RBI, Non-Banking finance - Current Affairs Questions and Answers

ANSWER: Sanchet.rbi.org.in

Explanation:
To prevent illegal and unauthorised pooling of funds by firms, RBI launched a website called sachet.rbi.org.in which alerts people regarding entities allowed to collect deposits.

• Portal will facilitate filing, tracking of complaints besides providing information about whether any particular entity is permitted to accept deposits and registered with the regulatory authority for the same.
• Sachet means the Hindi word for later and will help regulators to assist members of the public.

ANSWER: Both a and b

Explanation:
The Reserve Bank today relaxed norms for issuance of rupee-denominated overseas bonds, popularly known as masala bonds.

They will be treated as external commercial borrowings from October 3, thereby freeing up more investments by FPIs.

Currently, the limit for investment by foreign portfolio investors (FPIs) in corporate bonds is INR 2,44,323 crore.

This covers issuance of masala bonds by resident entities of INR 44,001 crore, including the ones in pipeline.

After a review, the RBI said that from October 3, masala bonds will no longer form part of the limit for FPI investments in corporate bonds.

They will form part of the ECBs and will be monitored accordingly.

As a result, INR 44,001 crore arising out of shifting of masala bonds will be released for foreign portfolio investor (FPI) investment in corporate bonds over the next two quarters.

Now, FPI investment limit for corporate bonds will increase to INR 2,44,323 crore from January 1.

Further, an amount of INR 9,500 crore in each quarter will be available only for investment in the infrastructure sector by long-term FPIs - sovereign wealth funds, multilateral agencies, endowment, insurance and pension funds and foreign central banks.

With surge in inflows in Indian debt markets, the cumulative utilisation of FPI limit in corporate bonds stood at 99.07 per cent as on September 21, 2017, reflecting limited scope of further FPI investments.

The Reserve Bank of India (RBI) changed the rules pertaining to the calculation of the foreign investment limit in so-called masala bonds, potentially opening up space for Indian companies to sell more such securities.

“Such a shift will allow companies to issue masala bonds as they are currently barred by Sebi (Securities and Exchange Board of India).

This will also lead to better monitoring of issuances by RBI as the external commercial borrowings framework is restrictive in terms of end-use of funds.

In a 20 July circular, market regulator Sebi had said that issuance of masala bonds would be temporarily stopped until the total foreign holding of corporate bonds falls below 92% of the limit.

As of 21st Sept 2017, foreign investors had exhausted over 99% of the available cap.

In June, the Reserve Bank of India had tightened the rules on the issuance of masala bonds.

The central bank mandated a minimum maturity of three years for sales of up to $50 million. Issuances above $50 million must be of five years or above maturity.

ANSWER: 6 percent

Explanation:
The RBI has cut the repo rate by 25 bps to 6%. This was on expected lines as market consensus predicted a 25 bps cut.

Reverse repo rate has also been cut by 0.25 per cent to 5.75 per cent.

The six member monetary policy committee voted on the basis of a majority for a cut. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favour of the monetary policy decision.

Dr. Ravindra H. Dholakia voted for a policy rate reduction of 50 basis points and Dr. Michael Debabrata Patra voted for status quo.

The cut in rates comes against the backdrop of slowing credit growth, very low inflation and low economic growth.

Retail inflation has fallen to a five year low of 1.5 per cent in June and expected to remain soft for a while longer. Bank credit is growing at just a little over 6 per cent year on year.

The economy has slowed down through the past five quarters from a high of 9.1% registered in the fourth quarter of fiscal 2016 to a level of 6.1% in the fourth quarter of fiscal 2017.

Factory activity contracted to an 8-year low with the purchasing managers’ index at just 47.9 points in July.

The RBI noted in its statement that actual headline inflation for Q1 has tracked projections of being in the range of 2 to3.5 per cent in the first half of the year.

Looking ahead, as base effects fade, the evolving momentum of inflation would be determined by

(a) the impact on the CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC);

(b) the impact of the price revisions withheld ahead of the GST; and

(c) the disentangling of the structural and transitory factors shaping food inflation.

It noted that there are several factors contributing to uncertainty around this baseline inflation trajectory.

It flagged its concern that implementation of farm loan waivers by States may result in possible fiscal slippages and undermine the quality of public spending, entailing inflationary spillovers.

It said that the timing of the States’ implementation of the salary and allowances award is critical–it is not factored into the baseline projection in view of lack of information on their plans.

If States choose to implement salary and allowance increases similar to the Centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months, the statement noted.

Some moderating forces are also at work, the RBI indicated.

First, the second successive normal monsoon coupled with effective supply management measures may keep food inflation under check.

Second, if the general moderation of price increases in CPI excluding food and fuel continues, it will contain upside pressures on headline inflation.

Third, the international commodity price outlook is fairly stable at the current juncture.

RBI Retains GVA outlook

• The RBI noted that high levels of stress in twin balance sheets - banks and corporations - are likely to deter new investment.
• The real estate sector also may see delayed project launches as a new regulatory framework comes into play.
• The states’ finances could come under pressure with farm loan waivers and limit fresh capacity expansion.
• It said however there were upsides to the baseline projections emanating from good monsoon progress, a good kharif harvest, boost to rural demand, step up in rural allocations, and the positive impact of GST.
• The rising probability of another good kharif harvest, the boost to rural demand from the higher budgetary allocation to housing in rural areas, the significant step-up in the budgetary allocation for roads and bridges, and the growth-enhancing effects of the GST spur investment.
• External demand conditions are gradually improving and should support the domestic economy, although global political risks remain significant.
• Keeping in view these factors, the projection of real GVA growth for 2017-18 is retained at 7.3%."

Inflation outlook

The RBI's Monetary Policy committee was cautious in expressing its view that while inflation has been soft, it still remained to be seen whether it was transient or whether the 'a more durable disinflation was underway'.

The MPC noted that some of the upside risks to inflation have either reduced or not materialised-

(i) the baseline path of headline inflation excluding the HRA impact has fallen below the projection made in June to a little above 4 per cent by Q4;

(ii) inflation excluding food and fuel has fallen significantly over the past three months; and,
(iii) the roll-out of the GST has been smooth and the monsoon normal.

• It said, that consequently, some space has opened up for monetary policy accommodation, given the dynamics of the output gap and accordingly decided to reduce the policy repo rate by 25 basis points.
• Noting, however, that the trajectory of inflation in the baseline projection is expected to rise from current lows, the MPC decided to keep the policy stance neutral and to watch incoming data.
• The MPC remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis, the statement said.

ANSWER: Insolvency and Bankruptcy Code 2016

Explanation:
Reserve Bank of India (RBI) has constituted an Internal Advisory Committee (IAC), which arrived at an objective, non-discretionary criterion for referring accounts for resolution under Insolvency and Bankruptcy Code, 2016 (IBC).

In particular, the IAC recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than INR 5000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016.

Accordingly, Reserve Bank of India has issued directions to certain banks for referring 12 accounts, qualifying under the aforesaid criteria, to initiate insolvency process under the Insolvency and Bankruptcy Code, 2016.

As regards the other non-performing accounts which do not qualify under the above criteria, the IAC recommended that banks should finalize a resolution plan within six months.

In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC.

However, the names and details of borrowers are not disclosed as prescribed under section 45E of the Reserve Bank of India (RBI) Act, 1934 and Banking Laws.

These laws provide for the obligation of a bank or financial institution to maintain secrecy about the affairs of its constituents.

In respect of the above-mentioned 12 accounts, Reserve Bank of India has advised the banks to make provisions as under:

(a) 50 per cent for secured portion of the outstanding balance plus 100 percent for the unsecured portion.

(b) Provisions required to be maintained as per the extant Asset classification norms.

The additional provisions, as required in each case, should be proportionately spread over the remaining quarters of the current financial year, starting Q2.

This is so that the required provisions are fully in place by March, 2018.

The effect of the provisioning requirement prescribed in respect of the said 12 accounts would vary for each account and for the respective banks depending upon the current asset classification, current provisions held, security coverage etc.

ANSWER: Banking ombudsman scheme

Explanation:
The Reserve Bank of India (RBI) has allowed consumers to lodge complaints against banks for non-adherence to norms related to electronic banking services, including those provided on mobile phones, under the banking ombudsman scheme, its cost-free dispute resolution mechanism.

The central bank has also allowed customers to file complaints against banks for deficiencies arising out of sale of third party products such as insurance policies and mutual fund schemes sold by banks.

The scope of the scheme, introduced in 1995, has been expanded.
The banking ombudsman has now been powered to pass an award of INR 20 lakh, as against the earlier threshold of INR 10 lakh.

The ombudsman can also give a consumer up to INR 1 lakh as compensation for loss of time, expenses incurred and mental anguish suffered during fighting the case.

According to the annual report on the banking ombudsman scheme for 2015-16 (July-June), 15 offices of banking ombudsman received 102,894 cases, a jump of 21% over the 2016-17 fiscal year.

Currently, there are 20 offices of banking ombudsman, according to the information available on central bank’s website.

ANSWER: Unchanged

Explanation:
The Reserve Bank of India has kept repo rate unchanged at 6.25% in its second bi-monthly monetary policy review.

Reverse Repo rate has been kept unchanged at 6%.

The RBI has cut the Statutory Liquidity Ratio (SLR) by 50 basis points to 20%. RBI has projected the headline inflation in the range of 2.0-3.5% in the first half of 2017-18 and 3.5-4.5% in the second half.

According to the central bank, the implementation of GST is not expected to have material impact on overall inflation. It has observed that the 7th Pay Commission allowances, geo political, financial risk pose upside risk to inflation.

RBI has reduced the growth projection for the current fiscal to 7.3% from 7.4%. The monetary policy decision has been taken by the six-member monetary policy committee (MPC).

The RBI has also revised its target for gross value added (GVA) by 10 basis points to 7.3%.

Statutory Liquidity Ratio/SLR: Know More

• SLR is the portion of bank deposits that have to be invested in government bonds.
• Components of SLR include cash in hand, gold owned by the bank, balance with RBI, Net balance in current account & Investment in Government securities.
• SLR has to be maintained at the close of business on every day.

ANSWER: Joint Lenders Forum

Explanation:
The Reserve Bank of India (RBI) has tightened the rules around making the Joint Lenders’ Forum (JLF) more effective.

It is directing banks not to break any rules and to meet all deadlines.

The RBI has said that any breach of rules would attract a monetary penalty.

JLFs are meetings held to revitalise stressed assets.

In JLF banks attempt to red-flag stress early and check them by putting in place a corrective action plan (CAP).

JLFs inefficiency basically stems out from the disagreements between lenders. The entire model of JLF is based on the premise that collective action of banks against a borrower for recovery.

However, in reality, different lenders have different levels of comfort or discomfort, based on the exposure, collateral, etc.

Many lenders have also complained about the lack of transparency in JLF.

As per the new norms, RBI has lowered the threshold needed for implementing the corrective action plan (CAP).

Now, the decisions agreed to by a minimum of 60% of creditors by value and 50% of creditors would now be valid to implement the CAP.

Once a decision is reached by the JLF, it would be binding on all other lenders and they must implement it without any additional conditionality.

However, if a lender wants to exit by exercising the substitution option but failed to exit within the given time, it has to go along with the decision taken.

RBI JLF rules : Know more

• RBI has asked all banks to ensure their representatives on the JLF to be armed with appropriate mandates.
• It has also asked the executives to take an unambiguous and unconditional stand and vote accordingly. As per the new norms, the executives after taking the decision should be suitably empowered to implement them without necessitating any board approvals.
• The CAP can include resolution through the flexible structuring of project loans, change in ownership under strategic debt restructuring or scheme of the sustainable structuring of stressed assets.

ANSWER: USD 372.73 billion

Explanation:
According to the Reserve Bank of India’s weekly statistical supplement, India’s foreign exchange, Forex reserves have increased by USD 1.594 billion to touch a lifetime high of USD 372.73 billion in the week that ended on April 28.

The increase was due to increase in foreign currency assets (FCAs), The reserves had increased by USD 1.250 billion to USD 371.14 billion in the previous week.

The components of India’s Foreign Exchange Reserves include foreign currency assets (FCAs) Gold Special Drawing Rights (SDRs) RBI’s Reserve position with International Monetary Fund (IMF).

FCAs constitute the largest component of the Forex Reserves. FCA surged $1.569 billion to $349.055 billion in the reporting week. FCAs consist of US dollar and other major non-US global currencies.

It also comprises of investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks.

FCAs include with them the effects of appreciation or depreciation of non-US currencies like the euro, pound, and the yen and is expressed in terms of dollars.

The gold reserves stand at USD 19.869 billion. SDRs’ value has increased USD 8.5 million to reach USD 1.460 billion. RBI’s reserve position with the IMF also increased by USD 15.8 million to reach USD 2.347 billion.

ANSWER: none of the above

Explanation:
The apex bank of India, the Reserve Bank of India (RBI) has asked all the existing asset reconstruction companies (ARCs) to have a minimum net owned fund (NOF) of INR 100 crore by March 2019.

This decision has been taken by RBI in accordance with its last bi-monthly monetary policy in which it had proposed to stipulate a minimum NOF of INR 100 crore taking into consideration the enhanced role and greater cash based transactions carried out by ARCs.

As per amended SARFAESI Act, 2016, ARCs cannot carry on the business of securitisation or asset reconstruction without having NOF of not less than INR 2 crore or any other amount stipulated by the RBI.

As per the notification of RBI, the existing ARCs not meeting the minimum NOF criteria need to achieve the minimum NOF of INR 100 crore latest by 31 March 2019.

What is an ARC?

• ARC is a company registered under Section 3 of the Securitisation and reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
• ARCs are regulated by the RBI.
• They are the specialised agencies with a main role of resolving the stressed assets issue of the Indian banking system.
• They are involved in buying bad loans from Indian banks to turn them around.
• The Narsimham Committee –2 (1998) proposed establishment of ARCs on the similar lines with that of asset management companies present globally.
• ARCs help the banks to concentrate on normal banking operations rather than dealing with stressed assets.

ANSWER: Both of the above

Explanation:
The Reserve Bank has opened a new ombudsman office in Jammu as part of its efforts to expand banking grievances complaint cells across the country. E

Earlier, the banking services related complaints from entire Jammu & Kashmir used to fall under the jurisdiction of New Delhi-I banking ombudsman office.

There are two banking ombudsman offices in New Delhi.

There has been a significant increase in banking network during the recent past and the New Delhi office covers a large jurisdiction.