All You Need To Know About the BRICS BANK

All You Need To Know About the BRICS BANK

The 6th BRICS summit is the sixth annual diplomatic meeting of the BRICS, a grouping of major emerging economies that includes Brazil, Russia, India, China and South Africa.

It is hosted by Brazil, as the first host country of the current five-year summit cycle the host city is Fortaleza.

The theme chosen for our discussions was "Inclusive Growth: Sustainable Solutions”.

Leaders of the BRICS emerging market nations have agreed to create a multilateral New Development Bank (NDB) for infrastructure needs.

The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a proposed multilateral development bank operated by the BRICS states (Brazil, Russia, India, China and South Africa) as an alternative to the existing World Bank and International Monetary Fund.

The Bank is setup to foster greater financial and development cooperation among the five emerging markets. It would be headquartered in Shanghai, China and the first chief executive will come from India.

What is New Development Bank (NDB)?

It is a bank set up by the world’s leading emerging economies aimed at funding infrastructure projects in developing nations.

What is the contingent reserve arrangement (CRA)?

The five countries will set up a $100 –bn pool of currency reserves to help countries forestall short-term liquidity pressures.

How will be the CRA be funded?

China, the region’s largest economy, will contribute $41 bn to the CRA. Russia, India, Brazil will contribute $18 bn each, while South Africa will contribute $5 bn.

Where will be the bank based?

The New Development Bank will be based in Shanghai, China.

How will it be governed?

India will preside over its operations for the first five years, followed by Brazil and then Russia. It is scheduled to start lending in 2016.

How will it be funded?

The bank will begin with $50 bn divided equally between its five founder members. Another $50 bn will come from new members.

New areas of cooperation to be explored

- Mutual recognition of Higher Education Degrees and Diplomas;

- Labor and Employment, Social Security, Social Inclusion Public Policies;

- Foreign Policy Planning Dialogue;

- Insurance and reinsurance;

- Seminar of Experts on E-commerce.

ITS GLOBAL PEERS

1. International Monetary Fund (IMF)

History:

·         The IMF was conceived in July 1944 when representatives of 45 countries met in Bretton Woods in the US to establish a framework for International economic cooperation.

Mandate:

·         Its mandate to oversee the international monetary system and promote excahanhe stability among its members countries.

 

Member Countries – 182

Employees – 2,300

Headquarter – Washington DC, US

2. World Bank

History

·         Conceived in July 1944, it is initially focused on electric power and transportation projects, but later diversified its activities, acquiring new insights into the development process.

Mandate:

·         It seeks to promote economic development projects of the world’s poorer countries thorugh long term financing.

Member countries – 180

Employees – 7,000

Headquarter – Washington DC, US

3. Asian Development Bank (ADB)

History

·         Conceived in the early 1960s to foster economic growth and cooperation in the Asian region, ADB opened on December 19, 1966 with 31 members. 

Mandate:

·         ADB provides loans for developing member countries in 5 core areas: infrastructure, environment, regional cooperation and integration, finance sector development, education.

Member Countries – 67

Employees – 3,062

Headquarter – Manila, Philippines

Read more: http://www.bankersadda.com/2014/07/all-you-need-to-know-about-brics-bank.html#ixzz37kCNsbor

committee on Poverty

committee on Poverty - A Brief insight

Recently C Rangarajan committee was in news and is an important topic in view of upcoming examinations. So let's understand what is this committee all about, it's recommendations and it's effects.

C Rangarajan committee-

Who is he?

Mr. Rangarajan is a noted economist, and resigned recently from the post of the chairman of Prime minister’s economic advisory council (PMEAC).

Why the committee was constituted-

The Planning Commission in May 2012 had constituted the expert group to review the Tendulkar Committee methodology for estimating poverty, following uproar over the number of poor in the country.

What changes the committee proposed –

Rangarajan committee proposed the changes in current benchmarks for the categorisation of poor’s in India ,the current standards which were set by the recommendations of the Tendulkar committee were –

• Expenditure of Rs 816 per person per month (Rs 27.2 per person per day) in rural areas.
• Expenditure of Rs 1000 per person per month (Rs 33.3 per person per day) in urban areas.
• Total numbers of poor were 269.8 million (21.9% of the total population) according to Tendulkar committee report.

The changes proposed by the Rangarajan panels are as follows-

• Expenditure of Rs 972 per person per month(Rs 32.4 per person per month) in rural areas.
• Expenditure of Rs 1407 per person per month(Rs 46.9  per person per month) in urban areas.
• Total number of poor will rise to 363 million (29.6% of total population) according to C. Rangarajan panel recommendations

What will be the effects of the Rangarajan committee proposals on the economy?

• More people will come under the ambit of below poverty line standards.
• This will increase the number of beneficiaries who can claim the benefits given to the BPL families.
• The step will create more burden on their fiscal budget to help BPL families under the different PDS (public distribution schemes), Rashtriya Swastha Bima Yojana, Swarnajayanti Gram Swarojgar Yojna etc.
• More deserving people who were out of the reckoning due to previous benchmarks would come under the benefits.

Banking Notes

Ø  FII: Foreign Institutional Investment  - The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.

Ø  FDI: Foreign Direct Investment  - It is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

Ø  MSF: Marginal Standing Facility - Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

Ø  FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions.

Ø  SEBI: Securities and Exchange Board of India -  SEBI is the primary governing/regulatory body for the securities market in India. All transactions in the securities market in India are governed and regulated by SEBI. Its main functions are:

1. New issues (Initial Public Offering or IPO)

2. Listing agreement of companies with stock exchanges

3. Trading mechanisms

4. Investor protection

5. Corporate disclosure by listed companies etc.

Note:  SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).

Ø  IRDA: Insurance Regulatory and Development Authority  - It is an autonomous apex statutory body which regulates and develops the insurance industry in India.

Ø  FINANCIAL REGULATORS IN INDIA - RBI, SEBI, FMCI (Forward Market Commission of India), IRDA etc.

Ø  ASBA:  Application Supported by Blocked Amount  -  It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to him.

Ø  DEPB Scheme: Duty Entitlement Pass Book - It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.

Ø  LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.

Ø  Balance sheet:  A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a specific point in time.

Ø  TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deduct tax at the source of income.

Ø  PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-

1. Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.

2. Any person who is carrying on any business or profession whose total sales, turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.

3. Any person who is required to furnish a return of income under section 139(4) of the Act.

Ø  JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.

Ø  IRR: Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments.

Ø  MICR: Magnetic Ink Character Recognition  - A 9-digit code which actually shows whether the cheque is real or fake.

Ø  UTR Number: Unique Transaction Reference number  - A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the day’s serial number of the message.

Ø  RRBs: Regional Rural Banks  - As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.

Ø  MFI: Micro Finance Institutions  -  Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.

Ø  PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).

Ø  BASE RATE: A minimum rate that a bank is allowed to charge from the customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).

Ø  EMI: Equated Monthly Installment  - It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.

Ø  Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.

Ø  Liquidity: It refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset.

Ø  P-NOTES: “P” means participatory notes.  These are the instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India - SEBI.

Ø  Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.

Ø  Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.

Ø  REER: Real Effective Exchange Rate.

Ø  NEER: Nominal Effective Exchange Rate.

Ø  LIBOR: London Inter Bank Offer Rate.

Ø  MIBOR: Mumbai Inter Bank Offer Rate.

Ø  EFT – Electronic Fund Transfer

Ø  NEFT  –  National Electronic Funds Transfer

Ø  RTGS  – Real Time Gross Settlement

Ø  ATM – Automated Teller Machine

Ø  CBS – Core Banking Solution

Ø  CORE in CBS stands for “Centralized Online Real-time Exchange.”

Foreign Exchange Market

Foreign exchange market is the place where the financial institutions of different countries come and exchange the currencies in a defined manner and set rates. In forex market the deals of currencies are done and in turn it defines the value of one currency in comparison to the other (remember the hue and cry created about falling of our Rs against Uncle Sam’s dollars).

A foreign investor (FII or FDI) is a major source of foreign currency in India let us consider a situation, There is a massive downturn in the USA’s economy, an investor with bag full of dollars goes to Forex market and convert his dollars in to Rupees, then he comes to India to invest and in turn generate huge amount of profits because of cheap labour and other resources. He zeroes on Bengal as his site of operation, but whatever rosy he had heard of India evaporates in a jiffy, Didi along with her brigade stopped the move and forced the dollar man out of the state, he shifts his base to other possible alternative and loose huge amount of money due to leasing of new land, final settlement of employees in Bengal taking new licenses and clearances and adding insult to the injury was a 10lakh fine imposed on him due to environmental issues all these created a Picasso classic of bad Indian image in the foreign market, in meantime US economy shows signs of revival so the Dollarman disinvested his chunks of dollars from India and move towards uncle Sam’s backyard, it results in the loss of dollars in Indian chest.

WHY INDIA NEEDS DOLLAR -

Here is a case in the context –

 India has a huge demand of petrol and diesel in their economy, to buy fuels from Saudi Arabia India needs a currency that Arab accepts (same as you cannot buy milk by paying wheat anymore). Arab needs dollars to invest and purchase goods from different countries (dollar is the most accepted and sought of currency). So Indian oil companies will have to go to foreign exchange market to buy dollars with rupees.

How the rates are decided-

Now the Indian oil companies go to Forex market to buy dollars for paying fuel bills but the dollar rich institutes citing the opportunity will not release their funds this easily, as they don’t need Rs anymore (due to the unsupportive govt, Inflation and scams in India), The case is same as you fetch a drastically low prices for the junk lying inactive at your home, So this will lead in to extended round of negotiations and the past rate of 55Rs (say) against a dollar will go up to 60Rs a dollar or even more. This will in turn be a reason for rise of transport of goods in India and the final goods that used to come for 10Rs in past will jump to 12 or more hence the prise rise will strike in India leading to inflation.

FEMA(Foreign Exchange Management Act,1999)-

Foreign exchange regulation in India comes under FEMA (previously FERA) , under this act RBI puts the persons who engage in foreign exchanges, who holds properties abroad and who makes payment to offshore countries under the scanner.

Goods And Services Tax

An inner view to GST(Goods And Services Tax)

Recently GST(Goods and services Tax) was in headlines and the proposal is going rounds in the economic fraternity, GST when comes in to picture sooner or later will help economic scenario to a very large extent and will create a utopia for the companies and people. It is an important topic in terms of forthcoming examinations,  So let’s understand what GST is.

1.    What is GST?

It is an indirect tax that will lead to the abolition of all other taxes such as, central sales tax, state-level sales  tax, excise duty, service tax, and value-added tax (VAT). Both the state  and the central governments will impose GST on almost all goods and  services produced in India or imported into the country.

2.    What categories are exempt from GST?

Exports will not be subject to GST. Direct taxes, such as income tax, corporate tax and capital gains tax will not be affected.

3.    How will GST benefit the economy?

It will simplify India's tax structure, broaden the tax base, and create a common market across states. This will lead to increased compliance and increase India's  tax-to-gross domestic product ratio. According to a report by the National Council of Applied Economic Research, GST is expected to increase economic growth by between 0.9 per cent and 1.7 per cent.  Exports are expected to increase by between 3.2 per cent and 6.3 percent, while imports will likel rise 2.4-4.7 per cent, the study found.

4.    How will GST benefit corporate?

It will be beneficial for India Inc as the average tax burden on companies will fall. Reducing production costs will make exporters more competitive.

5.    Will goods and services become costly? 

The highest rate of taxation under GST will be around 15 per cent in the first year, and eventually come down to 12 per cent in the second year. By comparison, the current rate of the various indirect taxes levied in India amounts to roughly 20 per cent. Goods deemed necessary or of basic importance will be taxed at a lower rate.

6.    Will state governments lose out? 

Some states fear that a uniform tax rate, if lower than their existing rates, will dent collections.  However, the central government has said it will compensate states for the potential revenue loss. The reduced and uniform taxation will help more pouring of money in the state. 

7.    Can states decide to opt out of GST?

In a deviation from its earlier stand, the government has agreed for a phased roll-out of GST. States will also have the flexibility to opt out of GST.

8.    How will it become a reality? 

The GST can be implemented only through a Constitutional Amendment Bill, which means it needs to be approved by not less than two-thirds of the members present and voting in each House of Parliament. The GST must also be ratified by the legislatures of at least one-half of the states.

by

Jayarama G L