign
interest due to higher risk. guarantee so, investors’ risk
Assets (100) is less, so they can’t demand
Capital Liabilities high interest.
• CRR, SLR
(1)**++ • Deposits • Good Loans
• Bad loans

“Recapitalization Bonds”, govt gets money.

 Still, I’ll have to pay 7-8%
Assets (100) interest rate…how to arrange
Capital Liabilities • CRR, SLR that? Ans. From RBI demand
(1) • Deposits
• Good Loans extra dividend, make budget
• Bad loans
• Recap. Bonds allocation, sell away Air
India…

Bank uses public deposits to buy “Recapitalization Bonds”, govt gets money.
 Long winded
suggestion: Why not
doing our “X”technical
suggestions instead of
“Y”.

Candidates… theHindu Columnists

 Pause Video to
Attempt it Yourself
UPSC examiners are
intelligent to design
even tougher technical
qs. But they’ve to be
accommodative to rural,
Non-B.Com/Non-
IIM/Non-Investment
banker.

Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
Boils down to
whether #1 is right
or wrong?

Pause Video to
Attempt it Yourself
Ref: CAG Report CAPIAL INFUSION IN ₹ CR. Afterwards the
announcement
25000 25000 of 2.5Cr+
package
20117

14000
12000 12517
10000 10000
6990

1900 1200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- If Decade as year 2008 vs year 2018:
then overall yes increased. & UPSC
usually interprets in such general
manner.
- If Year on Year zigzag: then not
steadily increased. Pause Video to
- Attempt it Yourself
Have to wait for official answer key.
Internal figures
their addition /
summation /
bifurcation not
much important.
Simply write here
2.6
BASEL-III Norms
Recapitalization of
PSBs
CCCB

LCR:HQLA
Boom: excess lending:
subprime crisis, TBS

Bust: shortage of
funds to loan
Min. 9% CRAR =yes.
Plus 0 to 2.5% extra as CCCB.
RBI must notify 4 quarters (=1 year)
ahead. No CRAR prescribed as of now.
Boom: excess lending:
subprime crisis, TBS

Bust: shortage of
funds to loan
 2019, April
2018, April • ?? Whether
needed next
2015, April • No need for year (2020)
2019-20
2009-11 • Norms I had to notify 1 year
• BASEL-
before!
CCCB, CRAR

I had to notify 1 year

before!
BASEL-III Norms
Recapitalization of
PSBs
CCCB

LCR:HQLA
 Out of the deposits Asset Liability
1. CRR: keep money CRR = 4 Deposits
aside, can’t lend, SLR = 20
can’t invest (4%) 100
2. SLR: keep in liquid Loanable: 76
assets: cash, gold, G-
Sec & other securities
approved by RBI
 Out of the deposits Asset Liability
1. CRR: keep money CRR = 4 Deposits
aside, can’t lend, SLR = 20
can’t invest (4%) 100
Loanable: 76 Give me my
2. SLR: keep in liquid
deposits back…
assets: cash, gold, G-
ABHI
Sec & other securities
KE ABHI
approved by RBI
Find 30 days high stress
scenario.. Keep extra
money aside in HQLA
assets.- BASEL-III
This is hypothetical. It Asset Liability
will be different for CRR = 04
Deposits
each bank. SLR = 20
HQLA Assets: 10
100
Loanable: 66

Find 30 days high stress scenario..

Keep extra money aside in HQLA
assets.- BASEL-III
 Asset Liability
CRR = 04
Deposits
SLR = 20
HQLA Assets: 10
100
Loanable: 66
Deadline came gradually Give me my
Jan 2015: 60%, ..+ 10% deposits back…
each year…. Jan’19: ABHI
100% or more KE ABHI

Find 30 days high stress scenario.. Keep

extra money aside in HQLA assets.- BASEL-III

𝑯𝒊𝒈𝒉 𝑸𝒖𝒂𝒍𝒊𝒕𝒚 𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 𝑯𝑸𝑳𝑨

≥ 𝟏𝟎𝟎%
𝑻𝒐𝒕𝒂𝒍 𝑵𝒆𝒕 𝑪𝒂𝒔𝒉 𝒐𝒖𝒕𝒇𝒍𝒐𝒘 𝒇𝒐𝒓 𝒏𝒆𝒙𝒕 𝟑𝟎 𝒄𝒂𝒍𝒆𝒏𝒅𝒂𝒓 𝒅𝒂𝒚𝒔
 Asset Liability
CRR = 04
If we’ve
Depositsto keep 20% in SLR, and
SLR = 20
extra money in HQLA as well, then
When bank has sufficient HQLA Assets: 10
less money
100 for lending 
Loanable: 66
HQLA assets to meet 30 #Dhandhaa-kaise-karenge!!? Give me my
days high stress scenario deposits back…
: it has “Liquidity ABHI
KE ABHI
Coverage Ratio-LCR”
=100% (or 1)
Find 30 days high stress scenario.. Keep
extra money aside in HQLA assets.- BASEL-III

𝑯𝒊𝒈𝒉 𝑸𝒖𝒂𝒍𝒊𝒕𝒚 𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 𝑯𝑸𝑳𝑨

≥ 𝟏𝟎𝟎%
𝑻𝒐𝒕𝒂𝒍 𝑵𝒆𝒕 𝑪𝒂𝒔𝒉 𝒐𝒖𝒕𝒇𝒍𝒐𝒘 𝒇𝒐𝒓 𝒏𝒆𝒙𝒕 𝟑𝟎 𝒄𝒂𝒍𝒆𝒏𝒅𝒂𝒓 𝒅𝒂𝒚𝒔
38.50%
Asset Liability
Banks must keep this portion of CRR = 04
NDTL in cash/gold/G-Sec/other SLR = 20
Deposits

securities approved by RBI HQLA Assets: 10

100
Loanable: 66
22.00%
20.00% 19.50% 19.25% 19.00% 18.75% 18.50%
18.25% 18.00%

1991 2015 2017-Aug 2017-Oct 2018-Q4 2019-Q1 2019-Q2 2019-Q3 2019-Q4 2020-Q1
(Jan'19) (Apr) (June) (Oct) (Jan'20) (Apr)
BASEL-III Norms
Recapitalization of
PSBs
CCCB

LCR:HQLA
Their administration ,
functioning, governance
should be improved. So
NPA/recapitalization same
problem doesn’t reoccur
 Bifurcation of CMD post
1. Chairman separate person
2. MD(CEO) separate person
More accountability,
professionalism, single person’s
whims
PROFIT

Board of Directors
DIVIDEND
SHARE-HOLDERS
Gyan Sangam-1’s
outcome- bifurcation
of CMD post in PSB.
But who will select
them? Ans. BBB
Indradhanush with key performance based indicators (how much
NPA reduced, how many new jan dhan accounts opened)..

2017, Oct: ~2 lakh crore recapitalization announced.

2017, Nov: First Public Sector Bank (PSB)-Manthan @Gurugram.
Resulted into EASE framework…
1. Customer Responsiveness.
2. Responsible Banking: Reduce NPA, prevent
frauds.
3. Credit Off Take: Try to reach out to potential
borrowers for home, auto, education loans.
4. Help MSME entrepreneurs via SIDBI’s
Udyamimitra.com portal. Approve/reject loans
in not more than 15 days.
5. Deepening Financial Inclusion &
Digitalization.
6. Employees’ Human Resource Management
(HRM): improve with training, performance
linked promotion-salaries-posting-transfers etc.
Bank’s whole-time directors:
each responsible for 1 theme

Bank’s own Board to check

performance

Independent Agency to
check public perception
p52

p53
Asset Reconstruction Company (ARC) and/or Asset
Management Company (AMC) for faster resolution of
stressed assets involving multiple Public Sector Banks(
PSBs)

Project Sashakt (NPA)

Sunil Mehta (PNB CEO) Committee
2018, July.
Small medium enterprises
(SME)

Chal bhai finish

this, let’s not
waste time
going to I&B or
SARFAESI.
mid-sized bad assets

Chal bhai BoB bank lets internally finish this through “Bank led resolution
approach (BLRA), let’s not waste time going to I&B or SARFAESI.
 Recover maximum money out those assets

AMC

Approach #3
 We’ll not give
money.
AMC

AIF fund’s money to

empower the AMC to
purchase those assets
from banks.

Approach #3
 We’ll not give Recover maximum money out those assets
money.
AMC

AIF fund’s money to

empower the AMC to
purchase those assets
from banks.

Approach #3
Approach #4

Asset trading platform for both

good asset and bad assets
 NCLT
DRT under Insolvency Professional (IP) For what can’t be solved
SARFAESI Act
through other 4
Individuals and approaches
Companies:
partnership firms

I&B code: Appeal structure

Company / individual
that has defaulted on
a business loan
Already we have (private sector) AMC
• Already we had 5/25, SDR,S4A, joint lender forum type things.
• But in real exam, not asked to ‘criticise’. Simply write it can
help in following manner…your 250 words limit will be over
before you can explain finer nuances. So PHD

You may read Ref:

https://www.thehindubusine
ssline.com/opinion/nothing-
new-in-mehta-panel-
report/article24366070.ece
2018-jul: Finmin’s Project Sashakt for PSB-
NPA on report by Sunil Mehta (PNB CEO). 5
Pronged approach:
1. Small sized bad loans upto ₹50 cr. SME-
resolution template, 90 days.
2. Mid sized bad loans 50-500cr.: Inter-
creditor pact, 180 days.
3. Large size above 500 cr: independent
Asset Management Company (AMC)
financed by Alt.Investment Fund(AIF). No
bad bank, no govt funding.
4. Online asset trading platform.
5. NCLT/IBC legal-technical reforms.
 Lending Rates NPA/TBS Resolution SARFAESI/I&B PCR/LEI/Fugitive
Methodology, MCLR Eco. Offender

FRDI/PARA/PCA BASEL- PNB/IL&FS RBI Dividend/Sec7

III/EASE/Sashakt
SAHARA Scam

NSEL Scam

Chit Fund Scams

Nirav Modi / PNB-LoU scam

ICICI-Videocon loan scam

 But these people don’t know me, they
won’t give me loans! Some one must
guarantee my creditworthiness!
Wants to borrow foreign
currency in foreign country (to
buy diamonds)
Bank in a foreign country

Mumbai Branch
 But these people don’t know me, they
won’t give me loans! Some one must
guarantee my creditworthiness!
Wants to borrow foreign
currency in Foreign country (to
buy diamonds) Bank in a foreign
country

Mumbai Branch
Wants to borrow foreign
currency in Foreign country (to
pay for diamonds) Same Bank’s branch in
a foreign country
(China)

Mumbai Branch
 Hongkong branch
• Union Bank of
HongKong India,
• Allahabad Bank
• Axis Bank
(Cheaper interest on
dollar loans here)
 Hongkong branch
• Union Bank of
HongKong India,
• Allahabad Bank
• Axis Bank
(Cheaper interest on
dollar loans here)
 Hongkong branch
• Union Bank of
HongKong India,
• Allahabad Bank
• Axis Bank
(Cheaper interest on
dollar loans here)

PNB ought to have taken some

collaterals / security / deposit
from N.Modi- but PNB’s corrupt
manager did not. & he kept thus, Nirav Modi & Mehul Choksi defrauded bank loans
generating LoUs ~12000 crores and one day they flew India.
 RBI : NEFT,
RTGS
SWIFT
MSG

PNB:
CBS
Payment
Gateways NPCi: UPI, Then RBI ordered integration.
(RUPAY, NFS (ATM)
VISA) SWIFT with CBS by
1/4/2018
but what’s the technology that 10 lakhs
sends these msg/instruction
Whatsapp? SMS? SFMS
8 lakhs
 1. TCS designed for IDRBT-Institute for
Development and Research in Banking
Technology (Research arm of RBI).
2. Works as backbone of NEFT, RTGS, and other
inter-bank, intra-bank transactions modules
within India.
3. Mobiles / homePC / branchPC -> can do
transactions.

Only the name and motive is

important. Don’t worry over
fullforms, and org.
Bank of International Settlement
(BIS)@BASEL (1930):
Within India we
can digitally
transfer money
using
NEFT/RTGS/IMPS
but…
 Bank of International Settlement
(BIS)@BASEL (1930):
Within India we
can digitally
transfer money
using
NEFT/RTGS/IMP
S but…

There are other messaging systems & money

delivery systems but we are learning SWIFT
What’s difference between SWIFT branchcode vs IFSC branchcode? Not imp.
 Bank of International Settlement
(BIS)@BASEL (1930): Here also “NEFT”
funda: what if
India to USA $8
being sent, and
USA to India $10
being sent?

BIS will do the

‘settlements’.
When, how,…not
There are other messaging systems & money
delivery systems but we are learning SWIFT important. and
BoP= Pillar#3
 Genuine MSME in
Gems- jewelry biz hurt.
I’m not Nirav Modi, why
no LoU for me!!
 Genuine MSME in
Gems- jewelry biz hurt.
I’m not Nirav Modi, why
no LoU for me!!

Avoid “STICK” policy. Use to calibrated actions,

rather than blunt instruments (such as bans,
quantitative restrictions, stock limits, and closing
down markets)
 SBI Act: Only Government can windup SBI. Their
MD’s tenure decided by Government. 
Banking regulation act is not fully empowering
me to act against errant PSBs.

Without great powers,

I’ve great
responsibilities 
 SBI Act: Only Government can windup SBI. Their
MD’s tenure decided by Government. 
Banking regulation act is not fully empowering
me to act against errant PSBs.

Without great powers, “Independence is not acquired through the law

I’ve great but a large part is acquired through reputation
responsibilities  and the history of good and effective decision-
making.“ (=GSM4)
 Pause Video to
Attempt it Yourself
 SBI, 6%
Central HDFC, 9%
Bank of
LIC, 25%
India, 8%

Abu Dhabi's
Investment
Bank, 13% Orix (Japan),
23% a Systemically Important Non
Deposit Taking Non - Banking
Finance Company (NBFC - ND -
SI).
 Assets Liabilities
Long Term borrowing:
Bonds, SIDBI loans, IDBI’s
Loans given to Letter of Credits
infra projects: Bank deposit
Short Term: Commercial
Ports, Highways Papers, inter-corporate rates ~4-6% so
deposits. better I invest in
mutual funds (MF)
MF pooled public money,
invested here,
 Assets Liabilities
Long Term borrowing:
Bonds, SIDBI loans, IDBI’s
Loans given to Letter of Credits
infra projects: Bank deposit
Short Term: Commercial
Ports, Highways Papers, inter-corporate rates ~4-6% so
deposits. better I invest in
mutual funds (MF)
MF pooled public money,
Land acquisition,
invested here, but IL&FS not
environment clearance, repaying interests regularly.
project delayed.
Rs.270 billion worth
“junk assets”
 Why not done
“X” instead of
“Y” columns

Ball by ball commentary, DNA, PDF-Mags-walla, contrived tech. qs for Mains

 Lending Rates NPA/TBS Resolution SARFAESI/I&B PCR/LEI/Fugitive
Methodology, MCLR Eco. Offender

FRDI/PARA/PCA BASEL- PNB/IL&FS RBI Dividend/Sec7

III/EASE/Sashakt
Give me more
dividend from Sorry
Shaktimaan!
your reserves
Interest on G-Sec that Interest Foreign G-Sec Interest on Loans given Revaluation (increase in
are not sold in Open / Sovereign Bonds. to other Banks / price) of gold & foreign
Market Ops. NBFCs. currency with RBI. (More in
Pill#3)

Penalties imposed on Seigniorage: profits from printing Demonetization – whatever banned notes
errant Banks. money- because face value ₹10 > that did not return, but >99% returned so
printing cost. (Bcom/PHD) irrelevant (More in Pill#2)
Interest on G-Sec that Interest Foreign G-Sec Interest on Loans given Revaluation (increase in
are not sold in Open / Sovereign Bonds. to other Banks / price) of gold & foreign
Market Ops. NBFCs. currency with RBI. (More in
Pill#3)

Penalties imposed on Seigniorage: profits from printing Demonetization – whatever banned notes
errant Banks. money- because face value ₹10 > that did not return, but >99% returned so
printing cost. (Bcom/PHD) irrelevant (More in Pill#2)
While I don’t have to maintain CRR/SLR.
But I should keep some money in backup/
reserve for emergency / obligations.
While I don’t have to maintain CRR/SLR.
But I should keep some money in backup/
reserve for emergency / obligations.
• Contribution to staff retirement funds
• Reserves for contingency (emergency):
~2.5 Lcr.
• Reserves for exchange rate stability
(Technically “Currency & Gold Revaluation
Reserve: ~7 lakh cr) (More in Pill#3)
• …so forth. Total ~9.60 lakh crores.
• After setting aside money for such reserves
/ provisions, whatever surplus money left
– is given to Government as dividend.
(Section 47, RBI Act). No exact amount or
percentage is set.
 Sources of Income
1.Interest on G-Sec that are not sold in Open
Market Ops.
2.Interest Foreign G-Sec / Sovereign Bonds.
3.Interest on Loans given to its other Banks /
NBFCs.
4.Revaluation of foreign currency and gold
with RBI. (More in Pill#3)
5.Penalties imposed on errant Banks.
6.Seigniorage: profits from printing money-
because face value < intrinsic value. (Just
memorize.)
Income goes into
•Contribution to staff retirement funds
•Reserves for contingency (emergency): ~2.5
Lcr.
•Reserves for exchange rate stability
(Technically called “Currency & Gold
Revaluation Reserve: ~7 lakh cr) (More in
Pill#3)
•…so forth. Total ~9.60 lakh crores.
•After setting aside money for such reserves
/ provisions, whatever surplus money left –
is given to Government as dividend. (Section
47, RBI Act). No exact amount or percentage
is set.
 IN RS. CRORES
In between paid interim dividend in 2018-
65876 March because Government asked

For 2019: Government

50000 demanding ₹3.4 lakh
crores. Critiques say
that Accidental RBI
30659 Low dividend due to high
Governor Shaktikanta
administrative cost of
may oblige. Ball by ball
printing, transporting &
28k…
exchanging truckload of new
currency notes after
demonetization.

2015-16 2016-17 2017-18

 Give us Rs.3.6 lakh crores out of
this, for our welfare schemes and
9.6 BASEL-III recapitalization

8.36 Yes, Modi-ji is right. compared to

other central banks, you’re
keeping too much reserve.
Excessive backup not req.
2016-17 2017-18
Reserves in Rs. Lakh crores If we keep giving you large dividends like
DIVIDEND TO GOVERNMENT this, our reserves will become empty!!
65876 Arvind.S: After resigning from
50000 CEA post: Yes, Urjit is right. RBI
30659 should keep high reserves.

What to do 
2015-16 2016-17 2017-18
 RBI should give bigger dividend
•compared global practices, RBI keeps aside
too much reserve.
•Govt did not succeed in privatization of Air
India (else could have obtained money from
there)
•If Govt gets money: BASEL-III
recapitalization, PARA-Bad Bank, welfare
programs, universal basic income.
•Else Govt has to ‘borrow’ more => higher
fiscal deficit =inflation.
RBI should not give bigger dividend
•RBI’s capacity against financial crisis, rupee
-$ exchange rate stability.
•To fight deflation: OMO- RBI should ‘buy’ G-
Sec from market, & thus increase money
supply, but If it doesn’t have money…..
•Low reserves= RBI global credit rating will
decline from “AAA”-> if RBI has to borrow
dollars from abroad during some exchange-
rate crisis, then international lenders (e.g.
IMF) will demand higher interest rate.
•So less reserves / capital buffer =
autonomy & effectiveness will be hurt.
 RBI should give bigger dividend
•compared global practices, RBI keeps aside
too much reserve.
•Govt did not succeed in privatization of Air
India (else could have obtained money from
there)
•If Government gets money: BASEL-III
recapitalization, PARA-Bad Bank, welfare
programs, universal basic income.
•Else Government has to ‘borrow’ more =>
higher fiscal deficit =inflation.
RBI should not give bigger dividend
•RBI’s capacity against financial crisis, rupee
-$ exchange rate stability.
•To fight deflation: OMO- RBI should ‘buy’ G-
Sec from market, & thus increase money
supply, but If it doesn’t have money…..
•Low reserves= RBI global credit rating will
decline from “AAA”-> if RBI has to borrow
dollars from abroad during some exchange-
rate crisis, then international lenders (e.g.
IMF) will demand higher interest rate.
•So less reserves / capital buffer = RBI’s
autonomy & effectiveness will be hurt.
Let’s find middle
way- let a Committee
suggest….
Higher Dividend BASEL-III-relaxation
demand in deadline Bolo “yes” partner

Tight Money Policy-

PCA-relaxation in No No No
BJP wanted cheaper
norms
loans for MSME

PNB Scam- Jaitley You’re not listening to our

criticized Urjit informal demands. Time to
talk ‘formally’ under Section 7
 RBI Central Board
(Non-Official Directors) = 16 (Official Directors) = 5 ➢ Will not give higher
dividend
➢ Will not extend
BASEL-deadline.
- 2 Government officials - RBI Governor ➢ Will not relax PCA
framework.
- 10 directors nominated by - 4 Dy. Gov. ➢ Will not do easy
money policy…
Government.
- 4 directors from RBI’s local
boards

100% shareholder
 RBI Central Board
(Non-Official Directors) = 16 (Official Directors) = 5 ➢ Will not give higher
dividend
➢ Will not extend
BASEL-deadline.
- 2 Government officials - RBI Governor ➢ Will not relax PCA
framework.
- 10 directors nominated by - 4 Dy. Gov. ➢ Will not do easy
money policy…
Government.
- 4 directors from RBI’s local
boards
RBI Act: <first time in history>
• Used: Section-7(1) in PUBLIC INTEREST, Govt can consult with RBI Gov.
• Not used: Section 7(2) [even after that problem persists] then Govt can order
RBI central board to implement directives. E.g. change NPA definition from 90
days to 900 days so automatically all NPA solved by Modi-ji
Who has the courage to write “I DONOT
AGREE WITH THIS BECAUSE….”
Spelling correction.
PCR nhi “PCA” framework.
pitfall: too long background story… exceeding
word limit
 Afterall, wilful/incapable default/ loanscam

NOT Government reforms like

EASE framework.
 Introduction
long
diagnosis of
TBS. UPA’s
policy
paralysis…

Don’t use such

symbols
Recognition
•of bad loans via asset quality review (AQR)

Resolution
•via 5/25, SDR, S4A, JLF, I&B, Project Sashakt

Recapitalization
•for BASEL-III norms. Indradhanush Govt plan for 2.6 lakh crores.

REFORMs
•Governance & Administration of PSB, BBB, EASE framework
Disinter "Digup graves"
• Setup more tribunals for fast tracking SARFAESI lawsuits
• Encourage banks to approach I&B code

Differentiate among PSB

• Loss Maker PSB: Merge, Privatization at a faster pace.

Diversify
• More number, variety of Banks: SFB, PB. However their operational difficulties
should be addressed. (we don’t need to give list)

Deregulate
• Lower SLR,
• Promote C-Bond market so they borrow less from Banks. [Tri-Party Repo, etc.]
Last week’s topic continued

Quiz Time changed to

Pillar#1C: SEBI, Sharemarket 9:30 pm on account of
some students having
CDS /job exam in the
Quiz from Burning issues in Bank: NPA-BASEL day time.