Banking, Financial and Economic Awareness of 26 and 27 March 2020

1. India’s GDP growth estimate lowered to 3.5%

• Credit rating agency, CRISIL has lowered India’s GDP growth estimate for fiscal year 2020-2021 from 5.2% to 3.5%.
• The GDP growth forecast has been lowered due to impacts of COVID-19 pandemic on economic activity and financial stability.
• Due to COVID-19 pandemic, Standard & Poor (S&P) Global has predicted slow global growth and recession in US and Eurozone. S&P Global has also lowered Chinese growth from 4.8% to 2.9%.
• Declining growth in developed economies might negatively affect Information Technology (IT), IT Enabled Services (ITES), tourism sector and cause decline in growth of services exports.
• Eurozone is a monetary union of some member states of European Union (EU). It includes 19 of 27 member states of EU. All members of eurozone have euro as common currency.
• CRISIL is headquartered in Mumbai. Its parent organisation is Standard & Poor’s International.

2. DGFT’s help desk to help exporters and importers

• Directorate General of Foreign Trade (DGFT) has started a help desk to help exporters and importers by resolving COVID-19 related import/export issues.
• Exporters and importers can send their COVID-19 related import/export issues with the help of a Proforma spreadsheet.
• DGFT has taken this measure to resolve issues faced by importers and exporters due to lockdowns caused by corona virus outbreak in various countries.
• DGFT gives IEC number to Indian importers and exporters. IEC number is 10 digits long. It is mandatory.
• Traders/Manufacturers are required to have a unique Exporter Importer Code (IEC) Number for importing and exporting in India.

3. YES Bank to collect Rs 5,000 crore

• Reconstituted board of YES Bank has approved Rs 5,000 crore worth additional fund raising.
• Latest fund raising of Rs 5,000 crore comes after Rs 10,000 crore worth fund raising that was approved by the board and shareholders of bank on January 10, 2020 and February 7, 2020.
• A consortium of banks has invested Rs 10,000 crore in Yes Bank. This consortium was led by SBI.
• Sunil Mehta is the non-executive chairman of reconstituted board of Yes Bank and Prashant Kumar is its Managing Director and CEO.
• There are eight members on the reconstituted board of Yes Bank. RBI has appointed two additional directors on the reconstituted board and SBI has nominated two directors.

Important Banking terms

• Open Market Operations (OMOs) are instruments that help RBI in controlling money supply in the economy. As part of OMOs, RBI buys and sells government-issued securities in the open market. Buying of government-issued securities under OMOs by RBI increases the money supply. On the other hand, selling decreases the money supply in the economy. RBI had recently carried out OMOs in December 2019 and March 2020.
• Repo rate is the interest rate at which RBI buys securities to lend money to commercial banks. Repo refers to the repurchase agreement. It involves the resale of securities at a predefined date and price. In February 2020, RBI’s Monetary Policy Committee has kept repo rate unchanged at 5.15%. In the wake of COVID-19, Repo rate reduced to 4.4%.
• Reverse repo rate is the rate at which RBI sells securities to absorb extra money from the market. Reverse repo rate refers to reverse repurchase agreement. It involves agreement for repurchase of securities at a predefined date and price. In February 2020, RBI’s Monetary Policy Committee has kept reverse repo rate unchanged at 4.90%. The reverse repo rate has been changed to 4% due to COVID-19.
• Bank rate is the interest rate charged by RBI on loans it gives to commercial banks. Higher bank rate means banks will pay more interest on loans taken by them from RBI. Higher bank rate will decrease supply of money in economy as commercial banks will pay more interest from their reserves and have less money with them. In February 2020, RBI’s Monetary Policy Committee has kept bank rate unchanged at 5.40%.    
• CRR and SLR: RBI fixes CRR and SLR for the banks. Banks should keep a certain percentage of deposits as cash reserves with themselves. This is called Cash Reserve Ratio (CRR). Statutory Liquidity Ratio (SLR) refers to reserves that the bank should have with them in liquid form in the short term. Currently, RBI has fixed CRR at 3% and SLR at 21.50%.
• CRAR: Capital to Risk-weighted Assets Ratio (CRAR) or capital adequacy ratio is the ratio between a bank’s capital and assets weighted against risk. IF CRAR is higher, banks face les risks. Currently, CRAR for scheduled commercial banks is 9%.

Multiple Choice Questions

1. CRISIL has lowered India’s GDP growth estimate for fiscal year 2020-2021 from 5.2% to

1. 2.9%
2. 3.0%
3. 3.5%
4. 4.2%
5. 4.8%

2. Directorate General of Foreign Trade (DGFT) has started a help desk to help exporters and importers by resolving COVID-19 related import/export issues. Exporter Importer Code (IEC) Number issued by DGFT is

1. 6 digits long
2. 7 digits long
3. 8 digits long
4. 9 digits long
5. 10 digits long

3. How many members are there on the recently reconstituted board of Yes Bank?

1. 5
2. 8
3. 10
4. 14
5. 18

4. RBI decides to buy government securities as part of Open Market Operations. This means that RBI wants to

1. Decrease money supply in economy
2. Increase money supply in economy
3. Increase funds available with commercial banks
4. Decrease funds available with commercial banks
5. None of the above

5. RBI’s decision to increase bank rate will

1. Decrease money supply in economy
2. Increase money supply in economy
3. Keep the money supply unchanged
4. May increase or decrease money supply
5. None of the above

Solution

1. C

2. E

3. B

4. A

5. A

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