Any doubts?

  1. Profile photo of Simran Bains Simran Bains

    What is portfolio investment?

    1. Profile photo of Arun Muradnar Arun Muradnar

      Portfolio investment is investment made by investors who are not particularly interested in involvement in the management of a company.
      In India, portfolio investors registered in accordance with the Securities and Exchange Board of India (SEBI) guidelines shall be called Registered Foreign Portfolio Investor (RFPI).

  2. Profile photo of rajiv shaw rajiv shaw

    Cud someone kindly help me know the pros n cons of d new methodology of calculating GDP adopted by GoI?

      1. Profile photo of rajiv shaw rajiv shaw

        Thanks a lot for d link 🙂 …. I hv gone thru it…..just one query…at d end it said that CSO hv to create a back series to make sense of d gdp data…..wat does this mean?

        1. Profile photo of Dr V Dr V

          At present new GDP and old GDP is not comparable due to different methodology and base years. So back series would be GDP data of say 2010-11, 2008-09 etc on 2011 base year with new methodology. With same base and same methodology, data would be comparable and we shall be able to make sense of new data..

          1. Profile photo of rajiv shaw rajiv shaw

            Oh gr8….thnks a ton Dr. V for d instant help 🙂

  3. Profile photo of Rajni Bhai Rajni Bhai

    Is there a option to get archive of monthly news in a PDF or word format?
    If it is there, then how do we get that?

  4. Profile photo of Simran Bains Simran Bains

    Super collection! ?

  5. Profile photo of शुभम पान्डे शुभम पान्डे

    Really, very helpful app. .
    And all the nec

  6. Profile photo of Piyush Gadekar Piyush Gadekar

    Excellent app
    Highly Beneficial. . Thank you 🙂

  7. Profile photo of Purab B Purab B

    Your efforts are commendable. But please try to cover more topics. And this whole RBI archives at one place is boon.
    @root your app is so addictive due to its interface.short of content.

    1. Profile photo of Root Root

      Hi Purab, we will cover major current affairs article for sure. WE also release explainers of news in the CD Hub.

      1. Profile photo of Rajni Bhai Rajni Bhai

        Is there a option to get archive of monthly news in a PDF or word format?
        If it is there, then how do we get that?

        1. Profile photo of Root Root

          There is a way to get this and that’s by purchasing the magazine.

  8. Profile photo of Dhirendra Dhirendra

    It is good to have all the article at one place

M-banking now under ombudsman’s purview



With digital banking gaining pace, RBI has also made various provisions in order to improve financial inclusion through these banking modes. News card discusses one such move.

From UPSC perspective, following things are important:

Prelims level: Banking Ombudsman Scheme 2006 (Read more about it in B2B)

Mains level: Measures taken to safeguard customer interests in era of digital banking, various schemes related to digital payments and their overall impact.


  1. The Reserve Bank of India has widened the scope of the Banking Ombudsman Scheme 2006
  2. A customer can now lodge a complaint against the bank for non-adherence to instructions related to mobile banking and electronic banking services

Pecuniary jurisdiction widened:

  1. The pecuniary jurisdiction of the Banking Ombudsman to pass an award has been increased from the existing Rs. 10 lakh to Rs. 20 lakh
  2. Compensation (not exceeding Rs. 1 lakh) can also be awarded by the Banking Ombudsman to the complainant for loss of time, expenses incurred as also harassment and mental anguish suffered by the complainant


Banking Ombudsman Scheme 2006

  1. The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks
  2. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services
  3. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme
  4. The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services (including internet banking + now mobile banking)
  5. One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received one s representation, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank
  6. If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI

Firms paying rating agencies is conflict of interest, RBI has a plan



Mains Paper 3: Economy | Growth

Credit rating agencies have been at target of various stakeholders in economic policy formulation in India due to their biased approach in providing ratings. Recently, China’s credit rating was downgraded after a long span by these agencies which shows that the bias they follow is shattering slowly.

From UPSC perspective, following things are important:

Prelims level: Various credit rating agencies, methodology for providing credit rating.

Mains level: Biased behavior of  credit rating agencies, how it is affecting India and measures that can be taken to avoid losses from that.


  1. In a move that could drastically overhaul the operating framework of credit rating agencies in India, the Reserve Bank of India (RBI) plans to create a fund from which payments will be made to agencies for rating of corporate borrowers

Existing Model

  1. This is aimed at gradually replacing the existing practice wherein the borrower or the issuer company pays the agency rating its credit worthiness, leading to a clear conflict-of-interest.
  2. The issuer-pays-model was widely criticised after the US subprime crisis, which led to a global financial contagion in 2008
  3. An estimated $3.4 trillion of losses were incurred globally on largely AAA rated structured products, leading allegations of inflated ratings being given by the agencies overlooking the repayment risks

Proposed fund:

  1. The proposed fund from which payments will be made to credit rating agencies will be created out of contributions from the banks and the RBI
  2. The new model will first be implemented for “large borrower” accounts and later it is expected to be expanded to cover other accounts too

Rating agencies reaction to this move:

  1. Rating agencies, however, say that it will not impact their overall issuer-pays model as RBI is only looking at a specific area
  2. RBI are talking about some specific mandate (NPA accounts) and not for the overall rating business
  3. These changes are being planned in order to resolve the large stressed assets in the economy
  4. For stressed accounts, the RBI also plans to assign rating agencies to bank to rate specific accounts

Conflict of interest:

  1. Only in less than 5 per cent of the cases, agencies unrelated to the company being rated pay fee to credit rating agencies
  2. For instance, an asset reconstruction company pays for the accounts it wants to get rated or sometimes stock exchanges depute agencies to conduct research on companies for which the exchanges make payments
  3. There is an argument that when the (debt) issuer company or the borrower pays the agency, it is able to influence ratings in its favor
  4. RBI wants to prevent rating-shopping or any conflict of interest


Read everything about credit rating agencies here (click2read)

[op-ed snap] The case for long-term finance banks


  1. The Reserve Bank of India (RBI) has published a discussion paper on the need for wholesale and long-term finance (WLTF) banks


  1. As the financial sector grows, apart from a number of universal banks, it may be useful to have differentiated banks focusing on different areas and developing competence
  2. As specialized institutions, they will be in a much better position compared with commercial banks in evaluating and funding long-term projects
  3. This will reduce the cost of intermediation and lead to better economic outcomes

Reasons for subdued investment levels:

  1. It’s not easy for companies to get long-term financing because of the underdeveloped corporate bond market and possible asset liability mismatch in the banking system
  2. One of the reasons for the subdued level of investment in the Indian economy is that the banking system is saddled with non-performing assets (NPAs)
  3. Large portion is concentrated in the infrastructure sector

Focus of WLTF banks:

  1. WLTF banks will focus on lending to the corporate sector, small and medium businesses, and the infrastructure sector
  2. They may also offer services in the area of foreign exchange and trade finance
  3. They can act as market makers in instruments like corporate bonds and credit derivatives
  4. There is a gamut of specialized services that these banks can offer to Indian businesses
  5. WLTF banks can raise funds through issuance of debt and equity. They may also be allowed to accept term deposits above a threshold
  6. It may also help the rest of the banking sector in case of joint lending, or by simply getting the project evaluation from these banks
  7. Establishment of WLTF banks will also enhance competition, which will lead to more efficient allocation of financial resources

Specialized banks in India:

  1. There is no guarantee that WLTF banks will succeed
  2. India has tried the development finance institution (DFI) model in the past with limited success
  3. After independence, DFIs were established to increase the level of investment in the economy
  4. Industrial Finance Corp. of India (IFCI) was the first such institution to be established in 1948
  5. This was followed by the establishment of state finance corporations
  6. In later years, other institutions like the Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI) were established
  7. However, DFIs struggled with government interference and changes in the economy, and accumulated high levels of NPAs
  8. ICICI and IDBI have transformed themselves into commercial banks

Issues related to finance institutions:

  1. One of the biggest problems facing long-term finance institutions is competing for funds in the marketplace and being able to lend at competitive rates
  2. Government support is no guarantee of success, as has been the case with DFIs in the past and public sector banks in present times

Aspects that need attention:

  1. First, government participation in setting up WLTF banks should be avoided as it could end up defeating the purpose
  2. It would lead to the same problems that public sector banks are facing at the moment
  3. Further, these banks will be highly specialized and will need operational freedom, which is not possible with government ownership
  4. Second, licences should only be issued to entities that are able to demonstrate the ability to build such a highly specialized bank, and are in a position to bring in capital to both meet regulatory requirements and run the business on a sustainable basis
  5. The central bank may allow industrial houses to participate to the extent that they are not in a position to influence business decisions
  6. Third, the RBI will need to design a regulatory architecture that will enable growth with adequate safeguards
  7. For example, the regulator may choose to exempt these banks from cash reserve ratio and statutory liquidity ratio requirements
  8. These banks will compete directly with the bond market


WLTF banks will have to be designed well. With the right kind of ownership and regulatory architecture, these banks will help improve efficiency in the financial system and enhance the flow of credit to businesses with large and long-term financing needs. Read the details on WLTF carefully for Mains and Prelims both.

Centre mulling new ₹200 note

  1. The Centre is examining a proposal from the RBI to introduce Rs. 200 denomination currency notee
  2. A smaller denomination note will improve liquidity
  3. Background: In November last year, the Centre announced the demonetisation of Rs. 1,000 and Rs. 500 notes
  4. While a new Rs. 500 note was introduced with added security features, a new Rs. 1,000 note was not reintroduced
  5. Instead, a new Rs. 2,000 denomination currency note was introduced


Not very important. Just to keep abreast of the happenings. Do revisit the functions of RBI for prelims- economy section.

Why bitcoins are a bit risky

  1. “Bitcoin value hits a life-time high,”; “bitcoins are now more expensive than gold,”; “Winklevoss twins make a bid for an exchange traded fund based on bitcoin”
  2. Headlines such as these are making everyone sit up and take notice of the virtual currency that had faded into oblivion two years ago
  3. Background: Similar frenzy and excitement had prevailed in 2013 and 2014, followed by revelation of a series of scams and nefarious activities involving these currencies
  4. Value of bitcoins had then crashed; bitcoin exchanges closed down and investors had forgotten about them
  5. Not much has changed with respect to the fundamentals of the bitcoins over the last three years
  6. They still remain highly unsuitable, both as medium of exchange and store of value
  7. While bitcoin usage could increase in the years ahead, they carry multiple risks that investors need to be aware of

The risks associated with bitcoins:

  1. Faulty price discovery: Bitcoin prices are discovered through exchanges that are unregulated with very lax KYC compliance process
  2. Wash trades, front-running and trading with insufficient funds is said to be common in many of these exchanges
  3. Lack of regulation: The speed of money transfer and the lower cost of transaction in bitcoins are mainly because there is no supervising authority
  4. But with no overseeing authority, instances of price manipulation is common
  5. There is no central authority giving the rights to set up or trade on the bitcoin exchanges either
  6. Regulators, including the Reserve Bank of India, have issued cautionary notices to users, highlighting the risks they take in dealing with these currencies
  7. This causes a problem for bitcoin users too. If the user suffers a loss due to an exchange or the dealer deducting unfair transaction charges, he has no one to complain to
  8. If the bitcoin wallet is hacked into or some bitcoins are lost, there is again no recompense
  9. This lack of regulation had resulted in websites dealing in narcotic drugs and arms smuggling using bitcoins in the past
  10. Price volatility: If you thought that bitcoins could become a store of value, then the sharp price volatility seen in this currency is a deterrent to such aspirations
  11. One bitcoin could be purchased for $5 in 2011. Between February and November 2013, exchange rate rose from $20 to $1,000. By early 2015, the rate was at $200
  12. In recent times too, volatility has been acute. On January 4, the high was $1,140.
  13. But a week later, prices were down more than 30 per cent
  14. Why volatility in prices: The main reason for this volatility is that there is no underlying to which the value of the bitcoin can be pegged
  15. Its price is based just on the demand and supply in numerous unregulated exchanges around the world
  16. The trading volume is quite shallow too. It’s reported that 50 per cent of the bitcoins is held by less than 1,000 people
  17. Hoarding of bitcoins is also quite rampant
  18. Another problem is that only 21 million bitcoins can be mined in all. Over two-third is reported to be mined already
  19. As the number of bitcoins mined reaches the upper limit, the value is expected to shoot through the roof
  20. Vendors facilitating transactions through this currency will then stand to lose.
  21. The block-chain revolution: While it is best to be wary about bitcoins, the technology on which they are based — block-chains — is likely to grow popular going ahead
  22. An open ledger where users enter information, verified by a set of people, can greatly increase transparency and cut down costs
  23. It’s already used in the financial services industry and could grow in popularity in future


This newscard is a reminder to revise basics on Bitcoins (click here). Though the risks are bit detailed, they are easy to understand and can be asked as a question in prelims or mains.

Q. With reference to ‘Bitcoins’, sometimes seen in the news, which of the following statements is/are correct? [Prelims 2016]
1. Bitcoins are tracked by the Central Banks of the countries.
2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
3. Online payments can be sent without either side knowing the identity of the other.
Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 3 only
(d) 1, 2 and 3

Answer: (b)

RBI to rationalise MDR

  1. The RBI plans to rationalise the merchant discount rate (MDR) for debit cards; there would be different charges for different kinds of merchants
  2. MDR: The rate which banks charge a merchant when the customer uses a card for a transaction
  3. The merchants have been categorised into four: small merchants, government transactions, special category of merchants, and all other category of merchants


Not very important. May be a minor tit-bit in prelims.

[op-ed snap] Prudence amid uncertainty

Shift in RBI Policy:

  1. For the first time in six meetings this fiscal, the Reserve Bank of India has shifted its policy poise, moving to ‘neutral’ from an ‘accommodative’ stance
  2. The central bank’s Monetary Policy Committee has opted to sit pat on rates and choose to give itself time to “assess how the transitory effects of demonetisation on inflation and the output gap play out”
  3. The decision came just a day after Prime Minister Narendra Modi told Parliament that the government’s move to withdraw high-value currency notes had been undergirded by the premise that the economy was “doing well and thus our decision was taken at the right time”

RBI’s message:

  1. The RBI’s emphasis on caution suggests that not only has the economy suffered short-run disruptions
  2. But that the long-term impact may be far more enduring and hard to predict than anticipated
  3. The policy statement issued by the six-member MPC also projected the second successive downward revision in economic growth as measured by the Gross Value Added for the current year ending in March
  4. Pace of increase in GVA now forecast at 6.9%, from 7.1% in December and 7.6% prior to the November demonetisation

Cause of Concern:

  1. Both the outlook for inflation and international uncertainty are causes for concern, according to the RBI
  2. Viral Acharya, the recently inducted Deputy Governor overseeing monetary policy, flagged the risks that global inflation and a strengthening U.S. dollar pose to domestic price gains
  3. Specifically, the central bank is worried about the “unyielding” nature of core retail inflation, which strips out food and fuel costs, and has been stuck around 4.9% since September, mainly due to stickiness in price gains for housing, health, education, personal care and household services
  4. The MPC reckons that the “persistence of inflation excluding food and fuel could set a floor on further downward movements in headline inflation and trigger second-order effects” that, when combined with hardening international crude oil and base metal prices and exchange rate volatility
  5. It could have the potential to threaten the RBI’s baseline inflation path of 4.5% to 5% in the second half of 2017-18
  6. And ironically, were the effects of demonetisation to wear off quickly, vegetable prices, that had softened on the back of distress sales of perishables, could potentially rebound, posing another risk to the central bank’s inflation outlook


The op-ed is important for an understanding of the current situation of the economy.

RBI to set up in-house enforcement department

  1. News: The Reserve Bank of India has decided to set up an enforcement department
  2. Aim: To develop a sound framework and process for enforcement action and to speed up regulatory compliance
  3. The department will mainly deal on the penalties imposed on banks for violation of norms
  4. Currently, the penalties are decided by the banking and non-banking supervision departments
  5. Enforcement: Deals with cases of non-compliance with regulations were noticed either through the surveillance process or otherwise
  6. Currently, in the Reserve Bank, there is a clear demarcation of the regulatory and surveillance functions


RBI cautions against virutal currencies

  1. The Reserve Bank of India (RBI) has cautioned the users, holders and traders of virtual currencies (VCs), including Bitcoins, about the potential financial, legal and security–related risks
  2. RBI advises that it has not given any licence/ authorisation to any entity/ company to operate such schemes or deal with Bitcoin or any virtual currency
  3. As such, any user, holder, investor, trader, etc. dealing with virtual currencies will be doing so at their own risk


This stand of RBI should be known as it can be a statement in a prelims question. Also know about Bitcoins here and blockchain here.

Can print 16 billion notes a year: RBI press

  1. Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) has said it has the capacity to print 16 billion pieces of currency notes per annum, when operating in two shifts and when the presses are operating at full capacity
  2. The new ₹500 notes are printed both by the government-owned Security Printing and Minting Corporation of India Ltd. and BRBNMPL while the ₹2,000 denomination bank notes are printed only at BRBNMPL
  3. BRBNMPL is a subsidiary of the Reserve Bank of India which prints banknotes

Note4students: All 3 points are prelims worthy.

Note ban will transform economy, says RBI Governor

  1. Source: RBI Governor Urjit Patel in his foreword to the bi-annual Financial Stability Report
  2. Views: He said the govt’s move to junk Rs 500 and 1000 notes would significantly transform the economy though the public may face some hardship
  3. How: In terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments
  4. These will outweigh the short-term disruptions in certain segments of the economy and public hardship
  5. He said there is little room for complacency and it is important to guard against sporadic volatility in financial markets
  6. Mr. Patel said the report was released at a time when global uncertainties were on the rise with a uptick in interest rates in the U.S. and rise in some commodity prices, particularly crude oil, which increased the risk of spillover to emerging markets
  7. However, domestic macro economic conditions remained stable with significant moderation in inflation, though growth momentum had slackened recently


1. The RBI publishes the Financial Stability Report (FSR). It is a biannual publication and the thirteenth in the series. It reflects the overall assessment on the stability of India’s financial system and its resilience to risks emanating from global and domestic factors. Besides, the Report also discusses issues relating to development and regulation of the financial sector.

2. The Global Financial Stability Report (GFSR) is published by the IMF. For an extensive list of reports and their organisations, click here.

RBI opposes proposal to set up separate payments regulator

  1. What: The RBI has opposed a move to establish a separate entity to regulate payments and settlements, a function that is currently under the central bank’s purview
  2. Background: In Sept, the Centre had set up a 11-member committee on Digital Payments headed by Finance Secretary Ratan Watal
  3. One of the panel’s terms of reference was to study and recommend changes in the regulatory mechanism under various acts such as the Payments and Settlement Act, the RBI Act, and the Information Technology Act among others
  4. It recommended that the RBI will be the regulator for SIPS (systemically important payment system) and a separate board (Payments Regulatory Board) for retail payments will be created under RBI
  5. The committee had suggested that the PRB be an independent body
  6. RBI view: Globally, both these functions are performed by the central bank
  7. It said there is no need to create confusion by artificially bifurcating payment systems for bringing them under two sets of regulators
  8. The RBI has mooted a monetary-policy-committee-style structure for the PRB, where outcomes are decided independently, but implementation remains with the banking regulator


All govt committees are important for mains. In fact, this year UPSC has started asking committee names in prelims also. Hence, the name of the committee, its purpose and its recommendations are all important.

Policy Review: RBI surprises with pause on interest rates

  1. What: The monetary policy committee headed by RBI Governor Urjit Patel unanimously decided to keep the policy rate unchanged at 6.25%
  2. RBI’s monetary stance remained accommodative, but it warned inflation could rise again
  3. It decided not to lower rates given the imminent tightening of monetary policy in the US, which is triggering bouts of volatility in financial markets
  4. The raising of rates in the US is likely to result in an outflow of dollars from emerging markets as interest rates converge
  5. The RBI now estimates economic growth for 2016-17 at 7.1%, down from the 7.6% it had projected earlier
  6. The RBI is committed to keep inflation within 5% by March 2017 and thereafter at 4% plus or minus 2%
  7. But it warned prices were not falling beyond a point and the base effect would soon reverse


If your economics basics are clear, then you should be able to understand all terms and the mechanism of interest rates mentioned here. It is also important to know about the monetary policy committee and inflation targets of RBI.


The Monetary Policy Committee (MPC) is a committee of the RBI, headed by its Governor. It was set up by amending the RBI Act after the govt and RBI agreed to task RBI with the responsibility for price stability and inflation targeting. The RBI and the govt signed the Monetary Policy Framework Agreement on Feb 20, 2015.

The MPC is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the target level.

Centre takes steps to drain excess cash

  1. What: The Centre has decided to increase the limit of bonds that can be issued under a market stabilisation scheme (MSS)
  2. Reason: To mop up excess liquidity from the banking system arising out of its demonetisation move


This news is of minor importance, just make sure you understand terms such as bonds and market stabilisation scheme.


The MSS scheme was launched in April 2004 to strengthen the RBI’s ability to conduct exchange rate and monetary management. The bills/bonds issued under the MSS would have all the attributes of the existing treasury bills and dated securities. However, unlike regular bonds, these are not issued to meet the government’s expenditure and the funds raised are kept in a separate cash account. As a result, their issuance will have a negligible impact on the fiscal deficit of the government.

Sharia banking: RBI proposes ‘Islamic window’ in banks

  1. The RBI has proposed opening of “Islamic window” in conventional banks
  2. Reason: For “gradual” introduction of Sharia-compliant or interest-free banking in the country
  3. Both the Centre and RBI are exploring the possibility of introduction of Islamic banking for some time
  4. This is to ensure financial inclusion of those sections of the society that remain excluded due to religious reasons
  5. Due to the complexities of Islamic finance and various regulatory and supervisory challenges involved in the matter, it will be introduced gradually
  6. Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited under Islam
  7. In its annual report for 2015-16, the RBI had said that some sections of Indian society have remained financially excluded for religious reasons

Bank customers can use post-office ATMs soon

  1. Context: India Post proposed to RBI for allowing ATMs of India Post to work on the platforms of all other banks
  2. This is the first step towards the proposed Postal Bank
  3. Benefit: Soon people will be able to withdraw money from any bank account – private or PSU through ATMs of India Post
  4. Current context: Only those with accounts in postal department can use the service

What are Basel III standards?

  1. What? A comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision
  2. Why? To strengthen the regulation, supervision and risk management of the banking sector
  3. Aim : To improve the banking sector’s ability to absorb shocks arising from financial and economic stress
  4. Improve risk management and governance, strengthen banks’ transparency and disclosures
  5. Reforms target: bank-level, or microprudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress

Banks warned on asset sales

  1. Context: RBI has warned banks to be cautious about the entities to which they sell assets acquired on account of loan defaults
  2. Caution: promoters of companies acquired by banks may be using shell entities to buy back these assets at much lower prices
  3. It would also allow black money stashed by Indian businessmen overseas to come back into India
  4. Why the diligence? Because prospective buyers in a number of cases are coming from relatively unknown backgrounds and banks need to be sure that there is no foul play

What is Basel-III accord?

  1. Context: Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk
  2. Relevance: This accord was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08
  3. Target: To strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage
  4. Focus: Primarily on risk of a run on the bank by requiring differing levels of reserves for different forms of bank deposits and other borrowings

FII cap in state-run banks may increase to 49 per cent

  1. Why? Public sector banks(PSBs) need equity capital while their stocks have taken a hammering after reporting huge losses due to a sharp rise in non-performing assets(NPAs)
  2. Relevance: PSBs will also require capital to comply with the Basel-III norms
  3. Context: Valuations of public sector banks are subdued, so increase in FII cap will certainly attract portfolio investment
  4. Present regulations: Single non-banking institution can’t hold more than 10 % in a bank while one bank can hold maximum 5 % stake in another bank
  5. What’s Constraint? PSBs are constrained to raise equity capital from markets as most of them are trading at a significant discount to their book value

Strategic debt restructuring initiated: Sinha

  1. Context: Govt. effort to reduce the rising bad loans in the banking system
  2. News: The govt has initiated strategic debt restructuring in few cases comprising bad loans worth Rs 1 lakh crore
  3. How? Govt. has given banks the freedom to fix the projects that were causing bad loans through strategic debt restructuring
  4. Banks were given the option of even replacing the promoters of the project, if need arises

Learn more about Small Saving Schemes

  1. What? Small savings schemes are designed to provide safe and attractive investment options to the public and at the same time to mobilise resources for development
  2. Operation? These schemes are operated through about 1.54 lakh post offices throughout the country
  3. Examples: Monthly Income Scheme, National Savings Certificate, Public Provident Fund, Senior Citizen’s Savings Scheme

Small saving schemes and monetary transmission

  1. Context: Govt. decision to partially deregulate interest rates on such instruments with less than 5 years maturity
  2. Why? Higher rates divert deposits away from banks towards such schemes resulting in inability of banks to cut deposit rates
  3. Transmission: banks are thus unable to transmit RBI rate cut to lending rates
  4. But this may not help as one, deregulation affects only ⅓ of total small saving deposits
  5. Banks’ inability to mobilize rural deposits due to limited number of bank branches in rural areas
  6. Way ahead: Reduce interest rates further and make all small saving rates compatible with bank rates

Not desirable to use exchange rate to spur economic growth, says Rajan


  1. Context: RBI and the government don’t favour undervaluation of the exchange rate as a means to spur economic growth
  2. Relevance: Problems with undervaluing the exchange rate and some of these are reflected in economic condition that countries find themselves
  3. Concern: Health of the world economy and dwindling investor confidence in PM Modi’s ability to push through economic reforms
  4. Rajan’s advice: Sustained undervaluation over a long period of time is not a feasible or desirable strategy
  5. The exchange rate should to be reasonably predictable and reasonably stable
  6. What MSMEs can do? Act as a means of social empowerment where disadvantageous sections of society can be empowered with money and wealth
  7. Problems for MSMEs: Lack of infrastructure and logistics, access to marketing, difficulty and the expense in acquiring land and financing

Reserve Bank can’t drop guard on inflation

  1. Context: Retail inflation data showed that RBI had met its Jan 2016 target of slowing the price gains to under 6%
  2. Background: In 2015, RBI entered into a historic agreement with the govt on an inflation targeting monetary framework
  3. Future: The next milestone is of 5% by March 2017, which is likely to challenge monetary policy makers
  4. Challenge: Implementation of 7th pay commission recommendations, deficient monsoon may also exert pressure on food inflation

Banks’ balance sheet clean-up imperative for growth, says Raghuram Rajan

  1. Context: RBI had conducted an asset quality review (AQR) of banks and identified specific accounts, which banks have to identify as non-performing
  2. Result: Bad loans have hit banks’ profitability in the third quarter with most of them posting heavy losses
  3. Why clean-up? Profitability of banks may be impaired in the short-run, the system, once cleaned, will be able to support economic growth in a sustainable and profitable way
  4. Rajan said: The ongoing clean-up of bank balance sheets will help spur economic growth and improve the lenders’ profitability

Reserve Bank tells banks to set aside more for stressed loans

  1. Context: RBI Governor’s drive to clean up banks’ balance sheets by March 2017
  2. RBI Direction: Banks will have to accelerate provisioning requirement, from April 1, for the existing stock of restructured loans that are showing signs of stress.
  3. How? – Lenders have to increase provisioning by 2.5% every quarter starting April 1
  4. This will take provisioning to the level of 15% by March 31, 2017, in line with sub-standard accounts
  5. Impact on Banks? – Banks are facing profitability pressure due to higher provisioning for bad loans

Let’s know highlights of RBI’s sixth monetary policy?

  1. Repo rate unchanged at 6.75 per cent
  2. Cash reserve ratio or CRR unchanged at 4 per cent
  3. Marginal standing facility rate and Bank Rate at 7.75 per cent
  4. Expects FY17 inflation at around 5 per cent
  5. RBI to create a special ecosystem for startup funding

With an eye on budget, Rajan holds interest rates

Going ahead in 2016-17, RBI said growth is expected to strengthen gradually, notwithstanding significant headwinds and projected the GVA growth for the next fiscal at 7.6 per cent.

  1. The RBI left the key policy rate unchanged at 6.75 per cent, as widely expected, ahead of the union budget.
  2. Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest CAD and commitment to fiscal rectitude.
  3. This needs to be maintained so that the foundations of stable and sustainable growth are strengthened.
  4. The government is targeting a fiscal deficit of 3.9 per cent for the current financial year and 3.5 per cent for FY17.

Rajan warns against straying from fiscal consolidation path

During global turmoil, macroeconomic stability should not be risked.

  1. RBI Governor Raghuram Rajan cautioned against deviation from the fiscal consolidation path, which could hurt macroeconomic stability.
  2. The growth multipliers on government spending at this juncture are likely to be much smaller, so more spending will probably hurt debt dynamics.
  3. Brazil’s experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies.
  4. We should be very careful about jeopardising our single most important strength during this period of global turmoil – macroeconomic stability.
  5. Taking the fiscal deficits of the Centre and states, the consolidated fiscal deficit for the country rose last year to 7.2 per cent from 7 per cent.
  6. Deviation from the fiscal consolidation path could push up government bond yields.

We should be careful about how we measure GDP: Rajan

New GDP series, in effect for a year now, has been criticised by economists.

  1. RBI Governor has raised doubts over the new methodology used to calculate the country’s gross domestic product (GDP).
  2. He cited the example of two mothers who babysit each other’s kids, and said there is a rise in economic activity as each pays the other, but the net effect on the economy is questionable.
  3. The country’s GDP numbers were revised with the base year of 2011-12 from the earlier 2004-05.
  4. The methodology of calculating GDP was changed as the new methodology takes GDP at market prices into account, which includes indirect taxes and excludes subsidies.
  5. Governor indicated that country needed policies to incentivise job creation and rued that we have policies directed towards capital subsidies alone.

Divest to Fund Capital Expenditure aka Asset swap

Asset sales are the way for government to protect credibility while avoiding procyclical fiscal stance .

  1. Amid concerns of a slowdown, fiscal-consolidation would make fiscal policy procyclical and potentially suboptimal.
  2. Deviating from the fiscal path again is not without risks.
  3. First, it could impinge upon hard-earned credibility.
  4. Second, a larger-than-expected borrowing programme will push up private-sector borrowing costs and risk some crowding-out of private investment.
  5.  Finally, with nominal GDP growth moderating sharply and approaching the same level as the cost of government borrowing, public-sector debt dynamics have become less favourable.
  6. But does asset sale make sense when public sector commodity stocks are down?
  7. To the extent that resources are ploughed into public investment, the cost of building infrastructure is also commensurately cheaper when commodities collapse. So there is a price hedge.
  8.  Think of disinvestment as an “asset swap” on the government’s balance sheet rather than an “asset sale”.

Central Fraud Registry set up by RBI

RBI has also issued guidelines to detect frauds related to loan accounts.

  1. Borrowers indulging in fraud typically take advantage of the lack of information with banks.
  2. Thus, RBI has put in place a central fraud registry – a searchable database to help banks detect instances of fraud by borrowers early on.
  3. Frauds of 1L – 5Cr will be monitored by the respective regional office of the RBI and above 5 Cr will be monitored by the Central Fraud Monitoring Cell (CFMC) of RBI.
  4. Given the incessant rise in bad loans since the last 2 years and most of these arising out of fraudulent behaviour.
  5. RBI has been urging banks to detect such cases at an early stage to avoid a big hit later on their books.

Be tight-fisted

The ‘tight fiscal, easy monetary’ policy mix can better address problems that plague private investment.

  1. First, the debt to GDP ratio would remain under control.
  2. Second, finance minister would maintain his credibility.
  3. The decision to stick to the path of the announced fiscal targets is good not just in the long run but also in the short term.
  4. Immediately it will create space for monetary policy easing
  5. Unlike, say, in Europe, where there is no scope for cutting the policy rate that is near zero, in India, there is ample scope to cut it.
  6. Reduction in the interest burden could possibly prevent more companies from going towards bankruptcy, thus helping banks and overall economy .

RBI Dy Governor Patel gets second term

  1. Urjit Patel, Deputy Governor of RBI, in-charge of the monetary policy department, has been re-appointed for a term of 3 years.
  2. Earlier, he was head of a committee to review the monetary policy framework.
  3. The committee proposed inflation targeting as the central bank’s prime objective.
  4. It changed the main gauge for inflation to consumer price index based inflation.
  5.  It was probably the first committee which explicitly said that govt should not intervene in the functioning of public sector banks.

Let’s know about currency printing press in India

  1. There are 4 printing presses which print and supply banknotes.
  2. Places: Dewas in MP, Nasik in Maharashtra, Mysore in Karnataka, and Salboni in West Bengal.
  3. The presses in Devas and Nasik are owned by the Security Printing and Minting Corporation of India, a wholly owned GoI company.
  4. The printing of the notes in Karnataka and West Bengal are done by the Bharatiya Reserve Bank Note Mudran Private Limited, a wholly owned subsidiary of RBI.

RBI tells banks to replace defective 1,000-rupee notes

  1. Recently, a govt-owned printing presses of had printed 300 million defective banknotes.
  2. RBI has asked banks to replace such notes with them, when found.
  3. Currency experts said that the checking of notes is done at the press-level.
  4. The banking regulator is not involved with checking each and every banknote.
  5. Notes of denominations of Rs 500 & Rs 1,000 together accounted for approx. 85% of the total value of banknotes in circulation at end- March 2015.

Interest subvention should be phased out: central bank panel

The government must do away with the interest subvention scheme and plough back the subsidy into a universal crop insurance scheme for small and marginal farmers.

  1. The move can transform the agriculture sector and promote financial inclusion, according to the panel headed by Deepak Mohanty, executive director, RBI.
  2. Digitisation of land records for clear titles and credit linkage are necessary to establish evidence of cultivation.
  3. There is a specific purpose of subvention where farmers receive loans at a lower cost with the government paying the balance.
  4. In order to ensure actual credit supply to the agricultural sector, the committee recommended introduction of Aadhaar-linked mechanism for Credit Eligibility Certificates.
  5. The Mohanty panel noted significant financial exclusion continue to persists in the north-eastern, eastern and central states to achieve near-universal access.

Reserve Bank of India to prune NBFCs for effective regulation

  1. RBI is working towards harmonising regulations for NBFCs to reduce the number of categories in the sector.
  2. RBI will continue to approve of new kinds of NBFCs if the economy requires them.
  3. The business model of NBFCs is inherently risk-prone because of weaker underwriting standards, enhanced risk-taking capabilities and increased complexities of their activities.
  4. NBFCs are also exposed to key risks emanating from regulatory gaps, arbitrage and contagion effects.

RBI opens National Pension System as investment option for NRIs

RBI has taken this decision in consultation with Union Government to appease NRIs.

  1. RBI has allowed non-resident Indians to subscribe to the NPS enabling them access old age income security.
  2. NPS will act as an investment option for NRIs under Foreign Exchange Management Act (FEMA), 1999.
  3. NRIs may subscribe to the NPS through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act, 2013.
  4. NPS is governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), launched in 2004.
  5. It was extended for all citizens of the country from 1 May 2009 including the unorganised sector workers on voluntary basis.

What is the neutral real interest rate?

The real policy rate in India is close to the neutral real interest rate, reinforces the view that RBI will desist from further rate cuts until the end of next year

  1. The RBI has said that the neutral real interest rate in India should be 1.5-2% for this stage of economic recovery.
  2. This measure is the rate at which desired savings equal desired investments or the rate at which growth is close to potential and inflation is stable.

Why is it important?

As Nomura economists point out, summing up observations from a recent RBI staff working paper, if projected inflation is higher than the inflation target, then the actual real rates must be higher than the neutral real rate to ensure than monetary policy is anti-inflationary.

RBI actions to bring annual FPI funds of Rs.48,000 crore

  1. The recent monetary policy review could attract an average annual flow of Rs.48,000 crore in govt. bonds from overseas investors for the next few years.
  2. This gradually augmented demand for govt. bonds will have a sustained, salutary impact on bond prices or sustained decline in yields.
  3. The limits for FPI investment in govt. securities will be increased in phases to 5% of the outstanding stocks by March 2018.
  4. The measure to enhance participation in state development loans by bringing the FPI investment to 2% by March 2018, are likely to enhance the market appetite.
  5. The rating agency- India Ratings, expects the rupee to outperform most emerging market currencies.

RBI crisis fund short of target

For the last two years, the RBI has made no transfers to its Contingency Fund or its Asset Development Fund.

  1. Contingency funds with the Reserve Bank of India (RBI), used in case of unforeseen shocks, have fallen to 8.4 per cent of total assets, against a target of 12 per cent, as shown in its Annual Report for 2014-15.
  2. For the last two years, the RBI has made no transfers to its Contingency Fund(CF) or its Asset Development Fund(ADF). The balance in these funds, therefore, has barely changed since 2013, when they made up 10.1 per cent of total assets.
  3. “The wider the area of responsibilities of a central bank, greater the risks and, hence, higher the requirement of capital,” the report said.
  4. “A central bank may require recapitalisation, precisely at a time when the fiscal position is under strain, say, due to a financial crisis,” it added.
  5. The annual report also showed that the RBI had been transferring 99.9 per cent of its profits to the government, without keeping any amount for itself. This is a sharp increase from the 40-50 per cent it had transferred in the 2010-13 period.
  6. In 2015, the Bank of England transferred a mere 93 pounds to the government while the U.S. Federal Reserve is required by law to transfer most of its profits to the government.

Let’s check what purpose served by RBI’s CF and ADF?

RBI releases final guidelines for PPI MTS

  1. What’s that?
  2. Prepaid Payment Instruments for Mass Transit System (PPI-MTS).
  3. Enabling the issuance of a separate category of semi-closed prepaid payment instruments for mass transit systems.
  4. This means that all Mass Transit System operators like the Indian Railways and even local buses can now issue their own prepaid cards.
  5. This move will provide considerable ease to commuters.

:( We are working on most probable questions. Do check back this section.

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