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IBPS PO, SBI SO, IPPB Exam 2016: Top five Banking news of October’s first week

Oct 17, 2016 17:59 IST

    Questions based on banking news are regularly asked in bank examinations. In order to help in your preparation, here the banking team of jagranjosh is providing top five banking news of last ten days. Candidates are advised to go through the below article and strengthen their preparation of General Awareness for upcoming bank examinations.

    1. RBI releases fourth Bi-monthly Monetary Policy Statement, 2016-17

    The Reserve Bank of India (RBI) on 4 October 2016 released the fourth Bi-Monthly Monetary Policy Statement 2016-17. The key announcement under the policy was the interest cut of 25 basis points. This move may lead to banks in lowering EMIs for housing, car loan and corporate borrowers.

    This policy decision was not only RBI Governor Urjit Patel’s maiden policy announcement but was also the first to be announced by the newly constituted Monetary Policy Committee (MPC). All the six members of MPC unanimously decided to cut repo rate by 0.25 per cent; bring in to a nearly six-year low of 6.25 per cent. This was also the first interest rate cut in last six months.

    According to the monetary policy statement, the decision to cut interest rates is consistent with the aim of achieving a midterm inflation target of 4 percent within a band of plus or minus 2 percent.

    Based on the assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) decided to:

    • Repo Rate: The policy repo rate under the liquidity adjustment facility (LAF) was reduced by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.
    • Reverse Repo Rate: The reverse repo rate under the LAF stands adjusted to 5.75 per cent.
    • Marginal standing facility (MSF) Rate: The MSF rate was fixed at 6.75 per cent.
    • Bank Rate: The Bank Rate also stands at 6.75 per cent.

    The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.

    2. RBI releases report of IWG on Rationalisation of Branch Authorisation Policy

    The Reserve Bank of India (RBI) on 6 October 2016 released the Report of the Internal Working Group (IWG) on Rationalisation of Branch Authorisation Policy. The Group is chaired by Lily Vadera, Chief General Manager, Department of Banking Regulation.

    The thrust of the recommendations is to facilitate financial inclusion by ensuring availability of banking services in all centers through low cost delivery channels and mapping the footprints of various banking channels.

    Recommendations of the IWG

    • In the first phase, the recommendations focus on broadening of the current framework to include all banking outlets which are fixed point locations and bring them on par with branches.
    • A banking outlet is defined as a fixed point service delivery unit manned by bank’s staff or its Business Correspondent where services of acceptance of deposits, encashment of cheques/cash withdrawal or lending of money are provided for minimum 4 hours per day for at least five days a week.
    • Banks need to open banking outlets to meet the 25 percent norms of opening banking outlets in unbanked rural centres that does not have a CBS-enabled banking outlet of a Scheduled Commercial Bank.
    • A banking outlet opened in North-Eastern States, Sikkim and in Left-Wing Extremism Affected Districts will be treated as a banking outlet/part-time banking outlet in an unbanked rural centre.
    • The Boards of the banks should set internal financial inclusion targets and compile the data to monitor the transactions to ensure that target customers for financial inclusion are getting the banking facilities in unbanked rural centres.
    • In the second phase, a new data system will be devised which is capable of capturing the locations and transactions carried out by all banking outlets.

    Background

    The opening of new branches and shifting of existing branches of banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949.

    With a view to facilitate financial inclusion and provide operational flexibility, it was considered necessary to redefine branches and permissible methods of outreach keeping in mind the various attributes of the banks and the types of services that are sought to be provided.  An announcement to this effect was made in the first Bi-monthly Monetary Policy Statement 2016-17 in April 2016 and accordingly an Internal Working group was constituted for the purpose.

    3. Union Finance Ministry sets up Public Debt Management Cell

    Union Finance Ministry on 4 October constituted a Public Debt Management Cell (PDMC). The cell was created to streamline government borrowings and better cash management with the overall objective of deepening bond markets.

    The Joint Secretary (Budget), Department of Economic Affairs, Ministry of Finance would be the overall in-charge of the PDMC. As an interim arrangement, the PDMC will be housed at the RBI's Delhi office. In about two years, the PDMC will be upgraded to a statutory Public Debt Management Agency (PDMA).

    Highlights of PDMC

    • The interim arrangement will allow separation of debt management functions from RBI to PDMA in a gradual and seamless manner, without causing market disruptions.
    • It will have only advisory functions to avoid any conflict with the statutory functions of RBI.
    • It has been tasked to plan government borrowings, including market borrowings and other borrowings, like Sovereign Gold Bond issuance.

    The transition process from PDMC to PDMA would be implemented by a Joint Implementation Committee (JIC), which will be chaired by Joint Secretary (Budget). Other members of the JIC will be from Government and RBI.

    As per the circular issued by the ministry, the JIC would operate under the supervision of the Monitoring Group on Cash and Debt Management (MGCDM) with Secretary, Economic Affairs and DG, RBI as co-chairpersons. The PDMC would be staffed by 15 debt managers from Budget Division, RBI, current Middle Office and other government units.

    Background

    To deepen Indian Bond market, the Finance Ministry Arun Jaitley proposed setting of a PDMA in his Budget Speech 2016-17. He said that he intend to set up a PDMA which will bring both India's external borrowings and domestic debt under one roof.

    4. Union Cabinet approves MoU between EXIM bank and NDB

    Union Cabinet on 13 October 2016 approved MoU between Export-Import Bank of India (EXIM Bank) on General Cooperation with the BRICS promoted New Development Bank (NDB), along with other Development Financial Institutions of BRICS nations. This will be achieved through the BRICS Interbank Cooperation Mechanism.

    This approval will help in enhancing trade and economic relations among the BRICS countries and benefit the participating institutions from the BRICS nation. There is no financial implication involved in signing of the MoU.

    Key Highlights

    • The MoU is a non-binding umbrella agreement.
    • It aims at establishing a cooperation framework in accordance with the national laws and regulations, besides skills transfer and knowledge sharing amongst the signatories.

    Establishment of the NDB reflects the close relations among the BRICS countries and provides a powerful instrument for increasing their economic cooperation and help India play an enhanced international role.

    Why the MoU is necessary?

    The signing of MoU is necessary in the context of cooperation extended by the Members in various forms for promoting and facilitating trade of goods and services as well as investments in mutual projects among the BRICS countries. It will help in sustainable development and inclusive economic growth of the BRICS nations.

    5. Union Government notifies constitution of Monetary Policy Committee

    The Union Government on 29 September 2016 notified the constitution of the Monetary Policy Committee (MPC). The Reserve Bank of India Act, 1934 has been amended by the Finance Act, 2016, to provide for a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability.

    As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members will be from the RBI. The other three Members of MPC will be appointed by the Central Government.

    In exercise of the powers conferred by section 45ZB of the Reserve Bank of India Act, 1934, the Union Government has accordingly constituted the Monetary Policy Committee of RBI, with the following composition:

    • The Governor of the Bank: Chairperson, ex officio
    • Deputy Governor of the Bank, in charge of Monetary Policy: Member, ex officio
    • One officer of the Bank to be nominated by the Central Board: Member, ex officio
    • Chetan Ghate, Professor, Indian Statistical Institute (ISI): Member
    • Pami Dua, Director, Delhi School of Economics (DSE): Member
    • Ravindra H. Dholakia, Professor, Indian Institute of Management (IIM) Ahmedabad: Member

    The Members of the Monetary Policy Committee appointed by the Union Government will hold office for a period of four years, with immediate effect or until further orders, whichever is earlier.

    About Monetary Policy Committee

    About Monetary Policy Committee

    The Monetary Policy Committee will be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level.

    A Committee-based approach for determining the Monetary Policy will add lot of value and transparency to monetary policy decisions.

    The meetings of the Monetary Policy Committee will be held at least 4 times a year and it will publish its decisions after each such meeting.

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