Banking Current Affairs 2015

RBI cuts repo rate by 25 basis points to 7.5 per cent

The Reserve Bank of India (RBI) on 4 March 2015 has cut down repo rate by 25 basis points to 7.5 percent from 7.75 percent, with immediate effect. However, RBI has kept the cash reserve ratio (CRR) unchanged at 4 percent.

It is the second change in rates by 25 basis points since January 2015. With this change, RBI is signaling that it was convinced by the fiscal consolidation measures announced in the Budget.

Reasons behind the rate cut

  • Disinflation is occurring as per the RBI norms set in January 2014 and at a faster pace than it was envisaged earlier.
  • Fiscal consolidation measures announced by Union Government in the Union Budget 2015-16.
  • Lower international energy prices and Union Governments intent to shift from spending on subsidies to spending on infrastructure.
  • Also the better target mechanism of government through direct transfers to further reduce subsidies through direct transfers.
  • Government’s decision of cooperative federalism that will transfer significantly larger amount to the states.
  • Thus devolving responsibility for funding central programmes as it will make state budget deficits narrower and the general fiscal deficit will be lower.

Union Government and RBI sign agreement to keep inflation below 6%

Union Government and the Reserve Bank of India (RBI) have signed an agreement on Monetary Policy Framework in order to move towards the RBI Governor Raghuram Rajan’s view of inflation targeting.

Presently, Union Government and RBI give inflation estimates and do not set targets. But as per this agreement government has set a target for RBI to bring down inflation below

  • 6 per cent by January 2016.
  • 4 per cent for financial year and all subsequent years with band of +/- 2 percent.

This agreement mentions that if RBI fails to meet the target, it will

  • Report to the government with the reasons for the failure to achieve the target.
  • Propose remedial actions to be taken.
  • Further estimate the time period within which the failed target would be achieved.

As per the agreement, this Monetary Policy Framework will be monitored by the RBI and it is binding on Union Government to take proactive measures for price control.

This agreement will put in place a framework of a modern monetary policy to meet the challenges of an increasingly complex economy.

Background

The agreement comes in line with the recommendations of the RBI’s Urjit Patel committee on inflation targeting aiming to smoothen the monetary policy.

During the budget 2015-16 speech Finance minister Arun Jaitley also had mentioned that government will amend the RBI Act to provide for a Monetary Policy Committee and have a memorandum of understanding with the Reserve Bank.

State Bank of India and Indian Army signs MoU on Defence Salary Package

State Bank of India (SBI) has signed a Memorandum of Understanding (MoU) with Indian Army on the Defence Salary Package (DSP).

Signed MoU is revised version of the first MoU which was signed on DSP between two parties in 2011 and was valid for a period of three years. The revised MoU meets the requirements of serving soldiers, pensioners and their families.

Key facts about new MoU

  • MoU include provisions for number of free and concessional banking services like drafts, cheque books, funds transfers to any other bank in India through Real Time Gross Settlement (RTGS), free ATM cards etc.
  • It also includes provision for implementing the Nepal Express Remittance Scheme. This scheme will benefit of the Nepali Domicile Gorkha Soldiers serving in the Indian Army in order to instantly transfer funds to Nepal.
  • MoU adds improved features for linking of the Personal Accident Insurance (PAI) to the Savings account instead of the debit card.
  • It also seeks to enhance the PAI amounts and the exemption percentage of margin money for house and car loans. It also waives off of the processing charges on the loans.

The revised MoU is going to benefit 19.5 lakh pensioners and 10 lakh serving personnel with access modern banking facilities. These personnel’s either hold Pay or Pension accounts with SBI.

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