1. RBI Keeps interest rate unchanged - On 8th June 2016, Reserve Bank of India (RBI) in its second bi-monthly monetary policy review, kept key policy rates unchanged.

Note:

  • Growth forecast: pegged at 6% for the current fiscal.
  • Inflation target: It was kept unchanged at 5% for January 2017 with upward bias.

Current Policy & Reserve Rates

Rates

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) thatbanks must maintain as cash balance with the Reserve Bank.

(iv) Statutory Liquidity Ratio (SLR) – The share of net demand and time liabilities (deposits) thatbanks 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.

 

2. Govt. initiates process to constitute Monetary Policy Committee (MPC) under the Reserve Bank of India Act, 1934 –

Key points –

  • With a view to maintain price stability, while keeping in mind the objective of growth, the Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016 to provide for a statutory and institutionalised framework for a Monetary Policy Committee (MPC). A Committee-based approach will add lot of value and transparency to monetary policy decisions.
  • Out of the six Members of MPC, three Members will be from the Reserve Bank of India (RBI), including the Governor, who will be the ex-officio Chairperson, the Deputy Governor, RBI and one officer of RBI.
  • The other three Members of MPC will be appointed by the Central Government, on the recommendations of a Search-cum-Selection Committee, which will be headed by the Cabinet Secretary.
  • These three Members of MPC will be experts in the field of economics or banking or finance or Monetary policy and will be appointed for a period of 4 years and shall not be eligible for re-appointment.
  • The Government has decided to bring the provisions of amended RBI Act regarding constitution of MPC into force on 27th June, 2016 so that statutory basis of MPC is made effective.

 

3. RBI fixes MSS ceiling at Rs30,000 crore for current fiscal year - Reserve Bank of India (RBI) fixed the ceiling under market stabilisation scheme (MSS), a tool to manage liquidity, at Rs.30,000 crore for the current fiscal.

Note:

  1. This ceiling will be reviewed when the outstanding balance reaches the threshold limit of Rs.15,000 crore.
  2. The current MSS outstanding balance is zero.
  3. MSS are securities issued with the objective of providing RBI with a stock of securities with which it can intervene in the market for managing liquidity. These securities are not issued to meet government’s expenditure.

 

4. RBI introduces Scheme for Sustainable Structuring of Stressed Assets - The Reserve Bank of India (RBI) issued guidelines called Scheme for Sustainable Structuring of Stressed Assets (S4A).

Key points – The main aim of these guidelines is

  • To Strengthen the lenders’ ability to deal with stressed assets
  • Put real assets back on track of entities facing genuine difficulties by providing an avenue for reworking financial structure.
  • The RBI has formulated the S4A as an optional framework for the resolution of large stressed accounts.
  • The S4A envisages determination of sustainable debt level of a stressed borrower and bifurcate outstanding debt into sustainable debt and equity/quasi-equity instruments.
  • The sustainable debt and equity/quasi-equity instruments are expected to provide upside to the lenders when the borrower turns around.

 

5. The Reserve Bank of India (RBI) released draft guidelines for issuing ‘on-tap’ universal bank licences. Under the ‘on tap’ mechanism an application for banking licence can be made at any time subject to certain conditions.

Tap licensing of universal banks in the private sector:

  • Allowing individuals with 10 years of experience in banking and finance to apply for a licence successful track record for at least 10 years are eligible to apply for a licence.
  • The initial minimum paid-up voting equity capital required is Rs.500 crore, and thereafter the bank should maintain a minimum net worth of Rs.500 crore at all times.
  • Applications will be screened by the RBI to assess the eligibility of applicants with regard to the criteria laid down in the guidelines.
  • RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria.

RBI Guidelines

  • Minimum capital requirement: The promoters and the promoter group shall hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked in for a period of five yearsfrom the date of commencement of business of the bank.
  • The promoter group’s shareholding shall be brought down to 15% within a period of 12 years from the date of commencement of business of the bank.

 

6. RBI cuts maturity of masala bonds to three years to raise their appeal - To make masala bonds more attractive, the Reserve Bank of India (RBI) has reduced the minimum tenure of such bonds that an Indian company can issue offshore to three years from the previously stated five years.

 

7. RBI cancelled Certificate of Registration of four Non - Banking Financial Companies (NBFCs) - RBI cancelled their certificates in exercise of the powers conferred on it underSection 45-IA (6) of the Reserve Bank of India Act, 1934.

The NBFCs whose certificate of registration were cancelled include

M/s Neelanjali Engineering Private Limited

M/s Novoflex Tradecom Private Limited

M/s Guide Investments and Trading Co. Pvt. Ltd

M/s Enol Ventures Private Limited

 

8. Marginal cost of funds-based lending rates (MCLR) - The Reserve Bank of India (RBI) had 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.

Key points -

  • It was effective on 1 April 2016.
  • MCLR is the new benchmark lending rate and replaces the base rate for new borrowers
  • The MCLR rates are revised every months.
  • It is calculated on the marginal cost of borrowing and return on net worth for banks.

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.

 

9. 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.

 

10. Deepak Singhal appointed Executive Director of Reserve Bank of India.

 

11. RBI to issue Rs 1000 banknotes with inset letter ‘R’ in both the number panels.

 

12. RBI declared Priority Sector Lending norms for Regional Rural Banks

Key points of the norms:

  • Priority Sector Lending (PSL) target was increased to 75 percent of total outstanding from the existing 60 percent.
  • The revised target will be effective from 1 January 2016.
  • Medium enterprises, social infrastructure and renewable energy were included under PSL category.
  • 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.
  • 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.
  • 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.

 

13. 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.

 

14. RBI likely to pay Rs 57,000 crore in dividends to government in 2016-17 - The Reserve Bank of India is likely to pay the government Rs 57,000 crore in dividends in 2016-17, slightly less than the amount it paid in the current fiscal but much higher than that in earlier years.

  • Note: The government has budgeted Rs 69,897 crore through dividends from state-owned banks, financial entities and RBI, lower than the Rs 73,905 crore it is expected to receive this fiscal.
  • The budget documents do not provide a break-up of the amount expected from banks and RBI.
  • Under Section 47 of the RBI Act, 1934 the central bank is mandated to pay balance profits to the government.

 

15. RBI extends deadline to exchange pre - 2005 notes to June 30, 2016 - Reserve Bank extended the deadline for exchanging pre-2005 currency notes of various denominations, including Rs 500 and Rs 1,000, by another six months to June 30, 2016 from earlier date December 31, 2015.

 

16. The Reserve Bank of India has extended the timeline for full implementation of the Basel III capital regulations from March 31, 2018 to March 31, 2019.

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