Progress In Banking Sector Due To Monetory Policy


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Rbi and its monetory Policy

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  • Sub-standard asset:An asset which has remained NPA for a period less than or equal to 12 months.Doubtful Assets:An asset which has remained in the substandard category for a period of 12 monthsLoss Assets:A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly
  • During 2007-08, scheduledcommercial banks, both in the public andprivate sectors, raised significantly higherresources from the domestic primary marketas compared with the previous year.In view of goodperformance of banking scrips in thesecondary market, strong financial results ofbanks, the need to raise capital in the face ofthe ensuing Basel II norms and tightening ofprudential norms
  • Slowdown in GDP growth, particularly industrial growth and sharp rise in domestic inflation appeared to have adversely affecting the bankingstocks.Banking sector stock also came under pressure due to concerns over the global financial turmoil.
  • Progress In Banking Sector Due To Monetory Policy

    1. 1. Progress in Banking Sector due to Monetary Policy in 2007-08<br />Presented by,<br />ParitoshGupte P-10<br />Supriya Joshi P-13<br />RohitMundhara P-21<br />Aditi Sabaria C-31<br />RakeshLalwani C-19<br />
    2. 2. Banking Structure in India<br />
    3. 3. Reserve Bank Of India<br />Central Bank of India<br />Established on April 1, 1935<br />Owned by the Government of India<br />Recommended by Hilton Young Commission<br />To secure monetory stability<br />Started with a paid up share capital of 5 crore<br />The Central Office in Mumbai.<br />
    4. 4. Functions of RBI<br />Regulates the issue of currency<br />Exchange Management and Control<br />Statutory Bank of Government<br />Exerts Credit Control<br />Banker’s Bank<br />Action against Erring banks<br />Overall promotion of Commercial Banks<br />
    5. 5. Monetary Policy<br />Monetary policy is one of the tools that a national Government uses to influence its economy. Using its monetary authority to control the supply and availablity of money, a government attempts to influence the overall level of economic activity in line with its political objectives. Usually this goal is &quot;macroeconomic stability&quot;<br />
    6. 6. Objectives of Monetary Policy<br />Economic Growth<br />Full Employment<br />Price Stability<br />Exchange rate stability<br />Equilibrium in the BOP<br />Developing Banking & Financial Institutions<br />
    7. 7. Instruments of Monetary policy<br />Quantitative<br />Open Market operations<br />Bank rate policy<br />Cash Reserve ratio <br />Statutory Liquidity Requirement <br />
    8. 8. Instruments of Monetary policy<br />Qualitative<br />Credit Ceilings<br />Provision of Minimum Margin requirement<br />Discriminating interest rates<br />Issue of Directives<br />
    9. 9. Major areas covered by Monetary Policy <br />
    10. 10. Highlights<br />Monetary Policy<br /> 2007-08<br />
    11. 11. Economy<br />Price stability and well-anchored inflation expectations while ensuring a monetary and interest rate <br />Renewed focus on credit quality and orderly financial markets conditions in securing macroeconomic conditions<br />GDP growth projection for 2007-08 at around 8.5 per cent<br />
    12. 12. Economy<br />Inflation to be contained close to 5.0 per cent during 2007-08<br />M3 expansion to be contained at around 17.0-17.5 per cent<br />Deposits projected to increase by around Rs.4,90,000 crore<br />Adjusted non-food credit projected to increase by around 24.0-25.0 per cent<br />
    13. 13. Monetary Measures<br />Scheduled banks required to maintain CRR of 6.5 per cent with effect from the fortnight beginning April 28, 2007.<br />
    14. 14. Financial Markets<br />A ‘Non-Competitive Bidding Scheme’ in the auctions of State Development Loans (SDLs)<br />Average cut-off yield on 182-day Treasury Bills to be used as a benchmark rate for floating rate bonds<br />
    15. 15. Financial Markets<br />Revised reporting framework on overseas investments for monitoring capital flows<br />The limit for portfolio investment abroad in listed overseas companies by listed Indian companies enhanced from 25 per cent of net worth to 35 per cent of networth<br />The aggregate ceiling on overseas investment by mutual funds to be increased from US $ 3 billion to US $ 4 billion<br />
    16. 16. Credit Delivery Mechanism<br />The risk weight on loans up to Rs.1 lakh against gold and silver ornaments to be reduced to 50 per cent from the existing level of 125 per cent<br />RRBs to be allowed to take up corporate agency business, without risk participation, for distribution of all insurance products<br />A credit guarantee scheme for distressed farmers to be introduced.<br />
    17. 17. Credit Delivery Mechanism<br />An evaluation of the bank – self help group (SHG) linkage programme to be conducted through the regional offices of the Reserve Bank with a view to ascertaining the degree of transparency in maintaining the accounts by the SHGs and their adherence to well-accepted best practices<br />The boards of banks are advised to lay down internal principles and procedures so that usurious interest, processing and other charges are not charged.<br />
    18. 18. Regional Rural Banks<br />“To combine the local feel and familiarity enjoyed by the co-operatives with the degree of business organization as well as the ability to mobilize deposits characteristic of commercial banks”<br />RRB&apos;s declined from 196 in March&apos;05 to 91 in March&apos;08 operating in 25 states across 586 districts with a network of 14,790 branches.<br /> The total number of RRB&apos;s, declined to 88 as on August&apos;08.<br />RRB&apos;s credit-deposit ratio increased from 56% to 60.3% in March&apos;08.<br />
    19. 19. Recapitalization of RRB&apos;s<br /> In Union budget 2007-08 it was announced that RRB&apos;s with negative net worth would be recapitalized in phased manner.<br /> In July&apos;07, out of 96 RRB&apos;s 29 had negative net worth amounting to Rs.1857 cr.<br /> After July&apos;07, 2 RRB&apos;s with negative net worth were merged with 2 other RRB&apos;s of the same state and sponsored by the same banks. <br /> Amount required for recapitalization was at Rs.1796 crores.<br /><ul><li> 269 crores - State governments (15%)‏
    20. 20. 629 crores – Sponsored banks (35%)‏
    21. 21. 898 crores – Government of India (50%)‏</li></li></ul><li>Financial Performance ofRRB&apos;s<br />
    22. 22. Financial Performance of RRB’s<br />RRB&apos;s : Consolidated B/S<br />2006 – 07 (96 RRB’s)<br />2007 – 08 (90 RRB’s)<br />
    23. 23. RRB&apos;sIncome Statement as on 31st March&apos;08<br />2006-07 (96 RRBs)‏<br />Net Income Rs.7663 Cr<br />Expenditure Rs.7038 Cr<br />Net Profit Rs.625 Cr<br />Net NPA Rs.3.46 Cr<br />2007-08 (90 RRBs)‏<br />Net Income Rs.9195 cr<br />Expenditure Rs.7766 cr<br />Net Profit Rs.1374 cr<br />Net NPA Rs.3.02 Cr<br />
    24. 24. Co-Operative Banks<br />Enlarges the reach of institutional credit both from geographic and socio-economic perspective.<br />Important instrument for achieving greater financial inclusion <br />Focus on revitalisingand strengthening the co-operative banking sector in India.<br />The no. of UCBs declined from 1,813 at end-March 2007 to 1,770 at end-March 2008.<br />
    25. 25. Some of the Developmentsin Co-operative Banks<br />Granting of branch licenses to be considered to well-managed and financially sound Urban Co-operative banks (UCBs) <br />The existing relaxed prudential norms applicable to Tier I and Tier II UCBs to be extended by one year.<br />Allow UCBs to undertake insurance business as corporate agents.<br />
    26. 26. Commercial Banks<br />Consolidation<br />Interest margins<br />Loans and advances moderated<br />Banks investment in govt. security<br />Deposit growth moderated<br />
    27. 27. Commercial Banks<br />Banks borrowing increased<br />International liability <br />Priority sector advances declined<br />Agricultural lending policy<br />Financial performance<br />
    28. 28. Summary<br />Commercial Banks<br />Affected by Macroeconomic and RBI policy<br />Less credit creation<br />Affecting all the sectors except services<br />Deposits growth was strong <br />
    29. 29. NPA<br />NPA<br />An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.<br />Banks should, classify an account as NPA only if the interest charged during any quarter is not serviced fully within 90 days from the end of the quarter.<br /> Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.<br />
    30. 30. NPA<br />As on March 2009<br />As on March 2008<br />
    31. 31. NPA<br />Net NPA<br />
    32. 32. NPA<br />Reversed declining Trend<br />High Credit Growth<br />Hardening of Interest rates<br />More in Private Sector & Foreign Banks<br />
    33. 33. NPA<br />
    34. 34. Capital Adequacy Ratio<br />It refers to the minimum capital to be raised in relation to risk assets.<br />Increase in CAR raises the public confidence.<br />
    35. 35. Capital Adequacy Ratio<br />
    36. 36. Securitisation<br />Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into marketable securities that can be sold to investors.<br />Securitisation has emerged as an important means of financing in recent times.<br />2008-09<br />2007-08<br />
    37. 37. Performance of <br />Banking Sector <br />
    38. 38. Performance of Banking Sector <br />Resources Raised through Public Issue<br />
    39. 39. Capitalization<br />
    40. 40. Comparison<br />
    41. 41. Bibliography and Webliography<br /><br /><br />