CURRENT AFFAIRS APRIL-2014 List of Important Days • IRDA, Insurers Launch Awareness Drive – Insurance companies launched awareness initiatives on the occasion of Insurance Awareness Day. Insurance Regulatory and Development Authority (IRDA) had declared April 19, as the Insurance Awareness Day to deepen insurance penetration in the country. • The world celebrated Earth Day on 22 Apr with the theme ‘Green Cities’ calling for transformation in the public transportation systems to make them more accessible, convenient, and clean fuel-run. • World Health Day 2014 – The World Health Day is celebrated every year on 7 Apr, under the guidance and sponsorship of the World Health Organization (WHO). The Theme for 2014’s World Health Day is “Vector-borne diseases: Small bite, big threat” which highlights dangers and threats from some of the most commonly known vectors such as mosquitoes, sand flies, bugs, ticks and snails. Reserve Bank of India • RBI Committee Suggests Benchmark For Floating Rate Products – The Reserve Bank of India (RBI), on April 10, 2014, suggested measures for transport and appropriate pricing of credit under a floating rate regime. − The working group on pricing of credit, set up by the RBI, recommended that the Indian Banks’ Association (IBA) develop a new benchmark for floating interest rate products, namely, the Indian Banks Base Rate (IBBR), which may be collated and published by the IBA on a periodic basis. To begin with, the working group said, “IBBR may be used for home loans.” It would be desirable that banks, particularly those whose weighted average maturity of deposits is on the lower side, move towards computing the Base Rate on the basis of marginal cost of funds. This may result in more transparency in pricing, reduced customer complaints, better transmission of changes in the policy rate and improved asset liability management at banks. The board of a bank should ensure that any price differentiation is consistent with banks credit pricing policy factoring Risk Adjusted Return on Capital (RAROC). Banks should be able to demonstrate to the RBI the rationale of the pricing policy. − Banks’ internal policy must spell out the rationale for and range of the spread in the case of a given borrower, as also, the delegation of powers in respect of loan pricing, the working group suggested. The floating rate loan covenant may have interest rate reset periodicity and the resets may be done on those dates only, irrespective of changes made to the Base Rate within the reset period. − There may be a sunset clause for Benchmark Prime Lending Rate contracts so that all the contracts thereafter are linked to the Base Rate. The working group has also said that the benefit of interest reduction on the principal on account of pre-payments should be given on the day the money is received by the bank without waiting for the next EMI cycle date to effect the credit. For retail loans, the working group said that customers should have a choice of ‘with exit’ and ‘sans exit’ options at the time of entering the contract. • Independent Body For Forex Benchmark Rate – The Reserve Bank of India, on April 16, 2014 asked the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the Foreign Exchange Dealers’ Association of India (FEDAI) to form an independent body, either separately or jointly, for administration of the benchmarks with regard to rupee interest rate and foreign exchange. This is “to overcome the possible conflicts of interest in the benchmark setting process arising out of the current governance structure of the FIMMDA and FEDAI”. • Two-Stage Verification For Online Transactions – Worried over rising number of frauds in online banking, The Reserve Bank of India (RBI) has suggested that banks introduce two-stage authentication to ensure security of transactions. The RBI report on ‘Enabling Public Key CSB, Ch-17, Ph: 044-24333346 GA/April2014/Page-1 Infrastructure (PKI) in Payment System Applications’ released on April 22, 2014, said banks should also inform customers about risks associated with different types of online banking transaction. − Internet banking applications of all banks should mandatorily create authentication environment for password-based two-factor authentication and transaction verification in online banking transaction. It also said customers should be given the option to choose from different methods of authentication for ensuring security of online transactions. − There are various PKI-enabled electronic payments systems introduced by the RBI such as RTGS, NEFT, CBLO, Forex Clearing, Government Securities Clearing, and Cheque Truncation System (CTS). In volume terms, these systems contributed 25.1 per cent whereas these systems contributed 93.7 per cent share to the total payment transactions carried out in 2012-13 in value terms. − Non-PKI enabled payment systems contributed 75 per cent in volume terms buy only 6.3 per cent in value terms in 2012-13. The objective of an effective payment system is to ensure a safe, secure, efficient, robust and sound payment system in the country. In order to secure electronic documents and transactions and to ensure legal compliance, digital technology is used. − The report said that the banks may carry out in three phases PKI implementation for authentication and transaction verification. The banks have been mandated to issue EMV (card with chip and pin) to certain category of customers and for the other customers, banks have been given option to either issue EMV cards or adopt Aadhaar biometric authentication as additional factor of authentication. • RBI Raises $ 3.3 Billion in Record Bond Auction – Government bonds jumped on April 17, 2014 recovering from two sessions of falls, after the Reserve Bank of India (RBI) fully sold the Rs.20,000- crore ($3.31 billion) worth of debt on offer, accomplishing the biggest-ever auction. The cut-offs for the auction were also better than expected, indicating healthy demand, Concerns about how the government would accomplish the debt sale had hit bonds this week, while holidays left only three trading sessions. − Still, four dealers cited widespread market speculation that the Life Insurance Corporation had bought a significant chunk of the debt at the auction. Details on buyers are not publicised. However, traders added bonds would likely remain under pressure given the debt supply will continue while investors are also likely to stay cautious ahead of the election outcome in May 2014. − These two factors will likely remain key in the markets as the Reserve Bank of India will not set policy until early June 2014. The 10-year benchmark bond yield was down eight basis points on the day at 8.88 per cent, after dropping as much as nine basis points on the day to 8.87 per cent, its lowest since April 2, 2014. • Check on Extension of ECBs – The Reserve Bank of India, on April 22, 2014 disallowed overseas branches of domestic banks from extending external commercial borrowings (ECBs) to manufacturing and infrastructure companies for repaying rupee loans. If the ECB is availed of from overseas branches or subsidiaries of Indian banks, the risk remains within the Indian banking system. It has therefore, been decided that repayment of rupee loans availed of from the domestic banking system through ECBs extended by overseas branches or subsidiaries of Indian banks will, henceforth, not be permitted. • RBI To Audit Defaults Above Rs.1,000 crore – Companies that default in repaying large-ticket loans are set to come under the scrutiny of the Reserve Bank of India. The central bank is likely to undertake forensic audit of firms that default in repayment of loans of over Rs.1,000 crore. The decision to conduct forensic audits was taken by RBI governor Raghuraman Rajan in April 2014. − A forensic audit is an examination of financial information of a firm or individual for the use of the same for evidence in court. Such audits are usually conducted to prosecute a party for fraud or embezzlement of financial claims. The level of non-performing asset (NPA) in the Indian CSB, Ch-17, Ph: 044-24333346 GA/April2014/Page-2 banking system has been witnessing a steady rise in the last couple of years. Banks have written off Rs.1 lakh crore in advances since 2000. In a case of concern for policymakers. The central bank had said earlier that over 90% have been written off for large business houses. The finance ministry meanwhile has already directed banks not to write off more than they can recover. − In 2012-13, banks restructured over Rs.75,000 crore in loans under the corporate debt restructuring (CDR) scheme, nearly double the level in the previous fiscal. Banks have also been asked to monitor the top 30 NPA accounts. Big companies including Kingfisher Airlines (KFA) and Deccan Chronicle have defaulted in loan repayment. • RBI to Spot Bad Loans – To check any further rise in the level of non-performing assets (NPAs) – assets that do not yield returns – the Reserve Bank of India (RBI) has asked banks to indicate and highlight those accounts that are performing but could show signs of stress. For the borrower it means that despite repaying the debt on time he could come under the scanner in case the bank notices early signs of uncertainty either to do with the sector or the firm. − The RBI has asked banks to classify these accounts as special mention accounts. The central bank has also asked banks to get tough with those borrowers who are unwilling to co-operate with the lender’s restructuring plans. The RBI has also asked lenders to raise interest rates on the credit for any future loan that they seek. − According to RBI data, the level of bad debts in Indian banks has almost doubled since 2009 to 4.2% of total loans at the end of September 2013.