DEVELOPMENT BANKS

Introduction:

Development banks are special industrial financing institutions. These banks are mostly set up after World War II in both developed and underdeveloped countries. Development banks do not mobilize savings like other banks but invest the resources in a productive manner. These banks make a significant contribution to industrial development.

Meaning:

Development Banks are the institutions engaged in the promotion and development of industry, agriculture and other key sectors. A development bank is an institution which takes up the job of developing industrial enterprises from its inception to completion.

Definition:

D.M.Mithani states that “A development bank may be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term ) to business units. 

William Diamond and Shirley Bosky consider industrial finance and development corporations as ‘development banks’ Fundamentally a development bank is a term lending institution.

The development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may, thus, be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular.

                          In short, a development bank is a development-oriented bank.

Features:

1. It is a specialized financial institution which provides a medium-term and long- term lending facilities.
2. It provides financial help, it undertakes promotional activities also.

3. Development banks provide financial assistance to both public and private institutions.
4. The role of a development bank is of gap filler.
5. Development banks accelerate the rate of growth through helping in industrialization in specific and
economic development in general.
6. The objective of the development bank is to serve the public interest rather than earning profits.
7. Development banks react to socio-economic needs of development. 

Needs of the development banks:

•          Lay foundations for industrialization.
•          Meet capital needs.
•          Need for promotional activities.
•          Help small and medium sectors.

Functions of development banks:

There are so many functions which are performed by the development bank. They can be explained with the help of the following table

Now let's discuss each important function of development banks one by one.

1. Small Scale Industries (SSI)

Development banks play an important role in the promotion and development of the small-scale sector. Government of India (GOI) started Small Industries Development Bank of India (SIDBI) to provide medium and long-term loans to Small Scale Industries (SSI) units. SIDBI provides direct project finance and equipment finance to SSI units. It also refinances banks and financial institutions that provide seed capital, equipment finance, etc., to SSI units.

2. Development of Housing Sector

Development banks provide finance for the development of the housing sector. 
GOI started the National Housing Bank (NHB) in 1988.

NHB promotes the housing sector in the following ways:
·It promotes and develops housing and financial institutions.

·It refinances banks and financial institutions that provide credit to the housing sector.

3. Large Scale Industries (LSI)

Development banks promote and develop large-scale industries (LSI). Development financial institutions like IDBI, IFCI, etc., provide medium and long-term finance to the corporate sector. They provide merchant banking services, such as preparing project reports, doing feasibility studies, advising on location of a project, and so on.

4. Agriculture and Rural Development

Development banks like the National Bank for Agriculture & Rural Development (NABARD) helps in the development of agriculture. NABARD started in 1982 to provide refinance to banks, which provide credit to the agriculture sector and also for rural development activities. It coordinates the working of all financial institutions that provide credit to agriculture and rural development. It also provides training to agricultural banks and helps to conduct agricultural research.

5. Enhance Foreign Trade

Development banks help to promote foreign trade. Government of India started Export-Import Bank of India (EXIM Bank) in 1982 to provide medium and long-term loans to exporters and importers from India. It provides Overseas Buyers Credit to buy Indian capital goods. It also encourages abroad banks to provide finance to the buyers in their country to buy capital goods from India.

6. Review of Sick Units

Development banks help to revive (cure) sick-units. Government of India (GOI) started Industrial Investment Bank of India (IIBI) to help sick units.

IIBI is the main credit and reconstruction institution for the revival of sick units. It facilitates modernization, restructuring, and diversification of sick-units by providing credit and other services.

7. Entrepreneurship Development

Many development banks facilitate entrepreneurship development. NABARD, State Industrial Development Banks and State Finance Corporations provide training to entrepreneurs in developing leadership and business management skills. They conduct seminars and workshops for the benefit of entrepreneurs.

8. Regional Development

Development banks facilitate rural and regional development. They provide finance for starting companies in backward areas. They also help the companies in project management in such less-developed areas.

9. Contribution to Capital Markets

Development banks contribute to the growth of capital markets. They invest in equity shares and debentures of various companies listed in India. They also invest in mutual funds and facilitate the growth of capital markets in India.

Role of development banks in the financial sector

Financial institutions provide means and mechanism of transferring resources from those who have an excess of income over expenditure to those who can make productive use of the same. The commercial banks and investment institutions mobilize savings of people and channel them into productive uses. Financial institutions provide all type of assistant required infrastructural facilities Institutions e p economic persons who can take the development in the following ways. Underdeveloped countries have low levels of capital formation. Due to low incomes, people are not able to save sufficient funds which are needed for sensing up new units and also for expansion diversification and modernization of existing units. The persons who have the capability of starting a business but does not have requisite help approach to financial institutions for help. These institutions help a large number of persons for taking up some industrial activity. The addition of new industrial units and increasing the activities of existing units will certainly help in accelerating the pace of economic development. Financial institutions have large inventible funds which are used for productive purposes

2. Infrastructural Facilities

The economic development of a country is linked to the availability of infrastructural facilities. There is a need for roads, water, sewage, communication facilities, electricity, etc. Financial institutions prepare their investment policies by keeping national priorities in major and the institutions invest in those aim is which can help in increasing the development of the country. Indian industry and agriculture are facing acute shortage of electricity. All India institutions are giving priority to invest funds in projects generating electricity. These investments will certainly increase the availability of electricity. Small entrepreneurs cannot spare funds for creating infrastructural facilities. To overcome this problem, institutions at the state level are developing industrial estates and provide sheds, having all facilities at easy installments. So financial institutions are helping in the creation of all those facilities which are essential for the development of a country

3. Promotional Activities

An entrepreneur faces many problems while setting up a new unit. One has to undertake a feasibility report, prepare project report, complete registration formalities, seek approval from various agencies, etc. All these things require time, money and energy. Some people are not able to undertake this exercise or some do not even take initiative. Financial institutions are the expense and manpower resources for undertaking the exercise of starting a new unit. So these institutions take up this work on behalf of entrepreneurs. Some units may be set up jointly with some financial institutions and in that case, the formalities are completed collectively. Some units may not have come up had they not received promotional help from financial institutions. The promotional role of financial institutions is helpful in increasing the development of a country.

4. Development of Backward Areas

Some areas remain neglected because facilities needed for setting up new units are not available here. The entrepreneurs set up new units at those places which are already developed. It causes an imbalance in the economic development of some areas. In order to help the development of backward areas, financial institutions provide special assistance to entrepreneurs for setting up new units in these areas. IDBI, IFCI, ICICI give priority in giving assistance to units set up in backward areas and even charge lower interest rates on lending. Such efforts certainly encourage entrepreneurs to set up new units in backward areas. The industrial units in these areas improve basic amenities and create employment opportunities. These measures will certainly help in increasing the economic development of backward areas.

5. Planned Development

Financial institutions help in the planned development of the economy. Different institutions earmark their spheres of activities so that every business activity is helped. Some institutions like SIDBI, SFCI’s especially help small scale sector while IFCI and SIDC’s finance large scale sector or extend loans above a certain limit. Some institutions help different segments like foreign trade, tourism, etc. In this way, financial institutions devise their roles and help the development in their own way. Financial institutions also follow the development priorities set by central and state governments. They give preference to those industrial activities which have been specified in industrial policy statements and in five-year plans. Financial institutions help in the overall development of the country

6. Accelerating Industrialization

The economic development of a country is linked to the level of industrialization there. The setting up of more industrial units will generate direct and indirect employment, make available goods and services in the country and help in increasing the standard of living. Financial institutions provide requisite financial, managerial, technical help for setting up new units. In some areas, private entrepreneurs do not want to risk their funds or gestation period His long but the industries are needed for the development of the area. Financial institutions provide sufficient funds for their development. Since 1947, financial institutions have played a key role in accelerating the pace of industrialization. The country has progressed in almost all areas of economic development.

7. Employment Generation

Financial institutions have helped both direct and indirect employment generation. They have employed many persons to man their offices. Besides office staff, institutions need the services of experts which help them in finalizing lending proposals. These institutions help in creating employment by financing new and existing industrial units. They also help in creating employment opportunities in backward areas by encouraging the setting up of units in those areas, thus financial institutions have helped in creating new and better job opportunities.

Development banks in India

The foreign rulers in India did not take much interest in the industrial development of the country. The recommendation for setting up industrial financing institutions was made in 1931 by Central Banking Enquiry Committee but no concrete steps were taken. In 1949, Reserve Bank had undertaken a detailed study to find out the need for specialized institutions. It was in 1948, that the first development bank i.e. Industrial Finance Corporation of India (IFCI) was established. To cater to the needs of the small and medium enterprises, in 1951, Parliament passed the State Financial Corporation Act. Under this Act, state governments could establish financial corporations for their respective regions. After this, National Industrial Development Corporation (NIDC) was established which could not serve the ambitious role assigned to it and restricted itself to modernization and rehabilitation of cotton and jute textile industry In 1955, The Industrial Credit and Investment Corporation of India Ltd.(ICICI) was established as a joint-stock company. It provides term loans and takes an active part in the underwriting of and direct investments in the share of industrial units. Then in 1958, Refinance Corporation for Industry (RCI) was set up by the Reserve Bank of India. In 1964, IDBI was set up as an apex institution in the area of industrial finance, RCI was merged with IDBI. IDBI was a wholly-owned subsidiary of RBI and was expected to co-ordinate the activities of the institutions engaged in financing, promoting, or developing the industry.

ECONOMIC INTEGRATION

Meaning: - Economic integration is a process whereby countries in a geographical region (location) co-operate with one another to reduce or eliminate barriers to the international flow of products, people or capital. It can be of served forms with different degree of integration.

ACCORDING TO SALVATORE’S:-

“Commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together”

•Note:-

Therefore it refers to a decision or process whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers, and by establishing certain elements of cooperation between them.

ON THE BASICS OF CO-OPERATION WE HAVE FOLLOWING TYPES OF ECONOMIC INTEGRATIONS.
1.Preferential trading system/Preferential trade arrangements (PTA).
2.Free trade area (FTA).
3.Customs union (CU).
4.Common market.
5.Economic Union (EU).

1.PREFERENTIAL TRADING SYSTEM/PREFERENTIAL TRADE ARRANGEMENTS (PTA)

1.It was the earliest form of economic integration Among the 48 Commonwealth nations during the British Empire (1932).
2.It is the loosest form of EI which provides lower barriers on trade among the participating nations than on trade with non- member nations.
3.It ended after the formation of GATT rules.

2. FREE TRADE AREA (FTA).
1.It is a loose form of EI wherein the member countries fully or partially abolish trade barriers and tariffs on most (if not all) goods traded among them but retain its own tariff, trade barriers and commercial policies with non-member countries.
2.It is simply based on inter-area trade.
3.Examples of this: EFTA, LAFTA, LAIA.

3. CUSTOM UNION (CU).
1.In this EI the participating counties adopt a common external policy and abolish all tariff and trade barriers among themselves.
2.In CU all member nations act as a unit in their trade relations with non-member countries.
3.Example of this: European common market/European Union formed in 1957/ The European Community (EC).

4. COMMON MARKET.
1.Besides allowing for free trade and common external policy for non-member, It is a single unified common the market area among nations in which there goods, services, and factor market are integrated.
2.The EC is also a common market.
3.EU achieved the status of a common market at the beginning of 1993.

5. ECONOMIC UNION (EU).
1.The economic union is the highest and most advanced form of economic integration, besides the integration of product and factor markets as in the common market; it involves harmonization of monetary, fiscal and other policies such as exchange rate, transportation, industrial, social policies.
2.Example:-European economic the community has transformed into an economic union called the European Union in 1991.

CIRCULAR FLOW OF INCOME

The Circular Flow of Income: Meaning, Sectors and Importance!

Contents:

1.   Meaning

2.   Circular Flow in a Two Sector Economy

3.   Circular Flow in a Three Sector Closed Economy

4.   Importance of the Circular Flow

1. Meaning:

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The circular flow of income and expenditure refers to the process whereby the national income and expenditure of an economy flow in a circular manner continuously through time.

The various components of national income and expenditure such as saving, investment, taxation, government expenditure, exports, imports, etc. are shown on diagrams in the form of currents and cross-currents in such a manner that national income equals national expenditure.

2. Circular Flow in a Two Sector Economy:

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We begin with a simple hypothetical economy where there are only two sectors, the household and business. The household sector owns all the factors of production, that is, land, labour and capital. This sector receives income by selling the services of these factors to the business sector.

The business sector consists of producers who produce products and sell them to the household sector or consumers. Thus the household sector buys the output of products of the business sector. The circular flow of income and expenditure in such an economy is shown in Figure 1 where the product market is shown in the upper portion and the factor market in the lower portion.

In the product market, the household sector purchases goods and services from the business sector while in the factor market the household sector receives income from the former for providing services. Thus the household sector purchases all goods and services provided by the business sector and makes payments to the latter in lieu of these.

The business sector, in turn, makes payments to the households for the services rendered by the latter to the business-wage payments for labour services, profit for capital supplied, etc. Thus payments go around in a circular manner from the business sector to the household sector and from the household sector to the business sector, as shown by arrows in the output portion of the figure.

There are also flows of goods and services in the opposite direction to the money payments flows. Goods flow from the business sector to the household sector in the product market, and services flow from the household sector to the business sector in the factor market, as shown in the inner portion of the figure. These two flows give GNP=GNI.

Circular Flow with Saving and Investment Added:

The actual economy is not as explained above. In an economy, “inflows” and “leakages” occur in the expenditure and income flows. Such leakages are saving, and inflows or injections are investment which equals each other.

Figure 2 shows how the circular flow of income and expenditure is altered by the inclusion of saving and investment.

Expenditure has now two alternative paths from household and product markets:

(i) Directly via consumption expenditure, and

(ii) indirectly via investment expenditure.

In Figure 2 there is a capital or credit market in between saving and investment flows from households to business firms. The capital market refers to a number of financial institutions such as commercial banks, sav­ings banks, loan institutions, the stock and bond markets, etc. The capital market coordinates the saving and investment activities of the households and the business firms. The households supply saving to the capital market and the firms, in turn, obtain investment funds from the capital market.

3. Circular Flow in a Three- Sector Closed Economy:

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So far we have been working on the circular flow of a two-sector model of an economy. To this we add the government sector so as to make it a three-sector closed model of circular flow of income and expenditure. For this, we add taxation and government purchases (or expenditure) in our presentation. Taxation is a leakage from the circular flow and government purchases are injections into the circular flow.

First, take the circular flow between the household sector and the government sector. Taxes in the form of personal income tax and commodity taxes paid by the household sector are outflows or leakages from the circular flow.

But the government purchases the services of the households, makes transfer payments in the form of old age pensions, unemployment relief, sickness benefit, etc., and also spends on them to provide certain social services like education, health, housing, water, parks and other facilities. All such expenditures by the government are injections into the circular flow.

Next take the circular flow between the business sector and the government sector. All types of taxes paid by the business sector to the government are leakages from the circular flow. On the other hand, the government purchases all its requirements of goods of all types from the business sector, gives subsidies and makes transfer payments to firms in order to encourage their production. These government expenditures are injections into the circular flow.

Now we take the household, business and government sectors together to show their inflows and outflows in the circular flow. As already noted, taxation is a leakage from the circular flow. It tends to reduce consumption and saving of the household sector. Reduced consumption, in turn, reduces the sales and incomes of the firms. On the other hand, taxes on business firms tend to reduce their investment and production.

The government offsets these leakages by making purchases from the business sector and buying services of the household sector equal to the amount of taxes. Thus total sales again equal production of firms. In this way, the circular flows of income and expenditure remain in equilibrium.

Figure 3 shows that taxes flow out of the household and business sectors and go to the government. Now the government makes investment and for this purchases goods from firms and also factors of production from households. Thus government purchases of goods and services are an injection in the circular flow of income and taxes are leakages.

If government purchases exceed net taxes then the government will incur a deficit equal to the difference between the two, i.e., government expenditure and taxes. The government finances its deficit by borrowing from the capital market which receives funds from households in the form of saving.

On the other hand, if net taxes exceed government purchases the government will have a budget surplus. In this case, the government reduces the public debt and supplies funds to the capital market which are received by firms.

Adding Foreign Sector: Circular Flow in a Four-sector Open Economy:

So far the circular flow of income and expenditure has been shown in the case of a closed economy. But the actual economy is an open one where foreign trade plays an important role. Exports are an injection or inflows into the economy.

They create incomes for the domestic firms. When foreigners buy goods and services produced by domestic firms, they are exports in the circular flow of income. On the other hand, imports are leakages from the circular flow. They are expenditures incurred by the household sector to pur­chase goods from foreign countries. These exports and imports in the circular flow are shown in Figure 4.

Take the inflows and outflows of the household, business and government sectors in relation to the foreign sector. The household sector buys goods imported from abroad and makes payment for them which is a leakage from the circular flow. The households may receive transfer payments from the foreign sector for the services rendered by them in foreign countries.

On the other hand, the business sector exports goods to foreign countries and its receipts are an injection in the circular flow. Similarly, there are many services rendered by business firms to foreign countries such as shipping, insurance, banking, etc. for which they receive payments from abroad.

They also receive royalties, interests, dividends, profits, etc. for investments made in foreign countries. On the other hand, the business sector makes payments to the foreign sector for imports of capital goods, machinery, raw materials, consumer goods, and services from abroad. These are the leakages from the circular flow.

Like the business sector, modern governments also export and import goods and services, and lend to and borrow from foreign countries. For all exports of goods, the government receives payments from abroad.

Similarly, the government receives payments from foreigners when they visit the country as tourists and for receiving education, etc. and also when the government provides shipping, insurance and banking services to foreigners through the state-owned agencies.

It also receives royalties, interest, dividends etc. for investments made abroad. These are injections into the circular flow. On other hand, the leakages are payments made for the purchase of goods and services to foreigners.

Figure 4 shows the circular flow of the four-sector open economy with saving, taxes and imports shown as leakages from the circular flow on the right hand side of the figure, and investment, government purchases and exports as injections into the circular flow on the left side of the figure.

Further, imports, exports and transfer payments have been shown to arise from the three domestic sectors—the household, the business and the government. These outflows and inflows pass through the foreign sector which is also called the “Balance of Payments Sector.”

If exports exceed imports, the economy has a surplus in the balance of payments. And if imports exceed exports, it has a deficit in the balance of payments. But in the long run, exports of an economy must balance its imports. This is achieved by the foreign trade policies adopted by the economy.

The whole analysis can be shown in simple equations:

Y= C +I+ G … (1)

Where Y represents the production of goods and services, C for consumption expenditure, I investment level in the economy.

Credit-rating agencies of world

CREDIT RATING AGENCIES

Agency	HeadQuarter
CRISIL(Credit Rating Information Services of India Limited)	Mumbai, India
ICRA	Gurgaon, India
CARE	Mumbai, India
ONICRA	Gurgaon, India
SMERA	Mumbai, India
Fitch(India Rating and Research)	Mumbai, India
Standard and Poor's(S&P)	New York, USA
Moody's	New York, USA
Fitch	New York, USA.

NOBEL PRIZE IN ECONOMICS (2006-2019)

NOBEL PRIZE WINNER -2006

• EDMUND S. PHELPS:-“For his contribution to a sophisticated explanation of how wages, unemployment, and inflation interact with one another”

NOBEL PRIZE WINNER -2007

• LEONID HURWICZ, ERIC S. MASKIN, AND ROGER B. MYERSON:-  “For their work in mechanism design theory, a branch of the economics that looks at the design of institutions in situations where markets do not work properly”

NOBEL PRIZE WINNER - 2008

• PAUL KRUGMAN (USA):-“For his analysis of trade patterns and location of economic activity”

NOBEL PRIZE WINNER - 2009

• ELINOR OSTROM (USA):-“For her analysis of economic governance, especially the commons"
• OLIVER E. WILLIAMSON (USA):-"For his analysis of economic governance, especially the boundaries of the firm”

NOBEL PRIZE WINNER -2010

• PETER A. DIAMOND (USA), DALE T. MORTENSEN (USA), CHRISTOPHER A.PISSARIDES (UK):-“For their analysis of markets with search frictions”

NOBEL PRIZE WINNER -2011

• THOMAS J. SARGENT (USA), CHRISTOPHER A. SIMS (USA):-“For their empirical research on cause and effect in the macroeconomy”

NOBEL PRIZE WINNER -2012

• ALVIN E. ROTH (USA), AND LLOYD S. SHAPLEY (USA):-"For the theory of stable allocations and the practice of market design" 

NOBEL PRIZE WINNER -2013

• EUGENE F. FAMA, LARS PETER HANSEN, AND ROBERT J. SHILLER:-"For their empirical analysis of asset prices"

NOBEL PRIZE WINNER -2014

• JEAN TIROLE (FRANCE):-"For his analysis of market power and regulation"

NOBEL PRIZE WINNER -2015

• ANGUS DEATON:-“for his analysis of consumption, poverty, and welfare”

NOBEL PRIZE WINNER -2016

• OLIVER HART, BENGT HOLMSTROM:-“for their work in contract theory- developing a framework to understand agreements like an insurance contract, employer-employee relationships and poverty rights”

NOBEL PRIZE WINNER -2017

• RICHARD THALER:-“for his contribution to behavioral economics”

NOBEL PRIZE WINNER -2018

• PAUL ROMER:-“for integrating technological innovations into long-run macroeconomic analysis”
• WILLIAM D. NORDHAUS:-“for integrating climate change into the long run macroeconomic analysis”

NOBEL PRIZE WINNER-2019

ABHIJIT BANERJEE:-“For their experimental approach to alleviating global poverty.”

ESTHER DUFLO:-    “For their experimental approach to alleviating global poverty.”

MICHAEL KREMER:-“For their experimental approach to alleviating global poverty.”

NOBEL PRIZE WINNER-2020

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ECONOMIC INTEGRATION

Meaning: - Economic integration is a process whereby countries in a geographical region (location) co-operate with one another to reduce or eliminate barriers to the international flow of products, people or capital. It can be of served forms with different degree of integration.

ACCORDING TO SALVATORE’S:-

“Commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together”

•Note:-

Therefore it refers to a decision or process whereby two or more countries combine into
a larger economic region by removing discontinuities and discriminations existing along national frontiers, and by establishing certain elements of cooperation between them.

ON THE BASICS OF CO-OPERATION WE HAVE FOLLOWING TYPES OF ECONOMIC INTEGRATIONS.
1.Preferential trading system/Preferential trade arrangements (PTA).
2.Free trade area (FTA).
3.Customs union (CU).
4.Common market.
5.Economic Union (EU).

1.PREFERENTIAL TRADING SYSTEM/PREFERENTIAL TRADE ARRANGEMENTS (PTA)
1.It was the earliest form of economic integration Among the 48 Commonwealth nations during the British Empire (1932).
2.It is the loosest form of EI which provides lower barriers on trade among the participating nations than on trade with non- member nations.
3.It ended after the formation of GATT rules.

2. FREE TRADE AREA (FTA).
1.It is a loose form of EI wherein the member countries fully or partially abolish trade barriers and tariffs on most (if not all) goods traded among them but retain its own tariff, trade barriers and commercial policies with non-member countries.
2.It is simply based on inter-area trade.
3.Examples of this: EFTA, LAFTA, LAIA.

3. CUSTOM UNION (CU).
1.In this EI the participating counties adopt a common external policy and abolish all tariff and trade barriers among themselves.
2.In CU all member nations act as a unit in their trade relations with non-member countries.
3.Example of this: European common market/European Union formed in 1957/ The European Community (EC).

4. COMMON MARKET.
1.Besides allowing for free trade and common external policy for non-member, It is a single unified common the market area among nations in which there goods, services, and factor market are integrated.
2.The EC is also a common market.
3.EU achieved the status of a common market at the beginning of 1993.

5. ECONOMIC UNION (EU).
1.The economic union is the highest and most advanced form of economic integration, besides the integration of product and factor markets as in the common market; it involves harmonization of monetary, fiscal and other policies such as exchange rate, transportation, industrial, social policies.
2.Example:-European economic the community has transformed into an economic union called the European Union in 1991.

Specified Bank Notes (Cessation of Liabilities) Act 2017?

On February 27, 2017 Government of India notified the  Specified Bank Notes (Cessation of Liabilities) Act 2017.The Act repealed the Specified Banknotes (Cessation of liabilities) Ordinance 2016 providing for cessation of liabilities for the Specified Banknotes (SBNs) and for matters connected therewith and incidental thereto, with effect from December 31, 2016. The SBNs cease to be the liabilities of the Reserve Bank under Section 34 of the RBI Act and cease to have the guarantee of the Central Government.

A grace period has been provided during which the Specified Bank Notes can be deposited at five RBI Offices (Mumbai, New Delhi, Chennai, Kolkata, and Nagpur by Indian citizens who make a declaration that they were outside India between November 9 and December 30, 2016, subject to conditions or any class of persons for reasons that may be specified by notification by the Central Government. The Reserve Bank, if satisfied after making the necessary verifications, that the reasons for failure to deposit the notes till December 30, 2016 are genuine, will credit the value of notes in the KYC (Know Your Customer) compliant bank account of the tenderer.

The grace period for resident Indians expired on March 31, 2017. For non- resident Indians (Indian passport holders), the grace period is till June 30, 2017.

Any person aggrieved by the refusal of the Reserve Bank to credit the value of notes as mentioned above may make a representation to the Central Board of the Reserve Bank within 14 days of the communication of such refusal to him/her.

In terms of Section 6 of the Act, whoever knowingly or wilfully makes any false declaration shall be punishable with a fine which may extend to 50,000 INR or five times the amount of the face value of the SBNs tendered whichever is higher.

In terms of Section 5 of the Act, with effect from December 31, 2016 no person shall knowingly or voluntarily hold, transfer or receive any specified banknotes. After the expiry of grace period, holding of not more than 10 notes in total, irrespective of denomination or not more than 25 notes for the purpose of study/ research/ numismatics is permitted. Also, nothing contained in this section shall prohibit the holding of specified banknotes by any person on the direction of a court in relation to any case pending in the court. For deposit of confiscated SBNs, GoI has notified Specified Ban Notes (Deposit of Confiscated Notes) Rules 2017 on May 12, 2017.

In terms of Section 7, contravention of Section 5 shall be punishable with fine which may extend upto 10,000 INR or five times the face value of the SBNs involved in the contravention, whichever is higher.

In case the contravention/default in terms of Sections 6 and 7 is by a company, every person who was in charge of and responsible to the company at the time of contravention/ default shall deemed to be guilty and will be liable to be proceeded against and punished. If the offence is proved to be attributable to the conduct by any director/manager/secretary/officer/employee of the company, such person shall also be deemed to be guilty of the offence and will be liable to be proceeded against and punished accordingly

Source -RBI.