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  • Accommodative monetary policy along with other regulatory dispensations, asset classification standstill, temporary moratorium and provision of adequate liquidity were put in place in order to provide a safety net to the system.
  • In 2021-22, some of the measures undertaken by RBI like CRR reduction reached pre-set sunset dates, liquidity has been wound down partly but remains in surplus mode and regulatory measures have been realigned.
  • After several rate cuts in 2019-20 and 2020-21, the repo rate was maintained at 4 per cent in 2021-22.
  • The liquidity in the system remained in surplus throughout.
  • RBI undertook various measures, including secondary market G-sec acquisition programme, special Long-Term Repo operations, on tap targeted Long-Term Repo Operations, etc. to provide further liquidity in the system.
    • Thereafter, RBI used Variable Rate Reverse Repo, reverse repo auctions to rebalance liquidity conditions 
  • Reserve money and broad money supply growth in 2021-22 so far was lower than in the previous year.
    • The reserve money growth did not fully translate into commensurate broad money supply growth due to the smaller (adjusted) money multiplier reflecting large deposits by banks with RBI under the reverse repo window.
    • Bank credit growth accelerated gradually in 2021-22 up from 5.3 per cent in the beginning of April 2021.
    • The very latest data shows that the bank credit growth stands at 9.2 per cent as on 31st December 2021
  •  Gross Non-Performing advances ratio of Scheduled Commercial Banks (SCBs) continued to decline from 11.2 per cent at end of 2017-18 to 6.9 per cent at end-September 2021. The Sensex and Nifty scaled up to touch its peak at 61,766 and 18,477 on October 18, 2021, along with the IPO spree


  • MPC managed a cumulative 250 basis points cut on policy repo rate since February 2019
    • The repo rate which currently stands at 4 per cent is lowest in the last decade

  • The growth rates of monetary aggregates- including Reserve money, Broad money were lower as compared to the last year.
  • Reserve money (M0) recorded a year-on-year (YoY) growth of 13 per cent as on 7th January 2022, as compared to 14.3 per cent a year ago
  • Currency in Circulation (CIC) grew by 7.8 per cent as on 7th January 2022, lower as compared to the previous year as precautionary demand for cash subsided.
  • In 2021-22 so far, the YoY growth of broad money (M3) stood at 9.9 per cent as on 31st December, as compared to 12.5 per cent a year ago-bank credit to the government was a major contributor to the increase in broad money, Bank credit to the commercial sector also supplemented M3 expansion
  • Money multiplier- measured as a ratio of M3 to M0 has been on the decline since 2017-18


  • Liquidity was in surplus since 2019 with eased monetary conditions but RBI in 2021 decided to resume normal liquidity measures in a phased manner.
  • RBI engaged in rebalancing liquidity from passive absorption under fixed-rate reverse repo under its Liquidity Adjustment Facility (LAF) to market-based reverse repo auctions (like Variable Rate Reverse Repo (VRRR))
  • The measures taken by RBI to provide targeted liquidity support to the system in 2021-22 include:
    • Special refinance facilities of `66,000 crores to all-India financial institutions (NABARD, NHB, SIDBI)
    • Special Long-Term Repo Operations (SLTRO) for small finance banks which further extended to On tap Targeted Long-Term Repo Operations (On tap-TLTRO)
    • On-tap liquidity window of `15,000 crore for contact-intensive sectors.
    • A secondary market G-sec acquisition programme (G-SAP) – which was announced during the year added to the surplus liquidity during the period
  • The gradual normalisation of liquidity management operations in sync with the revised liquidity management framework was the key feature of liquidity management in 2021-22.
    • The 14-day Variable Rate Reverse Repo (VRRR) auctions were deployed as the main operation under the Liquidity Adjustment Facility (LAF).
    • Further, the cash reserve ratio (CRR) was reduced by 100 basis points (bps) in March 2020, was gradually raised to its pre-pandemic level of 4 per cent by May 2021.
    • To manage the liquidity conditions, variable rate reverse repo auctions of varying maturities were conducted apart from the VRRR operations conducted every fortnight.


  • The yields on 10-year G sec which had reached 8.2 per cent on 26th September 2018 reduced substantially to reach 5.75 per cent in June 2020. It has since then increased to stand at 6.45 per cent as on 31st December 2021
  • In short, the yield hovered around 6 % for 2021-2022 Q1 due to G SAP 2.0, US federal decision to continue with the easy monetary policy stance.
  • In Q2 2021-2022 yields started to rise.
    • The announcement of a phased increase in the quantum of VRRR operations on 6th August 2021 and shift in market sentiments to price in the possibility of change in interest rate cycle sometime ahead also led to some hardening of yields up to 6.26 per cent.
    • The successively lower consumer price index (CPI) prints, inclusion of the 10-year benchmark paper in the G-SAP auctions and no additional borrowing by the government for the second half of 2021-22 helped keep yields in check
  • In Q3 2021-2022: rise in US treasury yields and rising crude prices led the yields to inch higher to 6.45 per cent at the end-December 2021.

Problems of higher bond yield:

  • Higher bond yields will create a problem for bank bond portfolios
  • Rising bond yields is not great news for NAVs(net asset value) of debt funds 
  • Indian corporates may be forced to borrow at higher rates of interest
  • Government borrowing programs will be impacted negatively
  • It could also have a negative impact on equity valuations


  • GNPA ratio of SCBs decreased from 7.5 per cent at end-September 2020 to 6.9 per cent at end-September 2021.
    • It has been declining from 2018-19 itself
  • Overall, the banking system appears to have weathered the pandemic shock well even if there is some lagged impact still in the pipeline.
  • GNPA ratio of Public Sector Banks (PSBs) decreased from 9.4 per cent at end-September 2020 to 8.6 per cent at end-September 2021.

  • The Capital Adequacy Ratio has continued to improve since 2015-16.(now 16.54 for SCBs)

  • SCBs’ annualised return on assets (RoA) improved from 0.6 per cent at end-September 2020 to 0.8 per cent at end-September 2021, while their annualised return on equity (RoE) improved from 7.7 per cent to 9.0 per cent during the same period.
  • Overall, for SCBs, the net profit increased from `59,426 crores at the end-September 2020 to `78,729 crores at the end-September 2021.


  • NARCL will majorly be owned by Public Sector Banks.
    • Canara bank is the Sponsor with a shareholding of up to 12 per cent.
  • NARCL would be capitalized through a combination of equity and debt from various Banks and will have a finite life of 5 years
  • It may acquire stressed assets of about `2 lakh crore approx in multiple phases within the extant regulations of RBI under 15:85 structure,(cash: security receipts)


  • IDRCL will have a minimum of 51 per cent ownership of Private sector Banks and the balance will be held by Public Sector Banks.
  • NARCL and IDRCL’s relationship will be defined through a debt management agreement wherein NARCL will aggregate and acquire the stressed assets and IDRCL, in turn, will provide stressed assets management and resolution services to NARCL on an exclusive basis.
  • The term of IDRCL shall be co-terminus with that of NARCL.
  • Taking the precedence from international practices, in India, the government has provided a guarantee of up to ` 30,600 crores, which will back Security Receipts (SRs) issued by NARCL


  • Though RBI has cut the repo rate by 250 bps since 2019 the lending rate decline is by y 197 basis points and by 133 bps on outstanding loans during the period February 2019 to November 2021
  • What aided monetary transmission?
    • Large surplus systemic liquidity
    • Forward guidance of continuing with the accommodative stance
    • The external benchmark system for pricing of loans in select sectors
  • The transmission has been slightly higher in public sector banks than private sector banks.


  • The Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, passed by the Parliament in 2021, made significant changes in the landscape of deposit insurance in India
  • Features of the act and changes:
    • Under the Act, the Corporation is liable to pay the insured deposit amount to depositors of an insured bank.
    • Such liability may arise when an insured bank undergoes: (i) liquidation (sale of all assets on closing down of the bank) (ii) reconstruction or any other arrangement under a scheme, or (iii) merger or acquisition by another bank
    • Deposit insurance provided by DICGC covers all commercial banks, including Payment Banks, Small Finance Banks, Regional Rural Banks, Foreign Bank branches in India, local area Banks and Co-operative Banks in all States and Union Territories.
    • The deposit insurance premium is compulsory for all insured banks and is paid by banks to DICGC and is not recovered from the depositors.
    • The current insurance limit is Rs 5 lakh per depositor per bank
    • Introduced interim payments-Interim payment will now be made by DICGC to depositors of those banks for whom any restrictions/ moratorium have been imposed by RBI under the Banking Regulation Act resulting in restrictions on depositors from accessing their own savings
    • Repayment by banks to DICGC-penalty if not repaid in time and no premium ceiling and thus risk based deposit premium can be introduced


  • The credit growth had been declining since 2019 but regained momentum in later half of 2020.
    • However it is only a modest growth(7.3 %)
  • Non-food bank credit growth that remained muted during much of the pandemic period and gradually improved
  • Credit to agriculture continued to register robust growth, and was at 10.4 percent (YoY) in November 2021.
  • Services sector credit growth, however, is yet to recover


  • Unified Payments Interface (UPI) is currently the single largest retail payment system in the country in terms of volume of transactions
  • Monetary Authority of Singapore announced a project to link UPI and PayNow, which is targeted for operationalization by July 2022.
    • Bhutan recently became the first country to adopt UPI standards for its QR code.
    • It is also the second country after Singapore to have BHIM-UPI acceptance at merchant locations.
  • The Digital Payments Index(RBI) increased from 100 in March 2018 (base period) to 304.06 in September 2021


  • Credit growth of NBFCs continued to remain sluggish in 2021-22 so far
  • The credit intensity of NBFCs, measured by NBFC credit as a ratio of GDP has been rising consistently and stood at 13.7 at end March 2021
  • Industry remained the largest recipient of credit extended by the NBFC sector, followed by retail loans and services
  • GNPA ratio of NBFCs was higher at 6.55 percent at end-September 2021, as compared to 6.06 percent at end-March 2021
  • As against the regulatory requirement of 15 percent, CRAR for the NBFC sector stood at 26.64 percent at end-September 2021.


  • Factoring Regulation (Amendment) Act, 2021 was enacted with the amendments in line with the recommendations of UK Sinha Committee.
  • Major change:
    • removal of principal business criteria has thus increased the number of eligible NBFCs that can undertake factoring business.
    • This will be a great help for MSME with locked uptrade receivables.


  • Factoring is an important source of liquidity worldwide, especially for MSMEs.
  • Factoring is a transaction where an entity sells its receivables (dues from a customer) to a third party (a ‘factor’ like a bank or NBFC) for immediate funds.
    • All or part of invoice can be sold to a factor for getting money immediately at competitive interest rate.
    • The factor then collects payments from the buyer of goods and earns a commission in the form of some interest.
  • This is different from bill discounting.
    • In bill discounting, a bank or NBFC gives a certain percentage of the total outstanding value of invoices to seller and in most cases the seller has to take on the responsibility for payment of invoices by the buyer to the factor.
  • However, in case of factoring, the factor takes on the responsibility for the collection of invoices.


  • Equity-IPO spree and Sesex,NIFTY at everytime high amidst of some corrections
  • Debt instruments-Overall, debt mobilization slowed, and this contrast with equity market suggest an increased appetite for risk among investors.
  • In addition to equity and debt, corporates are also diversifying into a large number of new instruments such as hybrids & convertibles, Real Estate Investment Trusts (REITs),Infrastructure Investment Trusts (InvITs) etc
  • In April-November 2021, nearly 221 lakh individual Demat accounts were added,showing many new comers to the market
  • FPI-During April-November 2021, FPIs made a net investment of `24,124 crore in Indian securities


  • In India, insurance penetration was 2.71 percent in 2001 and has steadily increased to 4.2 percent in 2020.
  • As of 2020, the penetration for life insurance in India is 3.2 percent and nonlife insurance penetration is 1 percent .
  • While India is at par with international average in terms of insurance penetration for life insurance, we lag behind in terms of non-life In India, insurance penetration was 2.71 percent in 2001 and has steadily increased to 4.2 percent in 2020.
  • The insurance density in India increased from $11.5 in 2001 to $78 in 2020.
    • In 2020, density for Life insurance in India is $59 and Non-Life insurance is $19, much lower than global standards.
  • Globally, insurance density was $360 for the life segment and $449 for the non-life segment respectively in 2020


  • Total number of subscribers under New Pension Scheme (NPS) and Atal Pension Yojana (APY) increased by 23.7%, rising from 374.32 lakh (Sept. 2020) to 463 lakh (Sept. 2021).
  • The overall contribution under the NPS grew by more than 29% during same period with maximum contribution growth in All Citizen Model, followed by Corporate Sector and so on.
  • Asset Under Management (AUM) under NPS and APY also increased by 34.8% to reach ₹6.67 lakh crore.
  • Under APY, enrolment from young ages increased and gender gap narrowed with female subscribers increasing from 37% in March 2016 to 44% in September 2021.
  • Sector Reforms: Limit of aggregate holding of equity shares by a foreign company in Pension Funds has been revised up from 49% to 74%; NPS subscribers joining after 60 years can remain invested till 75 years of age (earlier 70 years); Government co- contribution was increased from 10% to 14% for its employees.


  • India has witnessed the birth of two professions, namely, the insolvency profession and the valuation profession that have professionalized insolvency services.
  • The Code has opened possibilities of the resolution, including merger, amalgamation and restructuring of any kind, which often requires professional help
  • This has created markets for services of Insolvency Professionals, Registered Valuers, Insolvency Professional Entities and expanded the scope of services of Advocates, Accountants and other professionals
  • The relaxation (freezing for 1 year) combined with continued resolutions led the number of cases to decline during 2020- 21, which has slightly increased to 1640 as of September 2021
  • As on September 2021, the Code has rescued 421 CDs (corporate debtors) through resolution plans and referred 1419 CDs for liquidation
  • In value terms, around 74 per cent of distressed assets were rescued
  • The 421 CIRPs, which have yielded resolution plans by the end of September 2021 took on average 428 days
  • Distressed assets have a life cycle and their value gradually declines with time.
    • The fact that a CD may change hands has changed the behavior of debtors. Thousands of debtors are resolving distress in the early stages of distress
  • By an amendment Pre-Packaged Insolvency Resolution Process (PPIRP) for corporate Micro, Small and Medium Enterprises as an alternative insolvency resolution process to ensure quicker outcomes was introduced.
  • Cross Border Insolvency
    • It represents special circumstances in which an insolvent debtor has assets and/or creditors in more than one country.
    • Regulated by Section 234 and 235 of IBC, they are ad-hoc in nature and susceptible to delay.
      • Section 234 empower Central Government to enter into bilateral agreements with other countries to resolve situations about cross-border insolvency, andSection 235 allows Adjudicating Authority to issue a letter of request to a court or competent authority to deal with a request for evidence or action in connection with insolvency proceedings under IBC in countries with agreement under Section 234.
    • The absence of standardized cross border insolvency framework gives rise to complexities and raises number of issues such as:
      • Extent of access to assets held in a foreign country for an insolvency administrator,
      • Priority of payments, i.e. whether local creditors to have access to local assets before funds go to the foreign administration or not,
      • Recognition of the claims of local creditors in a foreign administration,
      • Recognition and enforcement of local securities, taxation system over local assets where a foreign administrator is appointed etc.
  • Based on Insolvency Law Committee of 2018 recommendations, a robust cross border insolvency framework by adopting the United Nations Commission on International Trade Law (UNCITRAL) with certain modifications to suit Indian context.


  • Monetary aggregates:
    • Monetary aggregates are the measures of the money supply in a country.
    • M0 (monetary base /reserve money) is the sum of Currency in Circulation, Bankers’ Deposits with RBI, and ‘Other’ Deposits with RBI
    • M1(Narrow money) is the sum of Currency with the Public, Demand Deposits with the Banking System, and ‘Other’ Deposits with RBI.
    • M2 is the sum of Currency with the Public, Current Deposits with the Banking System, Savings Deposits with the Banking System, Certificates of Deposits issued by Banks, Term Deposits of residents with a contractual maturity up to and including one year with the Banking System, and ‘Other’ Deposits with RBI.
    • M3 (Broad money) is the sum of Currency with the Public, Current Deposits with the Banking System, Savings Deposits with the Banking System, Certificates of Deposits issued by Banks, Term Deposits of residents with the Banking System, Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System, and ‘Other’ Deposits with RBI
  • Money multiplier: In the financial system, banks can enhance money supply by expanding loans out of the deposits they receive.
    • The deposit received by commercial banks are part of base money.
    • But after receiving the deposits, banks create money by expanding loans and cheque facilities.
    • Here, the banking system as a whole can create additional money impact through deposit acceptance and loan disbursal.
    • The multiple in which the banking system can expand deposits received in the form of base money into broad money is called money multiplier.
    • From a practical sense, money multiplier shows what is the proportion of broad money compared to base money.
    • Money multiplier is expressed as a ratio between broad money and base money
  • Capital Conservation Buffer:
    • CCB is a relatively new concept, introduced under the international Basel III norms.
    • The concept says that during good times, banks must build up a capital buffer that can be drawn from when there is stress.
    • In India, the minimum capital requirement is 9 percent.
    • The CCB would be 2.5 percentage points over and above the minimum capital requirement
  • Insurance penetration is measured as the percentage of insurance premium to GDP
  • Insurance density is calculated as the ratio of premium to population.
  • Liquidity Adjustment Facility (LAF):
    • It is a monetary policy tool, primarily used by the RBI, which allows banks to borrow money through repurchase agreements (repos) or make loans to the RBI via reverse repo agreements.
  • Variable Rate Reverse Repo (VRRR):
    • It is a sub-type of reverse repo used by RBI to absorb money from the banking system with Variable Rate or Reverse Repo.
  • Weighted average lending rate (WALR):
    • A weighted average interest rate is an average that is adjusted to reflect the contribution of each loan to the total debt.
    • The weighted average multiplies each loan's interest rate by the loan balance and divides the sum by the total loan balance.
  • G-Sec Acquisition Programme (G-SAP):
    • G-SAP is a dedicated liquidity window through which RBI buys sovereign papers to infuse cash into the banking system.
    • Closely related with Open Market Operations, G-SAP involves upfront commitment to purchase a specific quantum of government securities, enabling a stable and orderly evolution of yield curve.
  • Term Spread:
    • It is the difference between interest rates on short- and long-dated government securities.
  • Trade Receivables Discounting System (TReDS):
    • It is an electronic exchange to allow transparent and online selling of receivables by MSMEs.
    • On TReDS, sellers get multiple financiers to choose from, option of various interest rates, and sell without any collateral.

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