www.gradestack.com/blogs 1 | P a g e www.gradestack.com/blogs GK DIGEST for LIC AAO 2016 Exam Dear readers, This GK Digest is a complete docket of important news and events that occurred in last 5 months (September – February 2016). The GK Digest is important and relevant for all competitive exams like - LIC AAO 2016 Exam, Railway Recruitment 2016 Exam, SSC CGL 2016, Insurance and UPSC Exams. Banking, Economics & Financial News RBI in the News 1. RBI Keeps interest rate unchanged - On 2nd February 2016, the Reserve Bank of India in its 6th bi – monthly policy review, key policy interest rates were kept unchanged on the basis of an assessment of the current and evolving macroeconomic situation in the country. Current Policy & Reserve Rates: 1.Repo Rate 6.75% (unchanged) 2.Reverse Repo 5.75% (unchanged) 3.CRR(Cash Reserve ratio) 4.00% (unchanged) 4.SLR (Statutory Liquidity Ratio) 21.50% (unchanged) 5.MSF (Marginal Standing Facility) 7.75% (changed) 6.Bank Rate 7.75% (changed) Basis points - ‘one’ Basis Point is a unit equivalent to 0.01% i.e. 1/100th of a percent. 2. Raghuram Rajan conferred with the Central Banker of the Year Award 2016 - The Reserve Bank of India Governor, Dr. Raghuram Rajan conferred with the Central Banker of the Year Award (Global and Asia Pacific) for 2016 by The Banker, a monthly publication of the Financial Times Group focussing on banking. 3. Urjit Patel reappointed as RBI deputy governor for 3 years - The Government of India re-appointed Dr. Urjit R. Patel as the Deputy Governorof the Reserve Bank of India, for a further period of three years. He is the fourth deputy governor, the other three being HR Khan, R Gandhi and SS Mundra. 4. Reserve Bank of India increased its shareholding in National Housing Bank by contributing Rs 1,000 crore towards the paid capital, thereby increasing its shareholding in theNHB from Rs 450 crore to Rs 1,450 crore. 5. RBI seeks additional ₹26k cr for PSU banks - The RBI has sought an additional ₹26,000 crore from the government by 2018 for capital infusion into Public Sector Undertaking (PSU) banks for implementing Basel-III norms in the banks. The government has already pledged ₹70,000 crore for the purpose by the end of FY19. 6. RBI Governor Dr Raghuram Rajan elected as Vice-Chairman on BIS Board - With this, he became the first Indian to be elected to this position in the Bank for International Settlements (BIS). Note: At present, Jens Weidmann is the Chairman of the Board of Directors. He is also the head of Bundesbank, the German banking regulator. 7. RBI imposes Rs 1 crore fines on State Bank of Travancore - Reserve Bank has imposed a penalty of Rs. 1 crore on an SBI associate bank, State Bank of Travancore, for violation of some of its instructions. 8. Deepak Singhal appointed Executive Director of Reserve Bank of India - The Reserve Bank of India (RBI) appointed Deepak Singhal as the Executive Director (ED). He replaced K K Vohra who will now look after the Deposit Insurance and Credit Guarantee Corporation (DICGC). 2 | P a g e www.gradestack.com/blogs 9. RBI proposed marginal cost of funds methodology to calculate Base Rate – The Reserve Bank of India (RBI) proposed a new methodology to calculate Base Rate (Base Rate). It is based on marginal cost of funds methodology. The new methodology is aimed at bringing uniformity among BRs of banks so that they will be more sensitive to any changes in policy rates of the RBI like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), etc. Under the proposed methodology, the components of Base Rate will include cost of funds, negative carry on CRR/SLR, un-allocable overhead costs and average return on net worth. It will be effective from 1 April 2016. Base Rate • It is defined as the minimum interest rate of a bank below which it is not viable to lend. • It was introduced on 1 July 2010 by the RBI. • It replaced the benchmark prime lending rate (BPLR), the interest rate which commercial banks charged their most credit worthy customer. 10. Banks are free to fix interest rates on gold deposit scheme: Reserve Bank of India (RBI) has allowed banks to fix their own interest rates on gold deposits under the Gold Monetisation Scheme. Key points – (i) As per the RBI guidelines, Banks are free to set interest rate such as principal and interest on the deposit denominated in gold. (ii) Designated banks will accept gold deposits under the – Short Term Bank Deposit (1-3 years), Medium (5-7 years) and Long term (12-15 years) Government Deposit Schemes. (iii) Short term bank deposits will be applicable cash reserve ratio (CRR) and statutory liquidity ratio (SLR). (iv) There is no bar for maximum gold deposit but the minimum deposit at one time should be raw gold equivalent to 30 grams of 995 fineness standard. (v) The raw gold should be in the form of coins, bars, jewellery excluding stones and other metals Individual banks will determine the provision for premature withdrawal subject to a minimum lock-in period and along with the penalty. 11. RBI declared Priority Sector Lending norms for Regional Rural Banks Key points of the norms: (i) Priority Sector Lending (PSL) target was increased to 75 percent of total outstanding from the existing 60 percent. (ii) The revised target will be effective from 1 January 2016. (iii) Medium enterprises, social infrastructure and renewable energy were included under PSL category. (iv) Agri-Loans: Loans to individual farmers, for the purpose of PSL, was increased to 50 lakh rupees from the present 10 lakh rupees against pledge/ hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months. (v) Aggregate limit loan was doubled to 2 crore rupees per borrower in the case of loans, among others, to corporate farmers, farmers’ producers organisations/ companies of individual farmers, farmers partnership firms/ co-operatives engaged in agriculture and allied activities. (vi) Housing Loans: The RBI has lowered the quantum of loans that will qualify as PSL. Against the earlier limit of 25 lakh rupees, loans to individuals up to 20 lakh rupees only are considered as PSL as per revised guidelines. Note: As on March 2015, there were 56 RRBs operating in the country with a network of 20059 branches. They cover 644 notified districts in 26 states and the Union Territory of Puducherry. 12. RBI formed Financial Inclusion Fund with 2000 crore rupees corpus: The Reserve Bank of India (RBI) formed a single Financial Inclusion Fund (FIF) with a corpus of 2000 crore rupees. The fund was formed by merging the Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF). This fund will support the developmental and promotional activities covered under the financial inclusion initiatives. 3 | P a g e www.gradestack.com/blogs 13. RBI to Issue Rs. 500, Rs. 1000 Bank Notes with Enhanced Features - The Reserve Bank of India (RBI) will issue Rs. 500 and Rs. 1,000 bank notes with additional features to aid the visually impaired in identification. To help visually impaired person in easy identification of bank notes, RBI decided to add two more features in Rs. 500 and Rs. 1000 bank notes. 14. RBI to issue Rs 5 coin on golden jubilee of 1965 Indo-Pak war - The Reserve Bank of India will shortly put into circulation Rs 5 coins to commemorate golden jubilee of Indo-Pak War 1965. "The coins will be legal tender as provided in The Coinage Act 2011. 15. RBI granted 'in-principle' approval to set up Small Finance Banks & Payment Banks – Small Finance Banks – The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation. The aim of small banks is to increase financial inclusion in the country. The small bank shall be registered as a public limited company under the Companies Act, 2013. Committee on Small Banks - Usha Thorat RBI granted 'in-principle' approval to the 10 applicants to set up Small Finance Banks. Names of selected applicants Au Financiers (India) Ltd., Jaipur Janalakshmi Financial Services Private Limited, Capital Local Area Bank Ltd., Jalandhar Bengaluru Disha Microfin Private Ltd., Ahmedabad RGVN (North East) Microfinance Limited, Equitas Holdings P Limited, Chennai Guwahati ESAF Microfinance and Investments Private Ltd., Suryoday Micro Finance Private Ltd., Navi Mumbai Chennai Ujjivan Financial Services Private Ltd., Bengaluru Utkarsh Micro Finance Private Ltd., Varanasi The “in-principle” approval granted will be valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfill other conditions as may be stipulated by the RBI. Eligibility - Resident individuals with 10 years of experience in banking and finance, companies and Societies will be eligible as promoters to set up small banks. Key points Capital requirement - The minimum paid-up capital requirement for small banks is Rs. 100 crore. As per the guidelines, the promoters' initial minimum contribution will be at least 40 % of the minimum capital, to be locked in for a period of 5 years. Small banks will offer both deposits as well as loan products. They cannot set up subsidiaries to undertake non-banking financial services activities. The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 per cent of total capital funds. Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio.