Banking and Financial Awareness – 108

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17 Mar, 2016

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Bank-losses-2016

1) Which public-sector bank on 12 February 2016 announced net loss of Rs. 3,342 crore for quarter ended December 2015, which is the largest quarterly loss by a bank in the history of Indian banking industry? – Bank of Baroda (BOB)

Explanation: Bank of Baroda (BOB) posted a quarterly net loss of Rs. 3,342 crore for the third quarter of 2015-16 (Sep-Dec), as compared to a profit of Rs. 333 crore in the same period of last year.

This was the largest loss by a bank in the Indian banking history. The loss was primarily driven by a 463% increase in provisions towards bad loans which rose from Rs. 1,149 crore in the previous quarter to Rs. 6,474 crore.

It is worth mentioning that the RBI had asked PSU banks to treat some troubled accounts as official bad loans and make adequate provisions.

Among the worst performers, IDBI Bank made a loss of Rs. 2,184 crore, IOB Rs. 1,425 crore and Bank of India Rs. 1,505 crore.

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Wealth-Management-Services-2016

2) Which bank on 14 January 2016 became the first public sector bank to launch wealth management services? – State Bank of India (SBI)

Explanation: SBI launched its wealth management service called ‘SBI Exclusif’ on 14 January 2016 at Bengaluru. This service will be open to customers with a wealth base of Rs.30 lakh, which may be relaxed to Rs.10-15 lakh if the bank feels the customer has the potential for scaling up wealth. Non-resident Indians will be tapped as well.

SBI Exclusif customers will have access to a dedicated relationship manager and a service manager, supported by a team of investment experts.

Initially, three SBI branches in Bengaluru – Indiranagar, Koramangala and Central Bengaluru, will offer Exclusif services. The bank plans to expand wealth management to other cities soon.

SBI also differentiated its wealth management services from its private sector peers by linking performance incentives for its relationship managers to satisfaction of customers and the maximisation of their wealth.

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3) State Bank of India (SBI) on 1 February 2016 launched the ‘FlexiPay Home Loan’ scheme, which gives borrowers an option to pay only interest during a three-five year moratorium period. This product has been targeted towards which home loan segment? – Young working professionals

Explanation: Under the ‘FlexiPay Home Loan’ scheme, which has been launched primarily for young professionals, the borrowers can pay only interest during a three-five-year moratorium. Thereafter they will pay moderated equated monthly installments (EMIs).

The EMIs will be stepped up during the subsequent years, capturing payment of the principal component. This arrangement is expected to lower the impact of such additional loan amount on monthly repayments in the form of EMIs.

This scheme is expected to enable young working professionals/executives to get higher loan amounts compared to their loan eligibility under normal home loan schemes.

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4) Asian Infrastructure Investment Bank (AIIB), the new international finance institution that aims to support the building of infrastructure in the Asia-Pacific region, was formally launched by Chinese President Xi Jinping in Beijing on 16 January 2016. AIIB is being seen as a rival to the US-led World Bank. Who was formally elected as the first President of AIIB? – Jin Liqun

Explanation: The AIIB was proposed by China in 2013 and the initiative was unveiled at a ceremony in Beijing in October 2014. China has the highest shares (30.34%) and voting rights 26.06 in this bank as it seeks to change the unwritten rules of global development finance. India is the second largest shareholder (8.52%) and voting stake holder (7.51%) in this entity.

Despite opposition from Washington, US allies including Australia, Britain, German, Italy, the Philippines and South Korea have agreed to join the AIIB in recognition of China’s growing economic clout. The AIIB is expected to lend $10-15 billion a year for the first five or six years.

The AIIB will require projects to be legally transparent and protect social and environmental interests, but it will not force borrowers to adopt the kind of free-market practices allegedly favoured by the IMF. AIIB’s headquarters have been established at Beijing.

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5) Reserve Bank of India (RBI) Governor Raghuram G. Rajan presented the sixth bi-monthly monetary policy review on 2 February 2016. All the key rates were kept unchanged in the policy review which meant that the most important Repo Rate will remain unchanged at 6.75%. What the projected growth rate is for fiscal 2016-17 as stated in the review? – 7.6%

Explanation: Keeping the key rates unchanged, the RBI indicated that rates would continue to soften.

The RBI Governor, however, cautioned that the recommendations of the Seventh Pay Commission had not been factored into its growth projections.

After the latest review, the repo rate, or the rate at which the central bank infuses liquidity into the system, remained at 6.75%. The cash reserve ratio (CRR), or the portion of a bank’s money maintained with the central bank in cash, remained at 4%.

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6) The Union Govt. on 19 January 2016 announced the much-awaited roadmap for implementing the Indian Accounting Standards (Ind AS) by banks, insurers and non-banking finance companies (NBFCs). When Ind AS has been proposed to be introduced in India? – From 1 April 2018

Explanation: Indian Accounting Standards (Ind AS) are a set of accounting standards developed by Indian authorities, which converge with the International Financial Reporting Standards (IFRS).

According to the roadmap announced on 19 January, scheduled commercial banks (excluding regional rural banks) and insurers will be required to prepare Ind AS-based financial statements for accounting periods beginning 1 April 2018. The roadmap would also apply to all-India term-lending refinancing institutions, such as Exim Bank, NACAS, NHB and SIDBI.

However, urban cooperative banks (UCBs) and regional rural banks (RRBs) are not required to apply Ind AS and can continue to comply with the existing standards for the present.

The roadmap for Ind AS is being implemented as a follow-up of the announcement made by Finance Minister Arun Jaitley in Budget 2015-16.

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7) What is the maximum capped number of credit transactions in a calendar year for pensioner’s account as directed to the banks by the RBI on 21 January 2016? – 14

Explanation: The Reserve Bank of India (RBI) on 21 January 2016 directed banks that a pensioner’s account should not exceed more than 14 credit transactions in a calendar year for retirement and arrear payments.

It is worth mentioning that the agency banks are compensated at Rs.65 per transaction for handling pension computation, payment and related services on behalf of central and state governments.

However, it came to RBI’s notice that banks are apportioning payment of arrears on account of dearness relief (DR) or delay in start of pension month-wise, which is resulting in inflated agency commission claims.

14 credit transactions include one monthly credit for payment of net pension and a maximum of two per year for payment of arrears on account of increase in DR.

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8) Union Government is set to infuse how much more funds into the state-run banks in the current financial year 2015-16, as was announced by Financial Services Secretary Anjuly Chib Duggal on 3 February 2016? – Rs. 5,000 crore

Explanation: The Government is has earmarked fund worth Rs. 25,000 crore for 2015-16 primarily to strengthen PSU banks’ balance sheets. Of this about Rs 20,088 crore has already been pumped into 13 public sector banks.

Hence the govt. would infuse another Rs. 5,000 crore of capital in the current financial year.

Last year, the government had announced a plan, called ‘Indradhanush’, to infuse Rs. 70,000 crore in state-owned banks over four years, while these would have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel-III.

Apart from Rs. 25,000 crore this year, the PSU banks, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

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9) The first draft of the expert committee constituted to simplify the Income Tax Act, 1961 was released during January 2016. The committee has proposed a slew of recommendations including tax relief for new businesses and rationalisation of TDS rates. Who headed this committee? – Justice R.V. Easwar

Explanation: Justice R.V. Easwar committee was constituted by the Union Govt. on 27 October 2015 with the primary objective of simplifying the provisions of the Income Tax Act, 1961. The committee submitted the first batch of its recommendations during January 2016.

Important Recommendations:

Doubling the turnover limit for the presumptive income scheme for individual, Hindu Undivided Family or a partnership firm to Rs. 2 crore annually from the current Rs. 1 crore.

Introducing the scheme for professionals whose total receipts do not exceed ₹ 1 crore during the financial year

Tax relief for new businesses in the first year of operations

Rationalization of the structure of tax deducted at source (TDS)

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10) Union Government kick-started its ambitious “Start-Up Mission” with Prime Minister Narendra Modi announcing a host of measures for start-ups at the inaugural session of the Start-Up India programme held at Vigyan Bhavan in New Delhi on 16 January 2016. In a huge onus to the start-ups, how many year of tax exemption was announced? – 3 years

Explanation: Prime Minister Narendra Modi announced tax exemption of 3 year for start-ups, which was a much-sought after demand from the start-up fraternity. Start-ups set up after 1 April 2016, shall be exempted from income-tax for a period of three years.

Other major announcements under “Start-Up Mission”:

Establishment of a Start-up India Hub that would be a set-up and a friend, mentor and guide for start-ups through their entire journey

Fast track mechanisms of start-up patent applications

A credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC) and SIDBI to be rolled out with a budgetary corpus of Rs. 500 crore per year for the next four years

Introduction of compliance regime based on self-certification for start-ups

Faster exits for start-ups (Start-ups, who have simple debt structures, can be allowed to wind up within a period of 90 days after filing an application)

Facility of starting a start-up in a day through mobile app

Norms of public procurement for start-ups to be relaxed

Establishment of 35 new incubators in institutions for start-ups

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