EDITORIALS & ARTICLES
June 15, 2021 - Daily Quiz
1. Consider the following statements regarding India Post Payments Bank (IPPB):
1. Only 50% equity of the IPPB is owned by Government of India.
2. Unlike traditional banks, the payment banks cannot issue loans and credit cards.
Which of the statement(s) given above is/are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
2. Consider the following statements regarding National Financial Reporting Authority (NFRA):
1. Its chairperson is appointed by the central government.
2. It has same powers as a Civil Court under the Code of Criminal Procedure, 1908.
3. It is constituted under Companies Act, 2013.
Which of the statements given above are correct?.
(a) 1,2,3
(b) 1 & 3
(c) 3 only
(d) 1 & 2
3. The term 'Haircut', seen in news in the context of Banking, means
(a) The loss in revenue of a bank due to pandemic like Covid-19.
(b) The difference between the actual dues from a borrower and the amount eventually settled with the bank.
(c) The difference between the Marginal Cost based lending rates and Prime lending rates as mandated by the RBI.
(d) The loss in net revenue of a bank due to hyperinflation
4. Which of the following do not have an intrinsic value?
1. Fiat Money
2. Gold coin
(a) 1 & 2
(b) 1 only
(c) 2 only
(d) Neither 1 Nor 2
5. In the context of Indian economy, which of the following measures can be used to reduce Demand-side inflation?.
1. Increasing Cash Reserve Ratio
2. Increasing Statutory Liquidity Ratio
3. Increasing the irrigation coverage in the country
4. Reduction of Reverse Repo Rate
(a) 1, 2 and 4 only
(b) 1, 3 and 4 only
(c)1 and 2 only
(d)1 and 4 only
Answers
1-(b)
https://www.livemint.com/Money/tSMsNn4AKWlrr9JH2KeVQK/How-are-payments-banks-difference-from-regular-banks.html
2-(a)
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1725395
National Financial Reporting Authority (NFRA)
- It was established by the Central Government in October 2018 with the fundamental objective of driving systemic change in the Indian Financial Reporting System for PIEs.
- It has been constituted under section 132 of the Companies Act, 2013.
Composition of the NFRA
- The Companies Act requires the NFRA to have a chairperson who will be appointed by the Central Government and a maximum of 15 members.
- The appointment of such chairperson and members are subject to the following qualifications:
- They should be having an expertise in accountancy, auditing, finance or law;
- They are required to make a declaration to the Central Government that there is no conflict of interest or lack of independence in their appointment; and
- All the members including the chairperson who are in full-time employment should not be associated with any audit firm (including related consultancy firms) during their term of office and 2 years after their term.
Powers of NFRA
- To investigate the matters of professional or other misconduct committed by a prescribed class of CA firms or CAs;
- The same powers as a Civil Court under the Code of Criminal Procedure, 1908, in respect of a suit involving the following matters:
- Discovery and production of books of account and other documents, at such place and time as may be specified by the NFRA;
- Summoning and enforcing the attendance of persons and examining them under oath;
- Inspection of any books, registers, and other documents of any person at any place; and
- Issuing commissions for the examination of witnesses or documents
3-(b)
https://indianexpress.com/article/business/banking-and-finance/experts-see-new-surge-in-bad-loans-could-rise-to-13-15-per-cent-this-fy-7360806/
A haircut is the difference between the loan amount and the actual value of the asset used as collateral. It reflects the lender's perception of the risk of fall in the value of assets. But in the context of loan recoveries, it is the difference between the actual dues from a borrower and the amount he settles with the bank. Haircuts are not common in India. However, there have been instances in the past when a lender settles for some equity of a borrower to compensate for a loan loss. But it is often a last resort when there is absolutely no hope of a recovery and the loan is written off for a one time settlement. The regulators in the recent past have made many other options for banks like the corporate-debt restructuring or allowing sale of bad loans to asset reconstruction companies among others. This is done because the lender gets at least some amount back instead of not getting any money at all. Besides, the lender's provisioning liability comes down to the extent of the write-off, thus it ends up freeing capital in the process. Also, there is a regulatory pressure to clean up banks' balance sheets.
4-(b)
- The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.
- Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of.
- Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.
- Most modern paper currencies are fiat currencies; they have no intrinsic value and are used solely as a means of payment.
5-(c)
https://indianexpress.com/article/explained/rbi-monetary-policy-committee-rates-unchanged-inflation-indian-eonomy-explainspeaking-7094660/
Inflation: It is a rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
Inflation can be controlled by using-
- Fiscal Policy: Fiscal deficit implies that, Government incurs more expenditure on goods and services than its normal receipts from revenue and capital budgets. This excess expenditure by the Government financed by newly created money leads to the rise in incomes of the people. This causes the aggregate demand of the community to rise to a greater extent than the amount of newly created money through the operation of what Keynes called income multiplier. So, reducing this fiscal deficit would result in decrease in inflation.
- Monetary Policy: Tightening Credit like increasing in CRR and SLR. Increase in the CRR results in decrease in liquidity of the bank this in turn will lead to decrease in money supply in the market. Thus, inflation will reduce.
- Increase in SLR means, now bank has to park more money in government securities thereby reduces credit flow to the market.
- Supply Management through Imports: Increase in supply of goods would help to curb the inflation. Thus, increasing irrigation coverage will help I reducing the supply-side inflation.
- Reducing Reverse Repo Rate will increase inflation, as now bank will prefer giving loan to the market rather than to RBI.
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