Banking Awareness of 1 and 2 January 2024

Topic: RBI

1. RBI has issued guidelines for inoperative accounts and unclaimed deposits.

• RBI has issued these guidelines to reduce fraud and improve grievance redressal.
• These guidelines would be applicable to all commercial and co-operative banks from 1 April, 2024.
• They will not apply to zero-balance accounts that are opened under central and state government programmes for the purpose of crediting scholarship funds or Direct Benefit Transfers.
• As per the guidelines, the banks are required by RBI to evaluate those accounts on an annual basis that have not had customer-induced transactions in more than a year. 
• Additionally, RBI has mandated that banks examine term deposit accounts every year in cases where there is no clear renewal mandate and the money hasn't been taken out after the account matures.
• The RBI has prohibited banks from charging interest for failing to maintain the minimum balance in any account that has been declared inoperative.
• Additionally, RBI has made it illegal for banks to charge penalties for activation of inoperative accounts.
• The new guidelines mandate that banks notify depositors and account holders that there hasn't been any action for the past year via letters, emails, or phone calls to their registered number.
• The banks will have to warn them that if no transactions are made within the "extended period" of the next year, the account would become "inoperative."
• Banks will need to find account holders, nominees, or heirs in the event that a customer is nonresponsive.
• Additionally, banks will have to post information about unclaimed deposits that have been moved to the Depositor Education and Awareness Fund (DEA) on a monthly basis on their websites or physical locations.
• The credit amount in any deposit account that hasn't been used in the last at least 10 years should be transferred by banks to the DEA Fund.

Topic: RBI

2. RBI has decided to increase the bulk deposit limit for large urban co-operative banks (UCBs).

• The earlier limit was ₹15 lakh and above. The new bulk deposit limit is ₹1 crore and above.
• This new bulk deposit limit of ₹1 crore and above is applicable to UCBs in the Tier 3 (with deposits more than ₹1,000 crore and up to ₹10,000 crore) category.
• The new limit is also applicable to UCBs in Tier 4 (with deposits more than ₹10,000 crore) category.
• According to RBI, all other UCBs (other than scheduled UCBs in Tiers 3 and 4) will continue to have bulk deposit limit as “single rupee term deposits of ₹15 lakh and above.”
• As per Co-operative banking experts, with the increased bulk limit, customers’ placing deposits below this threshold of ₹1 crore and above will get a uniform rate of interest.
• Earlier, customers could negotiate the rate of interest since a deposit of ₹15 lakh and above was taken as a bulk deposit by all UCBs till now.

Topic: Indian Economy/Financial Market

3. India will become largest metallurgical coal importer in the world by 2026.

• According to International Energy Agency (IEA), global metallurgical coal trade will increase by about 2% to 353 million tonnes (MT) in 2026.
• Rise in India’s metallurgical coal imports will be aided by growing industrialization, higher steel consumption and limited availability of coking coal.
• The IEA predicted that rising imports from other countries will balance off a decline in metallurgical coal imports into China of roughly 28 MT, or 28% compared to 2023.
• IEA said imports into India will increase by 2026, by 16 MT (or 21%).
• According to IEA, the global metallurgical coal imports are expected to have increased by about 11% y-o-y to 352 MT in 2023.
• As per the IEA, China and India have been the main drivers of this surge, with China overtaking India to regain its position as the largest importer of metallurgical coal.
• IEA added it is expected China’s imports have increased by 56% y-o-y to 100 MT. India’s imports are expected to have increased by 17% to 78 MT.
• IEA pointed out India is increasingly replacing Australian metallurgical coal with Russian.

Topic: Indian Economy/Financial Market

4. According to the Finance Ministry, India’s FY24 GDP growth rate is expected to exceed its earlier forecast of 6.5%.

• The GDP growth rate is expected to comfortably exceed Finance Ministry’s earlier forecast after Q2 GDP growth performance at 7.6%.
• India’s GDP already grew 7.7% in the first half of this fiscal.
• Union Budget 2023-24 had mentioned a nominal GDP of 10.5% for current fiscal.
• In the latest half-yearly economic review report, Finance Ministry has highlighted that the headline inflation outlook is on a declining trend.
• India had recorded an economic growth of 7.2% in 2022-23 and 9.1% in 2021-22.
• RBI has raised its growth forecast for 2023-24 to 7%. RBI has projected inflation to average at 5.4% in FY24.
• International Monetary Fund (IMF) has kept India’s growth rate at 6.3% for 2023 and 2024.
• At present, IMF expects India to become a $5-trillion economy by 2028.
• S&P Global Ratings expects India to become 3rd largest economy by 2030.
• According to S&P Global Ratings, India will be world’s fastest growing economy for the next 3 years.
• According to JP Morgan, India is expected to become world’s 3rd largest economy by 2027.
• It expects the Indian economy to hit $7 trillion by 2030.
• In its latest report, Finance Ministry said that relatively high food inflation is a matter of concern.
• Finance Ministry added this rate of increase in prices is a worldwide phenomenon.
• India recorded 6.6% food inflation in October, the UK is still having 10.1% food inflation, Japan is having 9.8% food inflation, and South Africa is having 9% food inflation.
• India’s food inflation increased to 8.7% in November 2023.

Topic: Reports and Indices

5. In FY23, gross household savings declined to 10.9% of GDP.

• The RBI's most recent financial stability report (FSR) states that although household default risk is increasing due to increased exposure to higher mortgage payments and floating rate interest, it is still restricted in India.
• Financial assets only slightly decreased to 10.9% of GDP in FY23 from 11.1% in FY22.
• Household liabilities increased rapidly, rising from 3.8% of GDP in FY22 to 5.8% in FY23.
• According to the FSR, new data indicates that household net financial savings (HNFS) increased from 4% of GDP in Q3 FY23 to 7% of GDP in Q4 of FY23.
• RBI noted that household net financial savings (HNFS) declined from 11.5% in 2020-21 to 5.1% of GDP in 2022-23.
• Rapid increases in financial liabilities were the main cause of the decline in HNFS.
• Gross household financial savings declined to 11.1% in 2021-22 and further to 10.9% in 2022-23.
• Gross household financial savings had increased to 15.4% of GDP in 2020-21.
• In absolute terms, gross household financial savings increased by 13.9% year-on-year during 2022-23.
• Household debt declined to 37.6% of GDP in March 2023 from its peak level of 39.2% in March 2021.
• As per RBI, India’s household debt to GDP ratio at 6.7% is one of the lowest in the world.
• Household debt means outstanding credit from banks and other financial institutions to households.

Topic: Banking/Financial/Govt Schemes

6. The tenure of the PLI scheme for the automobile industry has been extended by the government by a year.

• The tenure of Production Linked Incentive (PLI) Scheme for Automobile and Auto Components has been extended by the government by one year with partial amendments.
• Under the amended scheme, the incentive would apply for five consecutive financial years, beginning from the financial year 2023-24 (FY24).
• The distribution of incentives will take place in the next financial year 2024-25.
• The scheme also clarifies that an approved applicant would be eligible for benefits for 5 consecutive financial years, but not more than the financial year ending March 31, 2028.
• Further, the amendments state that if an approved company fails to meet the prescribed selling price increase limit in the first year, it will not get any incentive for that year.
• However, it will still be eligible for benefits in the following year if it meets the threshold calculated based on a 10% year-on-year increase over the earlier year's threshold.
• The amendment also includes changes in the table showing the incentive outlay, taking the total indicative incentive amount to Rs 25,938 crore.

Topic: Miscellaneous

7. Finance Ministry permits 30^th tranche of electoral bonds from 02 January 2024.

• The 30th tranche of electoral bonds has been approved by centre.
• The window for purchase and encashment of electoral bonds will be open till January 11.
• State Bank of India (SBI) is authorised to issue and encash electoral Bonds through its 29 authorised branches.
• The electoral bonds will have a fifteen calendar day validity limit from the date of issuance.
• If the bonds are placed after this time, no payment will be made to the political party payee.
• The bond that the qualified political party put in its account would be credited on the same day. Citizens of India can purchase the Bonds.
• The electoral bonds will only be available to registered political parties that received a minimum of 1% of the total votes cast in the most recent election for the State's legislature, or Lok Sabha.

Topic: Banking System

8. Small Finance Banks (SFBs) will start “Small Banks: Empowering Big Dreams” campaign.

• This campaign will be an attempt to highlight the success of SFBs’ business models to all stakeholders.
• These banks shall lend at least 75% of their total advances to priority sectors.
• Further, minimum 50% of their loan portfolio should include loans and advances of up to ₹25 lakh.
• Ten SFBs started operations in the 2016-2017. In 2021, Shivalik Mercantile Co-operative Bank became a SFB. In 2021, Unity SFB was given a license.
• SFBs were set up for offering credit to micro and small enterprises, agriculture and providing banking services in unbanked and under-banked regions in the country.
• Uma Shankar Paliwal, CEO, Association of Small Finance Banks of India (ASFBI) said that the tagline “Small Banks: Empowering Big Dreams” reflects the philosophy of all 12 SFBs.
• Each SFB has its own tagline. For example, Equitas SFB has “Beyond Banking” as its tagline.
• ESAF SFB has Joy of Banking as its tagline. Jana SFB’s tagline is ‘Likho Apni Kahani’/‘Write Your Destiny’ and Suryoday SFB’s tagline is A Bank of Smiles.
• The campaign with a common tagline could back up SFB’s individual efforts to garner low-cost current account, savings account (CASA) deposits.
• At March-end 2023, high cost term deposits formed around 68% of SFBs’ total deposits. The balance 32% were CASA deposits.
• In its recent “Report on Trend and Progress of Banking in India”, RBI observed that SFBs play critical role in delivering credit to under-banked segments.
• Many SFBs have low CASA deposits. They have a greater reliance on bulk term deposits.

Topic: Appointments

9. Arvind Panagariya has been appointed as chairman of the sixteenth Finance Commission.

• The government has appointed former NITI Aayog vice chairman Arvind Panagariya as the Chairman of the 16th Finance Commission.
• Ritvik Ranjanam Pandey will be the secretary to the 16th Finance Commission.
• The 16th Finance commission will submit its report for the five-year period (2026-27 to 2030-31) to the President by October 31, 2025.
• The 15th Finance Commission was headed by NK Singh and recommended states to give 41% of the divisible tax pool of the Centre to states.
• Panagariya served as the first Vice Chairman of NITI Aayog between January 2015 and August 2017.
• Finance Commission:
  • Article 280 of the Indian Constitution mentions about the Finance Commission.
  • It is a quasi-judicial body that is constituted by the President every fifth year.
  • The Finance Commission is a constitutional body to give suggestions on centre-state financial relations.
  • It consists of a chairman and four other members that are appointed by the President.

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