The above is news from HINDU. Following are some important points.
1) BASEL III norms of Capital Adequacy Ratio (CAR) is applicable to all banks. But the CAR ratio is different for different category of banks (no need to remember).
2) For Regional Rural Banks (RRB), the capital requirement is just 9% while other scheduled commercial banks is 11.5%
3)For Regional Rural Banks and Small Finance Banks Priority Sector Lending (PSL) requirement is 75% . And you all know that Payment Banks don't lend, so no PSL. For Commercial (private + public + foreign) and urban cooperative banks, the criteria is 40%. For Rural cooperative banks, i have not found any restriction on priority sector lending..........may be because RBI does not regulate them fully and they are already operating in rural area.
1) BASEL III norms of Capital Adequacy Ratio (CAR) is applicable to all banks. But the CAR ratio is different for different category of banks (no need to remember).
2) For Regional Rural Banks (RRB), the capital requirement is just 9% while other scheduled commercial banks is 11.5%
3)For Regional Rural Banks and Small Finance Banks Priority Sector Lending (PSL) requirement is 75% . And you all know that Payment Banks don't lend, so no PSL. For Commercial (private + public + foreign) and urban cooperative banks, the criteria is 40%. For Rural cooperative banks, i have not found any restriction on priority sector lending..........may be because RBI does not regulate them fully and they are already operating in rural area.
Following is very relevant information regarding Special Economic Zones (SEZ) for prelims:
“Domestic Tariff Area” (DTA) means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones (SEZs).
“Special Economic Zone” (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
SEZ units may be set up for manufacture of goods and rendering of services.
Goods and services going into the SEZ area from DTA shall be treated as exports and goods coming from the SEZ area into DTA shall be treated as if these are being imported.
Some important points related to duties in SEZs:
•SEZ units may import/procure goods and services from DTA without payment of duty for setting up, operation and maintenance of units in the Zone.
•SEZ unit may sell goods, including by-products, and services in DTA in accordance with the import policy in force, on payment of applicable (customs etc.) duty.
•SEZ unit shall be a positive Net Foreign exchange Earner. Net Foreign Exchange Earning (NFE) shall be calculated cumulatively for a period of five years from the commencement of production. Otherwise there is penalty.
“Special Economic Zone” (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
SEZ units may be set up for manufacture of goods and rendering of services.
Goods and services going into the SEZ area from DTA shall be treated as exports and goods coming from the SEZ area into DTA shall be treated as if these are being imported.
Some important points related to duties in SEZs:
•SEZ units may import/procure goods and services from DTA without payment of duty for setting up, operation and maintenance of units in the Zone.
•SEZ unit may sell goods, including by-products, and services in DTA in accordance with the import policy in force, on payment of applicable (customs etc.) duty.
•SEZ unit shall be a positive Net Foreign exchange Earner. Net Foreign Exchange Earning (NFE) shall be calculated cumulatively for a period of five years from the commencement of production. Otherwise there is penalty.
Nothing relevant in economy today. No need to read the news on all the corona impact on economy.......its impact can be asked in Mains. Regarding the various relief package offered by govt and RBI..........dont go into it ....if there is something relevant for exam then i will provide you separate notes.
Whatever measures RBI announced today ....Monetary Stimulus ....I will provide an analysis by tomorrow.
ECONOMY MCQ 500 with DETAILED EXPLANATION will be RELEASED ON 3RD APRIL 2020.
ECONOMY by VIVEK SINGH pinned «ECONOMY MCQ 500 with DETAILED EXPLANATION will be RELEASED ON 3RD APRIL 2020.»
What is Cash Credit??
Cash credit is a short-term loan. It provides immediate cash flow when funding is needed but is not yet available. It enables a company to withdraw money from a bank account without having a balance in it. The account is limited to only certain limit.
Cash credit is a short-term loan. It provides immediate cash flow when funding is needed but is not yet available. It enables a company to withdraw money from a bank account without having a balance in it. The account is limited to only certain limit.
This is today's HINDU news. Lets analyze.
1) Earlier the formula of Repo and Reverse Repo was:
Reverse Repo = Repo - 0.25%
Now the formula stands changed. Reverse Repo = Repo - 0.4%
And repo rate reduced from 5.15% to 4.4% i.e. (0.75% reduction)
So, as per the new formula, Reverse Repo = 4.4% - 0.4% = 4%
Reverse Repo rate has been reduced more so that banks, rather than keeping money with RBI, they will be willing to lend in the market.
1) Earlier the formula of Repo and Reverse Repo was:
Reverse Repo = Repo - 0.25%
Now the formula stands changed. Reverse Repo = Repo - 0.4%
And repo rate reduced from 5.15% to 4.4% i.e. (0.75% reduction)
So, as per the new formula, Reverse Repo = 4.4% - 0.4% = 4%
Reverse Repo rate has been reduced more so that banks, rather than keeping money with RBI, they will be willing to lend in the market.
2) CRR has also been reduced from 4% to 3% which will release Rs. 1.37 lakh crore liquidity in the market. Earlier this was kept with RBI, now since it has been reduced, so banks can now lend 1% more in the market.
3) See the language. RBI has ALLOWED the banks that now you (bank) can defer payment of EMIs on various category of loans and it will not be considered NPA (as non payment of EMI leads to loan paper being classified NPA). And it is just an ADVICE (can grant moratorium), as RBI can't force banks to defer payment (as all these terms have been liberalized in our economy and RBI don't regulate these things and interest rate of banks), without changing rules/regulations/acts.
Someone, few days back asked a question, that whether RBI advises banks on monetary matters.....so the answer to this question is YES
Someone, few days back asked a question, that whether RBI advises banks on monetary matters.....so the answer to this question is YES
4) Those who want they can still pay the EMI. And if you have money then you should pay the EMI because its only deferment of payment of EMI. Now the loan term will just get extended by 3 months and if you will not pay EMI for three months then in that case you will have to pay more as the loan term is getting extended which will result in more interest payment. (Nothing is free in this world, except this CHANNEL :) , some other things may be :) )
This news from HINDU is more important than the previous one. Lets analyze.
** As there is a large sell off in the domestic SHARE/EQUITY market, BOND market and FOREX market (it means that people are selling their financial securities/papers and they are asking for cash).........there is liquidity crunch in THESE MARKETS. That is why RBI came up with the following THREE MEASURES to increase the LIQUIDITY in THESE MARKETS by around Rs. 3.74 lakh crore. The following are these THREE measures.
** As there is a large sell off in the domestic SHARE/EQUITY market, BOND market and FOREX market (it means that people are selling their financial securities/papers and they are asking for cash).........there is liquidity crunch in THESE MARKETS. That is why RBI came up with the following THREE MEASURES to increase the LIQUIDITY in THESE MARKETS by around Rs. 3.74 lakh crore. The following are these THREE measures.
FIRST:
Reduction of CRR from 4% to 3%. Banks don't earn interest on CRR, when they keep this with RBI. But now when they will lend this 1% extra, then they will be able to earn interest (interest bearing asset)
Banks need to keep this CRR on a fortnightly (two weeks) basis but on a daily basis they need now need to maintain 80% which was earlier 90%. (The way we maintain Rs. 1000 minimum balance on a monthly basis average, but on any particular day it may be less, but on a monthly average it should be Rs. 1000. For different banks this Rs. 1000 can be different.)
Reduction of CRR from 4% to 3%. Banks don't earn interest on CRR, when they keep this with RBI. But now when they will lend this 1% extra, then they will be able to earn interest (interest bearing asset)
Banks need to keep this CRR on a fortnightly (two weeks) basis but on a daily basis they need now need to maintain 80% which was earlier 90%. (The way we maintain Rs. 1000 minimum balance on a monthly basis average, but on any particular day it may be less, but on a monthly average it should be Rs. 1000. For different banks this Rs. 1000 can be different.)
SECOND: (And this is the most conceptual)
Banks keep SLR of 18.25% of NDTL(public deposits) with themselves in the form of Cash, Gold and Govt. Securities. And when banks take loan from RBI at Repo rate, banks need to keep Govt. Securities with RBI, but this security is additional to that 18.25%. Banks CANT keep securities out of SLR to avail loan from RBI at Repo Rate. At repo rate banks can borrow 0.25% of its NDTL (Net demand and time liabilities also called Public deposits with bank).
But banks have been allowed one ADDITIONAL facility, that they can borrow money from RBI up to 2% of SLR by dipping into the SLR reserve. That means the banks can keep 2% of the SLR (and now the SLR can go down up to 16.25%) securities with RBI and can borrow cash from RBI. This is called Marginal Standing Facility (MSF). But the rate of MSF borrowing is Repo + 0.25%.
Now MSF borrowing has been allowed up to 3% of SLR. But MSF is only for overnight..i.e. one night
(I hope u understand, if NOT then pls let me know)
Banks keep SLR of 18.25% of NDTL(public deposits) with themselves in the form of Cash, Gold and Govt. Securities. And when banks take loan from RBI at Repo rate, banks need to keep Govt. Securities with RBI, but this security is additional to that 18.25%. Banks CANT keep securities out of SLR to avail loan from RBI at Repo Rate. At repo rate banks can borrow 0.25% of its NDTL (Net demand and time liabilities also called Public deposits with bank).
But banks have been allowed one ADDITIONAL facility, that they can borrow money from RBI up to 2% of SLR by dipping into the SLR reserve. That means the banks can keep 2% of the SLR (and now the SLR can go down up to 16.25%) securities with RBI and can borrow cash from RBI. This is called Marginal Standing Facility (MSF). But the rate of MSF borrowing is Repo + 0.25%.
Now MSF borrowing has been allowed up to 3% of SLR. But MSF is only for overnight..i.e. one night
(I hope u understand, if NOT then pls let me know)
THIRD:
RBI will conduct Long Term Repo Operation (LTRO) for Rs. 1 lakh crore. (I have explained this in my previous topics pls refer).
Now this is not going to be fixed interest rate. RBI will give money to banks and financial institutions not at fixed rate but linked to REPO Rate, that means FLOATING INTEREST RATE. Suppose RBI gave loan at "REPO + 2%", (2% is called spread) so if repo rate will change........the interest rate will change. And how this 2% will be decided?? The answer is through AUCTION. The bank offering maximum spread above repo will be selected for the auction.
And the liquidity available through this LTRO, the banks will have to deploy in BONDS, NON CONVERTIBLE DEBENTURES and COMMERCIAL Papers over and above what a bank has already given through these papers. DEPLOY mean banks can purchase these instruments (bonds, debentures, commercial papers) of a company and the bank will get the BOND/DEBENTURE/COMMERCIAL PAPER of that COMPANY and the COMPANY will get MONEY/LIQUIDITY.
RBI will conduct Long Term Repo Operation (LTRO) for Rs. 1 lakh crore. (I have explained this in my previous topics pls refer).
Now this is not going to be fixed interest rate. RBI will give money to banks and financial institutions not at fixed rate but linked to REPO Rate, that means FLOATING INTEREST RATE. Suppose RBI gave loan at "REPO + 2%", (2% is called spread) so if repo rate will change........the interest rate will change. And how this 2% will be decided?? The answer is through AUCTION. The bank offering maximum spread above repo will be selected for the auction.
And the liquidity available through this LTRO, the banks will have to deploy in BONDS, NON CONVERTIBLE DEBENTURES and COMMERCIAL Papers over and above what a bank has already given through these papers. DEPLOY mean banks can purchase these instruments (bonds, debentures, commercial papers) of a company and the bank will get the BOND/DEBENTURE/COMMERCIAL PAPER of that COMPANY and the COMPANY will get MONEY/LIQUIDITY.
Bonds and Commercial Papers i have already explained on this channel earlier.
Debentures for all practical purpose are bonds only................but they are unsecured and more risky so, if you are purchasing Debentures of a company then you may fetch more interest rate. Non convertible debentures means this debentures can never be converted into SHARES/EQUITY. Actually some debentures have the option to convert into equity.
Debentures for all practical purpose are bonds only................but they are unsecured and more risky so, if you are purchasing Debentures of a company then you may fetch more interest rate. Non convertible debentures means this debentures can never be converted into SHARES/EQUITY. Actually some debentures have the option to convert into equity.