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At present, banks are using various methodologies: marginal cost of funds method,
average cost of funds method, blended cost of funds (liabilities) method etc.
RBI has suggested the banks to consider marginal cost of funds as a parameter to
calculate the individual lending rates as the Base Rates based on marginal cost of
funds are more sensitive to changes in the policy rates
The components of Base Rate will include cost of funds, negative carry on CRR/SLR,
un-allocable overhead costs and average return on net-worth
RBI will implement this proposal from April 1st 2016 and has asked the banks to submit road
maps two months prior to the implementation of the proposals, indicating the time frame within
which they will be adopting the framework.
Why are uniform base rates desirable?
It is important in order to improve the efficiency of monetary policy transmission.
What is monetary policy transmission?
RBI takes monetary policy decisions to stabilise the economy and keep the price levels within
rational limits. But these decisions will be effective only if the entities such as banks, markets,
financial institutions etc modify their working accordingly. This is a very simplistic explanation
of monetary policy transmission, though the actual process is very complex, so much so that it is
called a black box among economists.
The new coin in the obverse will bear Lion Capital of Ashoka Pillar in the centre
with Satyamev Jayate inscribed below it.
On the reverse it will bear image of Amar Jawan monument along with the
design of olive leaves branch on its left and right sides at the center, with the
inscription veerata aur balidan in Devnagri script on the left upperperiphery
and VALOUR AND SACRIFICE in English on the right upper
Furthermore, the year 2015 will be written below the image of the monument.
3.Central Bank of Sri Lanka received USD 1.1 billion from RBI
The Central Bank of Sri Lanka (CBSL) received USD 1.1 billion from the Reserve Bank of
India (RBI), under the currency swap agreement between the two reserve banks. The signing
of the special currency swap agreement for USD 1.1 billion by the CBSL with the RBI took
place earlier on 17 July 2015.
Sri Lanka already obtained USD 400 million under this arrangement, which is available from the
RBI to SAARC member countries, to increase foreign reserves. CBSL Governor Arjuna
Mahendran said, the country will receive the balance 1.1 billion dollars from the Reserve Bank
of India to boost foreign reserves under a USD 1.5 billion dollar swap arrangement. The funds
will reach Sri Lanka overnight.
In a press release the CBSL further added, the realisation of the remaining proceeds of the
currency swap arrangement with the RBI amounting of USD 1.1 billion and long term financial
flows to the government, including the planned term loan of USD 500 million, will support its
official reserves.
Significance:
With the enhanced level of official reserves, the CBSL expects that the exchange rate would
stabilize in line with sound macroeconomic fundamentals and movements of other currencies of
major trading partners.
Important Points to Remember:
A business size of Rs20,000 crore or more may be the threshold limit beyond which
a UCB may be expected to convert to a commercial bank. However, the conversion
isnt mandatory.
Smaller UCBs with business size of less than Rs20000 crore rupees willing to
convert to Small Finance Banks (SFBs) can apply for conversion provided they fulfill
all the eligibility criteria and selection processes prescribed by the RBI.
Stiff entry-point norms for new UCBs to operate as a multi-state UCB, the
minimum capital requirement would be Rs 100 crore, to operate beyond two districts
and as a state-level UCB, the capital threshold is Rs 50 crore and a capital of Rs 25
crore if the UCB is at the district level.
As recommended, the depositors must have a say on the Boards. For this, a majority
of the board seats may be reserved for depositors by making suitable provisions in the
bye-laws.
As per the official report, this transition is required due to the changing financial landscape in the
country and also for giving an opportunity to well-run UCBs to play a major role going forward.
But this requires requisite amendments in the provisions of the Cooperative Societies Acts of all
states which is a long process. Thats why the Committee recommended that only UCBs which
are registered under the Multi-state Co-operative Societies Act, 2002 may be considered for
conversion to commercial banks.
The in-principle approval granted will be valid for a period of 18 months, during
which time the applicants have to comply with the requirements under the Guidelines
and fulfil the other conditions as may be stipulated by the Reserve Bank.
On being satisfied that the applicants have complied with the requisite conditions laid
down by it as part of in-principle approval, the Reserve Bank would consider
granting to them a licence for commencement of banking business.
A total of 41 applicants had applied for payments banks from them only 11 applicants
has been selected by External Advisory Committee (EAC) under the Chairmanship of
Dr. Nachiket Mor, Director, Central Board of the Reserve Bank of India, Internal
Screening Committee (ISC) and finalized by Committee of the Central Board (CCB).
11 applicants includes:
1. Aditya Birla Nuvo Limited.
2. Airtel M Commerce Services Limited.
3. Cholamandalam Distribution Services Limited.
4. Department of Posts.
5. Fino PayTech Limited.
6. National Securities Depository Limited.
Payment banks allow mobile firms, supermarket chains, and others to cater to
individuals and small businesses.
The Payments Bank will be set up as a differentiated bank and shall confine its
activities to acceptance of demand deposits, remittance services, Internet banking and
other specified services.
They will be allowed to issue ATM/debit cards as also other prepaid payment
instruments, but not the credit cards.
These banks can also distribute non-risk sharing simple financial products like mutual
funds and insurance products.
They will not be allowed to undertake lending services and non resident Indians will
not be allowed to open accounts.
What are payment banks: Payments banks will provide small savings accounts,
payments/remittance services to migrant labour workforce, low-income households,
small businesses, other unorganised sector entities and other users, by enabling high
volume-low value transactions in deposits and payments/remittance services in a secured
technology-driven environment. A payment bank is covered under sections 5 (b) and 6 (1)
(a) to (o) of the Banking Regulation Act, 1949.
How payment banks are different from regular banks: These banks can only receive
deposits and remittances but cannot carry out lending activities. Aiming at financial
inclusion, these banks will provide banking services to migrant labourers, low income
households, etc.
RBI) on Thursday said it has issued Rs 100 denomination banknotes in the Mahatma Gandhi
Series-2005 with a new numbering pattern.
"Now, the numerals in both the number panels of these banknotes will be in ascending size from
left to right while the first three alphanumeric numerical characters will remain constant in size.
Printing the numerals in ascending size is a visible security feature in the banknotes so that the
general public can easily distinguish a counterfeit note from a genuine one," the central bank said
in a release.
It, meanwhile, said that all banknotes in the denomination of Rs 100 issued by the bank in the
past will continue to be legal tender.
RBI said that, in consultation with the government, it has been improving security features of
banknotes in order to check counterfeiting and make it easy for the public to identify genuine
banknotes.
The new numbering pattern will be introduced in a phased manner for all other denominations, it
added.
September. Secondly, a large payback in August inflation reading following the July moderation
could keep the RBI from cutting rates in September, it said.
"If the period around the September FOMC meeting remains volatile, the RBI's rate cut could
be pushed to fourth quarter," HSBC said and on rupee depreciation it added that "a sharper pace
of depreciation, however, could put the 25 bps rate cut in jeopardy."
RBI Governor Raghuram Rajan, in his third bi-monthly policy of the fiscal, left benchmark
lending (repo) rate unchanged at 7.25 per cent as also the cash reserve ratio (CRR) at 4 per cent.
RBI has already reduced the policy rate by a total of 75 basis points or 0.75 per cent since
January.