Banking, Financial and Economic Awareness

2020-05-25

1. RBI announces more measures to prevent difficulties caused by financial stress

  • RBI has announced more measures to prevent difficulties due to financial stress as a result of Covid-19.
  • RBI has allowed banks and other lending institutions to increase postponement of payments on term loan instalments from June 1 to August 31.
  • RBI has also allowed increasing the deferment with respect to working capital facilities approved as cash credit/overdraft from June 1 to August 31.
  • The permitted increase is applicable to all term loans and working capital facilities that are outstanding as of March.
  • The moratorium allowed by RBI will not lead to asset classification downgrade of the borrowers.
  • RBI has also increased the exposure limit of banks to group of connected counterparties from 25% to 30% of its eligible capital base. This limit will continue till June 30, 2021.
  • RBI has also provided more flexibility to importers in controlling their operating cycles by increasing the time for remittances completion against normal imports to India from 6 months to one year.

2. RBI announces policy rate cuts

  • RBI has announced cut in repo rate from 4.40% to 4% and reverse repo rate from 3.75% to 3.35%.
  • The latest rate cut was announced after the Monetary Policy Committee (MPC) meeting was preponed. Originally the meeting was scheduled on June 3-5.
  • Due to Covid-19 lockdown since March 25 and slowdown starting from Q1 of 2018-19, the banks were not willing to lend. After the rate cuts, the banks will lend more money rather than keeping their funds with RBI.
  • RBI had estimated that GDP growth may be negative in 2020-21. It had estimated that growth may improve from second half of 2020-21.
  • The MPC also found that inflation outlook will be highly uncertain. Earlier, food inflation has increased to 8.6% in April.
  • As per MPC, headline inflation may not change in H1 of 2020-21.

3. P-note investments till April increase to Rs 57,100 crore

  • As per SEBI data, participatory note (P-note) investments in domestic capital market have increased from Rs 48,006 crore till March to Rs 57,100 crore till April.
  • Earlier, P-note investments in domestic capital market have declined to more than 15-year low at March end. In October 2004, P-note investments stood at Rs 44,586 crore.
  • Out of the Rs 57,100 crore investments, maximum money was invested in equities.
  • Second maximum investment was in debt. Derivatives and hybrid securities came at third and fourth place.
  • P-notes allow overseas investors participation in Indian stock market without any registration. Only registered FPIs can issue P-notes.  

4. Stock markets in Southeast Asia decline

  • Stock markets in Southeast Asia have declined due to increased tension between US and China.
  • The tensions between US and China have increased as China took action to force new national-security laws on the Hong Kong.
  • Hang Seng Index, the stock market in Hong Kong, closed down at its worst since July 2015.
  • Stock markets all over the world also declined. They are named in the following table.

Stock Market/Index (Name and Country or place)

Decline

Shanghai Composite index (China)

1.9%

Straits times(Singapore)

2.2%

Nikkei-225 Index (Japan)

0.8%

KOSPI (South Korea)

1.4%

FTSC-100 (London)

1.2%

DAX (Germany)

0.6%

CAC-40 (France)

0.5%

5. A MoU for Joint Venture Company signed between NTPC and ONGC

  • A Memorandum of Understanding (MoU) for Joint Venture Company in renewable energy sector has been signed between NTPC and ONGC.
  • National Thermal Power Corporation (NTPC) was formed in 1975. It is headquartered in New Delhi.
  • NTPC deals in energy generation, sale, gas exploration and coal mining. Gurdeep Singh is its chairman and MD.
  • NTPC comes under Ministry of Power.
  • Oil and Natural Gas Corporation Limited (ONGC) was formed in 1956. It is also headquartered in New Delhi.
  • ONGC mainly deals in oil and gas exploration. Shashi Shanker is its chairman, MD and CEO.
  • ONGC comes under Ministry of Petroleum and Natural Gas. Hindustan Petroleum Corporation is a subsidiary of ONGC.

 

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