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Financial Sector Reforms, 2011

Presented by :

Srikrishan Rana

Sourav Pal

Saurabh Kirti

Sukhwant Singh

Shruti KaleShalini 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 processitself 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 interestrates pegged at unrealistically low levels;

large scale pre-emption of resources from the banking system bythe government to finance its fiscal deficit;

excessive structural and micro regulation that inhibited financialinnovation and increased transaction costs;

relatively inadequate level of prudential regulation in the financialsector;

poorly developed debt and money markets; and Outdated (often primitive) technological and institutional structures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 systemhighly 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 institutionsMFIs.

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 theinternational time frame for introduction of International Financial Reporting Standards(IFRS) and would amend various laws and

regulations in due course of time to usher thisin

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 theState Bank of India (Subsidiary Banks)Amendment Bill, 2010 aimed at deleting allreferences 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 branchesand 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 inRs 100,000 crore during the last 18 months by

strengthening the transfer pricing mechanismto stop capital which would have fled out of theshores.

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 effectto 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 limitby 20 billion dollars, taking the limit to 25billion dollars, for investment in the corporate

bonds with a residual maturity of over fiveyears and issued by companies in theinfrastructure 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 liftthe 10 per cent voting rights cap inprivate sector banks and pave the way

for the Reserve Bank of India to givesome additional banking licenses toprivate sector players.


Private sector players to get banking license



GOVERNMENT DECIDES TO RAISE

HOLDINGS IN STATE OWNED BANKS

The government has decided to raise itsholding in all state-owned banks to a minimumof 58%. It has also identified the banks where

it would infuse capital to increase its stake.


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 nationalsupervisory issues, approaches and techniques, with a

view to promoting common understanding.



The Committee encourages contacts and

cooperation among its members and other

banking supervisory authorities. It circulates tosupervisors throughout the world both published

and unpublished papers providing guidance on

banking supervisory matters. Contacts have been

further strengthened by an InternationalConference of Banking Supervisors (ICBS) which

takes place every two years.

Contd..



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 maintainingof 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 themto 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 oncapital, 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.

government to introduce ifrs

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