Mission "Indradhanush"

Mission "Indradhanush"

Government launches mission "Indradhanush" , to revamp the functioning of Public Sector Banks. 

in order to revive the fortunes of public sector banks, government unveiled a seven-point plan encompassing Rs 20,000 crore immediate fund infusion, creation of a single holding company and minimising political interference.The government has named this as ‘Indradhanush’ that also includes setting up of a Bank Board Bureau (BBB) for broad-level appointments and a performance-based monitoring mechanism. 

The strategy, Indradhanush (rainbow), focuses on systemic changes in state-run lenders, including a fresh look at hiring, a comprehensive plan to de-stress bloated lenders, capital infusion, accountability incentives with higher rewards including Stock Options and cleaning up governance.

The 7 Elements includes:
1. Appointments

2. Bank of Board Bureau

3. Capitalization

4. De-Stressing Public Sector Banks

5. Empowerment

6. Framework of accountability

7. Governance Reforms

1. Appointments : Executives from the private sector have been hired to run state-owned banks with the government. 

2. Bank Board Bureau : The Bank Board Bureau will start functioning from the next financial year and is the first step toward a full-fledged bank holding company, an entity that will house the government's stake in state run banks struggling with mounting non-performing loans that have touched 6 per cent of gross advances. 

3. Capitalization : The government will inject a total of Rs 25,000 crore of capital into debt-laden state banks in this fiscal; Rs 20,000 crore would be injected in a month. Over the next four years, the government plans to inject Rs 70,000 crore.

4. De-stressing : The government will concentrate on distressing the banks’ bad loans. 

5. Empowerment : The government will strive to make it easier for PSBs to hire. The government is looking at introducing Employee Stock Ownership Plan (ESOPs) for the PSU bank managements. 

6. Framework of Accountability : The government also announced a new framework of key performance indicators for state-run lenders to boost efficiency in functioning while assuring them of independence in decision making on purely commercial considerations. 

7. Governance Reforms: The process of governance reforms started with “Gyan Sangam” - a conclave of PSBs and FIs organized at the beginning of 2015 in Pune which was attended by all stake-holders including Prime Minister, Finance Minister, MoS (Finance), Governor, RBI and CMDs of all PSBs and FIs. There was focus group discussion on six different topics which resulted in specific decisions on optimizing capital, digitizing processes, strengthening risk management, improving managerial performance and financial inclusion.

Bank Board Bureau:

Bank Board Bureau:

The announcement of the Bank Board Bureau (BBB) was made by Hon’ble Finance Minister in his Budget Speech for the year 2015-16. The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs. They will also constantly engage with the Board of Directors of all the PSBs to formulate appropriate strategies for their growth and development. The structure of the BBB is going to be as follows; the BBB will comprise of a Chairman and six more members of which three will be officials and three experts (of which two would necessarily be from the banking sector). The Search Committee for members of the BBB would comprise of the Governor, RBI and Secretary (FS) and Secretary (DoPT) as members. The BBB would broadly follow the selection methodology as approved in relevant ACC guidelines. The members will be selected in the next six months and the BBB will start functioning from the 01st April, 2016.

Questions Asked in IV to V interview

What is a'Repo Rate'

Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds.

Definition: Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

Description: In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.

The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.

What is a 'Reverse Repo Rate'

Reverse repo rate is the rate at which the central bank of a country (RBI in case of India) borrows money from commercial banks within the country.

Definition: Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

Description: An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.

What is a 'Bank Rate'

Bank rate is the rate charged by the central bank for lending funds to commercial banks.

Definition: Bank rate is the rate charged by the central bank for lending funds to commercial banks.

Description: Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks. In order to curb liquidity, the central bank can resort to raising the bank rate and vice versa. . Marginal standing facility is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

What is a "Marginal standing facility (MSF)"

Definition: Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. 

Description: Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL). 

What is the 'Call Money Rate'

The call money rate is the interest rate on a type of short-term loan that banks give to brokers who in turn lend the money to investors to fund margin accounts. For both brokers and investors, this type of loan does not have a set repayment schedule and must be repaid on demand.

BREAKING DOWN 'Call Money Rate'

Trading on margin is a risky strategy in which investors make trades with borrowed money. The advantage of margin trading is that investment gains are magnified; the disadvantage is that losses are also magnified. When investors trading on margin experience a decline in equity past a certain level relative to the amount they have borrowed, the brokerage will issue a margin call that requires them to deposit more cash in their account or to sell enough securities to make up the shortfall.

(Inputs from Economic Times,rbi,other financial sights)