Banking and Financial Awareness – 93

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19 Jun, 2015

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1) The Reserve Bank of India (RBI) on 2 June 2015 cut the Repo Rate by 25 basis points. The latest cut takes the number of rate cuts this calendar year to three. What is the new Repo Rate after this cut? – 7.25%

Explanation: Taking advantage of subdued inflation to give more support to the economy, the RBI Governor Raghuram Rajan cut the benchmark Repo Rate by 25 basis points to 7.25%. Previous cuts, in January and March 2015, had also been by 25 basis points. But, two other important rates – Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), were left unchanged. The reduction showed policymakers recognised the need to put the economy on a sounder footing, regardless of data released on 29 May 2015 that disclosed that India outpaced China by growing 7.5% in the March quarter. The rate reduction answered calls from both the government and businesses for the RBI to do more to shore up the economy. Corporate earnings have been dismal, growth in bank lending has been the lowest in almost two decades, and weak industrial output data is at odds with the strong GDP numbers.

 


2) The Reserve Bank of India (RBI) on 8 June 2015 made which important announcement which is being seen as a significant move to provide a more flexible process for banks to recover bad loans? – It allowed banks to acquire 51% or more stake in companies defaulting after restructuring of their loans

Explanation: It is worth mentioning that banks have been reporting more losses from restructured assets of-late and the RBI move is primarily aimed at resolving stress in the banking system. The RBI has, however, advised banks to sell the stake to a new promoter ‘as soon as possible’, but they should ensure the buyer is in no way related to the borrower. The other measures announced under the new scheme ‘strategic debt restructuring’ (SDR) include allowing lenders to convert debt into equity within 30 days of review of companies’ accounts. In addition, lenders acquiring shares of listed companies under restructuring would be exempted from making open offers. These restructuring norms would also apply to all company accounts before 8 June 2015.


3) Who was nominated as the new non-executive Chairman of ICICI Bank by the board of the bank on 9 June 2015 to replace K.V. Kamath? – M.K. Sharma

Explanation: M. K. Sharma will succeed KV Kamath, who would step down from the Board to take on a bigger role as the first President of New Development Bank, established by the BRICS nations. He was earlier the Vice Chairman of Hindustan Unilever Ltd (HUL). Sharma was also an independent Director on the Board of ICICI Bank for eight years from 2003 to 2011 and is an independent director of several companies. Sharma will have tenure of 5 years.

 


4) Which major international banking entity on 9 June 2015 made announcement to cut almost 50,000 jobs from its payroll, axe its investment bank and shrink its risk weighted assets by $290 billion in an effort to improve its sluggish performance? – HSBC

Explanation: HSBC is the largest bank in Europe. It made this announcement to the Hong Kong stock exchange ahead of an important presentation to investors and analysts. This is the second major strategic plan for HSBC CEO Stuart Gulliver since he took the charge at the start of 2011. The job cuts, which will affect almost a fifth of the bank’s workforce, involve 25,000 staff from the expected sales of the lender’s Brazil and Turkey units and 22,000-25,000 from the consolidation of IT and back office operations and branch closures. However the cuts, to be completed by 2017, will be followed by some hiring in growth businesses and the bank’s compliance division. Apart from this, HSBC will shrink the global banking and markets division to less than one third of its $2.6 trillion balance sheet from its current level of around 40%. It is worth mentioning that HSBC has been under pressure from investors for carrying out radical cuts at its global banking and markets divisions.


5) Which mutual fund house retained its position as the most profitable fund house in India in 2014-15 as disclosed in the data released by industry body AMFI recently? – HDFC Mutual Fund

Explanation: The profit after tax (PAT) for HDFC Mutual Fund stood at Rs. 416 crore during 2014-15. Its rival Reliance Mutual Fund was able to retain its second position with PAT of Rs. 357 crore during last fiscal. ICICI Prudential MF, the second largest fund house in terms of assets base, reported a profit after tax of Rs. 247 crore, while Birla Sunlife MF posted a PAT of Rs. 123 crore. On the assets under management (AUM) front, HDFC maintained its lead with assets base of Rs. 1.46 lakh crore, followed by ICICI MF Rs. 1.32 lakh crore, Reliance MF Rs. 1.24 lakh crore and Birla Sunlife MF at Rs.1.07 lakh crore.

 


6) The State Bank of India (SBI) on 2 June 2015 cut its base lending rate by 15 basis points hours after the RBI had reduced the Repo Rate by 25 basis points. What is the new lending rate of SBI after this cut? – 9.7%

Explanation: SBI, which is India’s top lender by assets, cut its base lending rate by 15 basis points to 9.7%, which will came into effect from 8 June 2015. With this, the equated monthly installments (EMIs) on home and auto loans are likely to come down. Apart from SBI, some other smaller state lenders also announced base lending rate cuts of between 25 and 30 basis points. Allahabad Bank, Dena Bank, and Punjab and Sind Bank also announced rate cuts on the same day.


7) The Reserve Bank India (RBI) on 11 June 2015 gave permission to which investor segment to invest in regulated chit funds in India? – Non-Resident Indians (NRIs)

Explanation: The permission to Indians abroad for participation in chit funds comes with riders. NRIs can subscribe to chit funds through banking channels, including accounts maintained in India. The state governments or Registrar of Chits may permit chit funds to accept subscription from NRIs on non-repatriation basis. This should be done in accordance with the provisions of the Chit Fund Act.


8) The Bangladesh government recently allowed Life Insurance Corporation of India (LIC) to form a joint-venture to operate its services in the country. What will be the name of the joint-venture to be formed by LIC in Bangladesh? – LIC Bangladesh

Explanation: The Bangladesh IRDA gave its consent letter to LIC to start its operations in Bangladesh. LIC would thus become the second foreign insurer to operate in the country. LIC was allowed to start operations as a joint venture entity to be called “LIC Bangladesh” with a paid up capital of Taka 1 billion ($1=Tk 80). LIC will hold half of the amount while the rest would be owned by its Bangladeshi partners raising the amount from the capital market and local entrepreneurs. LIC thus became the second foreign insurance agency after the US-based MetLife-ALICO, which only has a branch office in Bangladesh and is not a joint venture registered company. Apart from two state-run insurance companies, Bangladesh currently has 60 insurance companies in private sector, 43 of them being general and 17 life.

 


9) Union Govt. on 3 June 2015 notified the amendments in the definition of NRIs as contained in the FDI policy. What is the broad change in this definition? – According to the new definition NRIs would also include Overseas Citizens of India (OCIs) and Persons of Indian origin (PIOs)

Explanation: The Union Cabinet, chaired by Prime Minister Narendra Modi, had cleared these amendments during May 2015. According to the notified policy relaxations for NRIs by the Department of Industrial Policy and Promotion (DIPP), non-repatriable investments by non-resident Indians, overseas citizens of India and persons of Indian origin will be treated as domestic investments and will not be subject to foreign direct investment caps. The decision is expected to result in increased investments across sectors and greater inflow of foreign exchange remittances leading to higher economic growth. The government has also notified increase in FIPB’s power to recommend foreign investment proposals of up to Rs. 3,000 crore from the earlier Rs 2,000 crore. Beyond this limit, proposals will go to the Cabinet Committee on Economic Affairs for approval.

 


10) The Union Cabinet on 10 June 2015 decided to bring in an ordinance to amend the Negotiable Instruments Act, which provides for filing of cheque bounce cases in place where the cheque was issued. What the govt. wants to achieve by brining this ordinance? – It seeks to overturn a Supreme Court 2014 ruling said the case has to be initiated where the cheque-issuing branch was located

Explanation: The Supreme Court had passed a judgement in 2014 that if a person receives a cheque from someone and the cheque gets bounced, then the jurisdiction for initiating action lies in the State where it was issued. This ruling resulted in filing of over 18 lakh cases in various courts spread across the country and immense hardships to people involved in these cases. Government had brought a Bill (Negotiable Instruments (Amendment) Act, 2015) in this regard in Parliament and it was passed in the Lok Sabha in May 2015. The amendment passed by the Lok Sabha provided that cases of bouncing of cheques can be filed only in a court in whose jurisdiction the bank branch of the payee (person who receives the cheque) lies. If a complaint against a person issuing a cheque has been filed in the court with the appropriate jurisdiction, then all subsequent complaints against that person will be filed in the same court, irrespective of the relevant jurisdiction area. However, as the Rajya Sabha could not pass it, the government has brought this ordinance so as to give relief to these people.


 


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