SOCH Synopsis of Current Headlines

17th MAR 2025

Synopsis of Current Headlines

SOCH comprises all the important daily newspaper articles and
PIB related to the syllabus of banking and regulatory body
examinations. Besides, after every article, you'll also find a
concise summary of the news that will help you to get a gist of
the topic through pointers. However, it should not be considered
as a substitute of daily current affairs for the General Awareness
section of any exam. For that you'll have to refer to daily or
monthly current affairs compilations as per your convenience.

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 IndusInd Bank & RBI's LOLR Role
 Incident Overview:
o Accounting Issue:
 IndusInd Bank incurred an accounting error
in derivatives, resulting in a loss of about
2.35% of its capital (approximately ₹1,500-
2,000 crore).
o Market Impact:
 The bank’s share price plunged by 27.6%,
wiping out around ₹18,000 crore in market
capitalisation.
 RBI's Response:
o Public Reassurance:
 RBI issued a statement urging depositors not
to react to speculative reports, affirming that
IndusInd Bank remains well-capitalised.
o Key Metrics Highlighted:
 Capital Adequacy Ratio: 16.46%
 Provision Coverage Ratio: 70.2%
 Liquidity Coverage Ratio: 113% (well
above the regulatory requirement of 100%)
o Directive:
 RBI directed IndusInd’s board and
management to complete remedial actions
and necessary disclosures by Q4FY25.
 Role as Lender of Last Resort (LOLR):
o RBI’s statement emphasized its LOLR function:
 Definition: A central bank’s role to supply
liquidity to solvent banks facing temporary
liquidity issues.
 Objective: Protect depositors' interests and
maintain overall financial stability.
o Historical Precedents:
 2003 (ICICI Bank): RBI clarified sufficient
liquidity amid panic.
 2020 (Yes Bank): RBI imposed a
moratorium with a withdrawal cap,
reassuring depositors.
 Earlier Observations: Former RBI
Governor Shaktikanta Das stressed that share
prices do not reflect the safety of deposits.
 Underlying Rationale:
o Preventing Financial Panic:
 The RBI’s public statements serve to calm
depositor fears and avoid destabilising bank
runs.
o Citing Classic Principles:
 Quoting Walter Bagehot via Michael Patra,
the RBI reaffirmed its commitment to
lending freely against good collateral at
penalty rates to avert financial panics.

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 India-NZ FTA Negotiations Resumed
 Background & Resumption:
o After a 10-year hiatus, India and New Zealand have
resumed FTA discussions.
o Negotiations originally started ~15 years ago and
stalled in 2015 after 10 rounds.
o Announcement made by Commerce & Industry
Minister Piyush Goyal, coinciding with NZ PM
Christopher Luxon’s four-day visit to India.
 Objectives & Benefits:
o Aim to establish a “comprehensive and mutually
beneficial” FTA to deepen bilateral economic ties.
o Expected to unlock new avenues for business,
enhance market access, and promote mutual growth.
 Trade Flows & Tariff Issues:
o India's Key Exports to NZ: Pharmaceuticals,
precious metals & gems, textiles.
o Key Imports for India: Iron & steel, aluminium,
forest products, wool, fruits, and nuts.
o Trade Volumes (2023):
 India exported goods worth $0.91 billion.
 New Zealand exported goods worth $0.84
billion.
o Tariff Disparity:
 NZ’s average import tariff: 2.3% (with over
half duty-free).
 India’s average tariff: 17.8%, meaning India
may need to reduce tariffs significantly for a
traditional FTA, impacting negotiations.
 Context & Global Trade Trends:
o Global trade is undergoing a reset amid geopolitical
tensions.
o India is also negotiating FTAs with the US, UK, EU,
Oman, and Australia.
o Previous delays due to complex multilateral
negotiations (e.g., RCEP involvement) and thorny
issues between India and NZ.
 Sector-Specific Issues:
o New Zealand is seeking greater market access for
agricultural and forest products, and for wine.
o India has been protective of its agriculture sector and
maintains high tariffs on sensitive products (e.g.,
dairy as a “red line”).
o Possibility of reduced import duty for wine could
emerge, drawing on lessons from the Australia FTA
implemented in December 2022.

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 Bank CEO Appointments & RBI's Role: Rethinking the Process
 IndusInd Bank Case:
o CEO Reappointment:
 Board approved a three-year extension for MD &
CEO Sumant Kathpalia.
 RBI approved only a one-year extension (till
March 23, 2026) despite board recommendation.
o Operational Issue:
 Discrepancies in derivatives accounting led to an
estimated 2.35% impact on net worth (~₹1,600
crore).
 External agency appointed for independent review.
o Market Impact:
 Initial 3.86% drop post-announcement, followed
by a historic 27.6% crash, wiping out ~₹18,000
crore in market cap.
o RBI's Stance:
 Despite the issues, RBI confirmed that the bank
remained well-capitalized and directed remedial
action within the current quarter.
 Comparative Insights:
o Federal Bank:
 Initially received a two-year extension against a
board’s three-year request, later adjusted to three
years.
o Axis Bank:
 Former MD Shikha Sharma was denied a full
extension; her reappointment lasted only seven
months.
o ICICI Bank:
 Chanda Kochhar’s exit led to Sandeep Bakhshi
taking over, illustrating different transition
practices.
 Regulatory Process & Concerns:
o Indian vs. Global Practices:
 In India, RBI clears both appointment and
reappointment; in developed markets, regulators
typically clear only the initial appointment.
o RBI's Candidate Review:
 RBI usually approves the board’s first candidate
unless they fail “fit and proper” criteria.
 Example: Tamilnad Mercantile Bank had all
proposed candidates rejected in 2024, necessitating
a fresh panel.
o Implications for Process:
 RBI’s step-by-step reduction (three-year → two-
year → one-year) in CEO tenure may signal
concerns over leadership and operational issues.
 Question raised: Should RBI have influenced the
board to seek a successor instead of extending the
incumbent’s term?
 Call for Process Revision:
o Revisiting Appointment Mechanisms:
 The current process for clearing bank CEO
appointments and reappointments might need a
review to reduce market disruptions and enhance
governance.
o Section 10B of the Banking Regulation Act:
 Highlights that the MD’s role is critical as the
ultimate decision-maker, suggesting the need for a
robust selection process.
o Overall Reflection:
 Better alignment between RBI, bank boards, and
market expectations is essential to ensure stability
and accountability in leadership transitions.

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1. RBI Wins Digital Transformation Award 2025
 Award & Recognition:
o RBI honored with the Digital Transformation Award 2025 by Central Banking, London, UK.
o Recognizes RBI’s innovative digital initiatives—Pravaah and Sarthi—developed in-house.
 PM’s Commendation:
o Prime Minister Shri Narendra Modi applauded the achievement on X (Twitter).
o Quote: “A commendable accomplishment, reflecting an emphasis towards innovation and efficiency
in governance. Digital innovation continues to strengthen India’s financial ecosystem, thus
empowering countless lives.”
 Significance:
o Highlights RBI’s leadership in digital transformation.
o Reinforces the role of digital innovation in enhancing governance and strengthening India's financial
ecosystem.

2. India-New Zealand FTA Negotiations

 Longstanding Partnership:
o Built on shared democratic values, strong people-to-people ties, and economic complementarities.
 FTA Negotiations Launch:
o Announced on March 16, 2025.
o Launched on the eve of the bilateral meeting between PM Narendra Modi and NZ PM Christopher
Luxon.
 Key Meeting:
o Held between India’s Commerce and Industry Minister, Piyush Goyal, and New Zealand’s Trade
and Investment Minister, Todd McClay.
 Objectives:
o Establish a comprehensive and mutually beneficial Free Trade Agreement.
o Enhance supply chain integration and improve market access.
 Significance:
o Reflects a shared vision for stronger economic cooperation.
o Aims to foster resilience and mutual prosperity through deeper bilateral trade and investment ties.

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