Banking and Financial News – 27 May 2014

Banking and Financial News – 27 May 2014

Current Account Deficit narrows to 1.7% of GDP in 2013-14. (The Hindu)

All NBFCs require prior approval before acquisition of 10% shares: RBI - Deposit- and non-deposit taking non-banking financial companies (NBFCs) will henceforth have to apply for Reserve Bank of India (RBI) permission for any transaction that requires transfer of more than 10% of shares in the companies, the central bank said in a notification on Monday. (live Mint)

Sale of bad debt to ARCs boost bank results, but worries remain - The fiscal fourth-quarter earnings of Indian banks have indicated that bad loans at most banks fell from the preceding three months, mainly with banks selling bad debt to asset reconstruction companies (ARCs). (live Mint)

Important Financial Terms in the News explained.

Current Account Deficit (CAD) - It occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.

CAD = (Value of goods Imported + Value of Services imported + Interest and Dividends Paid + Foreign Aid Repaid)

Less (Minus)

(Value of goods Exported + Value of Services exported + Interest and Dividends Received + Foreign Aid Received)

Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period; classically a year.

Non-banking financial company (NBFC) - is a company registered under the Companies Act, 1956 and engaged in the business of granting loans and advances. They require RBI Licence.

They do not hold a banking license. NBFCs function like banks; however there are a few differences:

  • NBFC cannot accept demand deposits withdrawable by cheque.

  • It is not a part of the Payment and Settlement system and as such cannot issue cheques to its customers

  • Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

DICGC (Deposit Insurance and Credit Guarantee Corporation) – An RBI sponsored Corporation, that guarantees repayment of deposits up to one lakh rupees (Subject to conditions), in case of a bank failure.

Asset Reconstruction Company - The Parliament of India paved the way for formation of Securitisation Companies and Restructuring Companies (`SC/RCs`) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (`SARFAESI Act`). RBI has granted them certificates of registration to pursue the business of securitisation and asset reconstruction. Bad loans are sold by banks & FIs to ARCs through transparent auctions.

Personalities

  • International Monetary Fund Managing Director - Christine Lagarde.

Titbits

The first asset reconstruction company (ARC) in the country – Asset Reconstruction Company (India) Ltd. - ARCIL

Opportunities multiply as they are seized. ~ Sun Tzu

Courtesy : The Hindu , live Mint

 

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