RBI has issued a policy action guideline (first in May 2014 and revised effective from April 1, 2017) in the form of Prompt Corrective Action (PCA) Framework if a commercial bank’s financial condition worsens below a mark. The PCA framework specifies the trigger points or the level in which the RBI will intervene with corrective action. This trigger points are expressed in terms of parameters for the banks.The parameters that invite corrective action from the central bank are:
Capital to Risk weighted Asset Ratio (CRAR)
Net Non-Performing Assets (NPA) and
Return on Assets (RoA)
Leverage ratio
When these parameters reach the set trigger points for a bank (like CRAR of 9%, 6%, 3%), the RBI will initiate certain structured and discretionary actions for the bank. As per the revised framework by the RBI, in April 2017, capital, asset quality and profitability continue to be the key areas for monitoring. Along with this, leverage of banks also will be monitored.The some of the structured and discretionary actions that could be taken by the Reserve Bank are: recapitalization, restrictions on borrowing from inter-bank market to steps to merge/amalgamate/liquidate the bank or impose moratorium on the bank if its CRAR does not improve beyond etc.). The corrective actions are tough with worsening of the financials. The major trigger points in the original format were:(i) CRAR less than 9%, but equal or more than 6%(ii) CRAR less than 6%, but equal or more than 3%(iii) CRAR less than 3%(i) Net NPAs over 10% but less than 15%(ii) Net NPAs 15% and above RoA below 0.25%.The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and FMIs.
The GST Council has finalized its prime work on services front by selecting 18% rate as the standard rate for the new GST network. As a result, bulk of the services will come under this rate including financial services, high end hotels, liquor licenses etc.
India slipped one position to be placed at 131 rank in the just published Human Development Report 2016. Out of the 188 countries ranked, India’s HDI score improved from 0.615 to 0.624 in 2015, though its rank fell. India’s ranking was 130 last year. The Human Development Report published by the UNDP titled with Human Development for Everyone concentrates on low profile human development in some regions. South Asia is one of the worst performing region where India has an overweight.
Dated Government securities are long term securities or bonds of the government that carries a fixed or floating coupon (interest rate). Securities are issued by the government (centre or state) for mobilizing funds. Mostly financing the fiscal deficit is the most important purpose for issuing the dated securities. The remuneration for buying the dated securities is the interest payment which are called coupon.Securities are held mostly by commercial banks (in the form of SLR) and other financial institutions. The government securities are tradable in the stock market.