Banking, Financial and Economic Awareness

2020-03-29

1. Bank of India lowers external benchmark linked lending rate

  • Bank of India (BOI) has lowered the external benchmark linked lending rate to 7.25%.
  • Lowered external benchmark linked lending rate will come into effect from April 1.
  • On March 27, RBI has lowered repo rate by 75 basis points to 4.40% from 5.15% in February 2020.
  • BOI has also lowered its Benchmark MCLR across tenors from 1 year to 1 month by 25 basis points. For overnight tenor, it has been reduced by 15 basis points. 
  • In banking and finance, tenor means the time after which a loan must be repaid.
  • For example, if someone has taken a loan with one year tenor and 6 months have passed since the loan was taken, the tenor of loan is six months. Overnight tenor means loan taken for overnight.
  • Marginal Cost of Lending Rate (MCLR) is defined as the least interest rate that banks give loans. It is linked with tenor of loans. Banks decide it internally. It is an internal benchmark rate.
  • MCLR was brought by RBI in April 2016. Interest rates were decided on the basis of base rates since 2010. 
  • External benchmark linked lending rate is decided on the basis of external benchmark rate like repo rate. As per RBI norms, banks should revise it at least one time in 3 months.

2. The merger of banks to be effective from April 1

  • As per RBI, merger of 10 Public Sector Banks into 4 will be effective from April 1.
  • On March 4, merger schemes of banks were notified by the government.
  • After the merger, the branches and customers of Oriental Bank of Commerce and United Bank of India will become part of Punjab National Bank.
  • The branches and customers of Syndicate Bank and Allahabad Bank will respectively become part of Canara Bank and Indian Bank.
  • The branches and customers of Andhra and Corporation banks will become part of Union Bank of India.

3. Recession all over world as a result of coronavirus pandemic

  • International Monetary Fund (IMF) has suggested that recession currently faced by world is the result of coronavirus pandemic.
  • IMF has estimated that there will be recovery in 2021 if the spread of coronavirus will be successfully prevented.
  • IMF Managing Director Kristalina Georgieva has compared the current recession with recession in 2009.
  • The world has seen recession during December 2007 – June 2009. This was called great recession.
  • IMF MD said that recession due to coronavirus pandemic might be equally or even more difficult and severe than the recession in 2009.

4. Moody’s Investors Service cuts India’s GDP growth

  • Moody’s Investors Service has cut India’s GDP growth for 2020 from 5.3 % to 2.5% in Global Macro Outlook, 2020-21.
  • Moody’s has said that incomes will sharply decline at a GDP growth rate of 2.5% and have an influence on domestic demand and recovery in 2021.
  • Moody’s has also estimated that real GDP in world economy will become smaller by 0.5% during 2020 and improve to 3.2 % during 2021.

Topic of the Day- Different types of deficit

Fiscal deficit:

  • It is the amount by which government’s total expenditure in a fiscal year is more than total revenue collected by it during that year.
  • If the government spends more money than it collects through revenue, the government will have fiscal deficit. On the other hand, the government will have no fiscal deficit if the government’s expenditure is less than its revenue.
  • Fiscal deficit shows that the government needs to borrow money. It also shows the financial health and stability of the economy.
  • Fiscal deficit includes the government’s non-debt creating capital receipts such as capital receipts from loan recovery and PSU disinvestment. The government’s borrowings and liabilities are not part of fiscal deficit.
  • The government’s fiscal deficit target for Fiscal Year 2020-21 is 3.5% of GDP. During Fiscal Year 2019-20, the government’s fiscal deficit remained at 3.8% of GDP. But, the government’s target for the Fiscal Year 2019-20 was 3.3%. In Fiscal Year 2020-21, the government has missed its fiscal deficit target for third continuous year.

 

Revenue deficit:

  • It is the amount by which the government’s revenue expenditure is more than its revenue receipts.
  • The government’s revenue receipts consist of tax revenue and non-tax revenue. The government’s revenue expenditure consists of interest payments, subsidies and money expended on defence.
  • If the government’s revenue deficit is high, it means that the government will borrow money, and its debt will increase. As the government cannot lower its revenue expenditure such as expenditure on interest payments and defence, it will have less money to spend on welfare measures if revenue deficit is high. The government’s revenue deficit target for Fiscal Year 2020-21 is 2.7% of GDP.

 

Trade deficit:

  • It is based on income from trade in goods. Trade deficit means payments made by a country for its imports are more than money earned by the country through its exports.

 

Current account deficit (CAD):

  • It is based on income from trade in goods, trade in services, and transfer payments (remittances, grants and gifts received by a country or its residents).
  • Current account deficit means a country is having negative income from trade in goods, trade in services and transfer payments (remittances, grants, and gifts received by a country or its residents)  
  • India’s current account deficit was $1.4 billion in December 2019. It was equal to 2.9% of GDP. In December 2019, India’s trade deficit was $34.6 billion.

 

Multiple Choice Questions (MCQs)

1. Which of the following banks has recently lowered the external benchmark linked lending rate to 7.25%?

  1. Bank of India
  2. Punjab National Bank
  3. State Bank of India
  4. Union Bank of India
  5. Canara Bank

2. When did the government notify scheme for merger of 10 Public Sector Banks into 4?

  1. November 4, 2019
  2. December 4, 2019
  3. January 4, 2020
  4. February 4, 2020
  5. March 4, 2020

3. Recently, Moody’s Investors Service has cut India’s GDP growth for 2020 from 5.3 % to

  1. 4.5%
  2. 3.5%
  3. 2.5%
  4. 1.5%
  5. None of the above

4. What is the government’s fiscal deficit target for Fiscal Year 2020-21?

  1. 3.8 % of GDP
  2. 3.6 % of GDP
  3. 3.7 % of GDP
  4. 3.5 % of GDP
  5. 3.4 % of GDP

5. Which of the following is part of trade deficit of a country?

  1. Income from trade in goods
  2. Income from trade in services
  3. Income from transfer payments
  4. Income from remittances
  5. Both A and B

Solution:

1. A

2. E

3. C

4. D

5. A

 

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