Sunteți pe pagina 1din 13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

INSIGHTS
JULY 1 7 , 2 0 1 3 5 :2 7 PM

The Economic Times ET In The Classroom Archive (Economics Concepts Explained)


Archiv es -1 Archiv es -2 archiv es 3 Archiv es 4 Archiv es 5

The Econom ic Tim es newspaper now and then publishes articles on current econom ic issues in a question and an the heading ET In The Classroom . They are sim ple to understand and rem em ber.

Many tough concepts are beautifully explained by the ET team in these articles. All these articles are freely av ai

They are the property of the Econom ic Tim es. I hav e just consolidated all of them here for the benefit of the reade Com plete credit is for The Econom ic Tim es newspaper for these wonderful articles.

For an IAS aspirant preparing for the UPSC civ il serv ice exam ination, ET in t he Classroom is a one-stop solutio acquainted with m any econom ic jargon and concepts.

ET in the classroom: What is Islamic finance?


What is Islamic finance?

Islam ic finance refers to a financial sy stem that is consistent with the principles of Sharia, the sacred law of Islam indirect association with businesses inv olv ing alcohol, pork products, firearm s and tobacco. It also does not allow betting and gam bling. How does it work? Islam ic finance takes the form of Islam ic banking and Islam ic insurance, also known as Takaful. Islamic banking is done in five way s: 1 . Mudarabah, a profit-sharing agreem ent 2 . Wadiah, a safe keeping arrangem ent 3 . Musharakah, or a joint v enture for a specific business 4 . Murabahah, cost plus arrangem ent where goods are sold with a pre-determ ined m argin of profit 5. Ijirah, a leasing arrangem ent

from regular banking in that it prohibits earning of interest (or riba) through the business of lending. It also proh

Takaful is a form of m utual insurance based on partnership and collectiv e sharing of risk by a group of indiv idua How has Islamic banking progressed in recent y ears?
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 1/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

Islam ic banking is m ost prev alent in Malay sia. It is spreading rapidly in West Asia, where the population is predo accom m odate the Islam ic finance industry , which is nearly a trillon dollar in size now. Indian regulations do not allow Islam ic banking but the gov ernm ent is considering allowing it. What rest rict s t he growt h of Islamic finance?

New global financial centres such as Singapore, Hong Kong, Genev a, Zurich and London hav e m ade changes in r

Most banks conducting Islam ic operations hav e a panel of Muslim scholars called Sharia com m ittee or Sharia boa

determ ines whether a product or practice com plies with Islam ic prov isions. Also, the accounting is done different code m akes Islam ic banking a v ery niche product. .

is an official standard-setting body known as the accounting and auditing organization for Islam ic financial insti

ET in the classroom: Infrastructure debt fund


What is t he Infrast ruct ure debt fund or IDF?

Infrastructure debt fund is a debt instrum ent being set up by the finance m inistry in order to channelise long-ter m inistry , after consultations with stakeholders, infrastructure NBFCs, m arket regulators and banks, an IDF cou as a trust or as a com pany . What happens in eit her of t he scenario?

infrastructure projects which require long-term stable capital inv estm ent. According to the structure laid out by

If the IDF is set up as a trust, it would be a m utual fund, regulated by Sebi or the Securities and Exchange Board o projects . In case the IDF is set up as funds, the credit risk would be borne by inv estors and not the IDF.

m utual fund would issue rupee-denom inated units of fiv e y ears m aturity to raise funds for the PPP, or public pri

As a com pany , it could be set up by one or m ore sponsors, including NBFCs, IFCs or banks. It would be allowed low

of 50%, net-owned funds (m inim um tier-I equity of 1 50 crore). It would raise resources through issue of either ru guarantee and hav e com pleted at least one y ear of com m ercial operation.

denom inated bonds of m inim um fiv e-y ear m aturity . It would inv est in debt securities of only PPP projects, which

Refinance by IDF would be up to 85% of the total debt cov ered by the concession agreem ent. Senior lenders would rem aining 1 5% for which they could charge a prem ium from the infrastructure com pany . The credit risks assoc underly ing projects will be borne by IDF. As an NBFC, the fund would be regulated by the Reserv e Bank of India. Who would be t he major invest ors?

Dom estic and offshore inv estors, m ainly pension funds and insurance com panies, who hav e long-term resources, to inv est in these funds, while banks and financial institutions would act as sponsors. .

ET in the Classroom: Marginal standing facility


What is t he marginal st anding facilit y ?

The Reserv e Bank of India in its m onetary policy for 2 01 1 -1 2 , introduced the m arginal standing facility (MSF), u securities. The MSF rate is pegged 1 00 basis points or a percentage point abov e the repo rate. Banks can borrow funds throu

could borrow funds from RBI at 8.2 5%, which is 1 % abov e the liquidity adjustm ent facility -repo rate against pled

is a considerable shortfall of liquidity . This m easure has been introduced by RBI to regulate short-term asset liabi
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 2/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

m ore effectiv ely .

In the annual policy statem ent, RBI say s: The stance of m onetary policy is, am ong other things, to m anage liqu flows.

it rem ains broadly in balance, with neither a large surplus diluting m onetary transm ission nor a large deficit ch

What is t he difference bet ween liquidit y adjust ment facilit y -repo rat e and marginal st anding facili

Banks can borrow from the Reserv e Bank of India under LAF-repo rate, which stands at 7 .2 5%, by pledging gov er can borrow funds up to one percentage of their net dem and and tim e liabilities, at 8.2 5%. Howev er, it can be wit liquidity ratio of 2 4 %.

ov er and abov e the statutory liquidity requirem ent of 2 4 %. Though in case of borrowing from the m arginal stan

ET in the classroom: Priority-sector lending


What is priorit y -sect or lending?

Banks were assigned a special role in the econom ic dev elopm ent of the country , besides ensuring the growth of th activ ities, which it calls the priority sector. Are t here minimum limit s? The lim its are prescribed according to the ownership pattern of banks. While for local banks, both the public and hav e to lend 4 0 % of their net bank credit, or NBC, to the priority sector as defined by RBI, foreign banks hav e to NBC to the priority sector. What is net bank credit ?

The banking regulator, the Reserv e Bank of India, has hence prescribed that a portion of bank lending should be f

The net bank credit should tally with the figure reported in the fortnightly return subm itted under Section 4 2 (2 for com putation of priority sector lending target/subtargets. Are t here specific t arget s wit hin t he priorit y sect or?

Bank of India Act, 1 9 3 4 . Howev er , outstanding deposits under the FCNR (B) and NRNR schem es are excluded fro

Dom estic banks hav e to lend 1 8 % of NBC to agriculture and 1 0 % of the NBC has to be to the weaker section. How v ast num ber of sectors that banks can lend as priority sector. The Reserv e Bank has a detailed note of what const sector, which also includes housing loans, education loans and loans to MFIs, am ong others. What has been t he experience so far? It has been observ ed that while banks often tend to m eet the ov erall priority sector targets, they som etim es tend targets. This is particularly true in case of dom estic banks failing to m eet their sub-targets for agricultural adv a reasons banks often site for not lending to this sector is that recov ery is often difficult. Is t here any penal act ion in case of non-achievement of priorit y sect or lending t arget by a bank? Dom estic banks hav ing a shortfall in lending to priority sector/ agriculture are allocated am ounts for contributi

hav e to lend 1 0 % of NBC to the sm all-scale industries and 1 2 % of their NBC as export credit. Howev er, for the ba

Infrastructure Dev elopm ent Fund ( RIDF ) established in Nabard. In case of foreign banks operating in India, whi y ear. ..

the priority sector lending target or sub-targets, an am ount equiv alent to the shortfall is required to be deposited

ET in the Classroom: What the Greek crisis means to the wor


insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 3/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

Why Does t he World Want t o Save Greece? No one can quantify the dam age to the world if Greece is allowed to sink. But few are willing to risk it either. Suc

origin to the 2 008 crisis. Many econom ists, policy m akers and som e within central banks believ e that the financi

2 008 could hav e been ringfenced, or at least cushioned, if Lehm an was bailed out. But since Lehm an was an inv e

not a com m ercial bank holding sav ings of m illions, Fed and the US gov ernm ent had thought that the collateral d

bankruptcy would be contained within a few blocks of Wall Street, and no one really would lose jobs and take pay Greece collapse can start a fire that will engulf continents. How does fear spread when market s are in such a st at e?

m onths we all found out how wrong they were. Today , no one wants to take a chance with Greece. Leaders across

Banks im pacted by a default m ay find them selv es cut out from the dollar m arket the engine of global liquidity

banks will find it v ery difficult to roll ov er their dollar assets as the other banks which are m ore solv ent would be the European subsidiary of an Asian com pany , or to bank in Asia which, in turn, had extended a dollar credit to would not roll ov er the credit line Will a default cause a dollar scarcit y ?

them . Thats when the world outside financial m arkets would feel the pinch. Suppose, a French bank that had giv

Banks and com panies are already holding on to the dollar. A default will only deepen it. Consider the Asian com p line has been pulled bank. It will som ehow try to organise the m oney by pay ing a prem ium . Hav ing sensed a dol Not just banks, corporates in Greece would also default How will panic boil over t o ot her Euro nat ions

fearing that things m ay turn worse, it will raise m ore than it needs. When all com panies start doing it, there is a

Speculators will target Portugal, and then Italy . The logic is sim ple: if Germ any & ECB do not help Greece, they w and Italy sink. Soon these will be perceiv ed as basket cases and their bonds, stocks and currencies will face a brut

short-sellers. That would be a problem as Italy s debt is m ore than the com bined debt of Portugal, Spain and Irela So, t imes running out for Greece?

Close to $8 billion worth Greek bonds will m ature in Decem ber. It needs the m oney before that, failing which a de

IMF is willing to lend a little ov er $8 billion, but only if Greece takes a string of austerity m easures. IMF is not spe consum ption help a country which is already doldrum s Isnt Germany in a bit of a Cat ch-22 sit uat ion

when it will sanction the loan. Som e econom ists fear the IMF pressure can m ake things difficult for Greece: how w

It is. Germ an politicians know that if there was no euro, its currency would hav e gained so m uch that their expo been wiped out. It needs the euro. But conv incing Germ ans isnt easy . They dont want to bail out all Europeans,

who dont work hard. Som e think Greece should be exiled from EU for a few y ears to should put their house in ord

ET in the Classroom: Interest rate futures


What is t he int erest rat e fut ures on 91-day t reasury bill?

Interest rate futures on 9 1 -day treasury bill are interest rate-driv en deriv ativ e products that help banks, m utua y ield on the 9 1 -day treasury at a giv en date when counter parties enter into the interest rate futures contract.

prim ary dealers to hedge their interest rate exposure on treasury bills. Financial institutions can lock in the inte

insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/

4/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

How are t hey set t led?

The 9 1 -day T-bill interest rate futures are cash settled. In case of the 9 1 -day treasury bill, the final settlem ent pr contract is based on the weighted av erage price/ y ield obtained in the weekly auction of the 9 1 -day treasury bill expiry of the contract. But in case of interest rate futures on the 1 0-y ear benchm ark gov ernm ent security , the c phy sically settled. How is t he product st ruct ured?

The m inim um size of the contract is Rs 2 lakh and the tenor of the contract cannot be m ore than 1 2 m onths, acco

regulator Sebi, which has designed the product and will superv ise its trading. The m axim um m aturity of the con 0.05 % of the notional v alue of the contract thereafter. What kind of volumes has t he product generat ed so far?

m onths. The initial m argin is subjected to a m inim um of 0.1 % of the notional v alue of the contract on the first da

Last week, the av erage daily trading v olum e for the 9 1 -day T-Bill IRF was Rs 3 6 0 crore. So far, am ong the excha National Stock Exchange (NSE) on the first day of trading last Monday . What are t he advant ages of t he int erest rat e fut ures? It is a good hedging tool for banks, prim ary dealers and m utual funds who hav e huge exposure to these m oney m

introduced the product for trading. The interest rate futures (IRF) on 9 1 -day TBills clocked a v olum e of around R

such as 9 1 -day treasury bills. There is no securities transaction tax (STT). The initial m argins are also lower, wh their existing position. ..

v olum es for the product. Interest rate futures can be used by inv estors to take a directional call on the interest ra

ET in the classroom: Central plan and role of plan panel and ministry

The gov ernm ents budget exercise usually begins with fixing the contribution of the exchequer to the central pla the concept of Central Plan and the budget support to the plan. What is cent ral plan in t he cont ext of t he budget ?

distributed ov er m any schem es, taken together this is the single biggest item of expenditure in the annual budge

Central or annual plans are essentially the fiv e y ear plans broken down into fiv e annual installm ents. Through t

the gov ernm ent achiev es the objectiv es of the Fiv e-Year Plans. The details of the plan are spelled out in the annu gov ernm ents rests with the Planning Com m ission. What is gross budget ary support , or GBS?

by the finance m inister. But the actual responsibility of allocation funds judiciously am ongst m inistries, departm

The funding of the central plan is split alm ost ev enly between gov ernm ent support (from the Budget) and intern the GBS. In the recent y ears the GBS has been slightly m ore than 50% of the total central plan. How is t he GBS figure arrived at ?

budgetary resources of public enterprises. The gov ernm ents support to the central plan is called the Gross Budge

The adm inistrativ e m inistries responsible for v arious dev elopm ent schem es present their dem ands before the pla The planning com m ission aggregates and v ets these dem and. It then puts forward a consolidated dem and before

m inistry for the budgetary support it needs from the cental excequer. The am ount approv ed by the finance m ini

than that dem anded by the planning com m ission because of the m ultiple objectiv es the North Block has to keep i
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 5/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

m aking allocations. The planning com m ission in turn adjusts the allocated am ount am ong v arious dem ands. How do GBS, cent ral plan and plan expendit ure differ? Central plan includes the GBS and the spending of the public enterprises that do not figure in the budget. In that

gov ernm ents spending on the central plan is lim ited to GBS. But the centre also prov ides funds to states and unio This is about 3 0% of the total gov ernm ent expenditure.

their respectiv e plans. This contribution, together with the GBS, m akes up the total plan spending of the gov ernm

ET in the Classroom: Self-help group


What is a self-help group (SHG)?

SHG prim arily com prises m em bers with hom ogenous social and econom ic backgrounds. It is a v oluntarily form e

of wom en, rural labourers, sm all farm ers and m icro-enterprises . The concept is akin to the concept of dem ocracy

by the m em bers, for the m em bers and of the m em bers. The num ber of m em bers could be as less as fiv e and could collateral from each other. What are t he goals of an SHG?

They sav e and contribute to a com m on fund which is used to lend to the m em bers. Since they know each other, m

An SHG is seen as an instrum ent for achiev ing a v ariety of goals, including em powering wom en. Data from Nab

pioneered the concept, shows that 9 0% of m em bers in the SHG are wom en and m ost of them do not hav e any asse

dev eloping leadership abilities am ong the poor, increasing school enrolm ents, im prov ing nutrition and in birth c m icro-lending by com m ercial banks, particularly gov ernm ent-run banks. What are t he advant ages of financing t hrough an SHG? A poor indiv idual benefits enorm ously being part of an SHG . Raising finance through SHGs reduces transaction accounts, borrowers as part of an SHG cut down expenses on trav el to the branch to get the loan sanctioned. What are t he different way s in which banks fund SHGs?

generally started by non-profit organisations, such as an NGO with broad anti-pov erty agendas. It is also a popul

lenders and borrowers. Lenders hav e to handle only a single SHG account instead of a large num ber of sm all-sized

Banks deal directly with indiv idual SHGs . They prov ide financial assistance to each SHG for lending to indiv idu agencies, which raise funds from banks. In this, NGOs would organise the poor into SHGs , undertake training, h inputs and m arketing and assist in m aintenance of accounts. ..

Alternativ ely , banks prov ide loans to SHGs with recom m endation from NGOs. Here the SHGs are form ed by NGO

ET in the Classroom: Draft Red Herring Prospectus


A company making a public issue of securities has to file a Draft Red Herring Prospectus with Sebi through an eligible prior to filing a prospectus with the Registrar of Companies. What is Draft Red Herring Prospect us? A com pany m aking a public issue of securities has to file a Draft Red Herring Prospectus (DRHP) with capital m a Registrar of Com panies (RoCs).
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 6/13

Securities and Exchange Board of India, or Sebi, through an eligible m erchant banker prior to the filing of prospe

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

The issuer com pany engages a Sebiregistered m erchant banker to prepare the offer docum ent. Besides due diligen issue in reaching the prospectiv e inv estors by m arketing the sam e. Where is DRHP available? The offer docum ents of public issues are av ailable on the websites of m erchant bankers and stock exchanges. It is announcem ent about the filing in English, Hindi and in regional language newspapers. In case, inv estors notice

the offer docum ent, the m erchant banker is also responsible for ensuring legal com pliance. The m erchant banker

the Sebi website under Offer Docum ents section along with its status of processing. The com pany is also required

incom plete inform ation in the offer docum ent, they m ay send their com plaint to the m erchant banker and / or t What does Sebi do wit h t he DRHP?

The Indian regulatory fram ework is based on a disclosure regim e. Sebi rev iews the draft offer docum ent and m ay

with a v iew to ensure that adequate disclosures are m ade by the issuer com pany /m erchant bankers in the offer d the offer docum ent.

inv estors to m ake an inform ed inv estm ent decision in the issue. It m ust be clearly understood that Sebi does not

Also, Sebi does not recom m end the shares or guarantee the accuracy or adequacy of DRHP. Sebis observ ations on

docum ent are forwarded to the m erchant banker, who incorporates the necessary changes and files the final offe

Sebi, Registrar of Com panies (ROC) and stock exchanges. After rev iewing the DRHP, the m arket regulator giv es i becom es RHP (Red Herring Prospectus). How is DRHP useful t o invest ors? DRHP prov ides all the necessary inform ation an inv estor ought to know about the com pany in order to m ake an

which need to be im plem ented by the com pany . Once the observ ations are im plem ented, it gets final approv al &

It contains details about the com pany , its prom oters, the project, financial details, objects of raising the m oney , t about the price or size of the offering. ..

risks inv olv ed with inv esting, use of proceeds from the offering, am ong others. Howev er, the docum ent does not p

ET in the Classroom: Reserve Bank oversight functioning


What is t he oversight funct ion of RBI?

The Bank for International Settlem ents defines ov ersight as central bank function , whereby the objectiv es of sa change .

are prom oted by m onitoring existing and planned sy stem s, assessing them against these objectiv es and, where n

The three key way s in which ov ersight activ ity is carried out are through (i) m onitoring existing and planned sy

assessm ent and (iii) inducing change. In India, the Pay m ent and Settlem ent Sy stem s Act, 2 007 , and the Pay m e

Sy stem s Regulations, 2 008, prov ide the necessary statutory backing to the Reserv e Bank of India for undertakin besides v arious electronic clearing serv ices. What is Elect ronic Clearing Service?

function. The central bank m anages the v arious settlem ents sy stem , including cash, through currency chest an

It was am ong the early steps initiated towards m ov ing to a paperless settlem ent sy stem by the Reserv e Bank of In introduced the ECS (Credit) schem e during the 1 9 9 0s to handle pay m ent requirem ents like salary , interest, div corporates and other institutions .

The ECS (Debit) Schem e was introduced by RBI to prov ide a faster m ethod of effecting periodic and repetitiv e coll m andating bank branches to debit their accounts and pass on the m oney to the com panies.
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 7/13

com panies. ECS (Debit) facilitates consum ers/subscribers of utility com panies to m ake routine and repetitiv e pay

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

What are t he various set t lement sy st ems & agencies?

National Electronic Funds Transfer (NEFT) Sy stem : In Nov em ber 2 005, a m ore secure sy stem was introduced fo to-one funds transfer requirem ents of indiv iduals/corporates . Av ailable across a longer tim e window, the NEFT batch settlem ents at hourly interv als, thus enabling a near real-tim e transfer of funds.

Real-Tim e Gross Settlem ent (RTGS): It is a funds transfer sy stem where transfer of m oney takes place from one b real tim e and on a gross basis . Settlem ent in real tim e m eans pay m ent transaction is not subjected to any

Gross settlem ent m eans the transaction is settled on one-to-one basis without bunching or netting with any oth transactions abov e Rs 2 lakh.

Once processed, pay m ents are final and irrev ocable. This was introduced in 2 004 and settles all inter-bank pay m

Clearing Corporation of India (CCIL): The Corporation, set up in April 2 001 , play s the Central Counter Party (CC securities, the US dollar and the rupee forex exchange (both spot and forward segm ents) and Collaterised Borrow Obligation (CBLO) m arkets.

CCIL play s the role of a central counterparty whereby , the contract between a buy er and a seller gets replaced by between the buy er and seller is elim inated with CCIL subsum ing all counterparty and credit risks. What does t he Nat ional Pay ment s Corporat ion of India do? The Reserv e Bank set up the National Pay m ents Corporation of India (NPCI), which becam e functional in 2 009 , (NFS) from the Institute for Dev elopm ent and Research in Banking Technology (IDRBT). The National Financial inter-bank network m anaged by Euronet India.

between CCIL and each of the two parties. This process is known as Nov ation . Through nov ation, the counterp

um brella organisation for operating v arious Retail Pay m ent Sy stem s (RPS) in India. NPCI has taken ov er Nation

What is an EEFC Account?


their foreign exchange receipts in banks without conv erting it into the local currency . Any person residing in In any interest from the deposits and it is a non-interest bearing schem e. What is t he minimum balance for EEFC?

Exchange Earners Foreign Currency (EEFC) account is foreign currency -denom inated account m aintained with

with foreign exchanges. The Reserv e Bank of India introduced this schem e in 1 9 9 2 to enable exporters and profes

inward rem ittances in foreign currency or a com pany with foreign currency earnings can open EEFC account bu

This is ty pically a zero-balance account like norm al current accounts. In other words, this m eans no account hold m aintain an av erage or m inim um balance in the EEFC account. How does EEFC help export ers or individuals earn foreign currency receipt s? As the account is m aintained in foreign currency , no depositors are protected from exchange rate fluctuations. Is t here any prescribed limit of deposit s in EEFC?

There is no such lim it. One can credit his or her entire foreign exchange earnings into this account, subject to som credits. Can one t ake a foreign currency loan and put it in EEFC?

Rem ittances receiv ed on account of foreign currency loan or inv estm ent receiv ed from abroad cant be deposited What are t he permissible credit s in t his account ? a) Inward rem ittances receiv ed by an indiv idual
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 8/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

b) pay m ents receiv ed by a 1 00% export-oriented unit, export processing zone, software technology park and elec technology park c) pay m ents receiv ed in foreign exchange by a unit in dom estic tariff area for supply of goods to a unit in SEZ

d) pay m ent receiv ed by an exporter for an account m aintained with an authorised dealer for the purpose of coun an adjustm ent of v alue of goods im ported against v alue of goods exported e) adv ance rem ittance receiv ed by an exporter towards export of goods or serv ices Can one wit hdraw in rupees from EEFC account ?

There is no such restriction on withdrawal in rupees of funds held in an EEFC account. Howev er, the am ount wit cant be conv erted into foreign currency again and re-credited to the account. Can one make a pay ment direct ly from EEFC account ?

One can m ake a direct pay m ent from EEFC outside India as per the prov isions laid down in FEMA regulations. Fu use the account for pay ing airfare or hotel expenditure. ..

units can also pay in foreign exchange for purchasing goods as per the country s foreign trade policy . A person re

ET In the Classroom: Making a Case of Financial Inclusion


What is a business correspondent model?

In 2 006 , the Reserv e Bank of India allowed banks to use non-bank interm ediaries as business correspondents, or b

facilitators, to extend banking and other financial serv ices to areas where the banks did not hav e a brick and m o the country and m ake them bankable. What do t hese correspondent s do?

present. The objectiv e behind it was to aid the process of financial inclusion and consequently take banking to the

The business correspondent is nothing but a bank-in-person, who is authorised to collect deposits and extend cred pension products, receipt and deliv ery of sm all v alue rem ittances/other pay m ent instrum ents. Who is eligible t o be a banking correspondent ?

bank of sm all-ticket sizes. He also recov ers principal interest of sm all v alue deposits, sale of m icro insurance, m ut

RBI has allowed a host of entities to act as business correspondents (BCs) of banks. These include NGOs/MFIs set up

Societies/Trust Acts; societies registered under Mutually -Aided Co-operativ e Societies Acts, or the Co-operativ e So

States; Section 2 5 com panies, which are not-for-profit com panies; com panies in which NBFCs, banks, telecom com ex-serv icem en and retired gov ernm ent em ploy ees. How is a business facilit at or different from a business correspondent ? Very often the term business correspondents is used interchangeably with the term business facilitators (BFs).

corporate entities or their holding com panies do not hav e equity holdings in excess of 1 0%; post offices and retired

clear distinction between the two. BFs are allowed to undertake only facilitation serv ices like identification of bor

and prelim inary processing of loan applications, including v erification of prim ary inform ation, creating awaren

and other products, processing and subm ission of applications to banks and prom oting and nurturing SHGs and f the exclusiv e function of business correspondents. ..

recov ery and debt counselling. Howev er, facilitation of these serv ices does not include conduct of banking busine

insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/

9/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

ET in the Classroom: Take-out financing


What is t ake-out financing?

Take-out financing is a m ethod of prov iding finance for longer duration projects of about 1 5 y ears by banks sanct

term loans for 5-7 y ears. It is giv en that the loan will be taken out of books of the financing bank within pre-fixed offload them to another bank or keep it.

institution, thus prev enting any possible asset-liability m ism atch. After taking out the loan from banks, the inst

Though internationally this kind of lending has been in existence for m any y ears, it cam e to India only in the lat

tenure loans were prim arily introduced to incentiv ise banks to lend to the infrastructure sector as banks back th assets. What does t he Reserve Bank rule say ?

exposure to long-term loans, and also because they did not hav e adequate resources of sim ilar tenure to create su

Banks/FIs are free to finance technically feasible, financially -v iable and bankable projects undertaken by both p

priv ate sector undertakings, prov ided the am ount sanctioned is within the ov erall ceiling of the prudential expos financial v iability and bankability of projects. Which inst it ut ions, besides banks, are engaged in t his pract ice? The gov ernm ent prom oted Infrastructure Dev elopm ent Finance Corporation, by setting aside a corpus from the a prim ary m andate to prom ote infrastructure funding. Later, India Infrastructure Finance Com pany also cam e refinance infrastructure loans of com m ercial banks. What are t he problems wit h t ake-out financing?

prescribed by RBI for infrastructure financing. They should also hav e the requisite expertise for appraising techn

Though take-out financing is a perm issible practice in India, the concept has not taken off in a big way . Though t also wary of taking risks such as construction risks, which m ay delay the project as well as increase its cost. LIQUID COAL Did y ou know coal can be liquid fuel t oo?

way addresses the asset-liability issue, regulators still want banks to set aside higher capital for their exposure. B

Coal liquification is seen one of the options to cope up with high crude oil prices. While av ailability of coal in plent fuel to an insignificant position except in the case of South Africa.

this process in the energy -scarce scenario, env ironm ental concerns and high cost has so far lim ited the use of coa

Use of coal for power generation is considered a better option in India as there is no consensus am ong policy -m ake basic issues related to conv ersion of coal into liquid fuel. Can coal be convert ed int o liquid fuel?

Yes. Coal can be conv erted into a sy nthetic liquid fuel and the process is known as coal-to-liquid (CTL) worldwide. to crushed coal and liquid is created with the presence of cataly sts. Howev er, further refining of this liquid is needed to achiev e liquid fuel with high-grade fuel characteristics. The and m ixed with water.

two different m ethods to conv ert coal into liquid fuelsdirect and indirect liquefaction. Under the direct m ethod,

liquefaction process first gasifies coal using oxy gen, steam heating them to v ery high tem peratures. The resulta

The liquid fuel that is created can be refined to produce diesel, naphtha, jet fuel, cooking gas and lubricants. Crea v ery intensiv e process that requires large am ounts of coal, water and energy .
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 10/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

Is CTL commercially viable?

Sky rocketing price of oil and concern ov er depleting crude reserv es are triggers generating interest in CTL. Am b are in operation in South Africarun by Sasol, the com pany that pioneered CTL. Liquid fuel generated from coal caters to 3 0% of the needs of South Africa. Sasol has patented Fischer Tropsch t indirect liquefaction, which conv erts sy nthetic gas, extracted from coal, into oil.

More than 3 0 CTL projects across the world are being studied for feasibility , depending on the quality of coal, av a and other local conditions. The initial inv estm ent in CTL projects is quite high. Is India game for CTL?

The gov ernm ent has studied CTL. The Tata Group, in collaboration with Sasol, m ade a presentation on a $8-billio day of liquid fuel.

liquefaction project using Sasols technology to conv ert high-ash Indian coal into liquid fuel with a capacity of 80

An inter-m inisterial group (IMG) exam ined the proposal. The Planning Com m ission rejected the idea, say ing tha CTL projects should bid for coal blocks, com peting with other users.

used for electricity generation rather than m aking liquid fuels. The IMD discussion also led to a v iew that those w

Finally , the gov ernm ent offered three blocks of coal in Orissa with cum ulativ e reserv es of about six billion tonnes priv ate play ers. There were 2 2 applicants including Reliance Group and the Tatas. The eligibility criteria say s t

com pany should hav e a m inim um net worth of $1 billion, besides hav ing a tie-up with the prov en technology pr

The IMG has to decide which com panies would be allowed to im plem ent CTL projects. What is CTLs im pact on the Green lobbies are fighting against CTL tooth and nail, alleging that Sasol has a questionable env ironm ental and CTL.

South Africa. They adv ocate higher inv estm ent in renewable resources like wind energy and solar energy , rathe

Liquefy ing large coal reserv es will release huge am ounts of carbon dioxide, a greenhouse gas. Proponents of this t gas can be captured and stored underground. The cost of carbon capture and storage will im pact the econom ics of CTL. Coal liquification requires v ast am ount this has led to concerns in water-deficient areas. RELATED POSTS: Reference Books For UPSC New Pattern How To Prepare For Mains GS Paper-II
About these ads

insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/

11/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

Share This On: Facebook LinkedIn 1 Google Email Twitter 1 Tumblr StumbleUpon Digg Reddit Print Pocket Pinterest Like this:

Like
One blogger likes this.

8 Responses to The Economic Times ET In The Clas Archives 1 (Economics Concepts Explained)

Pingback: The Econom ic Tim es -ET In The Classroom Archiv es 2 (Econom ics Concepts Explained) | INSIGHT

Pingback: Priority Sector Lending Reporting Definition of disbursem ent | Sim ple Financial Mantras

Pingback: The Econom ic Tim es ET In The Classroom Archiv es 3 (Econom ics Concepts Explained) | INSIGH

Pingback: The Econom ic Tim es ET In The Classroom Archiv es 5 (Econom ics Concepts Explained) | INSIGH

abhishek
Septem ber 6 , 2 01 3 at 2 :51 pm bhai saab, aapne kitni zy aada m ehnat ki hai ! Reply

Vicky..
Septem ber 1 2 , 2 01 3 at 9 :03 am Sir, Business Standards should be read com pletely ? Coz i find m any non relev ant things. Reply

INSIGHTS
Septem ber 1 2 , 2 01 3 at 1 1 :05 am
insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/ 12/13

10/3/13

The Economic Times ET In The Classroom Archives 1 (Economics Concepts Explained) | INSIGHTS

No. You dont hav e to read any business newspaper com pletely . Read its editorials and opinion pages. And in too. Reply

Vicky..
Septem ber 1 2 , 2 01 3 at 6 :07 pm

Sir, I hav e build alm ost all m y basic concepts in econom ics. Now, only rely ing on newspapers is sufficient or an exam . Reply

needs to be done ? I will cov er the new india y earbook and econom ic surv ey when itll com e next y ear, as i am a

insightsonindia.com/2013/07/17/the-economic-times-et-in-the-classroom-archives-1-economics-concepts-explained/

13/13

S-ar putea să vă placă și