Banking, Financial and Economic Awareness of 06 and 07 February 2020

1. RBI provides Cash Reserve Ratio (CRR) exemption to banks

• RBI has allowed banks to deduct the amount that is equal to loans provided by them in certain sectors from their net demand and time liabilities or other deposits needed to maintain CRR.
• After the exemption, banks will able to deduct the amount that is equal to retail loans given by them in sectors like automobile, housing and loans provided to MSMEs until July 31, 2020.
• Currently, RBI requires banks to keep 4% of their deposits with RBI in the form of CRR. Interest is not given on deposits of banks kept as CRR.
• RBI has also decided to extend the date of commencement of commercial operations (DCCO) of loans given to projects in the commercial real estate sector by one year.
• DCCO extension will be given if the reasons for the delay in the starting of commercial real estate projects were not in control of promoters. Banks will not downgrade (lower) the asset classification of such project loans.
• Cash Reserve Ratio (CRR) is the proportion of net demand and time liabilities of the banks that they keep with RBI in the form of cash. RBI increases CRR to remove excess cash (liquidity) from the economy and lowers it to increase cash (liquidity) in the economy.

2. No change in repo rate, reverse repo rate, MSF rate and bank rate

• RBI's MPC has kept repo rate, reverse repo rate, Marginal Standing Facility rate and bank rate unchanged at 5.15%, 4.90 %, 5.40%, and 5.40%, respectively. 
• RBI has also estimated that GDP growth will remain 6% in 2020-21. RBI's estimation for GDP in 2019-20 was at 5%.
• RBI has also kept the repo rate unchanged in its previous bi-monthly monetary policy review.
• In the current review, MPC has maintained an accommodative stance. Stance maintained by MPC or RBI shows its attitude towards monetary policy.
• Accommodative stance means that RBI wants to increase the money supply in the economy. It also means an easy monetary policy.
• Repo rate is the rate of interest at which commercial banks borrow loans from RBI. It can also be defined as the rate of interest at which RBI gives money to commercial banks.
• Reverse repo rate is the rate of interest that RBI offers to commercial banks depositing their excess funds with RBI.
• Marginal Standing Facility rate is the rate at which RBI gives overnight loans to Scheduled Commercial Banks. Loans given under MSF mature on the next working day.
• Bank rate is the rate of interest at which RBI provides short term loans to Scheduled Commercial Banks. The loans under the bank rate do not require securities.

3. India's services sector reaches seven-year high level

• As per a monthly survey by IHS Markit, India's services sector has reached a seven-year high level in January.
• IHS Markit India Services Business Activity Index increased from 53.3 in December to 55.5 in January.
• Earlier, IHS Markit India Manufacturing PMI has shown that India's manufacturing service activity increased to the highest level in eight years.

4. Total Gas & Power to acquire a stake in solar projects of AGEL

• Total Gas & Power will acquire a 50% stake in solar projects of Adani Green Energy Ltd (AGEL).
• In October 2019, Total Gas & Power acquired a 37.4% stake in Adani Gas.
• The deal will help the Adani group in achieving its aim of becoming the world's largest solar power company and renewable energy company by 2025 and 2030, respectively.
• Earlier, the Adani group had acquired functional solar assets of Essel Green Energy Private Ltd and Essel Infraprojects Ltd.

5. RBI to publish Digital Payments Index (DPI) and develop a framework for SRO for digital payments

• RBI has said that it will publish Digital Payments Index (DPI) from July and develop a framework for an SRO for digital payments by April.
• Digital Payments Index (DPI) will be launched to show the status of digitization of payments in India.
• In its Statement on Developmental and Regulatory Policies, RBI has said that it will also develop a framework for the Self-Regulatory Organisation (SRO) for entities that are part of India's payment system.
• RBI has also said that it will make pan-India Cheque Truncation System (CTS) operational by September 2020.
• RBI started the cheque Truncation System (CTS) in 2010. With the help of CTS, bank cheques can be cleared quickly by electronic imaging.

Multiple Choice Questions (MCQs)

1. How much percentage of their deposits should be currently kept by banks as Cash Reserve Ratio (CRR)?

1. 2%
2. 4%
3. 7%
4. 8.4%
5. 10%

2. What is the number of members in Monetary Policy Committee?

1. 4
2. 5
3. 6
4. 7
5. 8

3. In January 2020, IHS Markit India Services Business Activity index stood at

1. 55.5
2. 56.7
3. 57.9
4. 60.1
5. 62.1

4. Which of the following has signed a deal to acquire 50% stake in solar projects of Adani Green Energy Ltd (AGEL)?

1. Essel Green Energy Private Ltd
2. Essel Infraprojects Ltd.
3. Solar Energy Corporation of India
4. Total Gas & Power
5. Tata Power Solar Ltd.

5. RBI has announced that it will start to publish Digital Payments Index (DPI) from

1. February
2. March
3. April
4. July
5. August

Correct Answers:

1. B

2. C

3. A

4. D

5. D