RBI NBFC-MFI Guidelines & Economic Growth

RBI NBFC-MFI Guidelines & Economic Growth

RBI Guidelines on NBFC-MFIs and Microfinance Loans

Qualifying Assets for NBFC-MFIs

• According to RBI, under the earlier qualifying assets criteria, a Non-banking Financial Company-Microfinance Institution (NBFC-MFI) is required to have minimum 85% of its net assets as 'qualifying assets'.

• The definition of 'qualifying assets' of NBFC-MFIs is now being aligned with the definition of microfinance loans. The minimum requirement of microfinance loans for NBFC-MFIs also stands revised to 75% of the total assets.

Microfinance Loan Limit for Other NBFCs

• Under the earlier guidelines, an NBFC that does not qualify as an NBFC-MFL cannot extend microfinance loans exceeding 10% of its total assets.

• The maximum limit on microfinance loans for such NBFCs (i.e., NBFCs other than NBFC-MFIs) now stands revised to 25% of the total assets.

Government Initiatives and Missions

Smart Cities Mission (SCM)

• The Government of India launched the Smart Cities Mission (SCM) on 25 June 2015.

SMILE Scheme

• SMILE (Support for Marginalized Individuals for Livelihood and Enterprise) is a scheme launched in 2022 for the welfare measures of the transgender community and for persons who are engaged in the act of begging.

Poverty Measurement

• Levels of poverty in the country are determined on the basis of consumer expenditure surveys conducted by the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation.

Industrial Classification

Industries are classified into three categories:

1. Primary (Extracting and Agriculture)

2. Secondary (Manufacturing)

3. Tertiary (Services)

Banking and Financial Services

BFSI Sector

• Banking, Financial Services and Insurance (BFSI) is the industry's umbrella term for companies that provide a range of such financial products or services.

Finance Commission

• Four members Ajay Narayan Jha, Annie George, Dr. Niranjan Rajadhyaksha and Dr. Soumya Kanti have been appointed as members of the 16th Finance Commission on January 31, 2024.

International Trade Rankings

India’s Position

• The WTO ranks India 18th in merchandise exports and 19th in merchandise imports in 2022.

Global Trade Leaders

• The top three leading exporters of merchandise goods in the world in 2022: China, the USA, and Germany

• The top three importers of merchandise goods in the world in 2022 were the USA, China, and Germany

Economic Terms

Stagflation

• Stagflation is a condition that combines economic stagnation with soaring inflation.

Population of Elderly People in India

Current and Projected Population

• Government think tank NITI Aayog has pitched for tax reforms, mandatory saving plans and housing plans for senior citizens in India, as the population of senior citizens is projected to reach 19.5% of the country's population by 2050.

• The elderly people in India currently comprise a little over 10% of the population, translating to about 104 million.

• India is witnessing an exponential growth in the number and proportion of elderly people, coupled with decreasing fertility rate (less than 2.0) and increasing life expectancy (more than 70 years).

Home Healthcare Market

• As per the report, the size of the home healthcare market in India was estimated at USD 6.2 billion (50,840 crore) in 2020 and it is projected to reach USD 21.3 billion (1.74 lakh crore) by 2027.

Economics and Finance

Important Economists and Ideas

• Jean-Jacques Rousseau wrote the famous text 'A Discourse on Political Economy'.

• John Maynard Keynes first mooted the idea of deficit financing.

Taxation Concepts

• A Progressive Tax involves a tax rate that increases (or progresses) as taxable income increases.

• Laffer curve represents the relationship between tax rates and government revenue.

Finance Terms

• In the context of finance, the term 'beta' refers to a numeric value that measures the fluctuations of a stock relative to changes in the overall stock market.

• The GDP deflator is also called Implicit Price Deflator.

Financial Institutions and Policies

• The Insolvency and Bankruptcy Board of India (IBBI) was established on 10 October 2016.

• Rapid Financing Instrument and Rapid Credit Facility are related to the provision of lending by International Monetary Fund.

• The Union Finance Minister is the Chairperson of the Goods and Services Tax Council.

Infrastructure and Government Schemes

Railway and Urban Planning

• The National Rail Plan announced in the Union Budget 2021-22 aims to create a future-ready railway system by 2030.

• The idea of 'Rurbanization' was elaborated by G.S. Ghurye.

• The idea of planning in independent India was drawn from the Bombay Plan.

Water and Sanitation Schemes

• The SWAJAL scheme is an initiative of the Ministry of Drinking Water and Sanitation that seeks to provide water to 115 Indian districts to help them in meeting their basic needs, such as drinking, cooking, and other domestic essentials.

• Jal Jeevan Mission Scheme was declared in the Union Budget of 2019-20.

Other Government Initiatives

• Pradhan Mantri Swanidhi Scheme is targeted at street vendors.

• At a Regional Rural Bank, the share of the Government of India is 50%.

• Union Budget 2021-22 is India's first Paperless Budget.

Gross Domestic Product (GDP) and Currency

• According to Output Method, GDP is calculated as GDP at constant prices - Taxes + Subsidies.

• Nepali is one of the languages in which the denomination is printed on the reverse of contemporary Indian currency notes.

Digital Assets

• Non-Fungible Tokens (NFTs) enable the digital representation of physical assets. These are unique cryptographic tokens that exist on a blockchain.

Regulatory and Legal Framework

• India banned unregulated deposit schemes through an act passed in the year 2019.

• LBS (Lead Banking Scheme) is one of the economic measures taken by the Government of India for financial inclusion.

Historical and Economic Terms

• The term 'Industrial Revolution' was first used by Arnold Toynbee.

• Lloyd Rudolph and Susanne Rudolph have coined the term 'Bullock Capitalists'.

Global Business and Trade Rankings

• According to 'Global Business Cities Index' of January 2022, Hong Kong is the top business city in the world.

Audit and Accountability

• The audit report of the Comptroller and Auditor General of India is examined by the Public Accounts Committee.

Industrial and Economic Policies

Industrial Policy

• The first Industrial Policy resolution was taken in 1948.

Liberalisation

• Removing barriers or restrictions set by the government is called 'Liberalisation'.

Tarapore Committee Recommendations

• The Tarapore Committee recommended that before capital account was made convertible, the rate of inflation should be brought down for three years within 3-4%.

• The committee also recommended that foreign exchange reserves should not be below the requirements of import for 6 months.

Financial Institutions and Regulatory Bodies

Securities and Exchange Board of India (SEBI)

• SEBI, on May 29, 2008, allowed overseas sovereign wealth funds to register as foreign institutional investors (FIIs) and invest in shares and government securities.

Reserve Bank of India (RBI)

• Hilton Commission was the first commission to recommend RBI as the central bank.

• Sir Osborne Smith was the first Governor of RBI (01.04.1935-30.06.1937).

• C.D. Deshmukh was the first Indian Governor of RBI and the first Governor after independence (11.08.1943-30.06.1949). During his tenure, RBI was nationalised.

Withdrawal of Currency Notes

• The RBI has decided to withdraw Rs 2,000 currency notes from circulation.

• The exchange facility starts from May 23, 2023, and will remain open till September 30, 2023.

• [Source: Deccan Herald, 23 May, 2023]

Global Financial Institutions

• International Monetary Fund (IMF) was established on 27th December, 1945 at Hampshire, USA under "Bretton Woods Agreement".

• IDA is known as the soft loan window of the World Bank.

Economic Theories and Principles

Population and Malthusian Theory

• Principle of population was given by Thomas Robert Malthus in 1798.

• According to this theory, population increases in geometrical progression.

• Malthus said: "Population growth will always tend to outrun the food supply and the betterment of humankind is impossible without stern limits on reproduction."

• This thinking is also known as Malthusianism.

Phillips Curve

• Phillips Curve is the relationship between rates of unemployment and corresponding rates of inflation that results in an economy.

• In simple words: Decreased unemployment in an economy will correlate with higher rates of inflation.

Economic Growth

• Continuous growth of per capita real income over a period of time in an economy is called Economic Growth.

Government Finance and Budget

• Ministry of Finance is the controlling Authority of government expenditure.

• Effective Revenue Deficit was introduced in the Union Budget 2011-12.

• By the export of services, India earns maximum foreign exchange.

• Hot currency is foreign currency which has a tendency of quick migration.

Historical and Social Accounting

• The social accounting method of estimating national income was developed by Richard Stone.

• World's first organised Share Market was established in 1602 in Amsterdam, Netherlands.

Agriculture and Farmer Schemes

Farmer Credit and Loans

• Kisan Credit Card Yojana was started in 1998 by the then Finance Minister Yashwant Sinha.

• Types of loans provided to Indian Farmers:

  1. Short Term Loans: Less than 15 months

  2. Medium Term Loans: 15 months to 5 years

  3. Long Term Loans: More than 5 years

• Loans are acquired from Institutional Sources (Banks) and Non-institutional sources (money-lenders).

• Collateral against loans is also known as 'security'.

• Average size of holding in India is continuously decreasing due to rigid population growth.

Agricultural Marketing Institutions

• TRIFED: Tribal Co-operative Marketing Development Federation of India Ltd., established in 1987 to benefit small tribal farmers.

• NAFED: National Agricultural Co-operative Marketing Federation of India Ltd., established for marketing agricultural products.

Water and Sanitation Schemes

• Swajaldhara Yojana was launched in 2002.

Employment and Pension Schemes

• Maharashtra Employment Guarantee Scheme (MEGS) was introduced in 1972.

• Maximum age for joining National Pension Scheme is 60 years.

• Atal Pension Yojana, focused on workers in the Unorganised Sector, was launched in 2015.

• Gram Uday se Bharat Uday Abhiyan was initiated on the 125th birth anniversary of Dr. Bhimrao Ambedkar.

Government Leadership

• Chairman of NITI Aayog: Narendra Modi

Price and Inflation

• In India, Inflation is measured by the Consumer Price Index & Wholesale Price Index.

Labour and Employment

• Disguised unemployment is prominently found in rural areas.

• Organised sector covers those enterprises or places of work where the terms of employment are regular.

• Interest rate on loans is generally higher when compared to interest rate offered on deposits.

• People engaged in agricultural activities face seasonal and disguised unemployment.

• Increase in unemployment indicates a 'Depressed' economy.

• The most labour-absorbing sector of the economy in India is the Agriculture sector.

Final Thoughts

The RBI has revised guidelines for NBFC-MFIs, aligning qualifying assets with microfinance loans and reducing the minimum requirement to 75% of total assets, while other NBFCs can now lend up to 25% of their assets. Government initiatives like the Smart Cities Mission and SMILE Scheme aim to improve urban infrastructure and support marginalized communities.

India’s elderly population is set to reach 19.5% by 2050, prompting reforms in pensions, housing, and healthcare. Key economic concepts like stagflation, the Phillips Curve, and progressive taxation help understand India’s financial system, supported by institutions like SEBI, IMF, and RBI.

Agriculture remains the largest employer, facing seasonal and disguised unemployment, while industrial policies, liberalization, and infrastructure projects like the National Rail Plan and Jal Jeevan Mission drive economic growth and rural development.