gradeup.co/banking-insurance GK Tornado for IBPS Clerk 2016 Exam Dear readers, This GK Digest is a complete docket of important news and events that occurred in last 5 months (July – 20th December 2016). The GK Digest is important and relevant for all competitive exams like – IBPS Clerk VI, RBI Assistant, IPPB 2016, Insurance and UPSC Exams. RBI in News 1. RBI Keeps interest rate unchanged - On December 07, 2016, Reserve Bank of India (RBI) in its fifth bi-monthly monetary policy review, kept key policy rates unchanged. Current Policy & Reserve Rates: 1.Repo Rate 6.25% (changed) 2.Reverse Repo 5.75% (changed) 3. CRR (Cash Reserve ratio) 4.00% (unchanged) 4.SLR (Statutory Liquidity Ratio) 20.75% (as per RBI website) 5.MSF (Marginal Standing Facility) 6.75% (changed) 6.Bank Rate 6.75% (changed) gradeup.co/banking-insurance Below are the basic definitions of the Policy Rates - (i) Repo Rate – It is the rate at which RBI lends money to commercial banks. (ii) Reverse Repo rate – It is the rate at which RBI borrows money from commercial banks. (iii) Cash Reserve Ratio (CRR) – The share of net demand and time liabilities (deposits) that banks must maintain as cash balance with the Reserve Bank. (iv) Statutory Liquidity Ratio (SLR) – The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as, government securities, cash and gold. (v) Bank Rate – It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers for long term. (vi) Marginal Standing Facility Rate (MSF) – The rate at which the scheduled banks can borrow funds from the RBI overnight, against the approved government securities is termed as MSF. Note: Basis points – ‘one’ Basis Point is a unit equivalent to 0.01% i.e. 1/100th of a percent. THE DEMONETIZATION On 8th November 2016 GOI made history by taking a striking bold step to demonetize Rs.500 & Rs.1000 note to reform the finance sector.. Making 86 per cent of the currency in circulation illegal in one stroke. History of Demonetization in India: First demonetization : Pre Independence era in year 1946. The highest denomination note ever printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetized in January 1946 and again in January 1978, according to RBI data to curb counterfeit and black money. Countries Implemented Demonetisation: a. Nigeria: During the government of Muhammadu Buhari in 1984, Nigeria introduced new currency and banned the old notes. However, the debt-ridden and inflation hit country did not take the change well and the economy collapsed. b. Ghana: In 1982, Ghana ditched their 50 cedis note to tackle tax evasion and empty excess liquidity. This made the people of the country support the black market and they started investing in physical assets which obviously made the economy weak. c. Pakistan: From December 2016, Pakistan will phase out the old notes as it will bring in new designs. Pakistan legally issued the tender a year and a half back, and therefore, the citizens had time to exchange the old notes and get newly designed notes. d. Zimbabwe: Zimbabwe used to have $100,000,000,000,000 note. Yes, a one hundred trillion dollar note! The Zimbabwean economy went for a toss when President Robert Mugabe issued edicts to ban inflation through laughable value notes. After demonetisation, the value of trillion dollars dropped to $0.5 dollar and were also put up on eBay. e. North Korea: The demonetisation that happened in North Korea in 2010 left people with no food and shelter. Kim-Jong ll introduced a reform that knocked off two zeros from the face value of the old currency in order to banish black market. f. Soviet Union: Mikhail Gorbachev ordered to withdrew large-ruble bills from circulation to take over the black market. The move didn’t go well with the citizens which resulted into a coup attempt which brought down his authority and the led to Soviet breakup. g. Australia: Australia became the first country to release polymer (plastic) notes to stop widespread counterfeiting. Since the purpose was to replace paper with plastic and only the material changed, it did not had any side-effects on the economy. h. Myanmar: In 1987, Myanmar’s military invalidated around 80% value of money to curb black market. The decision led to economic disruption which in turn led to mass protests that killed many people. 2. The Reserve Bank of India (RBI) has clarified that banks will have to bear the full liability in the event of any security breach or compromise in the authorised card network. gradeup.co/banking-insurance 3. Reserve Bank of India has given an approval to British payments company Earthport for outbound cross-border payment services to banks in India. 4. RBI has opened a second office of the Banking Ombudsman in New Delhi, taking into account the significant increase of the banking network The first office of the banking ombudsman at RBI, New Delhi, would have control over Delhi and Jammu & Kashmir. The second office would have jurisdiction over Haryana 5. The Reserve Bank of India on November 23, 2016 declared to increase the limit of the Prepaid Payment Instruments (PPIs) from Rs. 10,000 to Rs. 20,000 per month and Rs. 50,000 for Merchant Bank to facilitate digital transactions. 6. The Reserve Bank of India increased the Cash Reserve Requirement (CRR) for incremental deposits between September 16 and November 11 to 100% while the current CRR is 4%, effective from November 25, 2016 7. The RBI has planned to open “Islamic window” in conventional banks. Aim: Gradual introduction of Sharia-compliant ( interest-free banking) in the country. 8. Due to Increase in NPA, 16 of 22 public sector banks skipped Dividends in FY 16. Total - Rs 1,444.6 crore as dividend from PSB SBI alone - Rs 1,214.6 crore, which makes 84% of the total dividend. 9. The RBI has directed banks to waive ATM charges on all transactions done by savings bank customers till - 30th December 2016 10. Construction company Hindustan Construction The loans will be provided for the financial year Company (HCC) became India’s first firm to get 2016-17 under the Deendayal Antyodaya Yojana Reserve Bank of India's (RBI) approval for debt - National Rural Livelihoods Mission (NRLM) in recast under Scheme for Sustainable Structuring of 250 districts. Stressed Assets (S4A). All women self-help groups (SHGs) will be Note: eligible for interest subvention on credit up to 11. Reserve Bank of India (RBI) hands over West Bengal three lakh rupees at 7 percent per annum. govt. list of entities raising money illegally___194. All banks will be subvented to the extent of 12. The Reserve Bank of India (RBI) has permitted difference between the weighted average startups to raise external commercial borrowings interest charged and 7%, subject to the (ECBs) of up to $3 million in a financial year for maximum limit of 5.5% for 2016-17. three year tenure. 16. RBI launches Sachet portal to check illegal money 13. The Reserve Bank of India (RBI) released the Report collection - The Reserve Bank of India (RBI) has of the Internal Working Group (IWG) on launched Sachet portal, sachet.rbi.org.in, to check Rationalisation of Branch Authorisation Policy. The illegal money collection. The portal will help anyone Group is chaired by Lily Vadera, Chief General can obtain information regarding entities that are Manager, and Department of Banking Regulation. allowed to accept deposits, lodge complaints and 14. RBI cancelled certificate of registration of five share information regarding illegal acceptance of NBFCs - The certificates were cancelled in exercise of deposits by unscrupulous entities. the powers conferred on it under Section 45-IA (6) of 17. RBI constitutes Tarun Ramadorai Committee on the Reserve Bank of India Act, 1934. Household Finance - The Reserve Bank of India (RBI) The NBFCs whose certificate of registration were constituted a committee to look at various facets of cancelled includes household finance in India. The Committee will be Simco Consultants Private Limited, Lunkad Securities chaired by Tarun Ramadorai, Professor of Financial Ltd, Rajvir Marketing and Investment Private Limited, Economics, University of Oxford. Crystal Investments Limited, Shri Jaya Investments 18. RBI fixes MSS ceiling at Rs30,000 crore for Agency Limited (formerly known as Arcot Finance & current fiscal year - Reserve Bank of India (RBI) Agency Limited). fixed the ceiling under market stabilisation scheme 15. Interest subvention scheme announced by RBI for (MSS), a tool to manage liquidity, at Rs.30,000 crore Women Self-Help Groups – Reserve Bank of India for the current fiscal. (RBI) directed all commercial and Co-operative banks Note: to provide loans to women self-help groups (SHGs) in (i) This ceiling will be reviewed when the rural areas at 7 percent per annum. outstanding balance reaches the threshold limit Key points – of Rs.15,000 crore. gradeup.co/banking-insurance (ii) The current MSS outstanding balance is proposed a new methodology to calculate Base Rate zero. (Base Rate). It is based on marginal cost of funds (iii) MSS are securities issued with the methodology. The new methodology is aimed at objective of providing RBI with a stock of bringing uniformity among BRs of banks so that they securities with which it can intervene in the will be more sensitive to any changes in policy rates market for managing liquidity. These securities of the RBI like Cash Reserve Ratio (CRR), Statutory are not issued to meet government’s Liquidity Ratio (SLR), etc.