Page 51 - Insurance Times January 2018 Sample

statutory, passing of Insolvency and Bankruptcy Code the provision of public capital should be contingent
and setting up of Insolvency and Bankruptcy Board of upon meaningful restructuring of PSBs. The FSAP also
India (IBBI), to name a few. It appreciates initiatives recommends that governance and financial operations
such as ‘no frills’ account (under Jan Dhan Yojana), of PSBs could be improved by developing a strategic
promoting digitization, introduction of unique plan for their consolidation, divestment, and
biometric identification number (AADHAR), currency privatization. The supplement also notes that on
exchange initiative etc. It also recognizes the improved November 1, the Government of India announced the
inter-agency co-operation since the establishment of establishment of an Alternative Mechanism panel,
Financial Stability and Development Council (FSDC), headed by India’s Finance Minister, to seek
supported by its Sub-Committee and four technical consolidation across state-owned banks.
groups and progress in setting up of Financial Data
7. In relation to securities market, the report
Management Centre (FDMC). acknowledges that SEBI has made significant changes
5. FSAP assessment acknowledges that RBI has made to its regulatory programs that directly address many
substantial progress in strengthening banking findings and recommendations contained in the detailed
supervision by introduction of risk-based supervision in IOSCO (International Organization of Securities
2013 through a comprehensive and forward-looking Commissions) assessment published in 2013. SEBI has
Supervisory Program for Assessment of Risk and Capital significantly expanded its regulatory programs,
(SPARC), domestic and cross-border cooperation expanded its on-site inspection program and developed
arrangements, Asset Quality Review (AQR) and the a risk-based matrix. The Amendments to the SEBI Act
strengthening of regulations in 2015 leading to have granted SEBI additional investigative powers,
improved distressed asset recognition, to name a few. created a special court that handles criminal cases filed
The Basel III framework and other international norms by SEBI, and gave SEBI full authority to regulate pooled
have been implemented or are being phased in, investment schemes exceeding Rs. 1 billion. The report
including stricter regulations on large exposures. It also also appreciates the measures undertaken to quicken
notes RBI establishing a new Enforcement Department the pace of bond market development.
and revising the Prompt Corrective Action (PCA) 8. The reports note that India is moving towards a new
framework that incorporates more prudent risk- state-of-the-art bankruptcy regime and the newly
tolerance thresholds. The Report notes that risks in
created regime on insolvency and bankruptcy is
shadow banking sector in India were limited and that
comprehensive and aims at restructuring companies
risks in non-bank financial subsectors appear contained within ambitious timelines.
but continue to warrant close monitoring.
9. On the financial market infrastructures (FMIs), the FSAP
6. The stress tests conducted by IMF FSAP experts covered
team assessed that the RBI designated qualified central
the 15 largest banks, including 12 public sector banks
counterparty (CCP) that plays a critical role in money,
(PSBs) which account for 71 per cent of the banking G-sec repo and secondary markets has a prudent risk
sector assets. The FSSA and FSA note that the largest management framework and high operational
banks appear sufficiently capitalized and profitable to
reliability.
withstand a deterioration in economic conditions.
10. On resolution regime for financial institutions, while
However, some PSBs have vulnerabilities and would be
requiring additional capital. These capital needs were recognizing the efforts of Indian authorities in
developing a comprehensive resolution framework
assessed between 0.75-1.5 per cent of GDP for baseline
through the Financial Resolution and Deposit Insurance
and adverse scenarios. This estimate was made prior
(FRDI) Bill (“Bill”), the assessment identifies some gaps,
to the announcement of the plan for recapitalization
including further strengthening of deposit insurance
by Government of India. The post-assessment
framework and resolution tools, particularly the bail-in
supplement points out that the major recapitalization
power (cancellation of liabilities) being limited to
plan for PSBs announced on October 24, 2017
contractual write-down of securities with explicit
amounting to approximately $32 billion or 1.3 per cent
conversion clauses (as opposed to broader statutory bail-
of GDP is expected to largely address the PSBs’
in powers), some duplication of supervisory authority in
recapitalization needs. The reports, however, note that
The Insurance Times, January 2018 51

Sashi Publications Pvt Ltd Call 8443808873/ 8232083010