Banking Awareness Questions for IBPS Exam 2012

Here are some very important news pertaining to Banking Awareness. IBPS Common Written Exam and SBI exams have many questions which test your knowledge of banking industry and terms related to it.

This updates covers are major news for the Month of March 2012. You should read news in papers like the Economic Times to stay up to date.

1. RBI reduces CRR (March 9, 2012)

It has been decided to: reduce the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.5 per cent to 4.75 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning March 10, 2012.

This reduction will inject around Rs. 480 billion of primary liquidity into the banking system.

In order to mitigate tight liquidity conditions, the cash reserve ratio was reduced by 50 basis points in the Third Quarter Review (TQR) of January 2012, injecting primary liquidity of Rs. 315 billion into the banking system. The Reserve Bank also continued with the open market operations (OMOs), injecting primary liquidity of over Rs. 1,245 billion this financial year so far, of which Rs. 528 billion was injected after the TQR.

Despite these measures, the liquidity deficit has remained large on account of both structural and frictional factors. Further, the liquidity deficit is expected to increase significantly during the second week of March due to advance tax outflows and the usual frontloading of cash balances by banks with the Reserve Bank. Thus, the overall deficit in the system persists above the comfort level of the Reserve Bank. Accordingly, it has been decided to inject permanent primary liquidity into the system by reducing the CRR so as to ensure smooth flow of credit to productive sectors of the economy.

 

2. CRR of Urban Cooperative Banks (March 9, 2012)

On review of the current and evolving liquidity conditions as set out in the Reserve Bank's Press Release dated March 9, 2012, it has been decided to reduce the Cash Reserve Ratio (CRR) of Scheduled Primary (Urban) Co-operative Banks by 75 basis points from 5.50 per cent to 4.75 per cent of their Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning March 10, 2012.

 

3. Penal interest rates on shortfalls in reserve requirements – Bank Rate (March 7, 2012)

Section 49 of the Reserve Bank of India Act, 1934 requires the Reserve Bank to make public (from time to time) the standard rate at which it is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under that Act.

Being the discount rate, the Bank Rate should technically be higher than the policy repo rate. This was mainly for the reason that monetary policy signaling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (LAF) (till May 3, 2011) and the policy repo rate under the revised operating procedure of monetary policy (from May 3, 2011 onwards). Moreover, under the revised operating procedure, marginal standing facility (MSF), instituted at 100 basis points above the policy repo rate, has been in operation, which in many ways serves the purpose of the Bank Rate.

While the policy repo rate and the MSF rate have become operational, the Bank Rate continued to remain at 6 per cent. Currently, the Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio). The Bank Rate is also used by several other organisations as a reference rate for indexation purposes.

The Reserve Bank consulted various organizations/stakeholders relying on the Bank Rate as a reference rate. Based on the feedback received, it is determined that the Bank Rate should normally stay aligned to the MSF rate. Accordingly, from February 13, 2012, the Bank Rate stands increased by 350 basis points, i.e., from 6.00 per cent per annum to 9.50 per cent per annum. This should be viewed and understood as one-time technical adjustment to align the Bank Rate with the MSF rate rather than a change in the monetary policy stance.

All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, will also stand revised as indicated in the Annex.

 

4. Converge Indian Accounting Standards with International Financial Reporting Standards (March 6, 2012)

Convergence of Indian Accounting Standards with International Financial Reporting Standards – Urban Co-operative Banks

The Core Group constituted by the Ministry of Corporate Affairs, Government of India had approved in March 2010, a road map for convergence of Indian Accounting Standards (IAS) with International Financial Reporting Standards (IFRS). In the Annual Policy Statement 2010-2011 of the Reserve Bank issued on April 20, 2010, it was stated that UCBs having net worth in excess of Rs. 300 crore would, in the preparation of their accounts, converge with IFRS in tandem with the time schedule given for scheduled commercial banks and accordingly convert their opening balance sheet as on April 1, 2013 in compliance with IFRS converged IAS. UCBs having net worth in excess of Rs. 200 crore but not exceeding Rs. 300 crore would convert their opening balance sheet as on April 1, 2014 in compliance with IFRS converged IAS.

UCBs having net worth in excess of Rs. 200 crore are, therefore, advised to take necessary steps to ensure that they are in readiness to adopt the IFRS converged IAS from 1st of April 2013 or 1st April 2014 as the case may be.

BACKGROUND: The RBI in its Annual Policy Statement 2010-11 had given a roadmap for ‘Convergence of Indian Accounting Standards with International Financial Reporting Standards’ for banking companies and non-banking financial companies (NBFCs). As per the roadmap, all scheduled commercial banks will convert their opening balance sheet as at April 1, 2013 in compliance with the IFRS converged IASs. However, with regard to UCBs and NBFCs, a gradualist approach was considered. The roadmap envisages UCBs having net worth in excess of Rs. 300 crore and NBFCs which are part of NSE Nifty 50 and BSE Sensex 30 as well as those NBFCs having net worth in excess of Rs. 1,000 crore to converge with IFRSs in tandem with the time schedule given for scheduled commercial banks, UCBs having net worth in excess of Rs. 200 crore but not exceeding Rs. 300 crore and other listed NBFCs as well as unlisted NBFCs having a net worth in excess of Rs. 500 crore shall convert their opening balance sheets as on April 1, 2014 in compliance with the IFRS converged IASs. Remaining UCBs, unlisted NBFCs not falling in the above categories and regional rural banks (RRBs) need to follow only the notified IASs which are not converged with IFRSs.

 

6. CIBIL Granted ‘Certificate of Registration’ by RBI (March 5, 2012)

The Reserve Bank of India on March 5, 2012, issued ‘Certificate of Registration’ to Credit Information Bureau (India) Limited (CIBIL) to carry on the business of credit information.

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