Banking, Financial and Economic Awareness

Half Yearly (Jan - June 2021)
2021 Book

Banking Awareness

Topic: Banking System

1. RBI decides to increase Cash Reserve Ratio (CRR) from 3% to 4% in two phases.

  • RBI decided to increase Cash Reserve Ratio (CRR) from 3% to 4% in two phases.
  • In the first phase, CRR would be increased from 3% to 3.5%, effective from March 27, 2021. In the second phase, CRR would be increased to 4% effective from May 22, 2021.
  • Earlier, RBI had reduced CRR to 3% for one year. This one year is going to end on March 26, 2021. This reduction in CRR was made to increase liquidity in the banking system in the midst of the Covid-19 pandemic.
  • RBI has also decided to delay the implementation of last part of 0.625% of Capital Conservation Buffer (CCB) to October 1, 2021. It was to be implemented on April 1, 2021.
  • Similarly, the implementation of Net Stable Funding Ratio (NSFR) guidelines has been deferred by RBI from April 2021 to October 2021. They will now become effective on October 1, 2021. NSFR is a component of Basel III reforms.
  • Section 24 of the Banking Regulation Act, 1949 says that Scheduled banks should maintain a percentage of assets in addition to the average daily balance under RBI Act,1934. This also applies to banking companies.
  • Section 24 is also related to maintaining the Statutory Liquidity Ratio (SLR) and Marginal Standing Facility (MSF).

Topic: Banking System

2. RBI decides to extend relaxation in the Marginal Standing Facility (MSF) till September 30, 2021.

  • RBI has decided to extend relaxation in the Marginal Standing Facility (MSF) till September 30, 2021.
  • RBI had earlier allowed banks to gain funds under MSF by spending from or making use of Statutory Liquidity Ratio (SLR) up to an extra 1% of their net demand and time liabilities (NDTL).
  • RBI has also extended special dispensation of the enhanced HTM limit of 22 % of NDTL from March 31, 2022 to March 31, 2023.
  • RBI has earlier allowed special dispensation of enhanced Held to Maturity (HTM) limit of 22 % of NDTL until March 31, 2022. This has been allowed for SLR securities issued during September 1, 2020 and March 31, 2021.
  • In September 2020, RBI enhanced HTM limit from 19.5% to 22% of NDTL. HTM limit will be returned to 19% in a phased manner. This will start from the quarter that is going to end on June 30, 2023.
  • Held to maturity (HTM), available for sale (AFS) and held for trading (HFT) are three categories of investment or securities portfolio of banks. HTM, AFS and HFT are three categories in which banks’ investment or securities portfolio is classified.

Topic: Banking System

3. MPC decides to keep repo rate unchanged at 4.0%.

  • Monetary Policy Committee (MPC) has decided to keep repo rate and reverse repo rate unchanged at 4.0% and 3.35%, respectively.
  • It has kept Marginal Standing Facility (MSF) rate and Bank Rate unchanged at 4.25%. Besides keeping the policy rates unchanged, MPC decided to maintain accommodative stance as long as needed.
  • Additionally, RBI revised the projection for CPI inflation to 5.2 % in Q4:2020-21. It projected the real GDP growth at 10.5% in 2021-22.
  • Monetary Policy Committee’s next meeting will be from April 5 to 7, 2021.

Topic: Banking/Financial Schemes

4. RBI includes Non-Banking Financial Companies (NBFCs) under On Tap TLTRO scheme.

  • RBI has included Non-Banking Financial Companies (NBFCs) under on-tap targeted long-term repo operation (On Tap TLTRO) scheme.
  • Now, banks will be able to provide funds under the On Tap TLTRO scheme to Non-Banking Financial Companies (NBFCs).
  • The funds will be provided for incremental lending in 31 specific sectors covered under On Tap TLTRO scheme.
  • Out of these 31 sectors, 26 sectors are notified under ECLGS 2.0. They (26 sectors) were identified as stressed sectors by Kamath Committee of RBI.
  • Other five sectors are Agriculture, Agri-Infrastructure, Secured Retail, Micro, Small and Medium Enterprises (MSMEs) and Drugs, Pharmaceuticals and Healthcare.

Topic: Banking System

5. RBI proposes setting up of cetralised 24x7 helpline for digital payments.

  • RBI has proposed setting up of cetralised 24x7 helpline for addressing digital payment products related queries of customers.
  • In its statement on developmental and regulatory policies released on 5 February, RBI said that major payment system providers would facilitate its setting by September 2021.
  • RBI further proposed to put bank branches under Cheque Truncation System (CTS) by September 2021.
  • It said that bank branches that are now outside any formal clearing arrangement would be put under CTS. CTS is being used for faster cheque clearing since 2010.
  • RBI said it would also issue guidelines on outsourcing for Authorized Payment System Operators.

Topic: Banking/Financial Schemes

6. Government approved Startup India Seed Fund Scheme for the next four years.

  • The Government has approved the Startup India Seed Fund Scheme for the next four years. It will be implemented from 1 April 2021.
  • It was announced by the Prime Minister at the Startup India’s international summit ‘Prarambh’.
  • The Government has allocated Rs 945 Crore corpus under Startup India Seed Fund Scheme for the period of 2021-25.
  • Startup India Seed Fund Scheme will support 3600 entrepreneurs through 300 incubators. It will mainly support startups from education, agriculture, food processing, biotechnology, healthcare, energy sectors.
  • Startup India Seed Fund Scheme:
    • The main objective of Startup India Seed Fund Scheme is to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
    • Department for Promotion of Industry and Internal Trade is the implementing body of this scheme.
    • Under this scheme, selected startups will get a grant of Rs 20 lakhs for proof of concept and Rs 50 lakhs through debt for commercialization of the product.

Topic: Miscellaneous

7. APEDA starts a regional office in Chennai.

  • Agricultural and Processed Food Products Export Development Authority (APEDA) has started a regional office in Chennai.
  • In addition to the regional office at Chennai, APEDA has established a perishable cargo centre at the Chennai airport, Tamil Nadu.
  • It has also established a walk-in type cold storage at Tiruchirapalli airport, Tamil Nadu.
  • APEDA has also offered financial support for the development of Tanflora Infrastructure Park Ltd at Hosur, Tamil Nadu, to export floriculture products.

Topic: Committees/Commissions

8. Government examining the first part of GK Pillai committee’s report.

  • Government is examining the first part of GK Pillai committee’s report.
  • Petroleum products, gems & jewellery and other items may be excluded from RoDTEP scheme.
  • GK Pillai committee is likely to give second part of its report in the near future.
  • RoDTEP scheme is being implemented from January 1, 2021. Exporters will be given refunds retrospectively from January 1, 2021 onwards.
  • GK Pillai committee was constituted last year to calculate input duty refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme.

Topic: Appointments

9. Anish Shah to become Managing Director and Chief Executive Officer of Mahindra and Mahindra.

  • Anish Shah will become Managing Director and Chief Executive Officer of Mahindra and Mahindra from April.
  • Pawan Goenka is currently MD and CEO of Mahindra and Mahindra. He will retire in April.
  • Manoj Bhat will become Group Chief Financial Officer of Mahindra and Mahindra from April.

Topic: Indian Economy

10. Expenditure Secretary clarifies no retrospective tax on interest in excess of Rs 2.5 lakh.

  • Expenditure Secretary has clarified that there will be no retrospective tax on interest in excess of Rs 2.5 lakh.
  • He clarified this about interest received annually from payment to Employees Provident Fund (EPF) or Government Provident Fund (GPF).
  • In Budget 2021-2022, Finance Minister (FM) proposed to limit tax exemption on interest payments received on the contribution of employee to provident funds on or after 01 April 2021. 
  • FM proposed to limit the tax exemption on such interest payments to annual contribution of Rs. 2.5 lakh.

 

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