RBI Notifications

Mar, 17, 2018

[op-ed snap] Is the Reserve Bank of India toothless?


Mains Paper 2: Governance | Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Recently, the governor’s speech on 14 March at the Gujarat National Law University, Gandhinagar, highlights significant issues about the difference in regulation of public and private sector banks. The newscard talks about those issues briefly.



  1. There are some issues raised by the RBI governor regarding the Indian Banking System

First: Dual control over banks based on ownership

  1. This issue is not specific to public sector banks
  2. Even in case of the cooperative banks, dual control was a festering issue
  3. However, in the case of public sector banks, the problem of dual control is even deeper
  4. In addition to ownership and governance-level control, there is also significant operational control that the Union finance ministry exercises
  5. This control bypasses the boards. That is why one cannot hold the board residually responsible for the performance of the bank
  6. A programme like the Pradhan Mantri Jan Dhan Yojana (PMJDY) is operationally guided by the ministry and bypasses the board-directed strategy
    This issue is not present in private banks
  7. This is control on the banks through the tyranny of circulars, which doesn’t affect private banks
  8. Comparing the PMJDY numbers of private banks and their public sector peers is sufficient to make the point
  9. So, having identified that the framework for regulating public sector banks is different, can the governor cry victim, and does this let the RBI off the hook?
  10. The RBI by suo motu can recommend corrective action to the government
  11. The government may not accept it, as it has not been accepting many of the recommendations of the central bank, but it would have at least done its duty

Second: Blame on limited powers of the RBI

  1. Very much like the government exercising control through the board and through circulars, even the RBI has a board position in each public sector bank
  2. Further, the RBI representative is on the management committee (that approves loans beyond a certain ticket size), the audit committee, the committee of directors (for reviewing vigilance cases) and the remuneration committee of each of these banks
  3. So, not only does the RBI have regulatory oversight, it has board and sub-committee presence in each public sector bank,
  4. which should give the RBI much greater insights than it would get into a private bank
    Powers related to the appointments
  5. Also, the RBI is party to the selection of the whole-time directors of the bank through the selection committee and through its membership on the Banks Board Bureau
  6. The RBI has powers to remove the non-official directors appointed by the Union government as well as the shareholder directors if they do not fulfil the fit-and-proper criteria
    (section 3AB and 3B of the Banking Companies (Acquisition and Transfer of Undertakings) Act)
  7. Moreover, the RBI has powers to appoint an additional director as per section 9A of the above Act
  8. Theoretically, the RBI has a significant say in the constitution of the board of a public sector bank

The way forward

  1. While there is a great deal of reform to be undertaken in the governance and management of public sector banks, the line that the governor has taken, of inadequate powers to act, may be untenable
  2. The framework for the exercise of powers in private sector banks is different from the framework for public sector banks
  3. This has to be recognized
Mar, 16, 2018

{op-ed snap] Credit tangle


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: LoUs, Letters of Comfort, etc.

Mains level: Possible effect of the banning of LoUs by the RBI.


RBI’s notification on LoUs

  1. The Reserve Bank of India has decided to ban such instruments as well as letters of comfort issued by bankers to businesses for international transactions
  2. This is the first major step by the central bank on the banking fraud issue,
  3. apart from asking banks to ensure there are no slip-ups between their core banking systems and the SWIFT mechanism used for international money transfers

Why is the industry unhappy with the decision?

  1. Industry is unhappy with the RBI decision as this would raise the cost for importers, who will now need to rely on more expensive instruments such as bank guarantees and letters of credit
  2. The move will also impact the competitiveness of exporters who import raw materials for their products
  3. Ban of LoUs will impact the $85 billion buyers’ credit market that was mostly conducted in accordance with the law of the land

RBI’s argument against the RBI’s inability to detect the fraud

  1. RBI’s governor stressed that the RBI didn’t have adequate powers to regulate public sector banks, and
  2. it could not remove any of their directors or liquidate such a lender, as it can in the case of private sector banks
  3. He made an eloquent demand that the owner of public sector banks (that is, the government) must consider making the RBI’s powers over banks ‘ownership-neutral’ and say what could be done with these banks
  4. The RBI’s stance is valid, as is its discomfort with knee-jerk reactions and the blame games since the fraud came to light

The way forward

  1. Perhaps the RBI could have tightened the norms for LoUs and introduced safeguards based on the latest learnings
  2. It is still not too late to do that


Letter of Comfort (LoC)

  1. A Letter of Comfort (LoC) is a letter issued to a lending institution by a stakeholder of the company acknowledging support of the attempt for financing asked by that company
  2. A letter of comfort does not imply that the parent company guarantees repayment of the loan being sought by the subsidiary company
  3. It merely gives reassurance to the lending institution that the parent company is aware of the credit facility being sought by the subsidiary company, and supports its decision
Mar, 16, 2018

‘RBI norms may push power projects worth Rs. 2.5 lakh crore into bankruptcy’


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Possible effect, of the decision, on stressed power projects.


Possible effect of scrapping loan restructuring programmes by the RBI

  1. According to experts, more than 50,000 MW of stressed power projects, worth more than Rs. 2.5 lakh crore, with bank exposure of more than Rs. 1.75 lakh crore, are likely to face bankruptcy proceedings
  2. As the RBI had scrapped all loan restructuring programmes in February

Government’s reaction on the RBI’s decision

  1. The government has called for a high-level meeting of all the stakeholders, including public and private sector power firms, lenders, coal suppliers and railways to discuss the gravity of the situation


  1. The RBI had recently scrapped all loan restructuring programmes and it’s recent guidelines on ‘Resolution of Stressed Assets’
  2. Revised Framework’ mandates the banks to classify even a day’s delay in debt servicing as default
Mar, 07, 2018

RBI may pay interim dividend of Rs. 10,000 cr.


Mains Paper 2: Governance | Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential

From UPSC perspective, the following things are important:

Prelims level: Provision under the act

Mains level: The newscard talks about an important financial relationship between the government and the RBI.


Interim dividend from the RBI

  1. The government is likely to receive an interim dividend of Rs. 10,000 crore from RBI this month
  2. According to the sources, the government expects the RBI to pay a total dividend of about Rs. 45,000 crore for financial year 2017-18

Provision under the RBI Act, 1934

  1. Under the Act, the central bank is required to pay the government its surplus, after making provisions for bad and doubtful debts, depreciation in assets, and contribution to staff and superannuation fund, among others
Mar, 06, 2018

[op-ed snap] RBI to inject extra liquidity of Rs. 1 lakh cr.


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Read b2b

Mains level: Reason behind this injection of liquidity.


RBI’s announcement

  1. The RBI would inject additional liquidity of Rs. 1 lakh crore in banks
  2. How: Through longer tenor instruments
  3. The RBI will conduct four variable rate term repo auctions of Rs. 25,000 crore each in March 2018
  4. Why: To enable flexibility towards meeting banks fund needs
  5. Note: This will be in addition to normal Liquidity Adjustment Facility (LAF) operations

RBI’s statement

  1. The RBI said in order to address additional demand for liquidity
  2. And with a view to providing flexibility to the banking system in its liquidity management towards March-end, it was “prepared to inject adequate additional liquidity using a combination of appropriate instruments”


Liquidity Adjustment Facility (LAF) 

Feb, 23, 2018

Currency circulation in India at 99% of pre-demonetisation level: RBI data


Mains Paper 2: Governance | Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: One of the aims behind the demonetization was to make India a less-cash society. But it is not achieved, as shown by the data released by RBI.


Latest RBI data on currency circulation

  1. According to the RBI, currency in circulation in India stood at Rs17.78 trillion as on 16 February, reaching 98.94% of the pre demonetisation level
  2. On 4 November 2016, the currency with the public was Rs17.97 trillion
  3. Subsequently, it dropped to a low of Rs8.98 trillion as on 6 January 201

Government’s aim behind demonetisation

  1. The demonetisation, aimed at countering tax dodgers and counterfeiters, sucked out 86% of the currency in circulation
  2. The government had then also pointed out to relatively lower levels of currency with the public as a success
Feb, 10, 2018

No RBI decision on implementing IndAS yet: deputy governor N.S. Vishwanathan


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the IndAS

Mains level: Importance of the IndAS


Implementation of the IndAS

  1. According to the RBI, it has not yet taken a decision on implementing the new accounting standards, IndAS
  2. This hints at a possibility of missing the 1 April deadline

Requirements for the implementation of the IndAS

  1. The implementation of IndAS for public sector banks requires an amendment to the Banking Regulation Act. Section 29 of the BR Act deals with the accounts and balance sheets of public sector banks
  2. Private sector banks are covered by the Companies Act, which is based on the new accounting standards

Why is IndAS important?

  1. The transition to IndAS is expected to see a significant jump in bad-loan provisions
  2. Under the current rules, banks set aside money to cover loans that have turned bad
  3. Under IndAS, they must make provisions after assessing the expected loss from the time a loan is originated rather than waiting for a trigger event
  4. These norms were designed to avoid credit shocks like those seen in the aftermath of the global financial crisis in 2008



  1. Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by companies in India and issued under the supervision and control of Accounting Standards Board (ASB), which was constituted as a body in the year 1977
  2. ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc.
  3. The Ind AS are named and numbered in the same way as the corresponding International Financial Reporting Standards (IFRS)
  4. National Advisory Committee on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA)
  5. MCA has to spell out the accounting standards applicable for companies in India. As on date MCA has notified 41 Ind AS
  6. This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis
  7. Based on the international consensus, the regulators will separately notify the date of implementation of Ind-AS for the banks, insurance companies etc.
  8. Standards for the computation of Tax has been notified as ICDS in February 2015
Dec, 23, 2017

PCA only to improve banks’ health, says RBI

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: What is the PCA?

Mains level: Motive behind the implementation of the PCA


Clarification from the RBI

  1. The RBI has once again clarified that prompt correction action (PCA) is imposed to encourage banks to improve their financial health
  2. The reiteration comes in the wake of rumours on social media that some of the banks that are under PCA could be closed down

Motive behind the PCA

  1. he PCA framework is intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger

What is Prompt Corrective Action?

  1. To ensure that banks don’t go bust, RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks which are weak and troubled
  2. The process or mechanism under which such ac tions are taken is known as Prompt Corrective Action, or PCA.

Why the need for PCA?

  1. The 1980s and early 1990s were a period of great stress and turmoil for banks and financial in  stitutions all over the globe
  2. In USA, more than 1,600 commercial and savings banks in sured by the Federal Deposit Insurance Corporation (FDIC) were either closed or given financial assis tance during this period. The cumulative losses incurred by the failed institutions exceeded US $100 billion
  3. These events led to the search for appropriate supervi sory strategies to avoid bank failures as they can have a destabilising effect on the economy
Dec, 09, 2017

RBI survey shows consumer confidence, perceptions of employment prospects at multi-year lows


Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: What is Consumer Confidence Index?

Mains level: Possible reasons behind the fall


Falling Consumer Confidence Index

  1. RBI’s Consumer Confidence Index has slipped to 91.1 in November 2017, the lowest level in the last four years
  2. A reading of above 100 denotes optimism, while one below 100 indicates pessimism
  3. The RBI survey is conducted in the six metropolitan cities of Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi

Reason behind this fall

  1. One of the main reasons for consumer confidence to be so low is the perception on employment prospects
  2. Clearly, demonetisation and the goods and services tax have had an adverse impact on employment


  1. Consumer confidence is a key driver of economic growth and is widely considered a leading economic indicator of household spending on consumption
  2. Consumers tend to increase consumption when they feel confident about the current and future economic situation of the country and their own financial conditions
  3. In economies such as India and the US, where personal consumption accounts for more than 60% and 70% of GDP respectively, consumer confidence has a particularly significant impact on the economy
  4. Measuring it can provide critical insight into the economy’s growth prospects
  5. Consumer sentiment indices are essential tools used by global investors and will be an immense aid to individual and institutional investors in India
Nov, 13, 2017

RBI remains net buyer of U.S. dollars

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Good for Foreign Reserves of India


India is a net buyer of U.S. dollars

  1. According to the latest RBI data, continued to remain a net buyer of U.S. dollars after it bought $1.259 billion in September from the spot market
  2. In September, the central bank had bought $3.788 billion, while it sold $2.529 billion in the spot market

Why RBI intervenes in the Foreign Market?

  1. The RBI intervenes in the foreign market to contain volatility in the rupee and not to set a price band
Nov, 04, 2017

[op-ed snap] Fixing Accountability

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Rising trend Electronic Banking Transactions can be seen as result of Digital India initiative.



  1. The article talks about the ways of countering frauds in electronic baking transactions

RBI on electronic bank transactions

  1. The RBI has from time to time issued guidelines to strengthen systems and procedures for electronic banking transactions, internet banking and mobile banking
  2. The RBI has recently instructed through a circular all banks to put in place effective systems to ensure secure electronic banking transactions


  1. The objective is clear: Customers must feel safe about carrying out electronic banking transactions

What should be done to achieve this objective?

  1. Banks must put in place robust and dynamic fraud detection and prevention mechanisms plugging gaps in the existing systems
  2. And reporting of unauthorised transactions by customers to banks with 24×7 access through multiple channels ensuring that complaints are resolved within 90 days
  3. Banks shall formulate transparent, non-discriminatory customer relations policy for customer protection
  4. And fraud investigation function must be owned by the bank’s CEO, audit committee of the board and the special committee of the board and nominate a general manager for submitting fraud returns

RBI’s clarification on Audit Committee

  1. The RBI has made it clear that in banks where the board of directors is chaired by a non-executive chairman
  2. And there will not be any restriction if she or he is also nominated to the audit committee of the board of directors (ACB )
  3. The ACB has to “oversee the internal inspection, statutory audit, inter-branch and inter-bank accounts, balancing of books, major areas of house-keeping, etc.”
  4. And focus on monitoring of frauds and taking preventive and corrective actions on frauds

Suggestions from other agencies

  1. The chief vigilance commissioner has also emphasised that there must be effective monitoring of frauds at the highest level
  2. The CBI director insisted that the board of the PSB banks must monitor fraud cases
  3. The ACB must monitor all the cases of fraud
  4. The committee is required to identify the systemic lacunae that caused perpetration of the fraud and review the efficacy of the remedial action taken to prevent recurrence of frauds

The way forward

  1. Despite the mother of all instructions for fraud detection, prevention, control, monitoring and periodical reporting to the RBI, there seems to be a laxity in implementation in different levels leading to NPAs and bank frauds
  2. These issues should be countered
Oct, 23, 2017

RBI to make LEI must for cos with over Rs 5 crore exposure


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the LEI

Mains level: Important measure to counter fraud and NPA problem in the Banking Sector.


RBI’s decision on Legal Entity Identifier (LEI)

  1. The RBI is set to make LEI compulsory for companies having aggregate fund-based and non-fund based exposure over Rs 5 crore
  2. Banks will be required to capture this number in the Central Repository of Information on Large Credits (CRILC) database that captures details of loan above Rs 5 crore
  3. Past decisions of the RBI on LEI: RBI has made LEI mandatory for transactions in interest rate, forex and credit derivative market

Benefits of the LEI number

  1. It will enable banks to effectively monitor debt exposure of companies having businesses in multiple sectors and dealing with large number of banks and NBFCs
  2. It will make it easier for banks to detect frauds and willful defaulters and prevent ever-greening of loans
  3. The need for such a system was felt after the 200b8 global financial crisis and global body, the Financial Stability Board, worked on the global structure of the LEI system
  4. It would also enable banks in preventing multiple loans to companies against the same collateral

Who can issue the LEI number?

  1. Firms can obtain their LEI code from Legal Entity Identifier India Ltd.(LEIL)
  2. The LEIL is a wholly owned subsidiary of Clearing Corporation India Ltd.
  3. LEIL is accredited by the Global Legal Entity Identifier Foundation (GLEIF) and recognised by RBI as issuer of LEI under the Payment and Settlement Systems Act, 2007
  4. Apart from the LEIL, any local operating unit accredited by GLEIF can issue LEI numbers.


What is an LEI?

  1. The Legal Entity Identifier (LEI) is a global reference number that uniquely identifies every legal entity or structure that is party to a financial transaction, in any jurisdiction
  2. It is a unique 20 digit alphanumeric code that is assigned to a legal entity

What is the purpose of an LEI?

  1. The global LEI system has been set up by regulatory authorities, including G20 and the Financial Stability Board, to address the global financial crisis
  2. The LEI is designed to enable the identification and linking of parties to financial transactions in order to manage counter party risk
  3. Its goal is to improve measuring and monitoring of systemic risk and support more cost-effective compliance with regulatory reporting requirements
Oct, 20, 2017

[op-ed snap] Regulating the disruption wave: RBI issues directions to govern P2P platforms


Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the NBFC-P2P

Mains level: The article comprehensively discusses issues related to NBFC-P2P



  1. The article talks about the RBI’s policies on NBFC-P2P.

Recent decision of RBI on NBFC-P2P

  1. The RBI has recently classified peer to peer (P2P) lending platforms as non-banking financial companies (NBFC-P2P)
  2. Following this, RBI has issued detailed master directions governing the operation of such platforms, which raise some interesting PRELIMINARY QUESTIONS

Particulars of the NBFC-P2P

  1. As a registered NBFC-P2P, the firm can only provide a technology platform, through an online marketplace, to connect the lenders and borrowers, and related services such as loan documentation, loan recovery, etc.
  2. They are not entitled to conduct the business of lending and borrowing themselves
  3. In addition, they can provide credit assessment and risk profiling of borrowers, which is disclosed to potential lenders to make an informed decision

Question.1) Is RBI regulating a tech company as an NBFC?

  1. RBI has argued that the sector needs to be regulated and to protect participants from succumbing to unethical or coercive practices
  2. RBI can generally regulate entities operating either as banks or NBFCs
  3. P2P platforms are not banks, since there is no balance sheet lending
  4. Generally, entities with their principal business being financial activity are considered as NBFCs and required to be registered with RBI
  5. These conditions too are not satisfied by P2P platforms, since their primary source of income is commission from services
  6. However, the RBI has special powers to classify any entity as an NBFC, after consultation with the government which it has exercised to classify P2P platforms as NBFC-P2Ps
  7. The RBI has used this in the past to regulate mortgage guarantee companies and account aggregators

Question.2) Are the master directions detrimental to P2P start-ups?

  1. NBFC-P2Ps are expected to be a small subset of the various NBFCs operating in India.
  2. Due to the classification, NBFC-P2Ps are now subject to new conditions such as minimum net owned funds of Rs2 crore, leverage ratio of 2 and limited scope of activities
  3. As a result, the entry barrier for new start-ups has increased considerably, and the ability to move into ancillary business lines has been restricted
  4. For existing P2P players, while there may be initial hardship, and certain modifications required to their current business model, they already have certain aspects of the regulations coveredg

Question.3) Should investors reconsider their board strategy?

  1. For all NBFCs, approval of RBI is required if more than 30% of the directors (excluding independent directors) are changing
  2. However, for an NBFC-P2P, an additional prior approval is required if any change in shareholding gives the acquirer the right to appoint a director
  3. It is not clear why this condition has been added specifically for NBFC-P2Ps

Question.4) Will the new prudential norms affect business?

  1. RBI has restricted the aggregate exposure (across all P2P platforms) of each lender and borrower to Rs10 lakh, and limited the exposure of a single lender to a single borrower to Rs50,000
  2. These conditions will severely restrict the business potential of NBFC-P2Ps, unless they are able to bring on many more borrowers and lenders onto the platform
Oct, 13, 2017

RBI floats draft norms for setting up ETPs for fin instruments

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Mains Paper 2: Polity | Appointment to various Constitutional posts, powers, functions and responsibilities of various Constitutional Bodies

From UPSC perspective, the following things are important:

Prelims level: ETPs

Mains level: Trading on electronic platforms is being encouraged across the world as it enhances pricing transparency, processing efficiency and risk control. It will be beneficial for the Indian Economy.


Electronic Trading Platforms (ETPs)

  1. The RBI today floated draft directions for setting up of ETPs for financial market instruments regulated by it
  2. It is aimed at ensuring transparency
  3. As per the draft direction, an ETP operator will be incorporated in India with full managerial and operational control exercised within India

What is an Electronic trading platform?

  1. In finance, an electronic trading platform also known as an online trading platform or electronic trading exchange, is a computer system running a software program that can be used to
    (1) place orders
    (2) store trading data and information pertaining to traded products
    (3) authenticate users and perform other operations of a trading exchange operating in electronic domain
  2. Various financial products can be traded by the trading platform, over a communication network with a financial intermediary or directly between the participants or members of the trading platform
  3. This includes products such as stocks, bonds, currencies, commodities, derivatives and others, with a financial intermediary, such as brokers, market makers, Investment banks or stock exchanges
  4. Electronic platforms provide several benefits in terms of transparency in pricing, processing efficiency in terms of transaction time and cost, improved risk controls and help in market surveillance by addressing market abuse and unfair trading practices
  5. These platforms have the potential to positively impact the market structure by broadening market access, increasing competition and reducing dependency on traditional trading methods

Draft Framework

  1. It includes detailed eligibility criteria, technology requirements and reporting standards
  2. Existing electronic trading platforms would also be required to obtain authorisation under these directions, within six months from the date of issue of these directions.
  3. The RBI has sought comments from market participants and other interested parties on its draft framework by November 10
Oct, 05, 2017

RBI panel suggests linking bank lending rates to a market benchmark


Mains Paper 3: Economy | Indian Economy Issues relating to planning

From UPSC perspective, the following things are important:

Prelims level: Base rate, MCLR, lending rates, etc.

Mains level: Important suggestions to hasten monetary policy.


Recommendations by an RBI’s committee

  1. A committee set up by the RBI has recommended linking bank lending rates to a market benchmark
  2. Why: to hasten monetary policy transmission as well improve transparency in rate setting by lenders

Other suggestions from the committee

  1. The panel recommended that all floating rate loans advanced from April could be referenced to one of three external benchmarks
  2. The panel has suggested a risk-free curve involving rates on treasury bills, or certificate of deposits rates or the central bank’s policy repo rate
  3. It also suggested that banks migrate all existing borrowers to the external benchmarked rate without any conversion fee or other charges within one year of its introduction, i.e. March 2019
  4. These borrowers are currently charged under benchmark prime lending rates, base rates or MCLR
  5. RBI will take a final view on suggestions of the panel after taking into account public feedback received until 25 October


For better understanding of the issue, Click here

Sep, 05, 2017

No data on black money yet, says RBI

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: It is important to note RBI’s Statement on Demonetisation.


Statement in front of the Parliamentary Panel

  1. The RBI has told a parliamentary panel that it has “no information” on how much black money has been extinguished as a result of demonetisation
  2. According to the RBI, an estimated Rs. 15,280 crore in junked notes has come back “subject to future corrections based on verification process”

Other statements

  1. RBI also said it has “no information” whether demonetisation is being planned to be implemented at regular intervals
Sep, 05, 2017

RBI includes HDFC Bank in the ‘too big to fail’ list

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: D-SIBs

Mains level: One of the many steps taken by the RBI, to enhance the capability of Banking Industry in the Indian Economy.


HDFC is added in the list of Domestic Systemically Important Banks (D-SIBs)

  1. The RBI has added HDFC Bank in the list of D-SIBs
  2. It is the second largest private sector lender of the country
  3. Also, RBI has clarified, the State Bank of India and ICICI Bank will continue to be in this category

Background of the D-SIBs

  1. Following the global financial crisis of 2008, it was observed that problems faced by certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system
  2. And it  negatively impacted the real economy
  3. It was decided to identify such institutions and prescribe them higher capital requirements
  4. RBI had started listing D-SIBs from August 2015
  5. SBI and ICICI Bank were identified as D-SIB both in 2015 and 2016, respectively
Aug, 31, 2017

99% of demonetised notes returned: RBI

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Much awaited data on demonetized notes.


Returned Notes

  1. Data in the annual report, of the RBI, showed that only 89 million pieces of Rs. 1,000 were not deposited
  2. As of March 2016, there were 6,326 million pieces of Rs. 1,000 banknotes in circulation

Is this the final figure?

  1. The final deposit figures could still rise
  2. Since on June 20, 2017, the government allowed District Central Cooperative Banks to deposit the withdrawn notes that had been accepted by them from customers between November 10-14

Demonetized notes from Nepal

  1.  The central bank is also in discussion with the government whether to accept the demonetised notes held by citizens and financial institutions in Nepal
Aug, 18, 2017

[op-ed snap] Economic Graffiti: Don’t be cautious, RBI

Decrease In Repo Rate: More Savings On Home Loan

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Mains Paper 3: Economy | Mobilization of resources

Op-ed discusses about the impact of repo rate change on common man and it also gives, reasons why RBI should cut repo rate more.

Once you are done reading this op-ed, you will be able to attempt the below.

Discuss the impact of change in repo rate on common man? why it is said that RBI should be more aggressive in cutting the repo rate?

From UPSC perspective, the following things are important:

Prelims level: Repo rate, reverse repo

Mains level: Monetary policies of RBI and its impacts on economy



  1. The Reserve Bank of India recently decided to lower the repo rate by 25 basis
  2. Ordinary citizens treat this as an abstruse topic, of no concern to them. In reality, the lives of ordinary citizens are greatly affected by it

Why this is important?

  1. The repo rate is the interest rate at which banks can borrow money from RBI for short durations
  2. If this is lowered, banks can lend to their borrowers at lower rates.
  3. This is the reason why changing this rate usually influences interest rates across the economy 
  4. Raising the repo rate lowers inflation but also restrains growth, while lowering it pushes up the growth rate but fuels inflation.

 Why RBI should be more aggressive in cutting the repo rate?

  1. There is no indication of rapid, generalised inflation in India.
  2. In an emerging economy, it is good to have an inflation rate of around 3 to 4 per cent. This makes the labour market more flexible and facilitates job creation.
  3. As a result of the liquidity crunch associated with demonetisation, GDP growth in India is now down to 6.1 per cent per annum. Some additional liquidity could partially offset this.
  4. Drop in the amount of investment taking place in the country. India’s investment-to-GDP ratio had risen since 2003 and was steady at above 35 per cent. This has now dropped to 28 per cent.

Global scenario

  1. The world is today caught in a low-interest rate regime. The European Central Bank cut its overnight deposit facility rate to below zero; and this prompted central banks in other countries — Sweden, Denmark, Switzerland, Japan, Hungary — to cut policy rates and enter negative territory.
  2. Such extreme low rates are, far from boosting consumption, making people save more since they are worried about not having enough money at the time of their retirement.
  3. Even the US Fed is more cautious about raising rates, because it would increase demand for dollars and cause the dollar to appreciate and hurt American exports.

Increase interest rate?

  1. If one country raises interest rates, money will flow into the country from the other economies in order to earn the higher return.
  2. As more players try to buy this country’s currency to invest in it, the currency will appreciate, causing exports to suffer.

India’s experience 

  1. By holding on to high interest rates, it is attracting capital flows into the country, as evidenced by the large foreign exchange reserve held by RBI.
  2. This is causing the rupee to be stronger than it should be and this is, in turn, stunting exports, and growth
Aug, 08, 2017

Loan-pricing systems: For better transmission, RBI in search of yet another benchmark

Image result for Monetary transmission India RBI

Image source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Base rate system, Mumbai inter-bank offer rate (Mibor), Libor, MCLR

 Mains level: MCLR System, issues and way forward.



  1. In 1994 Reserve Bank of India (RBI), announced a landmark decision to fully deregulate interest rates on advances above Rs 2 lakh.
  2. Since then, the RBI has introduced four benchmark lending rates for proper pricing of loans and transmission of rates. However, these rate structures have been found to be ineffective for various reasons. 
  3. The RBI has now formed a committee to formulate market-determined benchmarks to ensure a better transmission of interest rates.

What is Monetary transmission?

  • Monetary transmissionrefers to the process by which a central bank’s monetary policy decisions are passed on, through financial markets, to businesses and households.

Base rate system

  1. It included all those elements of the lending rate that are common across all categories of borrowers.
  2. Banks are allowed to determine their actual lending rates on loans and advances with reference to the base rate and by including such other customer-specific charges as considered appropriate.
  3. While all categories of loans are required to be priced only with reference to the base rate, transmission of the RBI rate cuts moved at snail’s pace

Banks and markets also briefly experimented with the Mumbai inter-bank offer rate (Mibor) on the lines of London’s Libor

Mumbai inter-bank offer rate (Mibor)

  1. It is a major global interest rate indicator
  2. In June 1998, the National Stock Exchange had developed and launched the Mumbai inter-bank bid (Mibid) rate and Mibor for the overnight money market.
  3. However, banks found it difficult to use external benchmarks for pricing their loan products, as the available external market benchmarks (Mibor, G-Sec) are mainly driven by liquidity conditions in the market, and do not reflect the cost of funds of the banks

 MCLR was experiment which was kicked off when Raghuram Rajan was the RBI Governor.

MCLR System

  1. RBI Governor Urjit Patel said experience with the MCLR system, introduced in April 2016 for improving the monetary policy transmission, has not been entirely satisfactory
  2. Banks have been selective in their rate cuts in aggressive segments such as home and auto loans, but in many other segments, borrowers are still tied to the base rate, where they can ease more.
  3. RBI’s rate cuts have not been passed on to borrowers in many segments of the economy.
  4. The base rate of some banks after the introduction of MCLR has moved significantly less than MCLR.
  5. The RBI says that the rigidity of the base rate is a matter of concern for an efficient transmission of monetary policy to the real economy
  6. MCLR failed to bring any cheers to old customers who were stuck with BPLR or base rate-linked rates.

The RBI is likely to come up with another benchmark lending rate for borrowers, speeding up the transmission of rate cuts to the customers.

Dec, 03, 2016

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.

Nov, 21, 2016

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
Oct, 07, 2016

RBI to be divested of debt management role in 2 years

  1. Centre has finally decided to set up an independent agency to mange its debt after years of discussions with the RBI
  2. As a precursor, the Finance Ministry will soon set up the Public Debt Management Cell (PDMC) in the Budget Division
  3. This interim arrangement will allow separation of debt management functions from RBI to the Public Debt Management Agency (PDMA) in a gradual and seamless manner, without causing market disruptions
  4. The cell will be converted to a statutory authority in about two years’ time
Sep, 19, 2016

A background to FDMC tussle- I

  1. Context: RBI is opposed to the idea of Financial Data Management Centre as it will reduce the independence of regulators
  2. RBI’s push-back comes at a time when the central bank is facing mounting pressure to reveal data that can be used to track illicit money flows and the names of loan defaulters
  3. On 11 August 2016, the SIT on black money had written to RBI to share information on foreign exchange transactions and create a mechanism to track illicit flow of funds with the enforcement agencies
  4. Conflict of views: While RBI maintains an internal database for foreign exchange transactions, the SIT said the data it has been given showed that there are gaps in monitoring trade flows
Sep, 19, 2016

RBI, govt at odds over proposed data warehousing body

  1. What? RBI has raised concerns over a proposed data warehousing body, the Financial Data Management Centre (FDMC)
  2. Independence: It will reduce the independence of regulators
  3. How? If a statutory body is created, then the regulators would not be independently in the position to collect raw data in its original format
  4. Also RBI’s ability to take corrective measures in case of systemic issues or market manipulation would be hampered
Mar, 04, 2016

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
Feb, 25, 2016

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
Feb, 24, 2016

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
Feb, 23, 2016

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
Feb, 20, 2016

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
Feb, 16, 2016

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
Feb, 15, 2016

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
Feb, 12, 2016

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
Feb, 11, 2016

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
Feb, 03, 2016

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.
Jan, 30, 2016

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.
Jan, 29, 2016

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.
Jan, 26, 2016

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”.
Jan, 22, 2016

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.
Jan, 18, 2016

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 .
Jan, 09, 2016

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.
Jan, 02, 2016

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.
Dec, 29, 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.
Dec, 22, 2015

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.
Oct, 31, 2015

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.
Oct, 23, 2015

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.

Oct, 05, 2015

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.
Sep, 05, 2015

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?

Jul, 11, 2015

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.