- RBI unlocks Rs.40,000 crore additional capital for banks
- IFC launches masala bonds to mobilise Rs 30 crore
Environment & Ecology
- Peru oil spills hit wildlife
- India kicks off Raisina Dialogue
RBI unlocks Rs.40,000 crore additional capital for banks
The Reserve Bank of India (RBI) has revised norms on capital recognition, making available an additional Rs.40,000 crore to Indian banks.
- However, it has kept other rates unchanged. This is the second time in a row that interest rates have been left unchanged amid demands for moderation to spur growth.
- Many public sector banks reported huge losses for the quarter ended December 2015 after the RBI asked lenders to identify several accounts as non-performing. Banks are expected to post weak earnings in the current quarter too.
Significance of the move:
- The move comes at a time when public sector banks are facing pressure on their profitability due to a sharp rise in non-performing assets, which is eroding their capital base.
- The announcement is a big relief for, mainly, public sector banks, after finance minister Arun Jaitley has announced in his budget speech a capital infusion of Rs. 25,000 crore for the fiscal year starting in April.
Key features of the revised norms:
- The revised norms will give PSBs access to additional capital of 35,000 crore, while it could be about 5,000 crore for private sector banks.
- The unlocking of capital follows a review carried by the RBI with the aim of further aligning the definition of regulatory capital with the globally adopted Basel III norms.
- These standards aim to improve the banking sector’s ability to absorb shocks arising from financial stress and improve risk management and governance.
- Banks have now been allowed to include some items, such as property value and foreign exchange, for calculation of Tier 1 capital (CET1), instead of Tier 2 capital.
- Banks can recognise foreign currency reserves arising due to translation of financial statements of foreign operations to the reporting currency as common equity tier-I (CET1) capital. Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10 per cent of a bank’s CET1 capital.
IFC launches masala bonds to mobilise Rs 30 crore
International Finance Corporation (IFC) — a member of the World Bank group—has launched its first Uridashi Masala bonds.
- The aim of the Uridashi Masala bonds is to mobilise R30 crore directly from Japanese household investors to promote private sector development in India.
- The three-year bond builds on IFC’s Masala bond programme, which has raised the equivalent of $1.7 billion from international investors for investment in India.
- Proceeds from IFC’s Uridashi Masala bonds will be used to support private sector investment in India.
- Uridashi bonds are sold to Japanese household investors.
What are Masala Bonds?
- Masala bond is a term used to refer to a financial instrument through which Indian entities can raise money from overseas markets in the rupee, not foreign currency.
- The International Finance Corporation (IFC), the investment arm of the World Bank, last November, issued a Rs. 1,000 crore bond to fund infrastructure projects in India.
- These bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine.
Features of the Masala Bond:
- Analysts say that if the masala bonds take off it could lower India Inc’s the cost of capital over a period of time, which remains one of the highest in Asia. Also, inflows from these financial instruments could also support the rupee.
- They are issued to foreign investors and settled in US dollars. Hence the currency risk lies with the investor and not the issuer, unlike external commercial borrowings (ECBs), where Indian companies raise money in foreign currency loans.
- While ECBs help companies take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant.
- If unhedged, adverse exchange rate movements can come back to bite the borrower. But in the case of Masala bonds, the cost of borrowing can work out much lower.
About the International Finance Corporation (IFC):
- The International Finance Corporation (IFC) is an international financial institution that offers investment, advisory, and asset management services to encourage private sector development in developing countries.
- It is a member of the World Bank Groupand is headquartered in Washington, D.C., United States.
- It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects that purport to reduce poverty and promote development.
- The IFC is owned and governed by its member countries, but has its own executive leadership and staff that conduct its normal business operations.
- It is a corporation whose shareholders are member governments that provide paid-in capital and which have the right to vote on its matters.
Functions of the IFC:
- It offers an array of debt and equity financing services and helps companies face their risk exposures, while refraining from participating in a management capacity.
- The corporation also offers advice to companies on making decisions, evaluating their impact on the environment and society, and being responsible.
- It advises governments on building infrastructure and partnerships to further support private sector development.
[Ref: IE, Wiki]
Environment & Ecology
Peru oil spills hit wildlife
Peru’s government has declared a state of emergency in 16 Amazon rainforest communities due to oil spills in the north eastern Loreto region.
- Recently two oil pipeline spills in Peru’s northeast region affecting two rivers- Chiriaco and Morona.
- This is not the first time the Amazonian jungle of Peru has been threatened by the exploitation of hydrocarbons. Since 2011 there have been at least 20 emergencies due to faults in NorPeruano pipelines.
Impact of the incident:
- The pipeline burst has spilled over 3,000 barrels of crude oil into the rivers. Both the rivers are the main source of water and food for several indigenous communities in this region.
Location of Peru:
Peru is a country in western South America.
- It is bordered in the north by Ecuador and Colombia, in the east by Brazil, in the southeast by Bolivia, in the south by Chile, and in the west by the Pacific Ocean.
- Peru is an extremely bio- diverse country with habitats ranging from the arid plains of the Pacific coastal region in the west to the peaks of the Andes mountains vertically extending from the north to the southeast of the country to the tropical Amazon Basin rainforest in the east with the Amazon river.
[Ref: Hindu, Wiki, Google Map]
India kicks off Raisina Dialogue
The flagship conference on Geopolitics and Geo-economics Raisina Dialogue has begun in New Delhi.
- Political leaders from Afghanistan, Sri Lanka and Bangladesh have blamed strained India-Pakistan ties for blocking regional cooperation and hurting South Asia’s stability.
About Raisina Dialogue:
- The conference is organised by Ministry of External Affairs and Observer Research Foundation.
- The conference is attended by speakers from 40 countries.
- The two-day annual conference is a multi-stakeholder, cross-sectoral meeting involving policy and decision-makers, including but not limited to Foreign, Defence and Finance Ministers of different countries, high-level government officials and policy practitioners, leading personalities from business and industry, and members of the strategic community, media and academia.
Agenda of the Conference:
- The Raisina Dialogue 2016 is designed to explore prospects and opportunities for Asian integration as well as Asia’s integration with the whole world.
- It is predicated on India’s vital role in the Indian Ocean Region and how India along with its partners can build a stable regional and world order.
- The 2016 conclave will focus on Asia’s physical, economic, digital connectivity and fostering common global spaces with an emphasis on Asia.
[Ref: Hindu, orfonline.org]