Banking and Financial Awareness – 85

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08 Mar, 2015

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1) According to information disclosed on 2 March 2015, an agreement was signed between the Centre and the Reserve Bank of India (RBI) during February 2015 that sets inflation target for the RBI. What is this target? – To bring inflation down to 6% by January 2016

Explanation: The agreement formalised a policy the RBI had been following since January 2014, which is a significant development in India’s monetary policy formulation championed by Governor Raghuram Rajan. Under this agreement the RBI will be deemed to have missed its target if consumer inflation remains above the 6% level for three consecutive quarters during 2015-16 or if it remains below 2% for three consecutive quarters during the year 2016-17. The bank will have to explain to the government the causes, and what steps it intends to take to steer inflation back within a given time if it misses the target.


2) The Reserve Bank of India (RBI) on 4 March 2015 lowered its policy repo rate by 25 basis points. This was the second cut this year on the back of easing inflation and a government commitment to fiscal discipline. What is the new Repo rate after this cut? – 7.5%

Explanation: The Repo rate stood at 7.75% before this cut. It is worth mentioning that the RBI had lowered interest rates by 25 bps on 15 January 2015. Another important thing associated with rate cut is that both the rate cuts this year have taken place outside of the central bank’s scheduled policy review meetings.


3) What important recommendation pertaining to domestic financial institutions (DFIs) was given by the 14th Finance Commission that was tabled in the Parliament on 24 February 2015? – A dedicated panel should be constituted for DFIs

Explanation: The 14th Finance Commission stated that domestic financial institutions (DFIs), such as public sector banks have a dominant role in the financial framework of the economy. Hence it recommended that a Financial Sector Public Enterprises Committee (FSPEC) be appointed to examine and recommend parameters for appropriate future fiscal support to financial sector public enterprises. This suggestion has come at a time when these banks need around Rs. 2.84 lakh crore additional capital to meet the BASEL-III requirement. These requirements are critical to make banks healthy with growing business. At present, there are 27 public sector banks. These are divided into – nationalised banks (21) and State Bank of India group (6).


4) Which state-owned bank of Britain has decided to close its banking operations in India as disclosed recently? – Royal Bank of Scotland (RBS)

Explanation: RBS has decided to close its banking operations in India but will be retaining the back office. The balance sheet exposure of RBS’s India business has also almost halved in calendar year 2014. At the end of December 2014, the net balance sheet exposure of the bank’s operations in India fell by £1.7 billion to £2.0 billion. Bank’s Indian banking operations mainly include investment and wholesale banking.  The bank also has a wealth management business and retail presence as well. According to reports, RBS’ Indian banking business employs about 1,200-1,500 people.


5) International rating agency Moody’s on 3 March 2015 downgraded the ratings of some securities of which two public-sector banks? – Central Bank of India and Indian Overseas Bank

Explanation: The agency downgraded to BA1 from BAA3 its ratings on local and foreign-currency deposits of Central Bank of India and Indian Overseas Bank (IOB). Apart from this IOB’s senior unsecured debt was also downgraded to BA1 from BAA3. BAA3 rating means below investment grade ratings. This downgrade by Moody’s is being seen as possibly the start of similar rating revisions for other weaker public-sector banks by the agency. However, Central Bank of India and IOB continue to have standalone ratings of B3 and B2, respectively, from Moody’s. Moody’s action reflects its assumption of a lower level of support from the Government.


6) The proposed merger of Forwards Markets Commission (FMC) with SEBI as announced in the Union Budget on 28 February 2015 is expected to sound a death knell for the so-called ‘dabba trading’. What is meant by ‘dabba trading’? – Illegal trading in commodities market

Explanation: The so-called ‘dabba trading’ in commodities market is widely prevalent across Gujarat and many other parts of the country with estimated turnover to the tune of Rs. 50,000-1,00,000 crore a day. While regulators and enforcement agencies have been trying hard to curb this menace for a long time, the lack of a unified regulatory mechanism has so far made it difficult to fully control this problem. In his Union Budget on 28 February, Finance Minister Arun Jaitley proposed to merge the commodity markets regulator FMC (Forwards Markets Commission) with the capital markets watchdog SEBI (Securities and Exchange Board of India). With this the efforts to check this menace are likely to get a major boost as SEBI already enjoys greater powers including those to conduct search and seizure, impose penalties, order arrests and take other strict actions against wrongdoers.


7) The report of the 14th Finance Commission was tabled in the Parliament by Finance Minister Arun Jaitley on 24 February 2015. How much raise in share of states in central taxes has been suggested in this report that has been accepted by the Union Govt.? – 10%

Explanation: According to an Action Taken Report on the recommendations given by the Commission, the Centre has decided to devolve a much higher share of 42% of the Union’s tax receipts to the States. Compared to 2014-15, this will be a significant enhancement of 10% over the 32% during the award period of the 13th Finance Commission. As against a total devolution of Rs. 3.48 lakh crore approximately in 2014-15, the total devolution to the States in 2015-16 will be Rs. 5.26 lakh crore approximately, a year-on-year increase of Rs. 1.78 lakh crore approximately. The higher tax devolution will allow States greater autonomy in financing and designing schemes as per their needs and requirements. The Commission, headed by former RBI Governor Y.V. Reddy, gave its report to the President on 15 December 2014. The recommendations of the Finance Commission are binding upon the Government as it is constituted by the President under a constitutional provision. These recommendations will be valid from April 1, 2015, for a period of five years.


8) Union Finance Minister Arun Jaitley presented the Economic Survey for 2015-16 in the Parliament on 27 February 2015. What the growth forecast is for fiscal year 2015-16 as disclosed in the Survey? – 8.1 to 8.5%

Explanation: With expected growth for 2015-16 to be over 8%, India is on its way to become the fastest growing major economy in the World. The Survey also disclosed that the growth of Indian economy could be launched on a double digit trajectory in the medium term. And that there is a scope for Big Bang reforms now.


9) Indian capital market regulator SEBI has recently asked individual investment advisers providing opinion on securities or public offers through TV channels or other media platforms to get them registered with it. This is being done with an aim to safeguard Indian markets from any manipulative research reports. These individuals would be registered in which capacity by SEBI for the same? – “Research Analysts”

Explanation: Last year, the Securities and Exchange Board of India (SEBI) had ushered in norms for ‘Research Analysts’. Individuals (including journalists) who offer opinion on securities and public issues through the media, are also required to obtain registration as research analysts with SEBI. Investment advice refers to advice on investments in securities or investment products in written, oral or through any other means of communication for the benefit of the client and includes financial planning. However, the members of the Institute of Company Secretaries of India (ICSI), Institute of Chartered Accountants of India (ICAI), Institute of Cost and Works Accountants of India (ICWAI) who provide investment advice to their clients’ incidental to their professional services are exempted from obtaining registration as investment advisers.


10) According to the data pertaining to mutual fund industry released on 5 March 2015 the assets under management for the mutual fund industry crossed a milestone figure for the first time during February 2015. What is this milestone figure? – Rs. 12 lakh crore

Explanation: The assets under management (AUM) that stood at Rs. 10.5 lakh crore at the end of December 2014 rose to Rs. 11.81 crore in January 2015 and then to Rs. 12.02 lakh crore at the end of February 2015 registering a growth of 14% over the past two months. This is the highest ever AUM registered by the industry that has seen AUM’s value rise by Rs. 3,76,956 crore or 46% since the beginning of this financial year. This means that domestic retail investors have returned to the mutual fund route in large numbers in the current year. The year witnessed strong participation from retail investors into domestic equities through mutual funds after the BJP-led NDA gained a clear majority in the 2014 general elections and in anticipation of reform measures promised by them.


 


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