Banking Awareness

CURRENT AFFAIRS august 2019

Banks’ exposure limits, lending norms

eased for stressed NBFCs

Context: The RBI on 7/08/ 2019 unveiled more measures to enhance

credit flow to the cash-starved Non- Banking Financial Companies (NBFCs)
sector.

Highlights:
The RBI has decided to raise banks’ exposure limit to a single NBFC to 20%
of Tier-I capital of the bank as a step towards harmonization of the counter
party exposure limit to single NBFC with that of the general limits.
The limit was 15% earlier while other sector enjoyed the 20% limit.
RBI has also decided to allow bank lending to register NBFCs (other than
micro - financing institutions) for on-lending to agriculture (investment
credit) up to Rs. 10 lakh, micro and small enterprises up to Rs. 20 lakh and
housing up to Rs. 20 lakh per borrower to be classified as Priority Sector
Lending (PSL).
The RBI has also reduced risk weight for consumer credit (except credit
card receivables), including personal loans, to 100% as against risk weight
of 125% or higher, if warranted external rating of the counter party.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Significance:
The measures are pertinent at a time when lending activity by many NBFCs
have declined significantly, resulting in demand slowdown for a range of
items including cars, tractors, white goods among others.
The hike will enable banks to increase the credit flow to big NBFCs.

Other steps:
24/7 NEFT transfer: The NEFT payment system that is available from 8 am
to 7 pm on all working days of the week will be available on a 24/7 basis
from Dec. 2019.
Bill payment system expanded: To leverage the advantages of Bharat Bill
Payment System (BBPS), the RBI has decided to permit all categories of
billers (except prepaid recharges) who provide for recurring bill
payments, currently covering 5 segments- DTH, electricity, gas, telecom,
and water bills.
On tap bill payment: In order to benefit from diversification of risk as also
to encourage innovation and competition, the RBI has decided to offer ‘on
tap’ authorization to entities desirous to function, operate or provide
platforms for Bharat Bill Payment Operating Unit (BBPOU), Trade
receivables Discounting System (TReDS) and White Label ATMs (WLAs).
Digital Fraud Registry: The RBI has proposed to facilitate the creation of a
Central Payment Fraud Registry that will track digital transaction fraud.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

RBI announced 35 basis points (bps) cut in repo rate

Context:
RBI has cut the repo rate by 35 basis points (bps), to 5.4%. This is fourth
time in a row that the central bank has cut the key rate this calendar year,
starting from February, 2019.

What is repo rate?

Repo and Reverse repo are short for repurchase agreements between the
RBI and the commercial banks in the economy. In essence, the repo rate is
the interest rate that the RBI charges a commercial bank when it borrows
money from the RBI.
Implications of rate cut: It influences the interest rate in the economy. As
such, if the repo falls, all interest rates in the economy should fall. And
that is why common people should be interested in the RBI’s monetary
policy.
For borrowers: A reduction in lending rates in the economy will clearly
benefit loan takers as borrowers'  EMIs (equated monthly installments)
are likely to go down assuming banks will pass on the benefit of the rate
cut.
For depositors: Deposits rates will also go down, thus it will hit the
depositors.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Why rate cut by the RBI is not transmitted by the banks to their
customers?
This is due to a lot of factors — but primarily, it has to do with the health of
the concerned commercial bank. Over the past few years, almost all banks,
especially the ones in the public sector, have seen their profits plummet
because many of their past loans have turned out to be non-performing
assets.
To cover for these losses, the banks have to use their existing funds, which
would have otherwise gone to common consumers for fresh loans.

Will the rate cut bring investments?

Investments depend essentially on the “real” interest rate. The real
interest rate is the difference between the repo rate and retail inflation. As
a variable, it allows an investor to compare the attractiveness of different
economies.
Real interest rates in India have been rising, and that is one of the biggest
reasons why investments are not happening.  
The recent rate cut would reduce the real interest rate and hopefully
attract more investment.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Usha Thorat panel suggests liberal

currency market for offshore users

Context: The task force on offshore rupee markets, headed by former Dy.
Governor Usha Thorat, has submitted its report to the RBI

Recommendations:
It has suggested for extending trading hours to improve access of
overseas users and allowing Indian banks to freely offer prices to global
clients around the clock. 
Allow users to undertake foreign exchange transactions up to $ 100
million in OTC currency derivative market without the need to establish
underlying exposure.
Enable rupee derivatives (settled in foreign currency) to be traded in the
International Financial Services Centres (IFSC) in India.
To facilitate non-residents to hedge their foreign exchange exposure
onshore, the task force recommended establishing a central clearing and
settlement mechanism for non-resident transactions in the onshore
market.
Align the tax treatment with global standard

Significance of the off shore rupee market:

The offshore rupee market has been making a larger impact on the local
currency market helping with better price discovery and driving volatility,
prompting RBI to look for ways to ensure greater stability for the rupee. 

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

‘Muni’ bonds for Smart City funding

Issue
Sebi has relaxed norms to allow smart cities to issue funds through ‘Muni
Bonds’.

Background
Smart City initiative creates a larger requirement for makeover of cities
through large-scale projects that needs huge funds.
The ‘Muni’ bonds are raised by city municipalities to fund for city projects
under smart city initiative

‘Muni’ bonds
A municipal bond, commonly known as a Muni Bond, is a bond issued by a
local government or territory, or one of their agencies. It is generally used
to finance public projects such as roads, schools, airports and seaports,
and infrastructure-related repairs.
Sebi is now proposing to allow issuance of 'Muni Bonds' also by other
entities such as entities or bodies like urban development authorities and
city planning agencies that perform functions similar to a municipality
such as planning and execution of urban development projects.
Regulations would also be amended to allow fund-raising through Muni
Bonds by special purpose vehicles set up for implementing the smart city
projects.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

How ‘Muni’ bonds can boost growth and development

Muni bonds are expected to provide impetus to growth especially in
developing cities by easy fund availability to executing entities.
Muni bonds can also work as a means of long term investment to
individuals by giving impressive interest rates.
The projects funded through Muni bonds are expected to be completed
fast owing to faster resource availability.

Notes

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Negative Interest Rates

Issue
Danish Bank launches world’s first Negative Interest rate mortgage.

Background
Interest rates in a few countries in Europe, including Sweden and
Denmark, have been in negative territory. This  means that these countries
are depositing  money in banks and the money is really not in demand.
Japan has also introduced negative interest rates to discourage people to
stash excessive money into bank accounts. Instead they encourage
spending of money to boost economy.

Reasons for Negative interest rates

When individual borrows money, he usually pays interest on it to the bank.
Hence, when the rate of interest is negative, the bank should be paying the
borrower
Banks by offering a negative rate of interest on their deposits are telling
consumers to spend their income instead of storing them with the banks.
The basic reason for introduction of such policies is due to prevalent
economic conditions. Global slowdown has resulted in recessive situation
and needs impetus to boost consumption and growth.
By offering negative interest rates customers are encouraged to spend
their income that can boost economy.

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Indian context
In the present situation this policy does not apply to India due to its
exemplary growth conditions. The rate of growth in India is suitable for
banks to adopt positive measures.

Notes

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

RBI Surplus transfer

Issue
The committee headed by former RBI governor Bimal Jalan to decide on
adequate capital reserves to be held by RBI has finalized its report.

Background
The government and the RBI under previous governor Urjit Patel had
differences over 9-lakh crore surplus capitals with the central bank.
The committee was formed after the Government demanded more capital
to be transferred to it excluding the mandatory amount held by RBI. The
exact amount that is appropriate for RBI to hold as a buffer amount has
to be decided so that the country is prepared to handle external crisis.

What are Surplus Buffers?

Surplus buffers are excessive revenues held by the Country’s central
bank in order to tackle economic crisis faced by the country.

Uses of Additional Buffers

As per various estimates, the RBI has over 9 lakh crore of surplus capital
with it.
The surplus capital transfer would help the government meet its fiscal
deficit target as it will come as a windfall to the exchequer.
Besides surplus capital transfer, the government is expecting Rs 90,000
crore dividend from the RBI in the current financial year as against Rs
68,000 crore received last fiscal.
www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Other similar committees

The issue of the ideal size of the Reserve Bank of India reserves was
examined by three committees -- V Subrahmanyam in 1997, Usha Thorat in
2004 and Y H Malegam in 2013.
The Subrahmanyam panel recommended for building a 12 per cent
contingency reserve, the Thorat panel suggested it should be maintained
at a higher 18 per cent of the total assets of the central bank.
The Malegam panel said the RBI should transfer an adequate amount of its
profit to the contingency reserves annually but did not ascribe any
particular number.

Notes

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

SEBI simplifies norms on foreign investors

Issue
The Securities and Exchange Board of India (SEBI) has simplified the
compliance and operational requirements for foreign portfolio investors
(FPIs), to make the regulatory framework more investor friendly.

Background
The Securities and Exchange Board of India is the regulator for the
securities market in India.
Portfolio investments are investments in the form of a group (portfolio) of
assets, including transactions in equity, securities, such as common stock,
and debt securities, such as banknotes, bonds, and debentures.

Details
SEBI has decided to do away with the requirement that every FPI should
have at least 20 investors which is known as broad-based in regulatory
parlance. It has also simplified the KYC (or Know-Your-Customer)
document requirement for overseas investors.
It has also allowed central banks of countries that are not members of
Bank for International Settlement (BIS) to register as FPIs in India.
The regulator has amended the Prohibition of Insider Trading Regulations
to include a clause to reward whistle-blowers up to Rs. 1 crore if the
information leads to a disgorgement order of at least Rs.1 crore.
SEBI  has also brought in clauses to protect the informant from
victimisation in the form of termination, suspension or demotion, among
other things.
www.studyiq.com
Banking Awareness
Implications of Step
CURRENT AFFAIRS august 2019

proposed regulations is to simplify and rationalise the existing regulatory

framework for foreign portfolio investors in terms of easing the
operational constraints and compliance requirements.
This is a much-needed boost to the FPI route, which had been languishing
on account of multiple issues in the past few months.

Notes

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Bank Mergers

Issue
Finance Minister Nirmala Sitharaman announced a series of mergers
involving 10 state-owned banks . The merger has reduced the number of
state owned banks from 27 to 12.

Background
A Bank merger is a situation in which two banks pool their assets and
liabilities to become one bank. Since, this can have a significant impact on
the financial industry, the Federal Reserve subjects mergers involving
bank holding companies to more intensive regulation.

Details
Finance minister announced the merger of Punjab National Bank, Oriental
Bank of Commerce and United Bank with business of ₹7.95 trillion to make
India’s second-largest bank.
The other merger will be between Canara Bank and Syndicate Bank, which
will make the fourth-largest bank, with ₹15.2 trillion business.
Union Bank will be merged with Andhra Bank and Corporation Bank to
build India’s fifth-largest public sector bank with ₹14.59 trillion in
business.
Indian Bank will be merged with Allahabad Bank to make India’s seventh-
largest PSB with a business of ₹8.08 trillion

www.studyiq.com
Banking Awareness
CURRENT AFFAIRS august 2019

Advantages and disadvantages

Advantages
It reduces the cost of operation
The merger helps in financial inclusion and broadening the geographical
reach of the banking operation
NPA and risk management are benefited
Merger leads to availability of a bigger scale of expertise and that helps
in minimising the scope of inefficiency which is more in small banks
Merger sees a bigger capital base and higher liquidity and that reduces
the government's burden of recapitalising the public sector banks time
and again
Redundant posts and designations can be abolished which will lead to
financial savings

Disadvantages
Many banks have a regional audience to cater to and merger destroys
the idea of decentralisation.
Larger banks might be more vulnerable to global economic crises while
the smaller ones can survive.
Merger sees the stronger banks coming under pressure because of the
weaker banks.
Coping with staffers' disappointment could be another challenge for the
governing board of the new bank. This could lead to employment issues.

Other mergers
The earlier merger of Bank of Baroda, Vijaya Bank and Dena Bank led to
enhanced customization and rationalization of operations without any
retrenchment. CASA (current and savings account) growth is 6.9% in the
June quarter; retail loan growth is 20.5%, while profitability is around
₹710 crore.

www.studyiq.com
 rAILWAY courses

RRB JE - Electrical
RRB JE-Mechanical
(Tech+Nontech)
(Tech+Nontech)
Rs.24,000
Rs.24,000 Rs.12,000 Click
Rs.12,000 Click Here
Here Rs.11,000
Rs.11,000

RRB JE - Civil RRB JE- Electronics

(Tech+Nontech) (Tech+Nontech)
Rs.24,000 Rs.24,000
Rs.12,000 Click Rs.12,000 Click
Here Here
Rs.11,000 Rs.11,000

RRB Non-Tech RRB TC -

Exams Ticket Collector
Rs.13,000 Rs.22,000
Rs.8,000 Click
Rs.12,500 Click
Here
Rs.6,300 Rs.10,500
Here

ALP -
ALP Electronics
Electrical
& Comm
Rs.14,000 Rs.16,000
Rs.8,500 Click Rs.9,800 Click
Here Here
Rs.6,900 Rs.7,500