Growth Drivers for Retail

 Rapid increase in Population

 Rapid Urbanization (Rapid urbanisation bodes well for the sector. The number of Indians
living in urban areas is expected to reach 542.7 million by 2025 and 675.5 million by 2035.)
Tastes and preferences , infrastructure ,

 Rise of nuclear families, enjoy now and pay later, more disposal income

 Housing for Senior citizens

 Push for Affordable Housing by Central Govt

 Availability of abundant Land and Labour in India

 Increase in Transport and Infrastructure

 Social Status and Sense of Security

 Easy availability of finance

 Rental Housing

 Government Initiatives

Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism

Aggregate Sanctioned Credit Limit (ASCL) means the aggregate of the fund based credit
limits sanctioned or outstanding, whichever is higher, to a borrower by the banking system.
ASCL would also include unlisted privately placed debt with the banking system.

(ii) ‘Specified borrower’, means a borrower having an ASCL of more than Rs.10,000 crore at
any time from April 1, 2019 onwards;

(iii) ‘Reference date’, means the date on which a borrower becomes a ‘specified borrower’.

(iv) Normally permitted lending limit (NPLL), means 50 percent of the incremental funds
raised by the specified borrower over and above its ASCL as on the reference date, in the
financial years (FYs) succeeding the FY in which the reference date falls. (where a specified
borrower has already raised funds by way of market instruments and the amount
outstanding in respect of such instruments as on the reference date is 15 per cent or more of
ASCL on that date, the NPLL will mean 60 percent of the incremental funds

Guidelines on Loan system for delivery of bank credit

 In respect of borrowers having aggregate fund based working capital limit of ₹1500 million
and above from the banking system, a minimum level of ‘loan component’ of 60 percent
shall be effective from July 1, 2019.

 Amount, Tenor and Repayment of the loan - As agreed. (Tenor- minimum 7 days and
Instalments or Bullet Payment )

 Risk weights for undrawn portion of cash credit limits-20%

 Legal Entity Identifier for large corporate borrowers

It is mandatory for corporate borrowers having aggregate fund-based and non-fund based exposure
of ₹ 5 crore and above from any bank to obtain Legal Entity Identifier (LEI) registration and capture
the same in the Central Repository of Information on Large Credits (CRILC).

LEI is a 20-digit unique code to identify parties to financial transactions worldwide.

To improve the quality and accuracy of financial data systems for better risk management post the
Global Financial Crisis.

This will facilitate assessment of aggregate borrowing by corporate groups, and monitoring of the
financial profile of an entity/group

RBI has insisted banks not to sanction/renew any further credit facilities who failed to obtain LEI
within stipulated time frame.

> ₹ 50 crore Already Implemented

Above ₹25 crore April 30, 2023

Above ₹10 crore, up to ₹25 crore April 30, 2024

₹5 crore and above, up to ₹10 crore April 30, 2025

External Commercial Borrowings are commercial loans raised by eligible resident entities from
recognised non-resident entities and should conform to parameters such as minimum maturity,
permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters given
below apply in totality and not on a standalone basis.

External Commercial Borrowing is permitted where the supplier or the party that offers the sale is
outside the shores of India. The maturity period of ECB should not exceed five years. Trade credits
are only available for imported goods only if it is permitted in the Foreign Trade Policy.
MAMP for ECB will be 3 years. Call and put options, if any, shall not be exercisable prior to
completion of minimum average maturity

All-in-cost ceiling per annum Benchmark rate plus 450 bps spread.

Under the aforesaid framework, all eligible borrowers can raise ECB up to USD 750 million or
equivalent per financial year under the automatic route.

ECB means foreign funding which is not in the form of equity. When it is used in the form of equity
capital, then it is called Foreign Direct Investment (FDI). Any Investment made towards core capital of
an organisation such as equity shares, convertible preference shares or convertible debentures. We
should note here that those instruments which can be converted into equity are called convertible.
The convertible instruments are covered under the FDI Policy. Any other direct capital is not allowed
in ECB.
Non-cooperative borrower

A non-cooperative borrower is broadly one who does not provide necessary information required by
a lender to assess its financial health even after 2 reminders; or denies access to securities etc. as per
terms of sanction or does not comply with other terms of loan agreements within stipulated period;
or is hostile / indifferent / in denial mode to negotiate with the bank on repayment issues; or plays
for time by giving false impression that some solution is on horizon; or resorts to vexatious tactics
such as litigation to thwart timely resolution of the interest of the lender/s. The borrowers will be
given 30 days’ notice to clarify their stand before their names are reported as non-cooperative
borrowers.

Boards of banks/FIs should review on a half-yearly basis the status of non-cooperative borrowers for
deciding whether their names can be declassified as evidenced by their return to credit discipline
and cooperative dealings. Removal of names from the list of non-cooperative borrowers should be
separately reported under CRILC with adequate reasoning/rationale for such removal.

Wilful default

The term "wilful default" has been redefined in supersession of the earlier definition as under:

A "wilful default" would be deemed to have occurred if any of the following events is noted :-

(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it
has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not
utilised the finance from the lender for the specific purposes for which finance was availed of but has
diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has
siphoned off the funds so that the funds have not been utilised for the specific purpose for which
finance was availed of, nor are the funds available with the unit in the form of other assets.“

Banks are required to classify the accounts with outstandings of Rs.25 lakh and above as wilful
defaulters, wherever applicable

Red Flagged Account

A Red Flagged Account (RFA) is one where a suspicion of fraudulent activity is thrown up by the
presence of one or more Early Warning Signals (EWS).

The threshold for EWS and RFA is an exposure of ₹ 500 million or more at the level of a bank
irrespective of the lending arrangement

All accounts beyond ₹ 500 million classified as RFA or ‘Frauds’ must also be reported on the CRILC
data platform together with the dates on which the accounts were classified as such.

These signals in a loan account should immediately put the bank on alert regarding a weakness or
wrong doing which may ultimately turn out to be fraudulent.
Once an account is red flagged, banks are mandated to complete its forensic audit within six months
and decide whether it is fraudulent or not.
Bank as a sole lender In cases where the bank is the sole lender, the FMG will take a call on whether
an account in which EWS are observed should be classified as a RFA or not. This exercise should be
completed as soon as possible and in any case within a month of the EWS being noticed. In case the
account is classified as RFA, the FMG will stipulate the nature and level of further investigations or
remedial measures necessary to protect the bank’s interest within a stipulated time which cannot
exceed six months.

RFA-Consortium & MBA

The initial decision to classify any standard or NPA account as RFA or Fraud will be at the individual
bank level and it would be the responsibility of this bank to report the RFA or Fraud status of the
account on the CRILC platform so that other banks are alerted.

Thereafter, within 15 days, the bank which has red flagged the account or detected the fraud would
ask the consortium leader or the largest lender under MBA to convene a meeting of the JLF to
discuss the issue.

The meeting of the JLF so requisitioned must be convened within 15 days of such a request being
received. In case there is a broad agreement, the account would be classified as a fraud; else based
on the majority rule of agreement amongst banks with at least 60% share in the total lending, the
account would be red flagged by all the banks and subjected to a forensic audit commissioned or
initiated by the consortium leader or the largest lender under MBA.

All banks, as part of the consortium or multiple banking arrangement, would share the costs and
provide the necessary support for such an investigation

The forensic audit must be completed within a maximum period of three months from the date of
the JLF meeting authorizing the audit.

Within 15 days of the completion of the forensic audit, the JLF will reconvene and decide on the
status of the account, either by consensus or the majority rule as specified above. In case the
decision is to classify the account as a fraud, the RFA status would change to Fraud in all banks and
reported to RBI and on the CRILC platform within a week of the said decision.
Besides, within 15 days of the RBI reporting, the bank commissioning/ initiating the forensic audit
would lodge a complaint with the CBI on behalf of all banks in the consortium/MBA.

RFA-Consortium & MBA

The initial decision to classify any standard or NPA account as RFA or Fraud will be at the individual
bank level and it would be the responsibility of this bank to report the RFA or Fraud status of the
account on the CRILC platform so that other banks are alerted.

Thereafter, within 15 days, the bank which has red flagged the account or detected the fraud would
ask the consortium leader or the largest lender under MBA to convene a meeting of the JLF to
discuss the issue.

The meeting of the JLF so requisitioned must be convened within 15 days of such a request being
received. In case there is a broad agreement, the account would be classified as a fraud; else based
on the majority rule of agreement amongst banks with at least 60% share in the total lending, the
account would be red flagged by all the banks and subjected to a forensic audit commissioned or
initiated by the consortium leader or the largest lender under MBA.
All banks, as part of the consortium or multiple banking arrangement, would share the costs and
provide the necessary support for such an investigation

The forensic audit must be completed within a maximum period of three months from the date of
the JLF meeting authorizing the audit.

Within 15 days of the completion of the forensic audit, the JLF will reconvene and decide on the
status of the account, either by consensus or the majority rule as specified above. In case the
decision is to classify the account as a fraud, the RFA status would change to Fraud in all banks and
reported to RBI and on the CRILC platform within a week of the said decision.

Besides, within 15 days of the RBI reporting, the bank commissioning/ initiating the forensic audit
would lodge a complaint with the CBI on behalf of all banks in the consortium/MBA.

IRAC Guidelines

 An account is classified as NPA, if

 Term Loan – Intt. and / or Inst. of principal remain overdue for a period of more than 90
days.

 CC / OD – A/c remains ‘out of order’- for a period of 90 days

 O/s continuously in excess of the Limit / DP

 O/s less than the Limit / DP but no credits for the previous 90 days

 Credits not enough to cover interest debited for the previous 90 days

 Bills - Overdue (not paid on the due date) for a period of more than 90 days.

 AGL - instalment of principal or interest thereon remains overdue for two / one crop season

Asset Classification:

Substandard Doubtful-I Doubtful-II Doubtful-III Loss Asset

Up to 12 months 12-24 Months 24-48 Months > 48 Months As Identified

Floating provisions

Floating provisions are the amount that banks set aside that are above the mandatory provisioning
requirement against bad loans established by the central bank. The bank's board of directors should
lay down approved policy regarding the level to which the floating provisions can be created. The
bank should hold floating provisions for ‘advances’ and ‘investments’ separately and the guidelines
prescribed will be applicable to floating provisions held for both ‘advances’ & ‘investment portfolios.

The floating provisions should not be used for making specific provisions as per the extant prudential
guidelines in respect of non performing assets or for making regulatory provisions for standard
assets. The floating provisions can be used only for contingencies under extraordinary circumstances
for making specific provisions in impaired accounts after obtaining board’s approval and with prior
permission of RBI. The Boards of the banks should lay down an approved policy as to what
circumstances would be considered extraordinary.
These extra-ordinary circumstances could broadly fall under three categories viz. General, Market
and Credit. Under general category, there can be situations where bank is put unexpectedly to loss
due to events such as civil unrest or collapse of currency in a country. Natural calamities and
pandemics may also be included in the general category. Market category would include events such
as a general melt down in the markets, which affects the entire financial system. Among the credit
category, only exceptional credit losses would be considered as an extra-ordinary circumstance.

Floating provisions cannot be reversed by credit to the profit and loss account. They can only be
utilised for making specific provisions in extraordinary circumstances as mentioned above. Until such
utilisation, these provisions can be netted off from gross NPAs to arrive at disclosure of net NPAs.
Alternatively, they can be treated as part of Tier II capital within the overall ceiling of 1.25% of total
risk weighted assets.

Insolvency & Bankruptcy Code…

There were multiple laws like The Presidency Towns Insolvency Act, 1909, The Provincial Insolvency
Act, 1920, Sick Industrial Companies (Special Provisions) Act, 1985, Recovery of Debts due to Banks
and Financial Institutions Act, 1993, SARFAESI Act, 2002, Companies Act, 2013 that deal with
insolvency and bankruptcy for different entities under different situations. Due to the complexity of
multiple laws, the process of recovery of corporate loans in India has been very long process.

Moreover, Debt restructuring processes like CDR, SDR, S4A and 5:25 have not yielded the expected
results. As a result, Legal process used to take 4.3 years and Recovery Rate-26 % at a Cost 9 %
Resolving Insolvency Rank- 130 and Ease of Doing Business Rank-136.

Objectives/ Benefits

Avoid Combination and Complication of many Laws

Leading to quicker resolutions

Improve Credit Availability

Releasing capital for banks

Instilling better Credit Discipline.

Interest of all Stakeholders

Minimize the Role of Adjudicating Authority and Lesser Compliance mechanism

Four Pillars of IBC

Adjudicators

NCLT

- Deal with insolvency matters of Co. & LLP

- Appeal to NCLAT

Debt Recovery Tribunal

- Deal with insolvency matters of individual & Partnership firm

- Appeal as to DRAT

WHO CAN INVOKE?

FC

OC

CD
Eligible amount – Rs 1 crore and above

Time lines :180 + 90 max 330 days

Debtors in possession to Creditors in Control

COC

IF FAILS LEAD TO LIQUIDATION

Prepackiging

As nomenclature suggests, pre-pack is a restructuring plan which is agreed to by the debtor and its
creditors prior to the insolvency filing, and then sanctioned by the court on an expedited basis.

MSMES- Resolution of their stress requires different treatment, due to the unique nature of their
businesses and simpler corporate structures.

Therefore, it was considered essential to provide an efficient alternative insolvency resolution

process under the Code for corporate MSMEs, that ensures quicker, cost-effective and value
maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity
of their businesses, and which preserves jobs.

Pre-Packaged Insolvency Resolution Process Vs CIRP

1. The Application for initiation of PPIRP is to be initiated by Corporate Debtor

2. Amount Rs.10.00 lakhs to Rs. 1 crore

3. The role of Resolution Professional begins even before the application is filed with AA or
approved/ rejected by AA;

4. Base Resolution Plan submitted by the Corporate Debtor i.e. MSME

5. The Control of the Affairs of Corporate Debtor i.e. MSME by CD itself

6. The process has to be completed within a period of 120 days (90+30 days)

7. There is no provision for extension in PPIRP,

8. The Corporate Debtor under PPIRP shall not automatically go into liquidation

BAD Bank-NARCL
 The structure will assist in consolidation of debt, currently fragmented across various
lenders, thus leading to faster, single point decision making including through Insolvency and
Bankruptcy Code (IBC) processes, where applicable,

 BAD Bank-NARCL - Benefits

1. Debt Transfer

2. Aggregation of stressed assets - coordination problems will be solved

3. Faster Decision Making and Good Price Discovery

4. Full advantage of IBC can be taken

 5. Helpful in Resolution of specific sectors

6. Protecting quality of other assets

7. Fear of 3 Cs can be avoided

8. Improvement of Equity valuation of banks

“It will incentivise quicker action on resolving stressed assets thereby helping in better value
realization. India Debt Resolution Company Limited (IDRCL) will engage market expertise for value
enhancement. This approach will also permit freeing up of personnel in banks to focus on increasing
business and credit growth,” she said.

It is supposed to have a two-tiered structure.

Tier 1 : National Asset restructuring Company limited (NARCL)

Tier 2 : India Debt Resolution Company (IDRCL)

NARCL

NARCL has been incorporated under the Companies Act.

 NARCL, (bad bank) -An Asset Reconstruction Company and a specialized financial institution
which buys stressed assets from banks and financial institutions to help aggregate and
consolidate lenders’ non-performing assets (NPAs) or bad loans.
 The NARCL was set up by lenders and will be 51% owned by public sector banks,
 The longer-term goal for the NARCL is to help resolve NPAs worth ₹2 lakh crore,
 NARCL will pick up bad loans above a certain threshold from banks as the focus is on
resolving big-ticket bad loans.
and it will then aim to sell those loans to prospective buyers who deal in distressed debt.

 It proposes to take over the fully provisioned stressed assets of about ₹90,000 crore in the
first phase.
 The remaining assets with lower provisions expected to be transferred in a second phase.
 NARCL will buy the bad loans from banks by paying upfront cash of 15 per cent and balance
85 per cent by way of security receipts (SRs). (15:85 structure)
The company will also be responsible for the valuation of bad loans to determine the price at which
they will be sold

The idea of the government guarantee is to assure the banks that the SRs are secured. In fact, there
will be many investors interested in investing in SRs because of the sovereign guarantee.

 The SRs become attractive tradeable instruments in the market if they are and guarantee
attract Foreign Portfolio Investors The sovereign guarantee would allow the banks to free up
the capital without the burden of additional provisioning, effectively allowing more
participation from the banks to resolve their NPAs through the bad bank
The guarantee, which will be valid for five years, would be invoked either at the time of resolution or
liquidation to cover the shortfall (if any) between the face value of the security receipts and the
actual realisation.

IDRCL
The IDRCL will be a service company or operational entity, which will manage the assets acquired by
NARCL.

It is a step-down asset management company with a capital of Rs 50 crore

It will enroll market professionals and turnaround experts in managing the bad assets in an attempt
to turn them around

Run by public and private bodies and Public Sector Banks (PSBs) and Public FIs will hold a maximum
of 49% stake in IDRCL, and the rest will be held by private-sector lenders.

It is tasked with the resolution and restructuring of bad loans bought by the NARCL.

IDRCL will get a time period of five years to resolve the bad loans.

 It will support the regulatory provisioning requirement of the RBI.

 Given the large volume and individual sizes of these NPAs, a backstop from the government
(sovereign guarantee) helps lend credibility to the resolution process and provides
for contingency buffers.

 The Union government’s guarantee will also enhance liquidity of Security Receipts, which
are tradable.

 Basel guidelines

 Introduced in 1988 as Basel I guidelines

 Basel –I

 Minimum Capital Requirement (CAR)

 CAR for Indian Banks kept at 9 %

 Risk weightage based on 5 asset classes (0%, 20%, 30%, 50% & 100%)

Only Credit risk taken into consideration initially and later Market risk also.
Guidelines on Capital Requirements

As % to
Regulatory Capital
RWAs

(i) Minimum Common Equity Tier 1 Ratio 5.5

(ii) Capital Conservation Buffer (comprised of Common Equity) 2.5

Minimum Common Equity Tier 1 Ratio plus Capital Conservation

(iii) 8.0
Buffer [(i)+(ii)]

(iv) Additional Tier 1 Capital 1.5

(v) Minimum Tier 1 Capital Ratio [(i) +(iv)] 7.0

(vi) Tier 2 Capital 2.0

(vii) Minimum Total Capital Ratio (MTC) [(v)+(vi)] 9.0

 Minimum Total Capital Ratio plus Capital Conservation Buffer
(viii) 11.5
[(vii)+(ii)]

KEY BUILDING BLOCKS OF BASEL III

Increased Quantity / Quality of Capital

Capital Conservation l Buffer

2.5%

Countercyclical Capital Buffer

0-2.5%

Additional requirements for Global and Domestic Systemic Banks

Banks having size as a percentage of GDP beyond -2%

additional Common Equity Tier 1 (CET1) capital requirement ranging from 0 to 2.5%

Global Liquidity Standards

Liquidity Coverage Ratio

Net Stable Funding Ratio

Leverage Ratio

4.00% for Domestic Systemically Important Banks and 3.5% for other Banks.
 Capital Conservation

Why Capital Conservation

 Banks Balance sheet may come under strain due to economic condition and Pandemic

 Government may not be in position to infuse capital adequately due to fiscal constraints

 Raising capital from the market in the form of equity is not attractive option due to
disadvantageous valuation

 Raising Basel-III compliant bonds from market can be costly due to bank rating and Yes Bank
crisis

HOW TO CONSERVE CAPITAL

1. Prioritise Capital Lite Asset Financing

2. Containing The Slippages

3. Improving The Quality Of Assets

[Link] Profitability

[Link] Leakage Of Capital

Regulatory Retail Portfolios

Claims included in this portfolio shall be assigned a risk-weight of 75 per cent,

I. Orientation Criterion - The exposure (both fund-based and non fundbased) is to an individual
person or persons or to a small business; Small business is one where the total average
annual turnover is less than ` 50 crore. The turnover criterion will be linked to the average of
the last three years in the case of existing entities; projected turnover in the case of new
entities; and both actual and projected turnover for entities which are yet to complete three
years.

II. Product Criterion - The exposure (both fund-based and non-fund-based) takes the form of
any of the following: revolving credits and lines of credit (including overdrafts), term loans
and leases (e.g. installment loans and leases, student and educational loans) and small
business facilities and commitments.

III. Granularity Criterion - No aggregate exposure to one counterpart should exceed 0.2 per cent
of the overall regulatory retail portfolio. ‘Aggregate exposure’ means gross amount (i.e. not
taking any benefit for credit risk mitigation into account) of all forms of debt exposures (e.g.
loans or commitments) that individually satisfy the three other criteria

IV. Low value of individual exposures - The maximum aggregated retail exposure to one
counterpart should not exceed the absolute threshold limit of `7. 5 crore.
 Vigilance

Vigilance as being watchful and cautious to detect danger, being ever awake and alert.

Preventive Vigilance: It plays an important role in strengthening the vigilance set up of any
organisation. Preventive Vigilance sets up procedure and systems to restrain the acts of wrong doing
and misconduct in the various areas of the functioning of department. Preventive vigilance is aimed
at reducing the occurrence of a lapse (violation of a law, a norm, or, broadly speaking, a governance
requirement).

. participative vigilance function which encompasses reviewing the existing systems and control,
identifying lacunae and putting in place sufficient red flags so that the scope for misconduct is
minimised and transgressions are detected swiftly.

Punitive Vigilance: It includes investigation and collection of evidence and speedy departmental
inquiries. Swift and deterrent action against the real culprit

Detective Vigilance: Effective use and scan of Complaints, Inspection Reports, Audit Reports etc.
Detection of Corrupt Practices, Malpractices, Negligence, Misconduct and better surveillance of
public contact points. Close watch on officers at sensitive posts of doubtful integrity and detect fraud
and scrutiny of decision taken by officials having discretionary powers Detective vigilance is aimed at
identifying and verifying the occurrence of a lapse. Punitive vigilance is aimed at deterring the
occurrence of a lapse. Detective and punitive vigilance are strategic complements. The greater the
punishment, the more useful it is to detect. Conversely, having a high penalty is ineffective when the
quality of detection is poor.

To strengthen the preventive AND Participative vigilance function in any institution, involvement of
all stakeholders irrespective of their standing in the institution can play an important part.

Corporate governance
Outlining of CG in our bank

Corporate governance is the combination of rules, processes and laws by which businesses are
operated, regulated and controlled. The term encompasses the internal and external factors that
affect the interests of a company's stakeholders, including shareholders, customers, suppliers,
government regulators and management

 The relationship of a bank to its shareholders and to society; the promotion of fairness,
transparency and accountability; reference to mechanisms that are used to “govern”
managers and to ensure that the actions taken by them are consistent with the interests of
key stakeholder groups.

 This includes issues of transparency and accountability, the legal and regulatory
environment, appropriate risk management measures, information flows and the
responsibility of Senior Management and the Board of Directors.

 The manner in which their Board of Directors governs the business and affairs of individual
institutions and their functional relationship with senior management.
  It will impose appropriate standards of conduct on managers and control and monitoring
procedures on banks in order to maximize opportunities for legitimate profits subject to the
best interests of depositors and shareholders.

 There is greater emphasis and more detailed guidance on the internal control functions of
the so-called “second and third line of defence” : i.e. risk management, compliance and
internal audit,

How CG of banks different form other companies

1. Banks are different from other corporates in important respects, and that makes corporate
governance of banks not only different but also more critical.

2. This is due to the nature of the banking business, the complexity of its organisation, the
uniqueness of banks’ balance sheets.

3. A bank serves several conflicting interests, , in comparison to other companies, from equity
holders, to borrowers or depositors and good governance is important for balancing those
interests and the need for protection of this broader pool of stakeholders.

4. They accept large amounts of uncollateralized public funds as deposits in a fiduciary capacity
and further leverage those funds through credit creation.

5. The presence of a large and dispersed base of depositors in the stakeholders group sets
banks apart from other corporates.

6. Banks lubricate the wheels of the real economy, are the conduits of monetary policy
transmission and constitute the economy’s payment and settlement system. By the very
nature of their business, banks are highly leveraged.

7. The excellence in terms of customer satisfaction, return, product and service, return to
promoters and social responsibilities towards society and people requires practicing a
different and good corporate governance.

8. Banks are interconnected in diverse, complex and oftentimes opaque ways, underscoring
their ‘contagion’ potential. If a corporate fails, the fallout can be restricted to the
stakeholders. If a bank fails, the impact can spread rapidly through to other banks with
potentially serious consequences for the entire financial system and the macro-economy.

All economic agents tend to behave in a pro-cyclical manner, and banks are no exception. In case of
banks, their pro-cyclical behaviour hurts not just the institution but the larger economy
Key Drivers of Digitaisation

1. Increased use of mobile devices

India had 1.5 billion mobile subscribers in 2021, of which about 750 million are smartphone users. It
is poised to be the second-largest smartphone manufacturer in the next five years.

2. The development of the cloud

Information can be easily accessed from any device that connects to the internet. The cloud has
allowed for speedier transactions as well as easier access.

3. Increased availability and usage of online services

India had over 825 million internet users across the country at the end of March 2021. This figure
was projected to grow to 1 billion in next two years and over 1.5 billion users by 2040, indicating a
big market potential in internet. The rural India may have a higher number of internet users
compared to urban centres by 2025 which indicates the need to strengthen the digital ecosystem in
the country.

4. Heightened awareness of security

5. The people sphere

Demographic changes (youth, aging, population growth, urbanization, and migration and their
expectation)

6. Technology talent pool

India’s strong STEM (Science, Technology, Engineering and Mathematics) orientation, world-class
education institutes and a competitive human resources cost-structure have helped create a strong
tech talent pool that FinTechs can rely on.

7. JAM

Why Collaboration with Fintech

 Building up brand reputation

 Offering more functions and features to consumers

 Increased ease-of-use

 Broadened consumer base

 Reduced costs

 Ability to scale quickly

What Is Crowdfunding?

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a
new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people
through social media and crowdfunding websites to bring investors and entrepreneurs together, with
the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional
circle of owners, relatives, and venture capitalists.

• here are restrictions as to who is allowed to fund a new business and how much they are
allowed to contribute.

• Crowdfunding sites generate revenue from a percentage of the funds raised.

• ImpactGuru. ,Milaap. ,Ketto. ...FuelADream. ..Crowdwave Trust.

Angel investors are most often individuals rather than companies. An angel investor provides
financial backing to entrepreneurs and early-stage businesses, or start-ups initial seed
money for startup businesses, usually in exchange for ownership equity in the company.

Angel finance is a term used to describe what happens when individuals (“business angels”) or
groups of angels (often known as a syndicate) invest their own money in a business in return for
shares. The application of the term "angel" originates in Broadway theater, where it was used to
describe wealthy individuals who provided money for theatrical productions that would otherwise
have had to shut down.

Angels back high-risk opportunities, with the potential for high returns.

The capital that angels provide can be a single injection of funds or ongoing financial backing via a
series of investments.

Most angels can bring valuable first-hand experience of growing businesses, often early-stage
businesses. Their skills and experience will be shared with the business, as well as their network of
contacts.

ESG

ESG stands for Environmental, Social and Governance in organisations.

These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are
expected to report in.

(a) The Environmental pillar relates to issues around the natural world, including greenhouse gas
(GHG) and non-GHG emissions; renewable/non-renewable energy usage; biodiversity; land
use; material resource use; water management, and waste. Most risks and opportunities
from a changing climate fall in the environment pillar. The banker should incorporate
mitigation of this risk in every loan decision.

(b) The Social pillar refers to the lives of humans, such as human rights, modern slavery, child
labour, working conditions, and employee relations.

(c) The Governance pillar captures the decision-making factors affecting a business, such as
gender and ethnic diversity of board composition, executive pay, bribery and corruption
policies, political lobbying and donations, and tax strategy/transparency.
ESG's three environmental, social, and governance pillars must be part of the borrower's rating
rationale to decide the loan's pricing.

ESG issues are highly pertinent to asset management for Insurance and Banking. The ESG issues need
to be considered as potential sources of risk as they can impact a borrower at any point.

ESG Risk Rating: The ESG Risk Ratings measure a company's exposure to industry-specific material
ESG risks and how well a company is managing those risks. SEBI has made Business Responsibility
and Sustainability Reporting (BRSR)reporting mandatory for the top 1000 listed companies from
FY2022-23. The BRSR seeks disclosure from listed entities on their performance against the nine
principles of the ‘National Guidelines on Responsible Business Conduct’ (NGBRCs)

Sustainable Development Goals