MONEY AND BANKING (Part – I)

The Inter-Creditor Agreement (ICA) is part of the project 'Sashakt' approved by the government to address the problem of resolving bad loans. This was suggested by Sunil Mehra committee. On 23 July , 2018 around 22 public sector banks (including India post payments Bank), 19 private sector bank and 32 foreign banks signed ICA to fast truck the resolution of stressed assests. This agreement was also signed by 12 major financial institutions like LIC, HUDCO , among others. The ICA covers cases of stressed assets worth at least Rs.50 crore under consortium lending . The agreement says if 66 percent of lenders by value agree to resolution plan, it would be binding on all lenders.

The 'Interest Coverage Ratio' (ICR) is a debt ratio and profitability ratio used to measure how easily a firm can pay interest on its outstanding debt. A higher coverage ratio is better , although the ideal ratio may vary by industry . Hence, statement 3 is incorrect . 'ICR' is also sometimes called the 'Times Interest Earned' (TIE) ratio. Lenders, investors and creditors often use this to determine a company's riskness relative to its current debt on for future borrowing. Hence, statement I is correct . This ratio is also used by creditors and prospective lenders to assess the risk of lending capital to a firm . Hence , statement 2 is also correct.

Infrastructure Investment Trusts (InvITs) are exchange-traded investments that offer investors partial ownership in infrastructure projects. InvITs are similar to mutual funds Like mutual funds, they pool small amounts from various individuals/ institutional investors and invest in infrastructure projects. These trusts are governed by SEBI regulation. The dividend and interest income from the deposits in InvITs is completely taxable as per the slab rate of the investor. Hence Statement-I is incorrect.
Statement-II is correct as InvITs (and REITs : Real Estate Investment Trusts ) are now recognized as borrowers under the ' Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act ,2002 and lenders to these trusts, have adequate statutory enforcement options, absence of which was earlier becoming a constraint for bankers to lend directly at trust level. This enables the investors, especially banks, to initiate action against the trustees of InvITs in case of any default.

Insolvency refers to a financial state in which an individual or entity is unable to pay off their debts as they become due. While bankruptcy refers to a legal process , where the assets of the debtor are liquidated or reorganized for the benefit of creditors. Though both terms deal with excessive debts, insolvency is a state that can lead to declaring bankruptcy. Thus, insolvency is a state whereas bankruptcy is the conclusion. Hence statements 1, 2 and 3 are incorrect. Statement 4 is correct as the regulatory body responsible for overseeing insolvency and bankruptcy proceeding. It was established on 1 October, 2016 and given statutory powers through the 'Insolvency and Bankruptcy Code, 2016' .

The Reserve Bank of India has introduced on 13 June, 2016 the 'Scheme for Sustainable Structuring of Stressed Assets (S4A)' to offer adequate deep financial restructuring opportunities to large borrowers (i.e. big corporate entities ) facing genuine difficulties. The S4A scheme aims to strengthen the lenders' ability to deal with large stressed assets facing genuine hardship and offers a realistic chance for reworking the financial structure of such entities. Under this scheme, a company's debt is bifurcated into two parts- sustainable and unsustainable, based on the cash flows of the company's project

The Reserve Bank of India issued directives relating to 'Storage of payment System Data' on 6th April 2018 . These directives command the payment system providers that, they shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details/ information collected/carried/processed as part of the message/payment instruction. Thus, statement 1 is correct. According to the directives, system providers shall submit the System Audit Report (SAR) on completion of the above requirement and the audit should be conducted by CERT- IN empanelled auditors. The SAR should be submitted to the Reserve Bank not later than December 31, 2018 . Thus statement 3 is not correct. On the other hand, statement 2 is also incorrect because it is not necessary that the systems are owned and operated by public sector enterprises. Therefore, option (a) is the right answer.

The Neeraj Kumar Gupta Committee was constituted in April, 2016 by the Government of India and the RBI to boost cashless transactions and reduce cash transactions in the economy. After the demonetization in November, 2016 the Government of India formed a new committee, headed by NITI Aayog CEO Amitabh Kant, to form a strategy to expedite the process of transforming India into a cashless economy.

'Merchant Discount Rate' (MDR) is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit card in their establishments. MDR compensates the card issuing bank, the lender which puts the Pos terminal and payments gateway such as MasterCard or Visa for their service. MDR charges are usually shared in pre-agreed proportion between the bank and a merchant and is expressed in percentage of transaction amount.

National Financial Switch (NFS) was designed, developed and deployed by the RBI's Institution for Development and Research in Banking Technology (IDRBT) in 2004 ,with the goal of inter-connecting the ATMs in the country .NFS was taken over by the National Payments Corporation of India (NPCI) from IDRBT in December, 2009 . NFS provides the linkages to ATM network in India. Therefore, option (c) is the correct answer.

The National Payments Corporation of India (NPCI) has been set up with the help of the RBI to foster better financial inclusion by creating high-impact infrastructure and business processed for better, cheaper, consolidated and more efficient banking and retail payment system in India and facilitating outreach of these banking services to those who normally do not use banks or do not have access to them. Thus, statements 1 is correct. Statement 2 is also correct as NPCI has launched 'RuPay card payment system is a step towards greater and deeper financial inclusion, as it bring in more banks and a wider spectrum of users into the system.