Public Sector Banks, Nationalised Banks, State Bank of India

 

Public Sector Banks:

• Banks where a majority stake (i.e. more than 50%) is held by the Government. 
• All the Public sector banks (PSB) except SBI are nationalized banks. 
• At present, there are 12 Public Sector Banks in India including SBI and 11 Nationalized Banks. 
• IDBI now comes under Private Bank as GOI shareholding has reduced below 50 % and the maximum shareholding is with LIC.

NATIONALIZED BANK:

• Banks which have been taken over by a national or State government by an Act or ordinance or some other kind of orders.  
• This strategy has been frequently adopted by socialist governments for transition from Capitalism to Socialism.  
• GoI did nationalisation of Banks twice. For the first time, 14 commercial banks were nationalized through an Ordinance (Banking Companies (Acquisition and Transfer of Undertakings) in 1969 Similarly in 1980, GoI again nationalised 6 more banks.   Thus, in total 20 banks were nationalized.

Status of State Bank of India: 

• At the time of independence, this bank was known as Imperial Bank of India and was a Joint Stock Company.
• In 1955, Reserve Bank of India acquired a controlling interest in the Imperial Bank of India under the provisions of the State Bank of India Act 1955.   
• On 30th April 1955, the Imperial Bank of India became State Bank of India.  
• RBI continued to have controlling interest in SBI till recently when Government of India decided to acquire RBI's stake in SBI (59.7 % ) in 2008 so as to remove any conflict of interest .

Why SBI was not nationalized during the waves of Nationalization of Banks :

• SBI was already under State control in 1969/1980, vide SBI Act, 1955. 
• So, there was no need of Nationalization of State Bank of India. 
• Banks which were nationalized in 1969/1980 were either owned by private business groups or individual investors.
• Hence SBI has special status as it is Public sector bank but not the nationalised bank.

Schedule Commercial Banks , Non Scheduled Commercial Banks

 

Classification of Banks: 

Broadly banks can be classified as:

• Schedule Commercial Banks and 
• Non Scheduled Commercial Banks. 

Schedule Commercial Banks: 

• A Schedule Commercial Banks is so called because it has been included in the second schedule of the Reserve Bank of India Act,1934. 
• These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.

To be eligible for Schedule Commercial Bank, a bank must satisfy the following three condition:      

• It must have a Paid Up Capital and reserves for an aggregate value of at least Rs. 5 Lacs
• It must satisfy the RBI, that its affairs are not conducted in a manner detrimental to the interest of its depositors; 
• It must be a corporation and not a partnership or a single owner firm.

In 2001, RBI came up with new guidelines for giving license to the private bank.

Following are the preconditions to qualify as a Schedule Commercial Banks:

• The initial minimum paid-up capital for a new bank shall be Rs.200 crore. The initial capital will be raised to Rs.300 crore within three years of commencement of business.
• The promoters’ contribution shall be a minimum of 40 per cent of the paid-up capital of the bank at any point of time.
•  NRI participation in the primary equity of a new bank shall be to the maximum extent of 40 per cent. 
• The new bank should not be promoted by a large industrial house
•  The proposed bank shall maintain an Arm's Length relationship with business entities in the promoter group

At present Scheduled banks can be categorized as:

1. State Bank of India and its Associates

2. Nationalised Banks

3. Foreign Banks

4. Regional Rural Banks

5. Payment bank

6.Small Finance bank

7.Other scheduled commercial banks /Private Sector Banks.

Banks in the groups (1) & (2) above are known as Public Sector Banks whereas, other Scheduled commercial banks mentioned at group (7) above are known as private sector banks.

Non-scheduled Commercial banks: 

•  Banks which are not the part of the 2nd schedule of the RBI Act. 
•  Unlike Schedule Commercial Banks, these are not entitled to borrow from the RBI for normal banking purposes, though they may  approach the RBI  under abnormal circumstances. 
•  These banks are also subject to the statutory Cash Reserve Requirement But they may keep these balances with themselves rather than keeping with RBI.
• Non-Scheduled banks are also called Local Area Banks (LAB). 
• There are only four Local Area Banks in India, which exist eg. Subhadra LAB.

Financial Intermediaries,All India Financial Institutions

 

Financial Intermediaries:

Financial Intermediaries are the middlemen between these two types of people and channelize fund from households to the businessman /Government.

How Financial Intermediary works:

In an economy:

Common men (households)--------spend money and save money. 

Households have “surplus” money in the economy

                                On the other hand, 

Businessmen (industries) and even Government need money for functioning

These Financial intermediaries can be All India Financial Institutions (AIFI), Scheduled Commercial ,Non Scheduled Commercial banks, Cooperative banks,RRB ,Post offices

All India Financial Institutions (AIFI) :AIFI is group of financial institution engaged in developmental functions of the nation. As per RBI ,AIFI constitutes of:

• All India Development Banks 
• Specialised Financial Institutions
• Investment Institutions
• Refinance Institutions 

All India Development Banks comprises of IDBI,IFCI,SIDBI.

Specialised Financial Institutions comprises of  EXIM Bank.

Investment Bank comprises of LIC & GIC

Refinance Institutions comprises of NABARD & NHB.

Internationalization of Currency, Issues in Internationalization, Liberalized Remittance Scheme

Internationalization of Currency:

• Currency that is freely available to Non-Residents, to settle cross-border transactions in international markets. 
• Internationalization of a currency is an expression of credibility by the countries in the currency as well as in the economy.
• Use of Indian currency to make payments and buy things in a foreign country, merely does not signify Internationalization.

Issues in Internationalization:

Trade Invoicing: 

• Over 90% of India’s Exports and Imports are invoiced in Dollars and Euros while the use of the INR is negligible.
• US dollar is the most widely traded currency, representing 45 % of total global transactions, followed by the Euro(16 % ), the Yen(8%) the pound sterling (6%) the remaining percentage is accounted for by other currencies.

FOREX RESERVES :

• Dollar continues to be kept as 60 % of the world FOREX Reserves by countries  followed by Euros(20%), Renminbi 3 % and Currencies other than the Pound Sterling and Japanese Yen, constitute less than 10%. 
• The Indian currency is held in the reserves only by approximately  six out of 130 countries.

World Trade Participation :

India’s share in major exporters is merely 1.8 %  and in imports is 2.8 % and the average daily share of the rupee in foreign exchange market turnover is only 1.6 %.

Exchange Rate Volatility :

• Increased volatility in Rupee & Exchange Rate with other currencies is a big hurdle in the Internationalisation of the currency. 
• During announcement of Fed Tapering, Rupee depreciated 19.4% in period from may 2013 to August 2013, because of loss of Foreign Reserve. 
• This create Current Account Deficit (CAD) which in turn produces bad macroeconomic conditions and negative investors sentiments.

Liberalized Remittance Scheme (LRS):

In 2004, RBI implemented Liberalized Remittance Scheme which provides for Limit of total investment/usage of $2.5 Lakh dollars per year, out of which Limit of investment into foreign stock markets is up to the extent of $25,000 in a year. 

Potential disadvantages:

• Internationalisation of a currency increases the  vulnerability of currency to the  external shocks. 
• If large amounts of domestic currency are held by non-residents, particularly at offshore locations, any expectation that the currency is vulnerable due to weak fundamentals, may lead to a sell-off resulting in depreciation of the currency.

Positives :

• It will lead to Lower cost of capital due to better access to International financial markets . 
• It will open the gates for domestic companies to raise funds from overseas markets through ECB ( external commercial borrowings ) and FCCB ( foreign currency convertible bonds ) modes, if interest rates look attracting. 
• It will result in increase in demand of the currency and will result in High income through Seigniorage.
• Internationalisation will result in Reduced requirement of FOREX reserves as internationalised currency will provide Immunity from BoP crisis .
• Foreign exchange reserves lead to high sterilisation costs and lower the forex ,lower will be the sterlisation cost.USA has forex of only 243 bln $ out of which 200 bln are in the form of SDR and Reserve Tranche.
• It will Mitigate currency risk for Indian businesses and bargaining power of Indian businesses will improve.
• The other benefits of currency internationalisation include an increase in growth by facilitating greater degree of integration both in terms of foreign trade and international capital flows, savings on foreign exchange transactions, reduced foreign exchange exposure, and economies of scale.

OPPORTUNITY FOR INDIA :

• Countries like Bangladesh and S.lanka are running out of dollar so it is an opportunity for India  
• Major exporters like Russia ,China ,Middle East -Iran are under US sanction so they cant use dollar for buying so countries use any other currencies .
• India has target of  transforming from 5^th economic power to 3 global power not depending upon any foreign currency .

Steps taken :

• US used 2 World War, Britain used Colonization ,Euro used institutions for Internationalising their currency and China post global recession of 2008 look towards making it a global currency. Now the Global realities provide opportunity for India to internationalise Rupee.
• In Jul 2023- The Reserve Bank of India Inter-departmental group said that the Indian rupee has the potential to become an  internationalised currency.
• The Reserve Bank of India (RBI) has allowed banks from 18 countries to settle payments in the rupee. This includes names like Sri Lanka, Israel, Russia, Germany, Singapore and the United Kingdom. 
• Apart from this, 64 other countries have expressed their intent to trade with India in rupee. 
• In Jan 2024-Recently India has made its first-ever payment in rupees to the United Arab Emirates (UAE) for crude oil acquisition. 
• The new Foreign Trade Policy (FTP) 2023 seeks to promote exports with the implementation of a mechanism for invoicing and settlement of transactions in Rupees on a bilateral basis. 
• Sri Lanka settled its debt in Rupee to tide over its precarious economic predicament. 
• Initiation of bilateral trade in rupees between India and Bangladesh, was also an attempt to  internationalise the rupee.

What can be done : 

• Financial stability : Fiscal Deficit  should be less than 3.5 while CPI should be  below 5 %.
• Capital Account Convertibility should be there as there are restrictions on free flow under the limits defined under  LRMS .
• RBI intervenes when rupee depreciates which investors don’t like RBI intervention should be minimised.
• India could learn from China’s strategy . Even though the yuan is not fully convertible, China  produces goods that the world wants to buy can enhance the acceptance of a partially convertible currency. So the key is increase exports.
• One of the key recommendations of IDG is to include the rupee in the IMF SDR basket.
• Capital account convertibility and development of offshore centres are other enabling conditions for internationalisation.
• The depth and liquidity of financial market is a very important element in internationalisation.

EVERGREENING IN BANKING & PHARMA

 EVERGREENING:

“Evergreening” refers to the practice whereby pharmaceutical  firms extend the patent life of a drug for next 20 years only by minor reformulations or other iterations  without necessarily increasing the therapeutic efficacy. 

• Evergreening allows a prolonged monopoly that unfairly denies the public access to medicines at equitable prices. 
• In 2013, Supreme Court refused to grant a new patent to Swiss Company Novartis  for its Leukaemia drug Glivec as the drug was not substantially different from original one.
• It was case of Evergreening.

INDIAN PATENT ACT AND EVERGREENING: 

• As per Section 2(1) (ja) of the Patents Act, the product in question must feature a technical advance over what came before. 
• Section 3(d) necessitates a demonstration of improvement in its therapeutic efficacy.
• Section 3(e) ensures that patents for combinations of known substances are allowed only if there is synergistic effect.
• So, Indian Patent Act after 2005 amendments under TRIPS regime does not allow Evergreening.

EVERGREENING IN BANKING:

• Financial practice of extending additional loans to borrower who is unable to repay the existing loans.
• The main objective of Evergreening is to hide the status of Non Performing Asset (NPA).
• Evergreening creates false impression of quality of the assets and the profitability of the banks which delays the identification and hence resolution of the stressed assets.
• Loan evergreening may provide temporary relief, but it can negatively impact banks’ performance and the entire economy over some time.

TRADE WAR, Currency War, Beggar Thy Neighbour policy

 

TRADE WAR:

When countries try to affect each other's trade by imposing Taxes and Quotas and the same is followed by other country in retaliation is referred to Trade War. 

US in October 2022 launched chips war by introducing Export restrictions preventing China from purchasing advanced chips from the US.

Impact of Trade War:

1.Trade restrictions is reciprocated by other nations affecting overall world Trade..

 2.The record FDI and investments in the country will be withdrawn leading to job losses .

Currency War: 

“Currency War” occurs when a country devalue its currency by manipulating Monetary Policy with the objective of making its exports cheaper and gaining unfair competitive advantage in International Trade.

How Currency Wars Happens:

                                                      Devaluation of Currency

                                  ⇓

                                                  Exports become cheaper 

                      ⇓

                                Increase in Exports & Decrease in Imports 

                      ⇓

                                Other countries resort to Devaluation of Currency 

                      ⇓

                                         Overall Negative Trade Ecosystem

• Currency wars became aggressive during 2009 on account of Global Crisis and major Economies were involved in this. 
• Countries like China, Switzerland are involved in Currency war.
• Even ,Quantitative Easing adopted by U.S. and UK  have been accused of being at least partly currency focused. 

Beggar Thy Neighbour policy:

• Beggar thy neighbour policy refers to a policy that aims at increasing exports at the expense of other trading partners largely through competitive devaluation of their currencies by the central bank.
• Conventionally, countries often impose tariff barriers and restrict imports to protect their domestic industries.
• In modern times, Central banks devalue or encourage the depreciation of their own currencies to retain their competitive edge  in exports which eventually results  in currency wars . 
• China is accused of engaged in this policy .

PROCESS PATENT vs PRODUCT PATENT, Compulsory Licensing

 TYPES OF PATENT :

●        PROCESS PATENT

●        PRODUCT PATENT

PROCESS PATENT :

The patent is granted for a particular manufacturing process, and not for the product itself. 

Issues with Process Patent :

• Any other person can produce the same product by minor tinkering with the  PROCESS.
• Process patent regime gives less protection for the inventor. 
• The benefit of process Patent Regime is that it reduces the element of monopoly.

PRODUCT PATENT :

• In the product patent regime, it is an exclusive right given to the original inventor of a product. 
• This means that no other manufacturer can provide the same product even by using any of the process. 
• India’s 1970 Patent Act allowed only Process Patent while Indian Patents (Amendment) Act, 2005  complied with WTO’s TRIPs provisions provides for Product Patents.
• TRIPs follow the Product Patent Regime.
• The term of protection of an Indian patent is 20 years from the date of filing of the application.

COMPULSORY LICENSE (CL):

• Compulsory License (CL) provides for third party to make, use, or sell a patented invention without the patent owner's consent .
• Compulsory License (CL) is  issued by the government to an applicant for making, using and selling a patented product .
• Section 84 and 92 of the Indian Patent Act,1970 pertains to the grant of Compulsory License.

Compulsory licenses are granted if: 

●        Reasonable requirements of the public wrt the patented invention have not been satisfied;

●        Patented invention is unavailable to the public at affordable price.

●        Patented invention is not used in India.

INDIAN PATENT ACT AND COMPULSORY LICENSING :

Section 84 and Section 92 of the Indian Patent Act,1970 pertains to the grant of compulsory licenses. 

Section 84 of the (Indian) Patent Act,1970: 

It provides that after three years from the date of the grant of a patent, any person can apply for the compulsory license, on certain grounds:

•      Reasonable requirements of the public wrt the patented invention have not been satisfied;
•         Patented invention is unavailable to the public at affordable price.
•         Patented invention is not used in India.

Compulsory license can only be granted  after three years from the date of the grant of patent unless exceptional circumstance .

Section 92 of the 1970 Indian Patents Act:

• Central Government has the power to allow Compulsory Licenses to be issued at any time in case of a national emergency or circumstances of extreme urge.

Patent, Patent Regime in India, Conditions for Patenting

WHAT IS PATENT :

A patent is a type of intellectual property right that provides protection over any novel invention and also, gives the exclusive right to sell, use, create and/or manufacture the patented product for a specified period of time. 

Exclusive right implies that no one else can make, use, manufacture or market the invention without the consent of the patent holder.

PATENT REGIME IN INDIA:

The law relating to patents in India is governed by Indian Patents Act, 1970 as amended by Patents (Amendment) Act, 1999 and Patents (Amendment) Act, 2002,which came into force with effect from May 2, 2003 and The  Patents (Amendment ) Act 2005.

The TRIPS compatible Indian Patents (Amendment) Act, 2005 addressed few important issues regarding patents:

• Adopting the definition of ‘pharmaceutical substance’;
• Exclusion of ‘mere discovery of new form of known substance’ and the ‘new use for a known substance’; and Manufacturing products which may be granted patent protection in the new regime.

CONDITION FOR PATENTING:

An invention must satisfy the following three conditions of:

●        Novelty 

●        Inventiveness (non obviousness) 

●        Usefulness 

Novelty: 

A novel invention is one, which has not been disclosed, in global state before filing of patent.

INVENTIVENESS (NON-OBVIOUSNESS):

A feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art“.

USEFULNESS: 

An invention must possess utility for the grant of patent. The patent specification should have various uses and manner of practicing them.

Intellectual property Rights, Copy Right, Trade Mark, Geographical Indicators, Trade Secret

INTELECTUAL PROPERTY (IP):

• IP refers to intangible assets which are in the form of creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images.
• Intellectual property (IP) Rights refer to the rights given to the individuals over their IP.
• IP rights are used for legally protecting the IP of individual to avoid its commercial use by any company or individual other then the owner without consent.

Rationale of Intellectual property (IP) Rights:

• Intellectual property (IP) Rights attempts to strike the right balance between the interests of innovators and the wider public interest.
• IP system aims to foster an ecosystem of creativity and innovation. 

1. The World Intellectual Property Organization (WIPO) manages the issues related to Intellectual property (IP).
2. Rules related to IP are governed by WIPO while TRIPS is governed by WTO. 

Categories of Intellectual Property Rights:

There are seven categories of Intellectual Property rights covered under TRIPS agreement:

●        Copyright

●        Trademark

●        Patent

●        Industrial Designs 

●        Geographical Indicatiors

●        Integrated Circuits

●        Trade Secrets

COPYRIGHT: 

The copyright is protecting the literary and artistic works that comprises of books, Computer programme , films etc.

PATENT:

Patent is a type of intellectual property right that provides protection over any novel invention and gives the exclusive right to sell, use, create and/or manufacture the patented product for a specified period of time.

TRADE MARKS: 

• These are sign, or any combination of signs, that can distinguish the goods and services of one institution/ organisation from those of other institution/organisation.
• A Trademark License is granted to legally permit a third party to make use of the Registered Trademark. 
• The granting of the Trademark License is not a sale.
• Transfer of ownership and rights over the Trademark to any other person or entity is known as Trademark Assignment. 
• Licensing only transfers the right to use the trademark while the ownership of the trademark rests with the proprietor (owner) himself.
•  The rights granted are limited rights w.r.t. time and can range from right to use the trademark, sell the products etc. 

TRADE SECRET: 

Trade Secret is secret which is exclusive to the competitors and that provides competitive advantage to any business. Example:

●        KFC’s secret blend of 11 herbs and spices.

●        Coca-Cola’s recipe for their signature drink.

●        Bikanerwala Bhujia

Geographical indications (GI):

• Indicators which identifies the originating territory of the good. 
• The given quality or other characteristic of the good are essential attribute of its geographical origin as these attributes are exclusive to the geographical origin of the good.

Industrial designs:

Industrial designs created in industries that are new or original in the sense that these designs should be  significantly differ from known designs .