Financial Sector Reforms, 2011

 Presented by :

Srikrishan Rana
Sourav Pal
Saurabh Kirti
Sukhwant Singh
Shruti Kale
Shalini Singh
Sunil Yadav
 Financial Sector Reforms
 Financial sector reforms are at the centre stage of the
economic liberalization that was initiated in India in mid
1991.
 This is partly because the economic reform process
itself took place amidst two serious crises involving the
financial sector:
 the balance of payments crisis that threatened the international
credibility of the country and pushed it to the brink of default;
and
 The grave threat of insolvency confronting the banking system
which had for years concealed its problems with the help of
defective accounting policies.
The deeper rooted problems of the
Indian economy were:
 the problem of financial repression in the sense of McKinnon-
Shaw (McKinnon, 1973;Shaw, 1973) induced by administered
interest rates pegged at unrealistically low levels;
 large scale pre-emption of resources from the banking system by
the government to finance its fiscal deficit;
 excessive structural and micro regulation that inhibited financial
innovation and increased transaction costs;
 relatively inadequate level of prudential regulation in the financial
sector;
 poorly developed debt and money markets; and
 Outdated (often primitive) technological and institutional structures
that made the capital markets and the rest of the financial system
highly inefficient.
RBI measures to extend credit support to
MFIs

 The Reserve Bank of India announced certain

relaxation to banks in its present restructuring
guidelines in order to enable them to extend
credit support to micro finance institutions
MFIs.

 ANALYSIS / IMPLICATIONS
 Extending financial support to MFIs
 Proper upbringing of MFIs in India through this credit
support.
Government to introduce IFRS

 The government proposes to stick to the

international time frame for introduction of
International Financial Reporting Standards
(IFRS) and would amend various laws and
regulations in due course of time to usher this
in

 ANALYSIS / IMPLICATIONS
 Making the financial statements more transparent
 Faithfully representing the actual financial position
and performance of an entity.
LOK SABHA PASSES SBI AMENDMENT BILL,
2010

 The Lok Sabha passed by a voice vote the

State Bank of India (Subsidiary Banks)
Amendment Bill, 2010 aimed at deleting all
references to the word 'State Bank of Indore'
which has now been merged with the SBI.

 ANALYSIS / IMPLICATIONS
 Customers of 472 branches of State Bank of Indore
will have access to 13,323 domestic SBI branches
and in over 150 overseas branches
 Minimizing the shortage of banks in rural areas
 RBI ACCOMODATES IMC’s
RECOMMENDATIONS ON NBFCs

 The Reserve Bank of India has

accommodated the Indian Merchants’
Chamber’s (IMC) plea for including telecom
towers in infrastructure finance definition for
Non-Banking Financial Companies (NBFCs).

 ANALYSIS / IMPLICATIONS
 Authorising NBFCs to include telecom towers in its
infrastructure loans.
PARLIAMENT APPROVES APPROPRIATION
BILL FOR 2011-12

 Parliament approved the Appropriation Bill for

2011-12, that the Government had netted in
Rs 100,000 crore during the last 18 months by
strengthening the transfer pricing mechanism
to stop capital which would have fled out of the
shores.

 ANALYSIS / IMPLICATIONS
 Minimizing and locking black money reserves in
India
 GOODS AND SERVICES TAX BILL
INTRODUCED IN LOK SABHA

 The Goods and Services Tax (GST) Bill, which

aims to bring far-reaching reform in the tax
system, was introduced in the Lok Sabha.

 Finance Minister Pranab Kumar Mukherjee

moved the Constitution (One hundred and
Fifteenth) Amendment Bill, 2011 to give effect
to the provisions of the Bill.
SEBI ENHANCES FII INVESTMENT LIMIT BY
20 BILLION DOLLARS

 Securities and Exchange Board of India

(SEBI) issued a circular enhancing the FII limit
by 20 billion dollars, taking the limit to 25
billion dollars, for investment in the corporate
bonds with a residual maturity of over five
years and issued by companies in the
infrastructure sector.

 ANALYSIS / IMPLICATIONS
 Increasing the flow of Foreign Investments in India
to boost its economy
 GOVERNMENT OKAYS BANKING
AMENDMENT LAW 2011

 This Bill seeks to among other things lift

the 10 per cent voting rights cap in
private sector banks and pave the way
for the Reserve Bank of India to give
some additional banking licenses to
private sector players.

 ANALYSIS / IMPLICATIONS
 Private sector players to get banking license
 GOVERNMENT DECIDES TO RAISE
HOLDINGS IN STATE OWNED BANKS

 The government has decided to raise its

holding in all state-owned banks to a minimum
of 58%. It has also identified the banks where
it would infuse capital to increase its stake.

 ANALYSIS / IMPLICATIONS

 Strengthen banks financial health

 provide banks greater headroom to raise capital

INDIA RIDING THE ATM WAVE

 Usage of ATM machines in the country is

increasing .
 The amount of cash withdrawal has gone up
by 142%.
 Large number of services offered by ATM is
the reason.
 The rising use of ATMs is also an indicator
that India is gradually progressing from its
status of a developing economy
 BASEL COMMITTEE

The Basel Committee on Banking Supervision provides a

forum for regular cooperation on banking supervisory
matters. Its objective is:

• enhance understanding of key supervisory issues

• improve the quality of banking supervision worldwide

It seeks to do so by exchanging information on national

supervisory issues, approaches and techniques, with a
view to promoting common understanding.
Contd..

The Committee encourages contacts and

cooperation among its members and other
banking supervisory authorities. It circulates to
supervisors throughout the world both published
and unpublished papers providing guidance on
banking supervisory matters. Contacts have been
further strengthened by an International
Conference of Banking Supervisors (ICBS) which
takes place every two years.
NEED FOR BASEL NORMS
 Capital Adequacy Requirements
 banks should maintain a minimum capital adequacy
requirement of 8% of risk assets. For India, the
Reserve Bank of India has mandated maintaining of
9% minimum capital adequacy requirement.
 Supervisory Review
 to ensure that not only banks have adequate capital
to support all the risks, but also to encourage them
to develop and use better risk management
techniques in monitoring and managing their risks.
 NEEDS (CONTD)
 Market Discipline:
 Market discipline imposes banks to conduct their
banking business in a safe, sound and effective
manner. Mandatory disclosure requirements on
capital, risk exposure (semiannually or more
frequently, if appropriate) are required to be made
so that market participants can assess a bank's
capital adequacy. Qualitative disclosures such as
risk management objectives and policies,
definitions etc. may be also published.