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GYAN SANGAM

OVERVIEW

Two days Retreat for Banks and Financial Institutions called Gyan Sangam was inaugurated by Jayant Sinha, Minister of State for Finance at National Institute of BankingManagement (NIBM) Pune, Maharashtra. Participants in the Bankers Retreat included DrHasmukh Adhia, Secretary, Department of Financial Services (DFS), Regulators and Officersof the Ministry of Finance, top management of all public sector banks (PSBs), insurancecompanies and financial institutions (FIs).

This retreat was held to take forward the governments commitment to reforms in the

financial sector. The growth and change in the financial sector ought to be in tune with thedevelopment in the real sector.

The main reason behind this retreat was to discuss on improving and strengthening PSUs andState run banks as they are not showing growth since the private banks have started givingthem competition in the market which have shown growth consistently over the last twodecades.

DISCUSSION POINTS

A decision to re-orient the portfolios of small public sector banks to focus on specificand differentiated niches

Build people capacities

Use of more technology (especially in the top 30 processes)

Strengthen risk management practises

Strengthen the partner channels such as business correspondents.

IMPROVEMENTS ON GOVERNMENT PART

To move from a state-owned structure to a state-linked structure which would entail,

among other things, setting up of a banking bureau comprising of professionals andeminent bankers to appoint and empower individual bank boards.

Fully empower banks on human resource related decisions

Creating the right environment for minimal interference

Strengthening the legal framework for recovery of loans

Strengthening and simplify processes for credit insurance

Eliminate debt waivers and do away with interest rate caps

Creating the enabling infrastructure for digital banking

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NON-PERFORMING ASSET

A classification used by financial institutions that refer to loans that are in jeopardy ofdefault. Once the borrower has failed to make interest or principal payments for 90 days theloan is considered to be a non-performing asset. Also known as "non-performing loan".

Non-performing assets are problematic for financial institutions since they depend on interestpayments for income. Troublesome pressure from the economy can lead to a sharp increasein non-performing loans and often results in massive write-downs.

BANK STRESS TEST

An analysis conducted under unfavourable economic scenarios which are designed to

determine whether a bank has enough capital to withstand the impact of adverse

developments. Stress tests can either be carried out internally by banks as part of their own

risk management, or by supervisory authorities as part of their regulatory oversight of the

banking sector. These tests are meant to detect weak spots in the banking system at an

early stage, so that preventive action can be taken by the banks and regulators.

Stress tests focus on a few key risks such as credit risk, market risk, and liquidity risk to

banks' financial health in crisis situations. The results of stress tests depend on the

assumptions made in various economic scenarios, which are described by the International

Monetary Fund as "unlikely but plausible." Bank stress tests attracted a great deal of

attention in 2009, as the worst global financial crisis since the Great Depression left many

banks and financial institutions severely under-capitalized.

ADVANCE RATES

The maximum percentage of the value of a collateral that a lender is willing to extend for aloan. The advance rate helps a borrower determine what kind of collateral to bring to thetable in order to secure the desired loan amount, and helps minimize a lender's loss exposurewhen accepting collateral that can fluctuate in value.

Collateral helps lenders minimize risks and to offer affordable interest rates to borrowers. Bysetting an advance rate, a lender can build a cushion into the loan transaction by ensuring that

if the value of the collateral drops and the loan goes into default, there is still adequateprotection from the loan principal loss. If a lender has an advance rate of 75%, and the valueof collateral presented is $100,000, then the maximum loan the borrower can receive is$75,000. Advance rate works similarly to loan-to-value ratio.

ABHISHEK KUMAR PUNDIR

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