Banking and Financial Awareness – 120

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07 Nov, 2016

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1) The deposit portfolio of Indian banks crossed which milestone figure as on 30 September 2016, as disclosed during October 2016? – Rs. 100 trillion

Explanation: The deposit portfolio of Indian banks crossed the Rs.100 trillion mark as on 30 September 2016.

The collective deposit base of the banking system in India, which is Asia’s third largest and the world’s fastest-growing major economy, took five years and seven months to double from Rs. 50.46 trillion in February 2011.

On previous occasions, the deposit base doubled in a much shorter span. For instance, it had taken three years and 11 months to double from Rs. 25.04 trillion in March 2007; and four years and four months each to double from Rs. 12.57 trillion in November 2002 and Rs. 6.26 trillion in June 1998.

Roughly, in the past decade, the deposit portfolio of the Indian banking system has grown four-fold.

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2) Why a new era in India’s monetary policy was unveiled on 4 October 2016? – Because country’s first monetary policy declaration by the newly constituted Monetary Policy Committee (MPC) was declared on this day

Explanation: A new history in country’s monetary policy era was created as the newly constituted Monetary Policy Committee (MPC) came out with its first-ever monetary policy on 4 October 2016. Till now monetary policies have been formulated by the RBI Governor.

The MPC, headed by RBI Governor Urjit Patel, presented the fourth bimonthly monetary policy review on this date. It reduced the key policy rate or the repo rate by 25 bps to 6.25%.

It is worth mentioning that the first interest rate decision taken by the MPC was unanimous. All six members voted for a reduction in the benchmark repo rate.

The MPC includes the central bank’s chief (Urjit Patel), Deputy Governor R. Gandhi, Executive Director Michael Patra and three government nominees which includes Chetan Ghate, Pami Dua and Ravindra Dholakia.

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3) What important rule became applicable for purchasing insurance policies in India from 1 October 2016? – It became mandatory to have an e-insurance account to purchase insurance policy

Explanation: In a new regulation, that became effective from 1 October 2016, it became mandatory to have an e-insurance account to purchase insurance policy in the country. Though e-insurance was started two years ago, the accounts have been made mandatory only now. The move is aimed at consolidating holder’s insurance portfolio and also making the claim process easier.

It is worth mentioning that from 1 October 2016 insurance policies have been issued in electronic form. It is similar to buying shares online, after which they are stored in demat form. Most policies, including all motor insurance and overseas travel insurance policies, will only be purchasable in demat form.

Therefore, a policy-holder will need an e-Insurance Account (eIA) to buy or renew most policies from October 2016.

The benefits of e-insurance to a policyholder could be similar to what demat accounts brought to investments in securities, including stocks, bonds. From filling up the application form to making payments online to the issuance of the policy document, the entire process could soon be paperless.

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4) In an important development on the road to formalising the biggest reform of the indirect tax regime, the Union Finance Ministry on 18 November 2016 proposed the formula for compensation under the goods and services tax (GST). What is the maximum rate that was proposed under the formula for GST implementation? –26%

Explanation: The Finance Ministry has proposed 26% peak rate for GST. It also proposed to the GST Council that the tax have a four-rate structure with two standard rates of 12% and 18%.

Gold will be taxed at 4%. Additionally, a cess will be levied on ultra-luxury items, tobacco products and pan masala and environmentally harmful products in order to equalise the levy to the current level of tax. This will bring in about Rs. 50,000 crore, which will be used to compensate the States for any revenue loss.

However, no agreement was reached for the proposed GST rates between the Centre and the States as on 19 October 2016, when the third round of deliberations in the GST Council ended in New Delhi.

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5) The International Monetary Fund (IMF) released the results of the Financial Access Survey for 2016 on 19 October 2016. What is financial access data pertaining to India in this Survey? – Just over 13 commercial bank branches for every 100,000 adults

Explanation: According to IMF’s Financial Access Survey for 2016, as of 2015, India had over 1.2 lakh branches of commercial banks across the country. This is higher than the number in the US, China, Brazil, Russia and South Africa. However, this translates to just over 13 commercial bank branches for every 100,000 adults.

In this respect, China is no better than India with 8 branches for every 100,000 adults.

While India remains an under-banked country compared to most peers, its banking network is less concentrated in the top cities compared to several of its peers. Of the total number of bank branches in the country, close to 6% of them were located in the three largest cities in India in 2015. In comparison, over 46% of branches of commercial banks were located in three largest cities in South Korea. The corresponding figure for Australia was 39.2%, Brazil (16.4%), China (8.3%) and the US (2.5%).

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6) According to the media reports published on 20 October 2016 as many as 3.2 million debit cards are being blocked by banks after a major potential security breach was reported. Which are the 5 worst-hit card-issuing banks, which are either replacing or asking customer to change the security codes? – SBI, HDFC Bank, ICICI Bank, Yes Bank and Axis Bank

Explanation: It was reported in media reports on 20 October 2016 that a number of Indian commercial banks will either replace or ask customer to change the security codes of as many as 3.2 million debit cards on fears of potential breaches.

The worst-hit banks are State Bank of India (SBI), HDFC Bank, ICICI Bank, Yes Bank and Axis Bank. Of the debit cards affected, 2.6 million are on Visa and MasterCard platforms, while 600,000 are on the home-grown RuPay platform.

It is worth mentioning that India’s largest bank SBI, along with it subsidiary banks, had earlier blocked about 6.25 lakh debit cards of their customers after “suspicious” transactions spiked at third-party ATM machines. However, on 20 October 2016 SBI, Yes Bank and MasterCard denied that there was any breach of their security systems and steps like blocking of cards was taken as a precautionary measure.

SBI said that it had been informed by card network providers about a potential risk to some cards, and was replacing those cards as a precautionary measure.

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7) Which private sector bank executed India’s first transaction on block-chain, as claimed by the bank on 12 October 2016? – ICICI Bank

Explanation: ICICI Bank on 12 October 2016 announced that it has successfully executed transactions in international trade finance and remittances using block-chain technology in partnership with Emirates NBD.

The usage of block-chain technology simplifies the process and makes it almost instant to only a few minutes. This is in contrast to the current process which involves a complex and lengthy paper trail that requires international shipping and courier.

The block-chain application replicates the paper-intensive international trade finance process as an electronic decentralised ledger that gives all the participating entities, including banks, the ability to access a single source of information.

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8) In an important development, five-nation group BRICS on 16 October 2016 agreed to set up an independent rating agency based on market-oriented principles. This rating agency is being proposed in view of growing concerns over methodologies of the big three global rating agencies that are allegedly constraining growth in emerging nations. Which are these big three global rating agencies? – S&P, Fitch and Moody’s

Explanation: It has emerged that the big three global rating agencies – Standard & Poor’s (S&P), Fitch and Moody’s, all of which are U.S.-based rating agencies, have allegedly constrained the growth of emerging nations by being partial to the parent countries’ sovereign ratings.

Batting for a new credit rating agency backed by BRICS group, New Development Bank president KV Kamath had said despite having deep capital buffers, the ratings of multilateral banks like the BRICS-promoted NDB are affected due to the parent countries’ sovereign ratings.

Citing the case of NDB itself, which is planning to get itself rated for bond-raising in many countries, he had said its rating will be affected because the promoter countries are not AAA-rated.

The decision to establish the BRICS Rating Agency was taken at the 8th BRICS Summit that concluded in Goa on 16 October 2016.

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9) The Union Cabinet on 27 October 2016 took which important decision pertaining to the disinvestment of public sector undertakings (PSUs)? – It gave in-principle approval to strategic sale in PSUs

Explanation: The Union Cabinet on 27 October gave in- principle approval to NITI Aayog’s proposal for strategic sale in over a dozen public sector undertakings (PSUs) including those that are making profits.

The strategic sale will involve a management control transfer as the shareholding of the government would come down to below 50%. Some of these PSUs will be important units and therefore since each unit would be considered in its own merit, the timing of that would be decided by the government accordingly.

Each PSU sale case would be considered separately after it has been examined by the department of disinvestment and the ministries concerned.

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10) During October 2016 which entity became the first commodity exchange to lose recognition since SEBI took over the regulation of commodities from FMC in September 2015? – Bombay Commodity Exchange Limited (BCEL)

Explanation: The Securities and Exchange Board of India (SEBI) on 29 October 2016 allowed Bombay Commodity Exchange (BCEL) to exit the commodity futures business with immediate effect. It also asked the exchange to drop the term “Exchange”, from its name and avoid its use in any variant.

With this BCEL became the first commodity exchange to lose recognition since SEBI took over the regulation of commodities from FMC in September 2015.

Primarily set up as an associate of oilseed traders in Navi Mumbai, BCEL received permanent recognition to trade in commodities from the erstwhile regulator, the Forward Markets Commission (FMC), and started trading in castor oilseed.

The volume of trade during 2013-14 stood at 14,000 tonnes in castor seed, which was the only commodity being traded on it. However, since 13 December 2013, there had been no trading.

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