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Tag Wise Current Affairs
Tag: Monetary Policy & RBI
Forex reserves rises to $405.6 billion in March 2019
Tags: Monetary Policy & RBI
Published on: 23 March 2019
Monetary Policy: RBI cuts repo rate by 25 bps to 6%
Tags: Monetary Policy & RBI
Published on: 04 April 2019
RBI first APAC central bank to begin interest rate easing cycle: Fitch
Tags: Monetary Policy & RBI
Published on: 27 April 2019
Monetary Policy: RBI cuts repo rate by 25 bps to 5.75%
Tags: Monetary Policy & RBI
Published on: 07 June 2019
RBI scraps charges on NEFT and RTGS Transfers
Tags: Monetary Policy & RBI, Banking Schemes & Policies
Published on: 07 June 2019
RBI announced 35 basis points (bps) cut in repo rate
Tags: Monetary Policy & RBI
Published on: 08 August 2019
Banks’ exposure limits, lending norms eased for stressed NBFCs
Tags: Monetary Policy & RBI
Published on: 08 August 2019
Usha Thorat panel suggests liberal currency market for offshore users
Tags: Monetary Policy & RBI
Published on: 09 August 2019
RBI to link loan EMI to external benchmarks
Tags: Monetary Policy & RBI
Published on: 07 September 2019
RBI panel to assess adequacy of Forex reserves
Tags: Monetary Policy & RBI
Published on: 10 September 2019
Reverse repo rate as benchmark interest rate
Tags: Monetary Policy & RBI
Published on: 20 April 2020
Reasons for increase in India’s FOREX reserves
Tags: Monetary Policy & RBI
Published on: 15 June 2020
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'title' => 'Forex reserves rises to $405.6 billion in March 2019',
'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">According to the Reserve Bank of India (RBI), India's foreign exchange (forex) reserves surged by $3.602 billion to $405.638 billion in week to March 15, 2019. The surge was driven by rise in foreign currency assets, a major component of the overall reserves.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reasons for increase</span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">The increase in forex reserves could partly be attributed to rising investments by foreign investors in Indian capital markets. The net foreign portfolio investment (FPI) in equity markets in till March 15, 2019 was $2.9 billion, highest since January 2018. Indian debt markets also have seen positive inflow of $1.2 billion till March 15, 2019.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Forex Reserves in March 2019</span></strong></span></span></p>
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<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Foreign currency assets (FCA): </span></strong><span style="font-family:"Quicksand",serif">Increased by $3.546 billion to $377.773 billion.</span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Gold reserves: It rose by $38.9 million to $23.408 billion.</span></strong></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Special drawing rights (SDRs) with International Monetary Fund (IMF): </span></strong><span style="font-family:"Quicksand",serif">It rose by $5.9 million to $1.461 billion.</span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">RBI’s reserve position with IMF: </span></strong><span style="font-family:"Quicksand",serif">It increased by $12.1 million to $2.995 billion.</span></span></span></li>
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<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Forex Reserves </span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">They are reserve assets held by central bank of the country in foreign currencies. These reserve acts as buffer to be used in challenging times. They are also used as back liabilities and also to influence monetary policy. Almost all countries in world, regardless of size of their economy, hold significant forex reserves. </span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Components of India’s FOREX Reserves:</span></strong><span style="font-family:"Quicksand",serif"> Foreign currency assets (FCAs), Special Drawing Rights (SDRs), Gold Reserves and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of India’s forex Reserves and is expressed in terms of US dollars.</span></span></span></p>
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'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Reserve Bank of India (RBI) in its first bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 6%. This decision was taken by RBI’s six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das in a 4-2 vote. It has maintained the policy stance at "neutral". It has lowered GDP growth forecast for current fiscal to 7.2</span>%<span style="font-family:"Quicksand",serif"> from the earlier estimate of 7.4%.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Policy Rates</span></strong></span></span></p>
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<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Repo rate (repurchase rate):</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.0.</span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reverse Repo Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 5.75%.</span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Marginal Standing Facility Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.25%.</span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Bank Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.25%.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Note:</span></strong><span style="font-family:"Quicksand",serif"> It was first back-to-back rate cut by the central bank since MPC was formed in late 2016. In its last policy meet (February 2019) and the first under Governor Shaktikanta Das, RBI had lowered repo rate by 25 basis points to 6.25% and changed policy stance to neutral from calibrated tightening, adopted in October 2018.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Key Terms</span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Repo rate (repurchase rate)</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which RBI lends to banks for short periods against government securities. Its objective is to inject liquidity in the system. </span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Increase in repo rate squeezes liquidity out of system and increase interest rates, which will then reduce demand for funds and reduce inflation. </span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Similarly, when decreased, it injects liquidity in system making it cheaper for banks to borrow money. </span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">This is done by RBI by buying government securities/bonds from banks with agreement to sell them back at fixed rate.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reverse repo</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which banks lend funds to RBI or RBI borrows funds from other banks in short term. </span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">This is done by RBI selling government securities/ bonds to banks with commitment to buy them back at future date.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Marginal Standing Facility (MSF)</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which scheduled banks can borrow funds overnight from RBI against government securities, if later doesn’t have the required eligible securities above SLR limit. It is very short term borrowing scheme for scheduled banks to meet.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Bank Rate</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate charged by RBI for lending funds to commercial banks. It influences lending rates of commercial banks. Higher bank rate results in higher lending rates by banks. RBI can resort to raising the bank rate in order to curb liquidity and vice versa.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Cash Reserve Ratio (CRR)</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It certain percentage of total deposits that commercial banks are required to maintain in form of cash reserve with central bank. RBI uses it to drain out excessive money from system. This money earns no interest.</span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Statutory Liquidity Ratio (SLR)</span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is portion of bank deposits that banks have to maintain or invest in government bonds in form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc. It has to be maintained at close of business on every day. RBI does not pay any interest to banks for SLR.</span></span></span></li>
</ul>
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'tag' => 'Monetary Policy & RBI',
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'title' => 'RBI first APAC central bank to begin interest rate easing cycle: Fitch',
'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">According to Fitch Ratings Reserve Bank of India (RBI) is the first central bank in the Asia-Pacific (APAC) region to begin explicit interest rate easing cycle buoyed by benign food inflation and easier global financial condition.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">RBI Rate Cuts</span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Monetary Policy Committee (MPC), headed by RBI Govenor Shaktikanta Das had cut rates in February and April 2019, citing prospects of benign inflation. In the four months of 2019, RBI has cut policy interest rates twice by 0.25% each to one-year low of 6</span>%<span style="font-family:"Quicksand",serif">. This was first back-to-back rate cut since MPC was formed in late 2016. </span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reasons for explicit easing cycle </span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Benign food inflation and easier global financial conditions following US Fed’s shift to a more dovish policy stance. Inflation at 2.9% has remained within RBI’s comfort zone of 4 per cent (+/- 2 per cent). </span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Fitch Projections</span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Fitch predicts that RBI may look for opportunities for further easing.<strong> </strong>But, modest fiscal slippage, relative to central government’s targets in recent years, has resulted in a stalling of fiscal consolidation. Election Campaign promises to support farmers’ incomes, including direct cash transfers after elections, will add to spending pressures in the current financial year.</span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Fitch has rated ‘BBB-’ on India, the lowest investment grade rating, with stable outlook. According to it, India’s ratings balance strong medium-term growth outlook and relative external resilience, with strong foreign reserve buffers, against high public debt, financial sector fragilities, and some lagging structural factors.</span></span></span></p>
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'tag' => 'Monetary Policy & RBI',
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'title' => 'Monetary Policy: RBI cuts repo rate by 25 bps to 5.75%',
'description' => '<p style="margin-left:0in; margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reserve Bank of India (RBI) in its second bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 5.75%. This decision was unanimously taken by RBI’s six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das in 6-0 vote. It also changed its monetary policy stance to “accommodative” from “neutral” stating that “there is scope to accommodate growth concerns and reinvigorate private investment activity”. It was third such rate cut of 25 basis points in calendar year 2019. With this, RBI’s main policy rate now stands at level touched almost nine years ago in July 2010. It also lowered its growth forecast to 7</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">% f</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">or 2019-20 from the April view of 7.2</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Policy Rates</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Repo rate (repurchase rate):</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 5.75</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reverse Repo Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 5.50</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Marginal Standing Facility Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 6.0</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Bank Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 6.0</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Key Terms</span></span></strong></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Repo rate (repurchase rate)</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which RBI lends to banks for short periods against government securities. Its objective is to inject liquidity in the system.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Increase in repo rate squeezes liquidity out of system and increase interest rates, which will then reduce demand for funds and reduce inflation.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Similarly, when decreased, it injects liquidity in system making it cheaper for banks to borrow money.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">This is done by RBI by buying government securities/bonds from banks with agreement to sell them back at fixed rate.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reverse repo</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which banks lend funds to RBI or RBI borrows funds from other banks in short term.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">This is done by RBI selling government securities/ bonds to banks with commitment to buy them back at future date.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Marginal Standing Facility (MSF)</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which scheduled banks can borrow funds overnight from RBI against government securities, if later doesn’t have the required eligible securities above SLR limit. It is very short term borrowing scheme for scheduled banks to meet.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Bank Rate</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate charged by RBI for lending funds to commercial banks. It influences lending rates of commercial banks. Higher bank rate results in higher lending rates by banks. RBI can resort to raising the bank rate in order to curb liquidity and vice versa.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Cash Reserve Ratio (CRR)</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It certain percentage of total deposits that commercial banks are required to maintain in form of cash reserve with central bank. RBI uses it to drain out excessive money from system. This money earns no interest.</span></span></span></span></li>
</ul>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Statutory Liquidity Ratio (SLR)</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is portion of bank deposits that banks have to maintain or invest in government bonds in form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc. It has to be maintained at close of business on every day. RBI does not pay any interest to banks for SLR.</span></span></span></span></li>
</ul>
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'tag' => 'Monetary Policy & RBI',
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'title' => 'RBI scraps charges on NEFT and RTGS Transfers',
'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reserve Bank of India (RBI) has announced waiving off charges are applied on bank transfers carried out either by National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS). This decision was taken to boost digital transactions and asked banks to pass on the benefits to customers.</span></span></span></span></p>
<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">NEFT and RTGS</span></span></strong></span></span></p>
<ul>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">RTGS and NEFT are bank transfer devices that allows individual to transfer funds electronically from one account to another. RTGS is meant for large-value instantaneous fund transfers while NEFT System is used for fund transfers up to Rs 2 lakh.</span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">RTGS transactions happen in real time, hence the beneficiary bank receives instruction to transfer funds immediately and transfer is instantaneous. Whereas, NEFT settlements happen in batches, as a result, there might be slight delay for actual transfer to take place from time the request for transfer. </span></span></span></span></li>
<li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">The minimum amount that can be remitted through RTGS is Rs 2 lakh, and there is no upper ceiling. In NEFT there is no minimum transfer limit, but there is Rs 10 lakh limit per transaction with no upper limit on the number of transactions.</span></span></span></span></li>
</ul>
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'metatitle' => 'RBI scrap charges on NEFT and RTGS Transfers',
'metakeyword' => 'Reserve Bank of India, waives off, charges om bank transfers,National Electronic Funds Transfer, NEFT, Real Time Gross Settlement System, RTGS ',
'metadescription' => 'Reserve Bank of India (RBI) has announced waiving off charges are applied on bank transfers carried out either by National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS). ',
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 1850,
'title' => 'RBI announced 35 basis points (bps) cut in repo rate',
'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Context:</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has <strong>cut the repo rate by 35 basis points (bps), to 5.4%. </strong>This is <strong>fourth time in a row that </strong>the central bank has cut the key rate this calendar year, starting from February, 2019.</span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>What is repo rate?</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Repo and Reverse repo <strong>are short for repurchase agreements between the RBI and the commercial banks </strong>in the economy. In essence, <strong>the repo rate is the interest rate that the RBI charges a commercial bank when it borrows money from the RBI.</strong> </span></span></li>
</ul>
<p><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Implications of rate cut: </span></span></strong><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It influences the interest rate in the economy. As such, <strong>if the repo falls, all interest rates in the economy should fall. </strong>And that is why common people should be interested in the RBI’s monetary policy.</span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>For borrowers:</strong> A <strong>reduction in lending rates in the economy will clearly benefit loan takers </strong>as borrowers' EMIs (equated monthly installments) are likely to go down assuming banks will pass on the benefit of the rate cut. </span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>For depositors: Deposits rates will also go down, thus it will hit the depositors.</strong></span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Does every cut in repo rate signify a reduction in interest rate?</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>In the real world, the “transmission” of an interest rate cut (or increase) is not 100%. </strong>And that is why, <strong>even though when the RBI cut by 35 bps </strong>on Wednesday (7/08/2019), lay <strong>consumers may only receive a much lower reduction in the interest rate on their borrowings. </strong></span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Why rate cut by the RBI is not transmitted by the banks to their customers?</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This is <strong>due to a lot of factors </strong>— but <strong>primarily, it has to do with the health of the concerned commercial bank. </strong>Over the past few years, <strong>almost all banks</strong>, especially the ones in the public sector, <strong>have seen their profits plummet because many of their past loans have turned out to be non-performing assets.</strong></span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To cover for these losses, <strong>the banks have to use their existing funds, </strong>which<strong> </strong>would have otherwise gone to common consumers for fresh loans.</span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Will the rate cut bring investments?</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Investments</strong> <strong>depend essentially on the “real” interest rate. </strong>The real interest rate is the <strong>difference between the repo rate and retail inflation. </strong>As a variable, it <strong>allows an investor to compare the attractiveness of different economies</strong>. </span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Real interest rates in India have been rising,</strong> and that is <strong>one of the biggest reasons why investments are not happening. </strong> </span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The recent rate cut would <strong>reduce the real interest rate and hopefully attract more investment.</strong></span></span></li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 1852,
'title' => 'Banks’ exposure limits, lending norms eased for stressed NBFCs',
'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Context: </strong>The RBI on 7/08/ 2019 <strong>unveiled more measures to enhance credit flow to the cash-starved Non- Banking Financial Companies (NBFCs) sector.</strong></span></span></p>
<p> </p>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Highlights:</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has decided to <strong>raise banks’ exposure limit to a single NBFC to 20% of Tier-I capital of the bank</strong> as a step towards harmonization of the counter party exposure limit to single NBFC with that of the general limits.</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>The limit was 15% earlier while other sector enjoyed the 20% limit.</strong></span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has also decided to <strong>allow bank lending to register NBFCs</strong> (other than micro - financing institutions) <strong>for on-lending to agriculture </strong>(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 <strong>Priority Sector Lending</strong> (PSL).</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The <strong>RBI has also reduced risk weight for consumer credit</strong> (except credit card receivables), including personal loans, <strong>to 100% as against risk weight of 125% or higher, if warranted external rating of the counter party.</strong></span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance: </strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The <strong>measures are pertinent at a time when lending activity by many NBFCs have declined significantly</strong>, resulting in demand slowdown for a range of items including cars, tractors, white goods among others.</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The hike will <strong>enable banks to increase the credit flow to big NBFCs.</strong></span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Other steps:</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>24/7 NEFT transfer: </strong>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.</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Bill payment system expanded: </strong>To leverage the advantages of Bharat Bill Payment System (BBPS), the RBI has decided to permit all categories of billers (except prepaid recharges) who <strong>provide for recurring bill payments,</strong> currently covering 5 segments- DTH, electricity, gas, telecom, and water bills.</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>On tap bill payment: </strong>In order t<strong>o benefit from diversification of risk as also to encourage innovation and competition, </strong>the RBI has decided to offer ‘<strong>on tap’ authorization to entities </strong>desirous to function, operate or provide platforms for Bharat Bill Payment Operating Unit (BBPOU), Trade receivables Discounting System (TReDS) and White Label ATMs (WLAs).</span></span></li>
<li><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Digital Fraud Registry:</span></span></strong><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The RBI has proposed to facilitate the creation of a <strong>Central Payment Fraud Registry that will track digital transaction fraud.</strong></span></span></li>
</ul>
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'title' => 'Usha Thorat panel suggests liberal currency market for offshore users',
'description' => '<p><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Context: </span></span></strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The <strong>task force on offshore rupee markets</strong>, headed by <strong>former Dy. Governor Usha Thorat,</strong> has submitted its report to the RBI</span></span></p>
<p> </p>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Recommendations:</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:black">It has suggested for <strong>extending trading hours</strong> to improve access of overseas users and <strong>allowing Indian banks to freely offer prices to global clients around the clock. </strong></span></span></span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Allow users to <strong>undertake foreign exchange transactions up to $ 100 million in OTC currency derivative market without the need to establish underlying exposure.</strong></span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Enable rupee derivatives </strong>(settled in foreign currency) <strong>to be traded in the International Financial Services Centres </strong>(IFSC) <strong>in India.</strong></span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To facilitate <strong>non-residents to hedge their foreign exchange exposure onshore, </strong>the task force recommended <strong>establishing a central clearing and settlement mechanism </strong>for non-resident transactions in the onshore market.</span></span></li>
<li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Align the tax treatment with global standard</strong></span></span></li>
</ul>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance of the off shore rupee market:</strong></span></span></p>
<ul>
<li><span style="font-size:11pt"><span style="background-color:white"><span style="font-family:"Calibri","sans-serif""><span style="color:black">The offshore rupee market has been <strong>making a larger impact on the local currency market</strong> helping with <strong>better price discovery and driving volatility,</strong> prompting RBI to look for ways to <strong>ensure greater stability for the rupee. </strong></span></span></span></span></li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 2121,
'title' => 'RBI to link loan EMI to external benchmarks',
'description' => '<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0in"> </p>
<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) on Wednesday made it mandatory for banks to link all their fresh retail loans to an external benchmark, effective October 1 , the central bank’s repo rate being one such benchmark.</span></span></p>
<p style="margin-right:0in"> </p>
<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0in"> </p>
<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">When the borrower stops paying interest or principal on a loan, the lender will lose money. Such a loan is known as Non-Performing Asset (NPA). Indian Banking industry is seriously affected by Non-Performing Assets<span style="background-color:white"><span style="color:#333333">. This move is expected to reduce credit risk effectively.</span></span></span></span></p>
<p style="margin-right:0in"> </p>
<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:12.0pt">Details</span></strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The state-run banks have introduced repo-linked products for floating-rate home and auto loans, but the </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="color:#333333">RBI </span></a><span style="background-color:white"><span style="color:#333333">said </span></span><a href="https://www.business-standard.com/topic/loans" target="_blank"><span style="color:#333333">loans </span></a><span style="background-color:white"><span style="color:#333333">to micro, small and medium enterprises (MSMEs) should also be linked to an external benchmark.</span></span></span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The <strong>three external benchmarks</strong> the </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="color:#333333">RBI </span></a><span style="background-color:white"><span style="color:#333333">proposed are <strong>policy repo rate</strong>, <strong>the Government of India’s three-month and six-month treasury bill yields published by Financial Benchmarks India Private (FBIL</strong>), or <strong>any other benchmark market interest rate published by FBIL.</strong></span></span></span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The central bank amended its master directions on interest rate on advances too, reflecting the changes.Some banks do calculate their marginal cost of funds-based lending rate (MCLR) based on the three- and six-month treasury bills.</span></span></span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="background-color:white"><span style="color:#333333">RBI </span></span></a><span style="background-color:white"><span style="color:#333333"> has been observing that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current MCLR framework has not been satisfactory.</span></span></span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">Banks are free to decide the spread over the external benchmark. However, </span></span><a href="https://www.business-standard.com/topic/credit-risk" target="_blank"><span style="background-color:white"><span style="color:#333333">credit risk </span></span></a><span style="background-color:white"><span style="color:#333333">premium may undergo change only when borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract.</span></span></span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">Other components of spread, including operating cost, could be altered once in three years. The interest rate under external benchmark should be reset at least once in three months.</span></span></span></span></p>
</li>
</ul>
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(int) 9 => object(Cake\ORM\Entity) {
'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 2157,
'title' => 'RBI panel to assess adequacy of Forex reserves',
'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) is working on putting in place a formal mechanism to assess the adequacy of its foreign exchange, or forex, reserves. This is important as India’s external liabilities have been higher than its forex reserves in recent years.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Bimal Jalan Committee on Economic Capital Framework, had noted that the RBI’s forex reserves in 2008 were higher than country’s external debt, a position which has reversed in 2019.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">At present, India’s foreign exchange reserves (more than $400 billion) are significantly lower than the country’s total external liabilities ($1 trillion) and even lower than total external debt ($500 billion).</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This position is opposite to that in 2008 when India’s foreign exchange reserves, at $310 billion, exceeded the then total external debt of about US$224 billion and provided a much larger coverage of total external liabilities that amounted to about $426 billion.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI may be required to increase the size of its forex reserves with its concomitant implications for the balance sheet, risks and desired economic capital.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Centre is expected to raise around $10 billion from overseas markets through foreign currency bonds, on which it will have to bear currency risk. This also make up significant part of liability.</span></span></p>
</li>
</ul>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Forex Reserves</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Foreign exchange reserves are cash and other reserve assets held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.</span></span></p>
</li>
</ul>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Foreign currency assets, gold, special drawing rights and reserve tranche position in the International Monetary Fund are the main components of India’s forex reserves.</span></span></p>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4064,
'title' => 'RBI announces relief measures',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">With an aim to curtail the impact of the coronavirus pandemic and the subsequent 21-day lockdown, the RBI has announced a slew of economic measures.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It may be noted that the MPC meeting, which was earlier scheduled for March 31-April 3, was advanced to March 25-27 in view of the deteriorating economic situation.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India cut its repo rate by 75 basis points (bps) to 4.4 percent. Besides this, the central bank also cut the cash reserve ratio (CRR) for the banks by 100 bps to 3 percent with effect from March 28 for the next one year.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The reverse repo rate has also been reduced by 90 basis points to 4 percent in a bid to maintain financial stability and revive growth.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI to undertake repo operation of up to Rs 1 lakh crore to infuse liquidity into market.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Cash reserve ratio of all banks reduced by 100 bps to 3 percent with effect from March 28 for 1 year; to release Rs 1.37 lakh crore liquidity.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans. Moratorium on term loan, deferring of interest on working capital will not classify as default, not to impact credit history of borrower.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Interest on working capital facilities to be deferred by three months and such deferment not to be considered for NPA. This is one of the key takeaways from RBI's announcements as many people have been financially affected due to the lockdown implemented to prevent novel coronavirus from spreading in India.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has also been conducting many other monetary operations for better liquidity management as it scrambles to keep the banking sector healthy in a bid to support the economy in the wake of the novel coronavirus pandemic.</span></span></p>
</li>
</ul>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Cash Reserve Ratio (CRR)</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises. The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Statutory Liquidity Ratio (SLR)</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Every bank must have a specified portion of their Net Demand and Time Liabilities (NDTL) in the form of cash, gold, or other liquid assets by the day’s end. The ratio of these liquid assets to the demand and time liabilities is called the Statutory Liquidity Ratio (SLR). An increase in the ratio constricts the ability of the bank to inject money into the economy.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Repo rate</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. It is a form of short-term borrowing, mainly in government securities.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Reverse repo rate</strong></span></span></p>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.</span></span></p>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4273,
'title' => 'RBI’s handling of ‘The Great Lockdown’',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Reserve Bank of India Governor Shaktikanta Das unveiled the second round of policy announcements<strong> </strong>to counter the debilitating effects of the spread of Covid-19 on the Indian economy.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The International Monetary Fund has christened the ongoing economic crisis<strong> </strong>due to Covid-19 as “The Great Lockdown” and reckons it to be the worst recession that the world would have faced since the Great Depression that happened in the first half of the 20th Century.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the rest of the world is certain to contract, India is hoping to be one of the few countries that expand their overall GDP, regardless of how small that increase may be.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI had announced a flurry of measures essentially trying to do two things: One, provide regulatory forbearance (that is, greater leniency) in recognising non-performing assets; Two, it tried to boost the liquidity in the financial system so that businesses do not starve of funds. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To achieve the latter, it cut the <strong>repo</strong> <strong>rate </strong>(the rate at which it lends money to the banking system) and the reverse repo rate (the interest rate it pays banks when they park their money with the RBI). </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It also started <strong>Targeted Long Term Repo</strong> <strong>Operations</strong> (<strong>TLTROs</strong>) — essentially, this facility allowed banks to borrow money from the RBI at the repo rate, which is far lower than the prevailing interest rate in the market.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The hope was that banks would use cheaper loans to extend cheaper credit to businesses and that will help businesses survive this tumultuous period.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has cut the <strong>reverse repo</strong> <strong>rate</strong> further by 25 basis points (100 basis points make up one full percentage point). The reverse repo rate now stands at 3.75 per cent while the repo rate is 4.40 per cent.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The idea behind repeatedly cutting reverse repo more than the repo is two-fold: On the one hand, the RBI is incentivising banks to borrow from it at low rates and lend it forward to businesses, yet, on the other, it is disincentivising them from coming back and parking these funds with the RBI.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The second key thing that the RBI has done is to announce another <strong>TLTRO</strong> of Rs 50,000 crore but this time it has mandated that 50 per cent of this amount borrowed by the banks must go to small and mid-sized Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The benefits of this move are two-fold. One, it provides more liquidity. But more importantly, it also provides targeted boost to those institutions that are most hit by the economic slowdown and, as such, most in need of funds to survive themselves and boost economic activity at the bottom of the pyramid (that is, the poorest customers).</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The RBI has allowed Scheduled Commercial Banks to reduce their <strong>Liquidity</strong> <strong>Coverage</strong> <strong>Ratio</strong> from 100 per cent to 80 per cent with immediate effect. With this being reduced to 80 per cent, banks would have more cash to deal with.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4295,
'title' => 'Reverse repo rate as benchmark interest rate',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">unlike in the past, when the RBI used its repo rate as the main instrument to tweak the interest rates, today, it is the reverse repo rate that is effectively setting the benchmark.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The Indian economy’s slowdown during 2018 and 2019 is becoming much worse in 2020 with the spread of COVID-19 and the stalling of almost all economic activity. Like most other central banks in the world, the Reserve Bank of India, too, has tried to cut interest rates to boost the economy.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The repo rate is the rate at which the RBI lends money to the banking system (or banks) for short durations. The reverse repo rate is the rate at which banks can park their money with the RBI.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">With both kinds of repo, which is short for repurchase agreement, transactions happen via bonds, one party sells bonds to the other with the promise to buy them back (or repurchase them) at a later specified date.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Under normal circumstances, that is when the economy is growing, the repo rate is the benchmark interest rate in the economy because it is the lowest rate of interest at which funds can be borrowed.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It forms the floor rate for all other interest rates in the economy — for instance, the interest rate consumers would have to pay on a car loan or the interest rate they will earn from a fixed deposit etc.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Over the last couple of years, India’s economic growth has decelerated sharply. This has happened for a variety of reasons and has essentially manifested in lower consumer demand.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">As such, the banking system is now flush with liquidity for two broad reasons: on the one hand, the RBI is cutting repo rates and other policy variables like the Cash Reserve Ratio to release additional and cheaper funds into the banking system so that banks could lend.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The excess liquidity in the banking system has meant that during March and the first half of April, banks have been using only the reverse repo (to park funds with the RBI) instead of the repo (to borrow funds). In other words, the reverse repo rate has become the most influential rate in the economy.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The idea is to make it less attractive for banks to do nothing with their funds because their doing so hurts the economy and starves the businesses that genuinely need funds.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It all depends on the revival of consumer demand in India. If the disruptions induced by the outbreak of novel coronavirus disease continue for a long time, consumer demand, which was already quite weak, is likely to stay muted and businesses would feel no need to borrow heavily to make fresh investments.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">It is also important for banks to be confident about new loans not turning into NPAs, and adding to their already high levels of bad loans. Until banks feel confident about the prospects of an economic turnaround, cuts in reverse repo rates may have little impact.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4374,
'title' => 'RBI’s support to mutual funds',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) announced a special liquidity window of Rs 50, 000 crore to bail out mutual funds hit by the turmoil in the debt fund segment that led to the closure of six credit risk funds by Franklin Templeton Mutual Fund.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds which have intensified in the wake of redemption pressures related to closure of six debt schemes of Franklin Templeton and potential contagious effects.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Under the special liquidity facility for mutual funds (SLF-MF), the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail the funding till May 11 or up to utilization of the allocated amount, whichever is earlier. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Funds availed under the SLF-MF will be used by banks exclusively for meeting the liquidity requirements of MFs.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Banks can extend loans to mutual funds and undertake the outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI’s liquidity offer is expected to bring some degree of comfort in the debt market which is under huge redemption pressure, especially in the credit risk fund category which has assets of over Rs 55,000 crore. The debt segment has witnessed outflows of Rs 1.94 lakh crore in the month of March.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The RBI says exposures under this facility will not be reckoned under the Large Exposure Framework (LEF), thereby giving greater comfort for bank to borrow under this window. The support extended to MFs under the SLF-MF will be exempted from banks’ capital market exposure limits.</span></span></p>
</li>
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(int) 14 => object(Cake\ORM\Entity) {
'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4636,
'title' => 'Impact of RBI’s decision to cut repo rate',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) slashed its key policy rates to stabilize the financial system and tackle the economic fallout from the ongoing nationwide lockdown to contain the spread of the coronavirus pandemic.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI panel unexpectedly cut the repo rate by 40 basis points to 4 per cent and the reverse repo rate by 40 basis points to 3.35 per cent. In another significant move, the RBI also announced extension of moratorium on loan repayments by another three months to August 31.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The 40 bps cut in the repo rate will make funds cheaper for banks thus aiding them to bring down lending rates. This comes at a time when credit off-take is sluggish and investments have halted in the economy. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">EMIs on home, auto, personal and term loan rates are expected to come down in the coming days. However, banks will also slash deposit rates on various tenures to manage its asset-liability position. Savers and pensioners will see their returns coming down.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The 40 bps cut in reverse repo rate, the interest rate that the RBI offers to banks for funds parked with the central bank, will prompt banks to make available funds for the productive sectors of the economy. Now, banks have been parking close to Rs 7-8 lakh crore at the RBI’s reverse repo window instead of lending these funds.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has now extended the moratorium on term loan repayment by another three months to August 31, 2020. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This will help borrowers, especially corporates which have halted production and are facing cash flow problems, to get more time to stabilize their operations and restart their units. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">All borrowers, including home loan, term loans and credit card outstandings, will get the benefit of the moratorium.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Even though the lockdown may be lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Even as various measures initiated by the government and the Reserve Bank work to mitigate the adverse impact of the pandemic on the economy, it is necessary to ease financial conditions further.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4725,
'title' => 'RBI’s extension of loan moratorium',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Extension in moratorium on term loan installments has provided a major relief to borrowers and companies facing cash flow problems, resulting from reduction in income or no income due to job losses. </span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For leveraged companies facing the cash crunch, the moratorium provides survival time. The expectation among the regulators and the banking fraternity is that once the lockdown eases fully in due course, economic activity will come back on track, enabling restoration of income levels of people affected by the sudden stall.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI permitted banks and NBFCs to allow a further 3-month moratorium, on the payment of instalments in respect of term loans outstanding as on March 31, 2020. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Lenders have also been allowed to convert the accumulated interest into a funded interest term loan to be repaid by March 31, 2021.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Individuals and companies who have availed term loans — such as home loans, car loans, corporate loans and credit card loans — can avail or seek extension of moratorium facility.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For large lenders like State Bank of India, ICICI Bank, Kotak Mahindra Bank and Axis Bank, the percentage of loans under moratorium is under 30 per cent. For Bandhan Bank, it is as high as 71 per cent since it lends primarily to micro units.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Banks expect more people to opt for moratorium facility as sectors such as aviation, tourism, hospitality, transportation and start-ups have seen not just salary cuts but also layoffs.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the Indian economy is expected to experience a significant contraction this year, any revival in economic activity is seen to be a long-drawn process.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Interest will continue to accrue on the outstanding portion of the loan during the moratorium period. For someone not facing any cash flow issues, moratorium is of no benefit.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Banks are unlikely to face problems for the next three months as regulatory relaxations, will provide them a breather till September in recognising NPAs but NPAs are expected to shoot up from the current level of around Rs 10 lakh crore, when these loans come up for repayments.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 4846,
'title' => 'Reasons for increase in India’s FOREX reserves',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">India’s forex reserves have crossed $500 billion for the first time ever in the week ended June 5, 2020. India can now depend on its soaring foreign exchange reserves to tackle any crisis on the economic front. </span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the situation is gloomy on the economic front with GDP set to contract for the first time in 40 years and manufacturing activity and trade at standstill, this is one data point that India can cheer about amidst the Covid-19 pandemic.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Forex reserves are external assets in the form of gold, SDRs (special drawing rights of the IMF) and foreign currency assets (capital inflows to the capital markets, FDI and external commercial borrowings) accumulated by India and controlled by the Reserve Bank of India.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The International Monetary Fund says official foreign exchange reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Foreign investors had acquired stakes in several Indian companies in the last two months. While the FDI inflow stood at $4 billion in March, it amounted to $2.1 billion in April.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs) have now returned to the Indian markets and bought stocks worth over $2.75 billion in the first week of June. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">On the other hand, the fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion. </span></span></p>
</li>
</ul>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance of rise in FOREX reserves</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The rising reserves have also helped the rupee to strengthen against the dollar. The foreign exchange reserves to GDP ratio is around 15 per cent. </span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
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'title' => 'Increasing NPAs',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The gross non-performing asset (NPA) ratio of all commercial banks is likely to increase from 8.5 percent in March 2020 to 12.5 percent by March 2021 under the baseline scenario in the wake of the disruption caused by the Covid-19 pandemic, according to the Reserve Bank of India (RBI).</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">According to the RBI, nearly 50 percent of the customers, accounting for around half of outstanding bank loans, opted to avail the benefit of the relief measures, loan moratorium, to tackle the lockdown impact. </span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Among the bank groups, the GNPA ratio of public sector banks may increase from 11.3 percent in March 2020 to 15.2 percent by March 2021 under the baseline scenario.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Sectorally, the quality of bank loans to the services sector worsened in March 2020. The GNPA ratio of the retail loan sector also edged up. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Among major sub-sectors within the industry, NPA ratios in respect of construction and gems and jewellery sectors swelled up in March 2020. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">On the other hand, the infrastructure sector (with a share of 36.2 percent in bank credit to the industrial sector), basic metals (11.3 percent), and electricity (17.5 percent) have shown a perceptible decline in NPA ratios.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The central government finances are likely to suffer some deterioration in 2020-21, with fiscal revenues badly hit by COVID-19-related disruptions even as expenditures come under strain on account of the fiscal stimulus. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For State finances, the additional burden of lower federal transfers may accentuate downside risks to the outlook.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Bank credit, which had considerably weakened during the first half of 2019-20, slid down further in the subsequent period with the moderation becoming broad-based across bank groups.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The capital to risk-weighted assets ratio of commercial banks edged down to 14.8 per cent in March 2020 from 15 percent in September 2019, while their GNPA ratio declined to 8.5 percent from 9.3 percent and the provision coverage ratio PCR improved to 65.4 per cent from 61.6 percent over this period.</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 5254,
'title' => 'Pre-packs for faster insolvency',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Ministry of Corporate Affairs (MCA) has set up a committee to look into the possibility of including what are called “pre-packs” under the current insolvency regime to offer faster insolvency resolution.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Slow progress in the resolution of distressed companies has been one of the key issues raised by creditors regarding the Corporate Insolvency Resolution Process.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A pre-pack is an agreement for the resolution of the debt of a distressed company through an <strong>agreement</strong> between <strong>secured creditors </strong>and<strong> investors</strong> instead of a public bidding process. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This system of insolvency proceedings has become an increasingly popular mechanism for insolvency resolution in the UK and Europe over the past decade. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In India’s case, such a system would likely require that financial creditors agree on terms with potential investors and seek approval of the resolution plan from the National Company Law Tribunal (NCLT). </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This process would likely be completed much faster than the traditional CIRP which requires that the creditors of the distressed company allow for an open auction for qualified investors to bid for the distressed company.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The pre-pack would act as an important alternative resolution mechanism to the CIRP and would help lower the burden on the NCLTs.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In the case of pre-packs, the incumbent management retains control of the company until a final agreement is reached. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The transfer of control from the incumbent management to an insolvency professional as is the case in the CIRP leads to disruptions in the business and loss of some high-quality human resources and asset value.</span></span></p>
</li>
</ul>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Drawbacks of pre-packaged insolvency method</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The key drawback of a pre-packaged insolvency resolution is the reduced transparency compared to the CIRP as financial creditors would reach an agreement with a potential investor privately and not through an open bidding process. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This could lead to stakeholders such as operational creditors raising issues of fair treatment when financial creditors reach agreements to reduce the liabilities of the distressed company.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Unlike in the case of a full-fledged CIRP which allows for price discovery, in the case of a pre-pack, the NCLT would only be able to evaluate a resolution plan based on submissions by the creditors and the investor.</span></span></p>
</li>
</ul>
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(int) 19 => object(Cake\ORM\Entity) {
'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 5518,
'title' => 'RBI transfers money to contingency fund',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The central bank’s main risk provision accounts – Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS) — together now amount to Rs 13.88 lakh crore.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Contingency Fund is a specific provision meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks, and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Central Board of the RBI recently approved the transfer of Rs 57,128 crore as surplus or dividend to the Central government for the accounting year 2019-20, sharply lower by 67.5 percent from Rs 1.76 lakh crore that it paid to the government last year.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">As per Section 47 of the RBI Act, profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The government, which was looking for funds to bridge the deficit, sought higher surplus from the RBI pointing out the high reserves/ surplus retained by the RBI. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It was initially resisted by the RBI which was then headed by Urjit Patel. The RBI relented later appointed the Bimal Jalan committee to work out the modalities of the transfer.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk, and movement in gold prices. Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The unrealised gains or losses on revaluation in foreign dated securities are recorded in the Investment Revaluation Account Foreign Securities (IRA-FS).</span></span></p>
</li>
</ul>
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'tag' => 'Monetary Policy & RBI',
'keyword' => 'monetary-policy-rbi',
'id' => (int) 5368,
'title' => 'RBI’s new loan recast scheme',
'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In its monetary policy review, the Reserve Bank of India has given the green signal to a loan restructuring scheme for stressed borrowers.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A special window providing one-time loan restructuring to companies and individuals, it will provide relief specifically to those impacted by the Covid-19 pandemic.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Only those companies and individuals whose loans accounts are in default for not more than 30 days as on March 1, 2020, are eligible for one-time restructuring. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For corporate borrowers, banks can invoke a resolution plan till December 31, 2020 and implement it till June 30, 2021. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Such loan accounts should continue to be standard till the date of invocation. The one-time restructuring window is available across sectors.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It is expected to provide relief to companies that were servicing loan obligations on time but could have found it difficult after March, as the pandemic affected their revenues. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Companies that were already in default for more than 30 days as on March 1, however, cannot avail this facility.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For personal loans, the resolution plan can be invoked till December 31, 2020 and will be implemented within 90 days thereafter. This too is for accounts classified as standard, but not in default for more than 30 days as on March 1.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has set up a five-member expert committee headed by K V Kamath, former Chairman of ICICI Bank, which will make recommendations on the financial parameters required. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">According to the RBI’s systemic risk survey, the three sectors most adversely affected by the pandemic are tourism and hospitality, construction and real estate, and aviation.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The biggest impact will be that banks will be able to check the rise in non-performing assets (NPAs) to a great extent.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has built in safeguards in the resolution framework to ensure it does not lead to ever-greening of bad loans as in the past.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has said that the term of loans under resolution cannot be extended by more than two years. In the case of multiple lenders to a single borrower, banks need to sign an ICA. </span></span></p>
</li>
</ul>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>New changes</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The earlier restructuring schemes did not have any entry barrier, unlike the current scheme that is available only for companies facing COVID-related stress, as identified by the cut-off date of March 1. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Strict timelines for invocation of resolution plan and its implementation have been defined in the scheme, unlike in the past when this was largely open-ended. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The structuring of the scheme makes signing of the ICA largely mandatory for all lenders once the resolution plans has been majority-voted for, otherwise they face twice the amount of provisioning required. </span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Independent external evaluation, process validation, and specific post-resolution monitoring are further safeguards.</span></span></p>
</li>
</ul>
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<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring announcements in the past had raised concerns about the efficacy of the restructuring mechanism, as most of the restructured assets eventually slipped into NPAs.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The committee was tasked to recommend the sector-specific benchmark ranges for financial parameters to be factored into each resolution plan for borrowers with an aggregate exposure of Rs 1,500 crore or above at the time of invocation. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The process and conditions are being announced to ensure there is no evergreening of bad loans, and only genuine cases directly hit by Covid-19 stress are provided the facility of one-time restructuring. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The programme is being implemented as a six-month moratorium on repayments ended on August 31 and the economy faced contraction amid a continuing lockdown in several states.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath committee noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This effectively means Rs 37.72 crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath panel has said companies in sectors such as retail trade, wholesale trade, roads, and textiles are facing stress. Sectors that have been under stress pre-COVID include NBFCs, power, steel, real estate, and construction.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has broadly accepted the committee’s recommendation to take into account five financial ratios and sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring can be done via the extension of residual tenor by a maximum of two years with or without moratorium and may include conversion of loan into equity. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Any default by the borrower with any of the lenders that signed an ICA during the monitoring period would trigger a review period of 30 days.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">If the borrower remains in default at the end of the period, all lenders would downgrade the account as a non-performing asset (NPA).</span></span></p>
</li>
</ul>
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<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring announcements in the past had raised concerns about the efficacy of the restructuring mechanism, as most of the restructured assets eventually slipped into NPAs.</span></span></p>
<p style="margin-right:0cm"> </p>
<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p>
<ul>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The committee was tasked to recommend the sector-specific benchmark ranges for financial parameters to be factored into each resolution plan for borrowers with an aggregate exposure of Rs 1,500 crore or above at the time of invocation. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The process and conditions are being announced to ensure there is no evergreening of bad loans, and only genuine cases directly hit by Covid-19 stress are provided the facility of one-time restructuring. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The programme is being implemented as a six-month moratorium on repayments ended on August 31 and the economy faced contraction amid a continuing lockdown in several states.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath committee noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This effectively means Rs 37.72 crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath panel has said companies in sectors such as retail trade, wholesale trade, roads, and textiles are facing stress. Sectors that have been under stress pre-COVID include NBFCs, power, steel, real estate, and construction.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has broadly accepted the committee’s recommendation to take into account five financial ratios and sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans.</span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring can be done via the extension of residual tenor by a maximum of two years with or without moratorium and may include conversion of loan into equity. </span></span></p>
</li>
<li>
<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Any default by the borrower with any of the lenders that signed an ICA during the monitoring period would trigger a review period of 30 days.</span></span></p>
</li>
<li>
<p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">If the borrower remains in default at the end of the period, all lenders would downgrade the account as a non-performing asset (NPA).</span></span></p>
</li>
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The surge was driven by rise in foreign currency assets, a major component of the overall reserves.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reasons for increase</span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">The increase in forex reserves could partly be attributed to rising investments by foreign investors in Indian capital markets. The net foreign portfolio investment (FPI) in equity markets in till March 15, 2019 was $2.9 billion, highest since January 2018. Indian debt markets also have seen positive inflow of $1.2 billion till March 15, 2019.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Forex Reserves in March 2019</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Foreign currency assets (FCA): </span></strong><span style="font-family:"Quicksand",serif">Increased by $3.546 billion to $377.773 billion.</span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Gold reserves: It rose by $38.9 million to $23.408 billion.</span></strong></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Special drawing rights (SDRs) with International Monetary Fund (IMF): </span></strong><span style="font-family:"Quicksand",serif">It rose by $5.9 million to $1.461 billion.</span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">RBI’s reserve position with IMF: </span></strong><span style="font-family:"Quicksand",serif">It increased by $12.1 million to $2.995 billion.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Forex Reserves </span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">They are reserve assets held by central bank of the country in foreign currencies. These reserve acts as buffer to be used in challenging times. They are also used as back liabilities and also to influence monetary policy. Almost all countries in world, regardless of size of their economy, hold significant forex reserves. </span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Components of India’s FOREX Reserves:</span></strong><span style="font-family:"Quicksand",serif"> Foreign currency assets (FCAs), Special Drawing Rights (SDRs), Gold Reserves and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of India’s forex Reserves and is expressed in terms of US dollars.</span></span></span></p> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'forex-reserves-rises-405-billion-march-2019', 'image' => 'https://www.mediafire.com/convkey/1777/3x7aja05fr1n54w6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/1777/3x7aja05fr1n54w6g.jpg', 'metatitle' => 'Forex reserves rises to $405.6 billion in March 2019', 'metakeyword' => 'In Banking Current Affairs, Reserve Bank of India,RBI, India's foreign exchange, forex reserves, surged, $3.602 billion, to $405.638 billion in week to March 15, 2019. ', 'metadescription' => 'According to the Reserve Bank of India (RBI), India's foreign exchange (forex) reserves surged by $3.602 billion to $405.638 billion in week to March 15, 2019. ', 'author' => 'Nikhil Paigude', 'downlaodpdf' => 'https://www.mediafire.com/file/4zb51b2a3bkr598/Forex_reserves_rises.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 1 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 683, 'title' => 'Monetary Policy: RBI cuts repo rate by 25 bps to 6%', 'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Reserve Bank of India (RBI) in its first bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 6%. This decision was taken by RBI’s six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das in a 4-2 vote. It has maintained the policy stance at "neutral". It has lowered GDP growth forecast for current fiscal to 7.2</span>%<span style="font-family:"Quicksand",serif"> from the earlier estimate of 7.4%.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Policy Rates</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Repo rate (repurchase rate):</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.0.</span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reverse Repo Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 5.75%.</span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Marginal Standing Facility Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.25%.</span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Bank Rate:</span></strong><span style="font-family:"Quicksand",serif"> It was changed by 25 basis points to 6.25%.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Note:</span></strong><span style="font-family:"Quicksand",serif"> It was first back-to-back rate cut by the central bank since MPC was formed in late 2016. In its last policy meet (February 2019) and the first under Governor Shaktikanta Das, RBI had lowered repo rate by 25 basis points to 6.25% and changed policy stance to neutral from calibrated tightening, adopted in October 2018.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Key Terms</span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Repo rate (repurchase rate)</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which RBI lends to banks for short periods against government securities. Its objective is to inject liquidity in the system. </span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Increase in repo rate squeezes liquidity out of system and increase interest rates, which will then reduce demand for funds and reduce inflation. </span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Similarly, when decreased, it injects liquidity in system making it cheaper for banks to borrow money. </span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">This is done by RBI by buying government securities/bonds from banks with agreement to sell them back at fixed rate.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reverse repo</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which banks lend funds to RBI or RBI borrows funds from other banks in short term. </span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">This is done by RBI selling government securities/ bonds to banks with commitment to buy them back at future date.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Marginal Standing Facility (MSF)</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate at which scheduled banks can borrow funds overnight from RBI against government securities, if later doesn’t have the required eligible securities above SLR limit. It is very short term borrowing scheme for scheduled banks to meet.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Bank Rate</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is rate charged by RBI for lending funds to commercial banks. It influences lending rates of commercial banks. Higher bank rate results in higher lending rates by banks. RBI can resort to raising the bank rate in order to curb liquidity and vice versa.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Cash Reserve Ratio (CRR)</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It certain percentage of total deposits that commercial banks are required to maintain in form of cash reserve with central bank. RBI uses it to drain out excessive money from system. This money earns no interest.</span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Statutory Liquidity Ratio (SLR)</span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">It is portion of bank deposits that banks have to maintain or invest in government bonds in form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc. It has to be maintained at close of business on every day. RBI does not pay any interest to banks for SLR.</span></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'monetary-policy-rbi-cuts-repo-rate-by-25-bps-to-6', 'image' => 'https://www.mediafire.com/convkey/f2f5/dc3zudjfhcgprf36g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/f2f5/dc3zudjfhcgprf36g.jpg', 'metatitle' => 'Monetary Policy: RBI cuts repo rate by 25 bps to 6%', 'metakeyword' => 'Reserve Bank of India, RBI Current Affairs, RBI Current Affair, Current Affairs of RBI', 'metadescription' => 'RBI in its first bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 6%.', 'author' => 'Nikhil Paigude', 'downlaodpdf' => 'https://www.mediafire.com/file/qz74cm8gpc8cvdx/Monetary_Policy.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 2 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 851, 'title' => 'RBI first APAC central bank to begin interest rate easing cycle: Fitch', 'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">According to Fitch Ratings Reserve Bank of India (RBI) is the first central bank in the Asia-Pacific (APAC) region to begin explicit interest rate easing cycle buoyed by benign food inflation and easier global financial condition.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">RBI Rate Cuts</span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Monetary Policy Committee (MPC), headed by RBI Govenor Shaktikanta Das had cut rates in February and April 2019, citing prospects of benign inflation. In the four months of 2019, RBI has cut policy interest rates twice by 0.25% each to one-year low of 6</span>%<span style="font-family:"Quicksand",serif">. This was first back-to-back rate cut since MPC was formed in late 2016. </span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Reasons for explicit easing cycle </span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Benign food inflation and easier global financial conditions following US Fed’s shift to a more dovish policy stance. Inflation at 2.9% has remained within RBI’s comfort zone of 4 per cent (+/- 2 per cent). </span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-family:"Quicksand",serif">Fitch Projections</span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Fitch predicts that RBI may look for opportunities for further easing.<strong> </strong>But, modest fiscal slippage, relative to central government’s targets in recent years, has resulted in a stalling of fiscal consolidation. Election Campaign promises to support farmers’ incomes, including direct cash transfers after elections, will add to spending pressures in the current financial year.</span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-family:"Quicksand",serif">Fitch has rated ‘BBB-’ on India, the lowest investment grade rating, with stable outlook. According to it, India’s ratings balance strong medium-term growth outlook and relative external resilience, with strong foreign reserve buffers, against high public debt, financial sector fragilities, and some lagging structural factors.</span></span></span></p> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-1st-apac-central-bank-interest-rate-easing-cycle', 'image' => 'https://www.mediafire.com/convkey/4874/s9wq4u4b56d449q6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/4874/s9wq4u4b56d449q6g.jpg', 'metatitle' => 'RBI 1st APAC central bank to begin interest rate easing cycle', 'metakeyword' => 'In Banking Current Affairs, Fitch Ratings, Reserve Bank of India, first central bank, Asia-Pacific (APAC) region,interest rate easing cycle', 'metadescription' => ' Fitch Ratings Reserve Bank of India first central bank in the Asia-Pacific region to begin interest rate easing cycle ', 'author' => 'Nikhil Paigude', 'downlaodpdf' => 'https://www.mediafire.com/file/ga87z9b7rds8d6e/RBI_first_APAC.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 3 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 1381, 'title' => 'Monetary Policy: RBI cuts repo rate by 25 bps to 5.75%', 'description' => '<p style="margin-left:0in; margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reserve Bank of India (RBI) in its second bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 5.75%. This decision was unanimously taken by RBI’s six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das in 6-0 vote. It also changed its monetary policy stance to “accommodative” from “neutral” stating that “there is scope to accommodate growth concerns and reinvigorate private investment activity”. It was third such rate cut of 25 basis points in calendar year 2019. With this, RBI’s main policy rate now stands at level touched almost nine years ago in July 2010. It also lowered its growth forecast to 7</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">% f</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">or 2019-20 from the April view of 7.2</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Policy Rates</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Repo rate (repurchase rate):</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 5.75</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reverse Repo Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 5.50</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Marginal Standing Facility Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 6.0</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Bank Rate:</span></span></strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif""> It was changed by 25 basis points to 6.0</span></span><span style="font-size:9.0pt"><span style="font-family:"Times New Roman","serif"">%</span></span><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Key Terms</span></span></strong></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Repo rate (repurchase rate)</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which RBI lends to banks for short periods against government securities. Its objective is to inject liquidity in the system.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Increase in repo rate squeezes liquidity out of system and increase interest rates, which will then reduce demand for funds and reduce inflation.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Similarly, when decreased, it injects liquidity in system making it cheaper for banks to borrow money.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">This is done by RBI by buying government securities/bonds from banks with agreement to sell them back at fixed rate.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reverse repo</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which banks lend funds to RBI or RBI borrows funds from other banks in short term.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">This is done by RBI selling government securities/ bonds to banks with commitment to buy them back at future date.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Marginal Standing Facility (MSF)</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate at which scheduled banks can borrow funds overnight from RBI against government securities, if later doesn’t have the required eligible securities above SLR limit. It is very short term borrowing scheme for scheduled banks to meet.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Bank Rate</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is rate charged by RBI for lending funds to commercial banks. It influences lending rates of commercial banks. Higher bank rate results in higher lending rates by banks. RBI can resort to raising the bank rate in order to curb liquidity and vice versa.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Cash Reserve Ratio (CRR)</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It certain percentage of total deposits that commercial banks are required to maintain in form of cash reserve with central bank. RBI uses it to drain out excessive money from system. This money earns no interest.</span></span></span></span></li> </ul> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Statutory Liquidity Ratio (SLR)</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">It is portion of bank deposits that banks have to maintain or invest in government bonds in form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc. It has to be maintained at close of business on every day. RBI does not pay any interest to banks for SLR.</span></span></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'monetary-policy-rbi-cuts-repo-rate-by-25-bps-to', 'image' => 'https://www.mediafire.com/convkey/9528/z96k5mi9i6cphv46g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/9528/z96k5mi9i6cphv46g.jpg', 'metatitle' => 'Monetary Policy: RBI cuts repo rate by 25 bps to 5.75%', 'metakeyword' => 'Reserve Bank of India, RBI Current Affairs, RBI Current Affair, Current Affairs of RBI', 'metadescription' => 'RBI in its first bimonthly monetary policy review for financial year 2019-20 has cut the repo rate by 25 basis points(bps) or 0.25% to 5.75%.', 'author' => 'Nikhil Paigude', 'downlaodpdf' => 'https://www.mediafire.com/file/nkifq4x5kaii7yq/Monetary_Policy.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 4 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 1384, 'title' => 'RBI scraps charges on NEFT and RTGS Transfers', 'description' => '<p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">Reserve Bank of India (RBI) has announced waiving off charges are applied on bank transfers carried out either by National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS). This decision was taken to boost digital transactions and asked banks to pass on the benefits to customers.</span></span></span></span></p> <p style="margin-left:0in; margin-right:0in; text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">NEFT and RTGS</span></span></strong></span></span></p> <ul> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">RTGS and NEFT are bank transfer devices that allows individual to transfer funds electronically from one account to another. RTGS is meant for large-value instantaneous fund transfers while NEFT System is used for fund transfers up to Rs 2 lakh.</span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">RTGS transactions happen in real time, hence the beneficiary bank receives instruction to transfer funds immediately and transfer is instantaneous. Whereas, NEFT settlements happen in batches, as a result, there might be slight delay for actual transfer to take place from time the request for transfer. </span></span></span></span></li> <li style="text-align:justify"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="font-size:9.0pt"><span style="font-family:"Quicksand","serif"">The minimum amount that can be remitted through RTGS is Rs 2 lakh, and there is no upper ceiling. In NEFT there is no minimum transfer limit, but there is Rs 10 lakh limit per transaction with no upper limit on the number of transactions.</span></span></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-scraps-charges-neft-rtgs-tansfers', 'image' => 'https://www.mediafire.com/convkey/f041/mw5ejclm7m441tq6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/f041/mw5ejclm7m441tq6g.jpg', 'metatitle' => 'RBI scrap charges on NEFT and RTGS Transfers', 'metakeyword' => 'Reserve Bank of India, waives off, charges om bank transfers,National Electronic Funds Transfer, NEFT, Real Time Gross Settlement System, RTGS ', 'metadescription' => 'Reserve Bank of India (RBI) has announced waiving off charges are applied on bank transfers carried out either by National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS). ', 'author' => 'Nikhil Paigude', 'downlaodpdf' => 'https://www.mediafire.com/file/6d2yxuvbt8zyee5/RBI_scraps.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 5 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 1850, 'title' => 'RBI announced 35 basis points (bps) cut in repo rate', 'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Context:</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has <strong>cut the repo rate by 35 basis points (bps), to 5.4%. </strong>This is <strong>fourth time in a row that </strong>the central bank has cut the key rate this calendar year, starting from February, 2019.</span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>What is repo rate?</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Repo and Reverse repo <strong>are short for repurchase agreements between the RBI and the commercial banks </strong>in the economy. In essence, <strong>the repo rate is the interest rate that the RBI charges a commercial bank when it borrows money from the RBI.</strong> </span></span></li> </ul> <p><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Implications of rate cut: </span></span></strong><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It influences the interest rate in the economy. As such, <strong>if the repo falls, all interest rates in the economy should fall. </strong>And that is why common people should be interested in the RBI’s monetary policy.</span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>For borrowers:</strong> A <strong>reduction in lending rates in the economy will clearly benefit loan takers </strong>as borrowers' EMIs (equated monthly installments) are likely to go down assuming banks will pass on the benefit of the rate cut. </span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>For depositors: Deposits rates will also go down, thus it will hit the depositors.</strong></span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Does every cut in repo rate signify a reduction in interest rate?</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>In the real world, the “transmission” of an interest rate cut (or increase) is not 100%. </strong>And that is why, <strong>even though when the RBI cut by 35 bps </strong>on Wednesday (7/08/2019), lay <strong>consumers may only receive a much lower reduction in the interest rate on their borrowings. </strong></span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Why rate cut by the RBI is not transmitted by the banks to their customers?</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This is <strong>due to a lot of factors </strong>— but <strong>primarily, it has to do with the health of the concerned commercial bank. </strong>Over the past few years, <strong>almost all banks</strong>, especially the ones in the public sector, <strong>have seen their profits plummet because many of their past loans have turned out to be non-performing assets.</strong></span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To cover for these losses, <strong>the banks have to use their existing funds, </strong>which<strong> </strong>would have otherwise gone to common consumers for fresh loans.</span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Will the rate cut bring investments?</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Investments</strong> <strong>depend essentially on the “real” interest rate. </strong>The real interest rate is the <strong>difference between the repo rate and retail inflation. </strong>As a variable, it <strong>allows an investor to compare the attractiveness of different economies</strong>. </span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Real interest rates in India have been rising,</strong> and that is <strong>one of the biggest reasons why investments are not happening. </strong> </span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The recent rate cut would <strong>reduce the real interest rate and hopefully attract more investment.</strong></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-announced-35-basis-points', 'image' => 'https://www.mediafire.com/convkey/5e46/edya9k8m4k8b4jt6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/5e46/edya9k8m4k8b4jt6g.jpg', 'metatitle' => 'RBI announced 35 basis points (bps)', 'metakeyword' => 'RBI announced 35 basis points, 35 basis points', 'metadescription' => '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', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/0aqrgkyyuueal8a/RBI_announced_35_basis.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 6 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 1852, 'title' => 'Banks’ exposure limits, lending norms eased for stressed NBFCs', 'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Context: </strong>The RBI on 7/08/ 2019 <strong>unveiled more measures to enhance credit flow to the cash-starved Non- Banking Financial Companies (NBFCs) sector.</strong></span></span></p> <p> </p> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Highlights:</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has decided to <strong>raise banks’ exposure limit to a single NBFC to 20% of Tier-I capital of the bank</strong> as a step towards harmonization of the counter party exposure limit to single NBFC with that of the general limits.</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>The limit was 15% earlier while other sector enjoyed the 20% limit.</strong></span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has also decided to <strong>allow bank lending to register NBFCs</strong> (other than micro - financing institutions) <strong>for on-lending to agriculture </strong>(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 <strong>Priority Sector Lending</strong> (PSL).</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The <strong>RBI has also reduced risk weight for consumer credit</strong> (except credit card receivables), including personal loans, <strong>to 100% as against risk weight of 125% or higher, if warranted external rating of the counter party.</strong></span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance: </strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The <strong>measures are pertinent at a time when lending activity by many NBFCs have declined significantly</strong>, resulting in demand slowdown for a range of items including cars, tractors, white goods among others.</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The hike will <strong>enable banks to increase the credit flow to big NBFCs.</strong></span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Other steps:</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>24/7 NEFT transfer: </strong>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.</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Bill payment system expanded: </strong>To leverage the advantages of Bharat Bill Payment System (BBPS), the RBI has decided to permit all categories of billers (except prepaid recharges) who <strong>provide for recurring bill payments,</strong> currently covering 5 segments- DTH, electricity, gas, telecom, and water bills.</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>On tap bill payment: </strong>In order t<strong>o benefit from diversification of risk as also to encourage innovation and competition, </strong>the RBI has decided to offer ‘<strong>on tap’ authorization to entities </strong>desirous to function, operate or provide platforms for Bharat Bill Payment Operating Unit (BBPOU), Trade receivables Discounting System (TReDS) and White Label ATMs (WLAs).</span></span></li> <li><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Digital Fraud Registry:</span></span></strong><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The RBI has proposed to facilitate the creation of a <strong>Central Payment Fraud Registry that will track digital transaction fraud.</strong></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'banks-exposure-limits-lending-norms-eased', 'image' => 'https://www.mediafire.com/convkey/e149/g2qvvnpnn785a3d6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/e149/g2qvvnpnn785a3d6g.jpg', 'metatitle' => 'Banks’ exposure limits, lending norms eased', 'metakeyword' => 'Banks’ exposure limits, lending norms eased', 'metadescription' => 'The RBI on 7/08/ 2019 unveiled more measures to enhance credit flow to the cash-starved Non- Banking Financial Companies (NBFCs) sector', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/d9vo4g4xgni605q/Banks%C6_exposure_limits%2C_lending.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 7 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 1858, 'title' => 'Usha Thorat panel suggests liberal currency market for offshore users', 'description' => '<p><strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Context: </span></span></strong><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The <strong>task force on offshore rupee markets</strong>, headed by <strong>former Dy. Governor Usha Thorat,</strong> has submitted its report to the RBI</span></span></p> <p> </p> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Recommendations:</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:black">It has suggested for <strong>extending trading hours</strong> to improve access of overseas users and <strong>allowing Indian banks to freely offer prices to global clients around the clock. </strong></span></span></span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Allow users to <strong>undertake foreign exchange transactions up to $ 100 million in OTC currency derivative market without the need to establish underlying exposure.</strong></span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Enable rupee derivatives </strong>(settled in foreign currency) <strong>to be traded in the International Financial Services Centres </strong>(IFSC) <strong>in India.</strong></span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To facilitate <strong>non-residents to hedge their foreign exchange exposure onshore, </strong>the task force recommended <strong>establishing a central clearing and settlement mechanism </strong>for non-resident transactions in the onshore market.</span></span></li> <li><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Align the tax treatment with global standard</strong></span></span></li> </ul> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance of the off shore rupee market:</strong></span></span></p> <ul> <li><span style="font-size:11pt"><span style="background-color:white"><span style="font-family:"Calibri","sans-serif""><span style="color:black">The offshore rupee market has been <strong>making a larger impact on the local currency market</strong> helping with <strong>better price discovery and driving volatility,</strong> prompting RBI to look for ways to <strong>ensure greater stability for the rupee. </strong></span></span></span></span></li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'usha-thorat-panel-suggests-liberal-currency-market', 'image' => 'https://www.mediafire.com/convkey/713a/ntw8rglj69jm90i6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/713a/ntw8rglj69jm90i6g.jpg', 'metatitle' => 'Usha Thorat panel suggests liberal currency market', 'metakeyword' => 'Usha Thorat. RBI, liberal currency market, currency market', 'metadescription' => 'The task force on offshore rupee markets, headed by former Dy. Governor Usha Thorat, has submitted its report to the RBI', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/vndyd6w7bwmplla/Usha_Thorat_panel_suggests.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 8 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 2121, 'title' => 'RBI to link loan EMI to external benchmarks', 'description' => '<p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0in"> </p> <p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) on Wednesday made it mandatory for banks to link all their fresh retail loans to an external benchmark, effective October 1 , the central bank’s repo rate being one such benchmark.</span></span></p> <p style="margin-right:0in"> </p> <p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0in"> </p> <p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">When the borrower stops paying interest or principal on a loan, the lender will lose money. Such a loan is known as Non-Performing Asset (NPA). Indian Banking industry is seriously affected by Non-Performing Assets<span style="background-color:white"><span style="color:#333333">. This move is expected to reduce credit risk effectively.</span></span></span></span></p> <p style="margin-right:0in"> </p> <p style="margin-right:0in"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong><span style="font-size:12.0pt">Details</span></strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The state-run banks have introduced repo-linked products for floating-rate home and auto loans, but the </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="color:#333333">RBI </span></a><span style="background-color:white"><span style="color:#333333">said </span></span><a href="https://www.business-standard.com/topic/loans" target="_blank"><span style="color:#333333">loans </span></a><span style="background-color:white"><span style="color:#333333">to micro, small and medium enterprises (MSMEs) should also be linked to an external benchmark.</span></span></span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The <strong>three external benchmarks</strong> the </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="color:#333333">RBI </span></a><span style="background-color:white"><span style="color:#333333">proposed are <strong>policy repo rate</strong>, <strong>the Government of India’s three-month and six-month treasury bill yields published by Financial Benchmarks India Private (FBIL</strong>), or <strong>any other benchmark market interest rate published by FBIL.</strong></span></span></span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The central bank amended its master directions on interest rate on advances too, reflecting the changes.Some banks do calculate their marginal cost of funds-based lending rate (MCLR) based on the three- and six-month treasury bills.</span></span></span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">The </span></span><a href="https://www.business-standard.com/topic/rbi" target="_blank"><span style="background-color:white"><span style="color:#333333">RBI </span></span></a><span style="background-color:white"><span style="color:#333333"> has been observing that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current MCLR framework has not been satisfactory.</span></span></span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">Banks are free to decide the spread over the external benchmark. However, </span></span><a href="https://www.business-standard.com/topic/credit-risk" target="_blank"><span style="background-color:white"><span style="color:#333333">credit risk </span></span></a><span style="background-color:white"><span style="color:#333333">premium may undergo change only when borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract.</span></span></span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><span style="background-color:white"><span style="color:#333333">Other components of spread, including operating cost, could be altered once in three years. The interest rate under external benchmark should be reset at least once in three months.</span></span></span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-to-link-loan-emi-to-external', 'image' => 'https://www.mediafire.com/convkey/19e7/dfwq6nmgqygjpx36g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/19e7/dfwq6nmgqygjpx36g.jpg', 'metatitle' => 'RBI to link loan EMI to external benchmarks', 'metakeyword' => 'RBI to link loan EMI to external benchmarks', 'metadescription' => 'The Reserve Bank of India (RBI) on Wednesday made it mandatory for banks to link all their fresh retail loans to an external benchmark, effective October', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/3r88e4bxkx94w9v/RBI_to_link_loan_EMI.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 9 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 2157, 'title' => 'RBI panel to assess adequacy of Forex reserves', 'description' => '<p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) is working on putting in place a formal mechanism to assess the adequacy of its foreign exchange, or forex, reserves. This is important as India’s external liabilities have been higher than its forex reserves in recent years.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Bimal Jalan Committee on Economic Capital Framework, had noted that the RBI’s forex reserves in 2008 were higher than country’s external debt, a position which has reversed in 2019.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">At present, India’s foreign exchange reserves (more than $400 billion) are significantly lower than the country’s total external liabilities ($1 trillion) and even lower than total external debt ($500 billion).</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This position is opposite to that in 2008 when India’s foreign exchange reserves, at $310 billion, exceeded the then total external debt of about US$224 billion and provided a much larger coverage of total external liabilities that amounted to about $426 billion.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI may be required to increase the size of its forex reserves with its concomitant implications for the balance sheet, risks and desired economic capital.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Centre is expected to raise around $10 billion from overseas markets through foreign currency bonds, on which it will have to bear currency risk. This also make up significant part of liability.</span></span></p> </li> </ul> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Forex Reserves</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Foreign exchange reserves are cash and other reserve assets held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.</span></span></p> </li> </ul> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Foreign currency assets, gold, special drawing rights and reserve tranche position in the International Monetary Fund are the main components of India’s forex reserves.</span></span></p> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-panel-assess-adequacy-forex-reserves', 'image' => 'https://www.mediafire.com/convkey/33fb/16g2swp3gp81ytj6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/33fb/16g2swp3gp81ytj6g.jpg', 'metatitle' => 'RBI panel to assess adequacy of Forex reserves', 'metakeyword' => 'The Bimal Jalan Committee on Economic Capital Framework, had', 'metadescription' => 'The Bimal Jalan Committee on Economic Capital Framework, had noted that the RBI’s forex reserves in 2008 were higher than country’s external debt, a position ', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/yelx5x83f6t58vo/RBI_panel_to_assess_adequacy_of_Forex_reserves.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 10 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4064, 'title' => 'RBI announces relief measures', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">With an aim to curtail the impact of the coronavirus pandemic and the subsequent 21-day lockdown, the RBI has announced a slew of economic measures.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It may be noted that the MPC meeting, which was earlier scheduled for March 31-April 3, was advanced to March 25-27 in view of the deteriorating economic situation.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India cut its repo rate by 75 basis points (bps) to 4.4 percent. Besides this, the central bank also cut the cash reserve ratio (CRR) for the banks by 100 bps to 3 percent with effect from March 28 for the next one year.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The reverse repo rate has also been reduced by 90 basis points to 4 percent in a bid to maintain financial stability and revive growth.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI to undertake repo operation of up to Rs 1 lakh crore to infuse liquidity into market.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Cash reserve ratio of all banks reduced by 100 bps to 3 percent with effect from March 28 for 1 year; to release Rs 1.37 lakh crore liquidity.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans. Moratorium on term loan, deferring of interest on working capital will not classify as default, not to impact credit history of borrower.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Interest on working capital facilities to be deferred by three months and such deferment not to be considered for NPA. This is one of the key takeaways from RBI's announcements as many people have been financially affected due to the lockdown implemented to prevent novel coronavirus from spreading in India.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">RBI has also been conducting many other monetary operations for better liquidity management as it scrambles to keep the banking sector healthy in a bid to support the economy in the wake of the novel coronavirus pandemic.</span></span></p> </li> </ul> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Cash Reserve Ratio (CRR)</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises. The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Statutory Liquidity Ratio (SLR)</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Every bank must have a specified portion of their Net Demand and Time Liabilities (NDTL) in the form of cash, gold, or other liquid assets by the day’s end. The ratio of these liquid assets to the demand and time liabilities is called the Statutory Liquidity Ratio (SLR). An increase in the ratio constricts the ability of the bank to inject money into the economy.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Repo rate</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. It is a form of short-term borrowing, mainly in government securities.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Reverse repo rate</strong></span></span></p> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.</span></span></p> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-announces-relief-measures', 'image' => 'https://www.mediafire.com/convkey/4ccd/4thi7v2cwhh6zh96g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/4ccd/4thi7v2cwhh6zh96g.jpg', 'metatitle' => 'RBI announces relief measures', 'metakeyword' => 'RBI announces relief measures', 'metadescription' => 'With an aim to curtail the impact of the coronavirus pandemic and the subsequent 21-day lockdown, the RBI has announced a slew of economic measures.', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/b390akik52yw35q/1.RBI_announces_relief_measures.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 11 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4273, 'title' => 'RBI’s handling of ‘The Great Lockdown’', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Reserve Bank of India Governor Shaktikanta Das unveiled the second round of policy announcements<strong> </strong>to counter the debilitating effects of the spread of Covid-19 on the Indian economy.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The International Monetary Fund has christened the ongoing economic crisis<strong> </strong>due to Covid-19 as “The Great Lockdown” and reckons it to be the worst recession that the world would have faced since the Great Depression that happened in the first half of the 20th Century.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the rest of the world is certain to contract, India is hoping to be one of the few countries that expand their overall GDP, regardless of how small that increase may be.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI had announced a flurry of measures essentially trying to do two things: One, provide regulatory forbearance (that is, greater leniency) in recognising non-performing assets; Two, it tried to boost the liquidity in the financial system so that businesses do not starve of funds. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">To achieve the latter, it cut the <strong>repo</strong> <strong>rate </strong>(the rate at which it lends money to the banking system) and the reverse repo rate (the interest rate it pays banks when they park their money with the RBI). </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It also started <strong>Targeted Long Term Repo</strong> <strong>Operations</strong> (<strong>TLTROs</strong>) — essentially, this facility allowed banks to borrow money from the RBI at the repo rate, which is far lower than the prevailing interest rate in the market.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The hope was that banks would use cheaper loans to extend cheaper credit to businesses and that will help businesses survive this tumultuous period.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has cut the <strong>reverse repo</strong> <strong>rate</strong> further by 25 basis points (100 basis points make up one full percentage point). The reverse repo rate now stands at 3.75 per cent while the repo rate is 4.40 per cent.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The idea behind repeatedly cutting reverse repo more than the repo is two-fold: On the one hand, the RBI is incentivising banks to borrow from it at low rates and lend it forward to businesses, yet, on the other, it is disincentivising them from coming back and parking these funds with the RBI.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The second key thing that the RBI has done is to announce another <strong>TLTRO</strong> of Rs 50,000 crore but this time it has mandated that 50 per cent of this amount borrowed by the banks must go to small and mid-sized Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The benefits of this move are two-fold. One, it provides more liquidity. But more importantly, it also provides targeted boost to those institutions that are most hit by the economic slowdown and, as such, most in need of funds to survive themselves and boost economic activity at the bottom of the pyramid (that is, the poorest customers).</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The RBI has allowed Scheduled Commercial Banks to reduce their <strong>Liquidity</strong> <strong>Coverage</strong> <strong>Ratio</strong> from 100 per cent to 80 per cent with immediate effect. With this being reduced to 80 per cent, banks would have more cash to deal with.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbis-handling-of-the-great-lockdown', 'image' => 'https://www.mediafire.com/convkey/2dc1/d5bnadxm4ghs2hn6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/2dc1/d5bnadxm4ghs2hn6g.jpg', 'metatitle' => 'RBI’s handling of ‘The Great Lockdown’', 'metakeyword' => 'RBI’s handling of ‘The Great Lockdown’', 'metadescription' => 'Reserve Bank of India Governor Shaktikanta Das unveiled the second round of policy announcements to counter the debilitating effects of the spread of Covid-19', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/w7ldyavntngm0co/1.RBI%25E2%2580%2599s_handling_of_%25E2%2580%2598The_Great_Lockdown%25E2%2580%2599.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 12 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4295, 'title' => 'Reverse repo rate as benchmark interest rate', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">unlike in the past, when the RBI used its repo rate as the main instrument to tweak the interest rates, today, it is the reverse repo rate that is effectively setting the benchmark.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The Indian economy’s slowdown during 2018 and 2019 is becoming much worse in 2020 with the spread of COVID-19 and the stalling of almost all economic activity. Like most other central banks in the world, the Reserve Bank of India, too, has tried to cut interest rates to boost the economy.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The repo rate is the rate at which the RBI lends money to the banking system (or banks) for short durations. The reverse repo rate is the rate at which banks can park their money with the RBI.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">With both kinds of repo, which is short for repurchase agreement, transactions happen via bonds, one party sells bonds to the other with the promise to buy them back (or repurchase them) at a later specified date.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Under normal circumstances, that is when the economy is growing, the repo rate is the benchmark interest rate in the economy because it is the lowest rate of interest at which funds can be borrowed.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It forms the floor rate for all other interest rates in the economy — for instance, the interest rate consumers would have to pay on a car loan or the interest rate they will earn from a fixed deposit etc.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Over the last couple of years, India’s economic growth has decelerated sharply. This has happened for a variety of reasons and has essentially manifested in lower consumer demand.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">As such, the banking system is now flush with liquidity for two broad reasons: on the one hand, the RBI is cutting repo rates and other policy variables like the Cash Reserve Ratio to release additional and cheaper funds into the banking system so that banks could lend.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The excess liquidity in the banking system has meant that during March and the first half of April, banks have been using only the reverse repo (to park funds with the RBI) instead of the repo (to borrow funds). In other words, the reverse repo rate has become the most influential rate in the economy.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The idea is to make it less attractive for banks to do nothing with their funds because their doing so hurts the economy and starves the businesses that genuinely need funds.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It all depends on the revival of consumer demand in India. If the disruptions induced by the outbreak of novel coronavirus disease continue for a long time, consumer demand, which was already quite weak, is likely to stay muted and businesses would feel no need to borrow heavily to make fresh investments.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">It is also important for banks to be confident about new loans not turning into NPAs, and adding to their already high levels of bad loans. Until banks feel confident about the prospects of an economic turnaround, cuts in reverse repo rates may have little impact.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'reverse-repo-rate-as-benchmark-interest-rate', 'image' => 'https://www.mediafire.com/convkey/89db/98wgdnd6hqqdsay6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/89db/98wgdnd6hqqdsay6g.jpg', 'metatitle' => 'Reverse repo rate as benchmark interest rate', 'metakeyword' => 'Reverse repo rate as benchmark interest rate', 'metadescription' => 'unlike in the past, when the RBI used its repo rate as the main instrument to tweak the interest rates, today, it is the reverse repo rate that is effectively setting the benchmark.', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/dax0kwl9oolvja1/3.Reverse_repo_rate_as_benchmark_interest_rate.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 13 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4374, 'title' => 'RBI’s support to mutual funds', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) announced a special liquidity window of Rs 50, 000 crore to bail out mutual funds hit by the turmoil in the debt fund segment that led to the closure of six credit risk funds by Franklin Templeton Mutual Fund.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds which have intensified in the wake of redemption pressures related to closure of six debt schemes of Franklin Templeton and potential contagious effects.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Under the special liquidity facility for mutual funds (SLF-MF), the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail the funding till May 11 or up to utilization of the allocated amount, whichever is earlier. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Funds availed under the SLF-MF will be used by banks exclusively for meeting the liquidity requirements of MFs.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Banks can extend loans to mutual funds and undertake the outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI’s liquidity offer is expected to bring some degree of comfort in the debt market which is under huge redemption pressure, especially in the credit risk fund category which has assets of over Rs 55,000 crore. The debt segment has witnessed outflows of Rs 1.94 lakh crore in the month of March.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The RBI says exposures under this facility will not be reckoned under the Large Exposure Framework (LEF), thereby giving greater comfort for bank to borrow under this window. The support extended to MFs under the SLF-MF will be exempted from banks’ capital market exposure limits.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbis-support-to-mutual-funds', 'image' => 'https://www.mediafire.com/convkey/42a7/3julvg2vzkrshux6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/42a7/3julvg2vzkrshux6g.jpg', 'metatitle' => 'RBI’s support to mutual funds', 'metakeyword' => 'RBI’s support to mutual funds', 'metadescription' => 'The Reserve Bank of India (RBI) announced a special liquidity window of Rs 50, 000 crore to bail out mutual funds hit by the turmoil in the debt fund segment that led', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/ac3zmgkxossyet7/2.RBI%25E2%2580%2599s_support_to_mutual_funds.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 14 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4636, 'title' => 'Impact of RBI’s decision to cut repo rate', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) slashed its key policy rates to stabilize the financial system and tackle the economic fallout from the ongoing nationwide lockdown to contain the spread of the coronavirus pandemic.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI panel unexpectedly cut the repo rate by 40 basis points to 4 per cent and the reverse repo rate by 40 basis points to 3.35 per cent. In another significant move, the RBI also announced extension of moratorium on loan repayments by another three months to August 31.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The 40 bps cut in the repo rate will make funds cheaper for banks thus aiding them to bring down lending rates. This comes at a time when credit off-take is sluggish and investments have halted in the economy. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">EMIs on home, auto, personal and term loan rates are expected to come down in the coming days. However, banks will also slash deposit rates on various tenures to manage its asset-liability position. Savers and pensioners will see their returns coming down.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The 40 bps cut in reverse repo rate, the interest rate that the RBI offers to banks for funds parked with the central bank, will prompt banks to make available funds for the productive sectors of the economy. Now, banks have been parking close to Rs 7-8 lakh crore at the RBI’s reverse repo window instead of lending these funds.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has now extended the moratorium on term loan repayment by another three months to August 31, 2020. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This will help borrowers, especially corporates which have halted production and are facing cash flow problems, to get more time to stabilize their operations and restart their units. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">All borrowers, including home loan, term loans and credit card outstandings, will get the benefit of the moratorium.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Even though the lockdown may be lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Even as various measures initiated by the government and the Reserve Bank work to mitigate the adverse impact of the pandemic on the economy, it is necessary to ease financial conditions further.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'impact-of-rbis-decision-to-cut-repo-rate', 'image' => 'https://www.mediafire.com/convkey/ac3d/xnraphrs1awnwu86g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/ac3d/xnraphrs1awnwu86g.jpg', 'metatitle' => 'Impact of RBI’s decision to cut repo rate', 'metakeyword' => 'Impact of RBI’s decision to cut repo rate', 'metadescription' => 'The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) slashed its key policy rates to stabilize the financial system and tackle the economic fallout', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/qxsy0dn7fc7yazt/4.Impact_of_RBI%25E2%2580%2599s_decision_to_cut_repo_rate.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 15 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4725, 'title' => 'RBI’s extension of loan moratorium', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Extension in moratorium on term loan installments has provided a major relief to borrowers and companies facing cash flow problems, resulting from reduction in income or no income due to job losses. </span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For leveraged companies facing the cash crunch, the moratorium provides survival time. The expectation among the regulators and the banking fraternity is that once the lockdown eases fully in due course, economic activity will come back on track, enabling restoration of income levels of people affected by the sudden stall.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI permitted banks and NBFCs to allow a further 3-month moratorium, on the payment of instalments in respect of term loans outstanding as on March 31, 2020. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Lenders have also been allowed to convert the accumulated interest into a funded interest term loan to be repaid by March 31, 2021.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Individuals and companies who have availed term loans — such as home loans, car loans, corporate loans and credit card loans — can avail or seek extension of moratorium facility.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For large lenders like State Bank of India, ICICI Bank, Kotak Mahindra Bank and Axis Bank, the percentage of loans under moratorium is under 30 per cent. For Bandhan Bank, it is as high as 71 per cent since it lends primarily to micro units.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Banks expect more people to opt for moratorium facility as sectors such as aviation, tourism, hospitality, transportation and start-ups have seen not just salary cuts but also layoffs.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the Indian economy is expected to experience a significant contraction this year, any revival in economic activity is seen to be a long-drawn process.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Interest will continue to accrue on the outstanding portion of the loan during the moratorium period. For someone not facing any cash flow issues, moratorium is of no benefit.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Banks are unlikely to face problems for the next three months as regulatory relaxations, will provide them a breather till September in recognising NPAs but NPAs are expected to shoot up from the current level of around Rs 10 lakh crore, when these loans come up for repayments.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbis-extension-of-loan-moratorium', 'image' => 'https://www.mediafire.com/convkey/8326/3g36rjl2qfrzpl86g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/8326/3g36rjl2qfrzpl86g.jpg', 'metatitle' => 'RBI’s extension of loan moratorium', 'metakeyword' => 'RBI’s extension of loan moratorium', 'metadescription' => 'The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/bdknqd4tprjyx2a/3.RBI%25E2%2580%2599s_extension_of_loan_moratorium.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 16 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 4846, 'title' => 'Reasons for increase in India’s FOREX reserves', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">India’s forex reserves have crossed $500 billion for the first time ever in the week ended June 5, 2020. India can now depend on its soaring foreign exchange reserves to tackle any crisis on the economic front. </span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">While the situation is gloomy on the economic front with GDP set to contract for the first time in 40 years and manufacturing activity and trade at standstill, this is one data point that India can cheer about amidst the Covid-19 pandemic.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Forex reserves are external assets in the form of gold, SDRs (special drawing rights of the IMF) and foreign currency assets (capital inflows to the capital markets, FDI and external commercial borrowings) accumulated by India and controlled by the Reserve Bank of India.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The International Monetary Fund says official foreign exchange reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Foreign investors had acquired stakes in several Indian companies in the last two months. While the FDI inflow stood at $4 billion in March, it amounted to $2.1 billion in April.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs) have now returned to the Indian markets and bought stocks worth over $2.75 billion in the first week of June. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">On the other hand, the fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion. </span></span></p> </li> </ul> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Significance of rise in FOREX reserves</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The rising reserves have also helped the rupee to strengthen against the dollar. The foreign exchange reserves to GDP ratio is around 15 per cent. </span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'reasons-for-increase-in-indias-forex-reserves', 'image' => 'https://www.mediafire.com/convkey/3414/npa4o38cuevi19f6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/3414/npa4o38cuevi19f6g.jpg', 'metatitle' => 'Reasons for increase in India’s FOREX reserves', 'metakeyword' => 'Reasons for increase in India’s FOREX reserves', 'metadescription' => 'India’s forex reserves have crossed $500 billion for the first time ever in the week ended June 5, 2020. India can now depend on its soaring foreign exchange reserves', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/v1p90eizo3rd98w/4.Reasons_for_increase_in_India%25E2%2580%2599s_FOREX_reserves.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 17 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 5231, 'title' => 'Increasing NPAs', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The gross non-performing asset (NPA) ratio of all commercial banks is likely to increase from 8.5 percent in March 2020 to 12.5 percent by March 2021 under the baseline scenario in the wake of the disruption caused by the Covid-19 pandemic, according to the Reserve Bank of India (RBI).</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">According to the RBI, nearly 50 percent of the customers, accounting for around half of outstanding bank loans, opted to avail the benefit of the relief measures, loan moratorium, to tackle the lockdown impact. </span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Among the bank groups, the GNPA ratio of public sector banks may increase from 11.3 percent in March 2020 to 15.2 percent by March 2021 under the baseline scenario.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Sectorally, the quality of bank loans to the services sector worsened in March 2020. The GNPA ratio of the retail loan sector also edged up. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Among major sub-sectors within the industry, NPA ratios in respect of construction and gems and jewellery sectors swelled up in March 2020. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">On the other hand, the infrastructure sector (with a share of 36.2 percent in bank credit to the industrial sector), basic metals (11.3 percent), and electricity (17.5 percent) have shown a perceptible decline in NPA ratios.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The central government finances are likely to suffer some deterioration in 2020-21, with fiscal revenues badly hit by COVID-19-related disruptions even as expenditures come under strain on account of the fiscal stimulus. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For State finances, the additional burden of lower federal transfers may accentuate downside risks to the outlook.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Bank credit, which had considerably weakened during the first half of 2019-20, slid down further in the subsequent period with the moderation becoming broad-based across bank groups.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The capital to risk-weighted assets ratio of commercial banks edged down to 14.8 per cent in March 2020 from 15 percent in September 2019, while their GNPA ratio declined to 8.5 percent from 9.3 percent and the provision coverage ratio PCR improved to 65.4 per cent from 61.6 percent over this period.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'increasing-npas', 'image' => 'https://www.mediafire.com/convkey/85f7/6a5zsjfsfnvskaf6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/85f7/6a5zsjfsfnvskaf6g.jpg', 'metatitle' => 'Increasing NPAs', 'metakeyword' => 'Increasing NPAs', 'metadescription' => 'The gross non-performing asset (NPA) ratio of all commercial banks is likely to increase from 8.5 percent in March 2020 to 12.5 percent by March 2021 under the', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/kgm5cisvpqrswmu/1.Increasing_NPAs.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 18 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 5254, 'title' => 'Pre-packs for faster insolvency', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Ministry of Corporate Affairs (MCA) has set up a committee to look into the possibility of including what are called “pre-packs” under the current insolvency regime to offer faster insolvency resolution.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Slow progress in the resolution of distressed companies has been one of the key issues raised by creditors regarding the Corporate Insolvency Resolution Process.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A pre-pack is an agreement for the resolution of the debt of a distressed company through an <strong>agreement</strong> between <strong>secured creditors </strong>and<strong> investors</strong> instead of a public bidding process. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This system of insolvency proceedings has become an increasingly popular mechanism for insolvency resolution in the UK and Europe over the past decade. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In India’s case, such a system would likely require that financial creditors agree on terms with potential investors and seek approval of the resolution plan from the National Company Law Tribunal (NCLT). </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This process would likely be completed much faster than the traditional CIRP which requires that the creditors of the distressed company allow for an open auction for qualified investors to bid for the distressed company.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The pre-pack would act as an important alternative resolution mechanism to the CIRP and would help lower the burden on the NCLTs.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In the case of pre-packs, the incumbent management retains control of the company until a final agreement is reached. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The transfer of control from the incumbent management to an insolvency professional as is the case in the CIRP leads to disruptions in the business and loss of some high-quality human resources and asset value.</span></span></p> </li> </ul> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Drawbacks of pre-packaged insolvency method</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The key drawback of a pre-packaged insolvency resolution is the reduced transparency compared to the CIRP as financial creditors would reach an agreement with a potential investor privately and not through an open bidding process. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This could lead to stakeholders such as operational creditors raising issues of fair treatment when financial creditors reach agreements to reduce the liabilities of the distressed company.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Unlike in the case of a full-fledged CIRP which allows for price discovery, in the case of a pre-pack, the NCLT would only be able to evaluate a resolution plan based on submissions by the creditors and the investor.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'pre-packs-for-faster-insolvency', 'image' => 'https://www.mediafire.com/convkey/0ef1/nd0v8bo4igbbz7b6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/0ef1/nd0v8bo4igbbz7b6g.jpg', 'metatitle' => 'Pre-packs for faster insolvency', 'metakeyword' => 'Pre-packs for faster insolvency', 'metadescription' => 'The Ministry of Corporate Affairs (MCA) has set up a committee to look into the possibility of including what are called “pre-packs” under the current insolvency', 'author' => null, 'downlaodpdf' => 'https://www.mediafire.com/file/6w7r738whunqpis/4.Pre-packs+for+faster+insolvency.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 19 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 5518, 'title' => 'RBI transfers money to contingency fund', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Reserve Bank of India (RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"> The central bank’s main risk provision accounts – Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS) — together now amount to Rs 13.88 lakh crore.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Contingency Fund is a specific provision meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks, and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Central Board of the RBI recently approved the transfer of Rs 57,128 crore as surplus or dividend to the Central government for the accounting year 2019-20, sharply lower by 67.5 percent from Rs 1.76 lakh crore that it paid to the government last year.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">As per Section 47 of the RBI Act, profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The government, which was looking for funds to bridge the deficit, sought higher surplus from the RBI pointing out the high reserves/ surplus retained by the RBI. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It was initially resisted by the RBI which was then headed by Urjit Patel. The RBI relented later appointed the Bimal Jalan committee to work out the modalities of the transfer.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk, and movement in gold prices. Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">The unrealised gains or losses on revaluation in foreign dated securities are recorded in the Investment Revaluation Account Foreign Securities (IRA-FS).</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-transfers-money-to-contingency-fund', 'image' => 'https://www.mediafire.com/convkey/e895/x5lxkywhbqfoau36g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/e895/x5lxkywhbqfoau36g.jpg', 'metatitle' => 'RBI transfers money to contingency fund', 'metakeyword' => 'RBI transfers money to contingency fund', 'metadescription' => 'The Reserve Bank of India (RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/94jes6d0c8gwaom/1.RBI+transfers+money+to+contingency+fund.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 20 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 5368, 'title' => 'RBI’s new loan recast scheme', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">In its monetary policy review, the Reserve Bank of India has given the green signal to a loan restructuring scheme for stressed borrowers.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A special window providing one-time loan restructuring to companies and individuals, it will provide relief specifically to those impacted by the Covid-19 pandemic.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Only those companies and individuals whose loans accounts are in default for not more than 30 days as on March 1, 2020, are eligible for one-time restructuring. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For corporate borrowers, banks can invoke a resolution plan till December 31, 2020 and implement it till June 30, 2021. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Such loan accounts should continue to be standard till the date of invocation. The one-time restructuring window is available across sectors.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">It is expected to provide relief to companies that were servicing loan obligations on time but could have found it difficult after March, as the pandemic affected their revenues. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Companies that were already in default for more than 30 days as on March 1, however, cannot avail this facility.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">For personal loans, the resolution plan can be invoked till December 31, 2020 and will be implemented within 90 days thereafter. This too is for accounts classified as standard, but not in default for more than 30 days as on March 1.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has set up a five-member expert committee headed by K V Kamath, former Chairman of ICICI Bank, which will make recommendations on the financial parameters required. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">According to the RBI’s systemic risk survey, the three sectors most adversely affected by the pandemic are tourism and hospitality, construction and real estate, and aviation.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The biggest impact will be that banks will be able to check the rise in non-performing assets (NPAs) to a great extent.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has built in safeguards in the resolution framework to ensure it does not lead to ever-greening of bad loans as in the past.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has said that the term of loans under resolution cannot be extended by more than two years. In the case of multiple lenders to a single borrower, banks need to sign an ICA. </span></span></p> </li> </ul> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>New changes</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The earlier restructuring schemes did not have any entry barrier, unlike the current scheme that is available only for companies facing COVID-related stress, as identified by the cut-off date of March 1. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Strict timelines for invocation of resolution plan and its implementation have been defined in the scheme, unlike in the past when this was largely open-ended. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The structuring of the scheme makes signing of the ICA largely mandatory for all lenders once the resolution plans has been majority-voted for, otherwise they face twice the amount of provisioning required. </span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">Independent external evaluation, process validation, and specific post-resolution monitoring are further safeguards.</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbis-new-loan-recast-scheme', 'image' => 'https://www.mediafire.com/convkey/2e0d/4eiofj5at7xjeh16g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/2e0d/4eiofj5at7xjeh16g.jpg', 'metatitle' => 'RBI’s new loan recast scheme', 'metakeyword' => 'RBI’s new loan recast scheme', 'metadescription' => 'A special window providing one-time loan restructuring to companies and individuals, it will provide relief specifically to those impacted by the Covid-19 pandemic', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/p5hklaedjr4eru8/3.RBI’s+new+loan+recast+scheme.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], '[original]' => [[maximum depth reached]], '[virtual]' => [[maximum depth reached]], '[errors]' => [[maximum depth reached]], '[invalid]' => [[maximum depth reached]], '[repository]' => 'currentaffairs' }, (int) 21 => object(Cake\ORM\Entity) { 'tag' => 'Monetary Policy & RBI', 'keyword' => 'monetary-policy-rbi', 'id' => (int) 5676, 'title' => 'RBI panel recommendation on loan recast', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring announcements in the past had raised concerns about the efficacy of the restructuring mechanism, as most of the restructured assets eventually slipped into NPAs.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The committee was tasked to recommend the sector-specific benchmark ranges for financial parameters to be factored into each resolution plan for borrowers with an aggregate exposure of Rs 1,500 crore or above at the time of invocation. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The process and conditions are being announced to ensure there is no evergreening of bad loans, and only genuine cases directly hit by Covid-19 stress are provided the facility of one-time restructuring. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The programme is being implemented as a six-month moratorium on repayments ended on August 31 and the economy faced contraction amid a continuing lockdown in several states.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath committee noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This effectively means Rs 37.72 crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath panel has said companies in sectors such as retail trade, wholesale trade, roads, and textiles are facing stress. Sectors that have been under stress pre-COVID include NBFCs, power, steel, real estate, and construction.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has broadly accepted the committee’s recommendation to take into account five financial ratios and sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring can be done via the extension of residual tenor by a maximum of two years with or without moratorium and may include conversion of loan into equity. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Any default by the borrower with any of the lenders that signed an ICA during the monitoring period would trigger a review period of 30 days.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">If the borrower remains in default at the end of the period, all lenders would downgrade the account as a non-performing asset (NPA).</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-panel-recommendation-on-loan-recast', 'image' => 'https://www.mediafire.com/convkey/7b16/3yvo4u9u9ny0ymo6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/7b16/3yvo4u9u9ny0ymo6g.jpg', 'metatitle' => 'RBI panel recommendation on loan recast', 'metakeyword' => 'RBI panel recommendation on loan recast', 'metadescription' => 'A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan ', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/fd2nbjz3d43cbmn/rbi+panel.pdf/file', '[new]' => false, '[accessible]' => [ [maximum depth reached] ], '[dirty]' => [[maximum depth reached]], 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'monetary-policy-rbi', 'id' => (int) 5676, 'title' => 'RBI panel recommendation on loan recast', 'description' => '<p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Issue</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Background</strong></span></span></p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring announcements in the past had raised concerns about the efficacy of the restructuring mechanism, as most of the restructured assets eventually slipped into NPAs.</span></span></p> <p style="margin-right:0cm"> </p> <p style="margin-right:0cm"><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif"><strong>Details</strong></span></span></p> <ul> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The committee was tasked to recommend the sector-specific benchmark ranges for financial parameters to be factored into each resolution plan for borrowers with an aggregate exposure of Rs 1,500 crore or above at the time of invocation. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The process and conditions are being announced to ensure there is no evergreening of bad loans, and only genuine cases directly hit by Covid-19 stress are provided the facility of one-time restructuring. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The programme is being implemented as a six-month moratorium on repayments ended on August 31 and the economy faced contraction amid a continuing lockdown in several states.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath committee noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">This effectively means Rs 37.72 crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The Kamath panel has said companies in sectors such as retail trade, wholesale trade, roads, and textiles are facing stress. Sectors that have been under stress pre-COVID include NBFCs, power, steel, real estate, and construction.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">The RBI has broadly accepted the committee’s recommendation to take into account five financial ratios and sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans.</span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Restructuring can be done via the extension of residual tenor by a maximum of two years with or without moratorium and may include conversion of loan into equity. </span></span></p> </li> <li> <p><span style="font-size:11pt"><span style="font-family:Calibri,sans-serif">Any default by the borrower with any of the lenders that signed an ICA during the monitoring period would trigger a review period of 30 days.</span></span></p> </li> <li> <p><span style="font-size:11.0pt"><span style="font-family:"Calibri","sans-serif"">If the borrower remains in default at the end of the period, all lenders would downgrade the account as a non-performing asset (NPA).</span></span></p> </li> </ul> ', 'created_date' => object(Cake\I18n\FrozenDate) {}, 'posturl' => 'rbi-panel-recommendation-on-loan-recast', 'image' => 'https://www.mediafire.com/convkey/7b16/3yvo4u9u9ny0ymo6g.jpg', 'fbimage' => 'https://www.mediafire.com/convkey/7b16/3yvo4u9u9ny0ymo6g.jpg', 'metatitle' => 'RBI panel recommendation on loan recast', 'metakeyword' => 'RBI panel recommendation on loan recast', 'metadescription' => 'A five-member expert committee headed by K V Kamath, recently came out with recommendations on the financial parameters required for a one-time loan ', 'author' => null, 'downlaodpdf' => 'http://www.mediafire.com/file/fd2nbjz3d43cbmn/rbi+panel.pdf/file', '[new]' => false, '[accessible]' => [ '*' => true ], '[dirty]' => [], '[original]' => [], '[virtual]' => [], '[errors]' => [], '[invalid]' => [], '[repository]' => 'currentaffairs' } $tags = '<a href="https://currentaffairs.studyiq.com/tags/monetary-policy-rbi">Monetary Policy & RBI</a>'include - ROOT/plugins/Studyiq/src/Template/Pages/tags.ctp, line 65 Cake\View\View::_evaluate() - CORE/src/View/View.php, line 1196 Cake\View\View::_render() - CORE/src/View/View.php, line 1157 Cake\View\View::render() - CORE/src/View/View.php, line 765 Cake\Controller\Controller::render() - CORE/src/Controller/Controller.php, line 623 Cake\Http\ActionDispatcher::_invoke() - CORE/src/Http/ActionDispatcher.php, line 125 Cake\Http\ActionDispatcher::dispatch() - CORE/src/Http/ActionDispatcher.php, line 93 Cake\Http\BaseApplication::__invoke() - CORE/src/Http/BaseApplication.php, line 108 Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65 Cake\Routing\Middleware\RoutingMiddleware::__invoke() - CORE/src/Routing/Middleware/RoutingMiddleware.php, line 104 Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65 Cake\Routing\Middleware\AssetMiddleware::__invoke() - CORE/src/Routing/Middleware/AssetMiddleware.php, line 88 Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65 Cake\Error\Middleware\ErrorHandlerMiddleware::__invoke() - CORE/src/Error/Middleware/ErrorHandlerMiddleware.php, line 98 Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65 Cake\Http\Runner::run() - CORE/src/Http/Runner.php, line 51 Cake\Http\Server::run() - CORE/src/Http/Server.php, line 81