Daily Banking and Economics Affairs for Banking Exams : 1st & 2nd Aug 2021

Daily Banking and Economics Affairs for IBPS, RBI, SBI, NABARD Exam. Latest Banking, Economy and Financial Affairs. Read Latest Business News from Banking Sector, Corporate, Financial Institution in Detail.

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Indian Bank signs MoU with SINE, IIT Bombay, for funding Start-ups and MSMEs

Indian Bank on July 27, entered into an MOU with Society for Innovation and Entrepreneurship (SINE), IIT Bombay an initiative of Indian Institute of Technology, Bombay for extending exclusive credit facility to Start-ups and MSMEs. 

• About SINE : SINE, IIT Bombay is the forerunner in setting up joint R&D with industries and supporting start-up incubation. SINE, IIT Bombay provides support to the MSME sector by providing joint research and development arrangements and technical & financial support for incubation and acceleration of high-end technology products.

This initiative, it said, is a part of the bank’s scheme “Ind Spring Board for financing startups" and will empower startups and MSMEs to realise their research efforts powered by financial support from the bank and backed by incubation facility offered by SINE, IIT Bombay. 

• Background : Indian Bank on 21st oct 2020 launched “IND Spring Board”, an initiative for funding Start-ups. This is in collaboration with the IIT, Madras Incubation Cell (IITMIC). By launching  “IND Spring Board” , Indian Bank has proved that it certainly cares for these entrepreneurs. This is a proud moment for the whole country.

The bank will extend loans of up to Rs50 crore to these startups for their working capital requirements or purchase of machinery, equipment, among others.

Padmaja Chunduru, managing director of Indian Bank, highlighted the start-ups’ need to be suitably counselled about the significance of equity and debt funding.

• Recent Initiative: Indian Bank recently launched “MSME Prerana" programme to empower MSME entrepreneurs through skill development and capacity building workshops in local languages.

Rs 24,356 crore of unclaimed deposit lying with Scheduled Commercial Banks (SCBs) as on 31.12.2020

As per information received from the Reserve Bank of India (RBI), the total amount of unclaimed deposits of Scheduled Commercial Banks (SCBs) was Rs. 24,356 crore, as on 31.12.2020

• Giving more details for FY 2020, the Minister stated that RBI has informed that unclaimed deposits have increased by Rs. 5,977 crore in the year 2020, as compared to the year 2019, on account of depositors not having claimed their deposits from banks.

• The Minister further stated that pursuant to the amendment of the Banking Regulation Act, 1949, and insertion of section 26A, RBI has framed the Depositor Education and Awareness Fund Scheme, 2014.  As per the Scheme, the Fund is utilized for promotion of depositors’ interests and for such other purposes which may be necessary for promotion of depositors’ interest as may be specified by RBI.

What is Depositor Education and Awareness Fund 

The idea was initiated in January 2014 when the RBI proposed to create the Fund, and invited comments. In March 2014, section 26A was inserted in the Banking Regulation Act, 1949, empowering the central bank to establish the Fund under the Depositor Education and Awareness Fund Scheme, 2014.

• All banks are required to transfer money lying in accounts that have been inoperative for at least 10 years to the Fund according to specific guidelines. 

• As per the latest announcement, banks have to list out inoperative accounts every month and transfer funds lying in these, along with interest accrued, by the end of the subsequent month.

Eligible Accounts: Inoperative accounts with banks include savings bank accounts, term deposits, recurring accounts, current deposit accounts, various forms of transfers such as telegraphic or mail, demand drafts, pay orders, bankers cheques, unadjusted National Electronic Fund Transfer (NEFT) balances, among others.

Fund Management: The Fund will be managed by a committee headed by a deputy governor of the RBI and will have six members. The committee’s role will be to decide how the amount has to be utilized and the primary aim should be to undertake educational initiatives for customers.

Score of the Fund: The scope of activities for which financial assistance would be provided by the Depositor Education and Awareness Fund are as follows:

• Conducting programmes/events for educating or spreading awareness among the excluded sections of the society, about benefits of financial literacy, information about various products available on various channels explaining the procedure/formalities, etc., for enrolment and actual opening of accounts in association with recognised Depositors’ associations/ NGOs etc.

• Holding seminars and symposia for depositors/ depositors’ associations for imparting financial literacy including safe and secure banking.

• Funding projects and research activities relating to depositors’ education, rights awareness, etc.

• Production/ Procurement of material for distribution at exhibitions, seminars, town hall events, outreach programmes conducted for depositors’ awareness.

• Running Media Campaigns on financial literacy, customer protection, etc.

• Other consumer protection/awareness related programmes.

Provision for refund of the amount, if claimed by the depositor

The DEAF scheme provides the option for depositors to reclaim the amount, even after it has been transferred to DEAF.

• The depositors can check the details of the inoperative accounts/unclaimed amount transferred to DEAF on the website of the respective banks.

• The claimant is required to visit bank branch and submit the Unclaimed Deposits Claim Form of the respective bank.

• Required KYC details are to be furnished which serve as proof of the account and the amount being claimed.

• After verification of the claims, banks can transfer the claim to the customers and then file for a refund from RBI to the extent of the amount claimed by the customers.  

• Any interest payable from the fund on a claim will accrue from the date on which the amount was transferred to the fund to the date of payment to the customer and is limited to those accounts for which the interest was payable by the bank. RBI determines the applicable rate of interest.  

• In case only partial amount is claimed, the account is revived and made operative. The whole amount is transferred back to the now operative account along with the interest if any. The bank can claim refund for the whole amount along with interest.

• In case of banks  under liquidation, the depositor can submit the claim to the liquidator. If the deposits are covered under DICGC Insurance, DEAF will pay the liquidator the amount which could have been claimed from DICGC. Even for the amounts which are not covered by DICGC, the fund does reimburse the liquidator for any amount being paid to the depositor.

• For any claims which are settled by the banks during a month, the reimbursement request is to be submitted on the last date of subsequent month.

Small business loan disbursals rise 40% in FY21: Sidbi-TransUnion Cibil report

Lenders have disbursed loans worth ₹9.5 trillion to micro, small and medium enterprises (MSMEs) in FY21, 40% higher than ₹6.8 trillion in the previous year, showed findings from the latest edition of the Sidbi - TransUnion Cibil MSME Pulse Report.

The report said that government interventions like Emergency Credit Line Guarantee Scheme (ECLGS) was a major factor in driving this significant surge in credit disbursement to MSMEs.

The total on-balance sheet commercial lending exposure in India stood at ₹74.36 trillion in March, with a year-on-year growth rate of 0.6%. Credit exposure to MSMEs stood at ₹20.21 trillion as of March, a y-o-y growth of 6.6%, the report said.

Sivasubramanian Ramann, chairman and managing director of Sidbi said that the MSME credit data speaks volumes of the success of ECLGS scheme, and it has played a major role in 40% y-o-y growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs.

According to the report, after the first wave of covid-19, there was a reduction in new originations on high-risk MSME entities in CMR 8–10 categories and the reduction is offset by an increase in originations in CMR 6–7 categories, implying lenders have a reduced risk appetite in the current uncertain environment.

• Cibil Rank (CMR) assigns a rank to the MSME based on its credit history data on a scale of 1-10, CMR 1 being the best possible rank and CMR 10 being the riskiest rank.

About Emergency Credit Line Guarantee Scheme (ECLGS)

The ECLGS aims to provide 100 percent guaranteed coverage to the banks, NBFCs and other lenders in order to enable them to extend emergency credit to businesses hit by the Covid-19 pandemic and struggling to meet their working capital requirements.

In order to mitigate the stress caused by the Covid-19 pandemic on several sectors across the country, the government has announced an Emergency Credit Line Guarantee Scheme, which incorporates ECLGS 1.0, ECLGS 2.0, ECLGS 3.0 and ECLGS 4.0 (May 2021)

What is ECLGS 1.0? 

The ECLGS was launched as part of the Rs 20 lakh crore Covid-19 relief package called the Aatmanirbhar Bharat Abhiyan. The scheme aimed to provide Rs 3 lakh crore worth of collateral-free, government-guaranteed loans to micro, small and medium enterprises (MSMEs) across India to mitigate the distress caused by the coronavirus-induced lockdown

• ECLGS 1.0 had a 1-year moratorium period and a 4-year repayment period.

Under the scheme, borrowers could avail of additional credit of up to 20 percent of their overall outstanding credit as on February 29, 2020. The scheme was envisaged to provide collateral-free and fully guaranteed credit to entities that had outstanding credit of up to Rs 25 crore as of February 29, 2020, with an annual turnover cap of Rs 100 crore for the financial year 2019-2020.

• The scheme was valid till October 2020 but was later extended till November end.

What is ECLGS 2.0? 

In November 2020, Finance Minister Nirmala Sitharaman announced the launch of ECLGS 2.0 by extending the Rs 3 lakh crore scheme to support 26 stressed sectors identified by the Kamath Committee and the healthcare sector. The scheme was valid till March 31, 2021.

These sectors included power, construction, iron and steel manufacturing, roads, real estate, textiles, chemicals, consumer durables, non-ferrous metals, pharma manufacturing, logistics, gems and jewellery, cement, auto components, hotels-restaurants-tourism, mining, plastic product manufacturing, automobile manufacturing, auto dealerships, aviation, sugar, ports and port services, shipping, building materials, and corporate retail outlets.

The tenor of the credit under ECLGS 2.0 was five years, including a one-year moratorium. Companies with dues of Rs 50-500 crore as on February 29, 2020 were eligible, as announced by Sitharaman.

• The ceiling for outstanding credit was increased from Rs 25 crore to Rs 50 crore under ECLGS 2.0.

• The Finance Minister also announced that the ECLGS 1.0 and ECLGS 2.0 would be valid till March 31, 2020.

What is ECLGS 3.0 ?

In order to support the Hospitality, Travel and Tourism, Leisure, and Sporting sectors, which are among those most affected by the Covid-19 pandemic, the government on March 31 widened the scope of the Rs 3 lakh crore scheme by announcing ECLGS 3.0.

Under ECLGS 3.0, business enterprises in the hospitality, travel and tourism, leisure and sporting sectors would be able to avail credit under the scheme.

It also extended ECLGS 1.0 and ECLGS 2.0 by another 3 months, along with ECLGS 3.0, to June 30, 2021.

• ECLGS 3.0 involves the extension of credit of up to 40 percent of the total credit outstanding across all lending institutions as of February 29, 2020, from 20 percent earlier.

• The tenor of loans granted under ECLGS 3.0 is six years, including a moratorium period of two years. The scheme will only consider loans less than 60 days overdue as on February 29, 2020, with total credit outstanding not exceeding Rs 500 crore.

ECLGS 4.0: On account of the disruptions caused by the second wave of COVID 19 pandemic to businesses across various sectors of the economy, Government has further enlarged the scope of Emergency Credit Line Guarantee Scheme as under:

100% guarantee cover to loans up to Rs.2 crore to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants, interest rate capped at 7.5%;

Borrowers who are eligible for restructuring as per RBI guidelines of May 05, 2021 and had availed loans under ECLGS 1.0 of overall tenure of four years comprising of  repayment of interest only during the first 12 months withrepayment of principal and interest in 36 months thereafter will now be able to avail a tenure of five years for their ECLGS loan i.e. repayment of interest only for the first 24 months with repayment of principal and interest in 36 months thereafter;

Additional ECLGS assistance of upto 10% of the outstanding as on February 29, 2020 to borrowers covered under ECLGS 1.0, in tandem with restructuring as per RBI guidelines of May 05, 2021;

• Current ceiling of Rs. 500 Cr. of loan outstanding for eligibility under ECLGS 3.0 to be removed, subject to maximum additional ECLGS assistance to each borrower being limited to 40% or Rs.200 crore, whichever is lower;

• Civil Aviation sector to be eligible under ECLGS 3.0

• Validity of ECLGS extended to 30.09.2021 or till guarantees for an amount of Rs.3 lakh crore are issued. Disbursement under the scheme permitted up to31.12.2021.

News Source - Mint, PIB and Business Standard